In this episode of Fundraising Radio, Jim Connor the member of Sand Hill Angels and an Executive Producer at Game Changers Silicon Valley, explains how to find the right investors, how to reach out to them and how to give a great pitch (and how to prepare one!)
In this episode of Fundraising Radio, Jim Connor the member of Sand Hill Angels and an Executive Producer at Game Changers Silicon Valley, explains how to find the right investors, how to reach out to them and how to give a great pitch (and how to prepare one!)
Sand Hill Angels: https://www.sandhillangels.com/
Well, there's a lot to talk about there, but I've gotta make it a very short and brief because I'm sure people want to get to the more relevant parts of this, but make a long story short. I didn't actually elected become a just do a startup.
I got fired one day and back in those days in the eighties, the idea of leaving your company or just quitting and going to a startup and doing it and raising money right away. It was not.
so I got fired one time the job,
the whole group my whole group got laid off and I thought, well,
given the salaries that I had,
I could probably make it for nine months and decide if I could find something to do worthwhile find a company and eventually that worked out that nine months and make a long story short after nine months.
I was too far along to stop. I had I had a shared office. I had one employee, I had telephones and copier, lease payments, all that kind of stuff.
So, I decided to go for it the number of years later actually took eighteen years, and it takes ten years to be an overnight success and eighteen years to realize that you're an overnight success. I suppose something along those lines.
But, I got lucky and I want to say this in my opinion, all acquisitions, anybody gets acquired. There's a certain element of timing and lock. You can have the greatest game plan. You can have a great business.
The key is,
you you either gonna go be acquired because you have growth that is phenomenal and measurable and consistent,
or you have a technology that another company wants to buy,
because they just need it to integrate it into their product or they're afraid their competitors will integrate into and compete against them so that's it long story short.
I had gone through two failed acquisitions also that I learned so much about the acquisition process by having two failures. Yes, it hurt my ego.
It did tremendous, somewhat damage my whole self esteem at that point, but I recovered I find out later wasn't my fault and I use that information that experience to make it through the third the third exit opportunity.
Right, right, right, exactly. I've talked to multiple founders who exit their companies. They say they know others think of them as like wise, man. In fact, most of them say it was just good timing. That's it. Yeah, yeah that's true.
But I didn't answer the question. Do you want me to talk? Right? Right. Yeah, so I was just ask you that.
when you have an exit,
I always say everybody is your best friend and everybody you ever met now comes back to you and as you just alluded,
people have exits are no wiser the day after the exit than they were the day before the they maybe just got through the process,
but I joined Santo because having none are being visible enough that I had a good exit.
A lot of entrepreneurs who are friends of my frankly, or acquaintances approach me. And so can you help me? And one thing led to another, eventually it came down to can you invest in the company?
And I realized that I didn't have the background or the experience to make to correctly identify was investable company and what was not. And so that was the reason.
I looked at two or three groups, and I just had a great chemistry connection with sand hill. Me I think the feeling was mutual and I joined them right away. That's quite a few years ago. Probably now sixteen years ago that happened fifteen, sixteen years.
And then I'll add that Santo is a broad investor in early stage. It is a probably up to a hundred thirty people. Now, they've been around a long time. They have a great track record.
In my opinion, they also have good active investors, you know, when you're looking at intergroup, you really want to look at the people who are members and are they lead investors? Are they followers or are they diversified? Are they focused on one industry?
There's a lot of research out there on every angel group that you can do and know about them before you approach him. And I would suggest that it's always a little bit of not a turn off, but it's something that the investor will say.
Well, if you don't know anything about us, have you not even gone to our website and frankly, a lot of people haven't done that. So, but Santa has a great group. There's band of angels angels form. There's the Berkeley group, the Burke, the angel group many many angel groups are in the Bay area here. Right? That's true.
I mean, there's a good reason for why San Francisco is called the headquarters of started fundraising basically. So let's talk just a little more about Central angels.
You've asked some good questions, and one of the major ones that asked for all investors are you stage and industry agnostic? Where are you trying to focus on something very specific? Well, this is the way. I think all the angel groups work.
Yeah, some have a very specific focus such as life. Science life science angels essentially does only life science investments. If it's a broader group, meaning no particular sector focus.
Then you're gonna have to focus on people in the group who have experience in your industry. If you really think about it. You know, I say the people entrepreneurs put yourself in the place of the best here.
You know, you can do that and say, if I have no no experience in this industry, let's say it's broadcasting make taking a very simple example. Why am I going to invest in a broadcast company?
Let's say, you know, web broadcast, if nobody in my group has the background experiences, stand up, say I've looked into this company. I know their technology. I know what they're doing. We, the individuals who are found the management team, we think they have a good business plan.
We're ready to invest if nobody in the group, has that expertise or experience to do that it's probably a non fit for that angel group. Okay.
Right, right, right. And let's talk. Let's switch from talking about Central angels towards more of a foundry site.
So, one of the questions that I frequently get is valiation so there is always a way to hurt yourself in multiple ways. And one of them is staying up in proper valuation. What can you say about that topic?
Well, it is one of the earliest of all ShowStoppers.
I'm not exactly now, frankly, but I used to do a lot of meetings with startup entrepreneurs.
First time those entrepreneurs, it's their first goal or first round, whatever, early round it was, and I would tell them look your evaluations really out of the range. And I'm only telling you to give you that feedback.
If nobody else has told you, I'm trying to hurt your feelings or or challenge you just telling you it's not gonna get you early traction and the answer or response was well, we already have two hundred. K. I'm looking for a million dollars or seven, fifty seven percent fifty thousand.
We already have two hundred K, soft circled. Meaning a soft, kinda probably will invest if you get others commitment and they've accepted that valuation. Well, that doesn't really go very far.
Frankly, if you want to send fifty round, who have agreed, or indicated tentative agreement, you really don't have a strong case for that evaluation.
And until you get the many times, they are third parties, meaning they're, I mean, they're related to you in some way, shape, form, friends, family, whatever and then you get a true independent investor to say what they believe the value is.
You should really just take all that offers, but all comments to say I'm looking for data points and evaluation. So what happens if you don't if that valuation too high? It's an easy I'll pass. It's so easy. The sale pass and the reason is.
You're probably gonna fail install now hrcm to prevent most, because they've wasted six months trying to get an unrealistic valuation then they move into a panic mode. Oh, guess what? We've lowered evaluation. Can we re, engage? Well, they're short now. They're really short on money.
They're running fumes it's a sad story, but I've seen it repeated innumerable times. So just to get to what should we do? I think you ask all the investor you talked to.
Can you give me a ballpark of what evaluation sounds reasonable from what, you know,
so far the,
only from what,
so far you may bring more evidence in more data,
more research in to show that you weren't a higher evaluation,
but just get some data points and they're not out to hurt.
They're just out there. They're not there to hurt your feelings. They're there to give you a range. And if I was to raise money, I would just every time.
I talked to somebody to say, what's evaluation and say well, that's what I mean, I'm here to ask you about I'm trying to get a sense of your sense evaluation because it is an investors market.
There's no question about it and it's more important to get the right investor with the right amount of capital to get you to the next milestone. And that's what's most important to you.
So I always say if you think about how rounds going, I know I'm taking a lot of time on this what you want to reward your early investors. Okay.
You would think about this, you really want to reward them what they not at not a ridiculously low value, but all evaluations sufficiently.
In enticing that if you're successful with their money, your value goes up now you have now with a higher evaluation on your next round, or give me major milestones. You've now given them unrealized gains because they know your values higher.
They invested you with evaluation of, let's just say two point five million pick something very low. Now,
you're worth five minutes while they doubled their their evaluation on you for every dollar invested or two dollars,
they become your your public relations investor outreach service they tell their friends, you know,
some people get together parties and they show pictures or grand kids or their kids or whatever investors get together and talk about startups and,
it's all about bragging rights.
And so what you want to do is empower your investors to get excited. And then after that first round oh, man, I got it early. And they start talking about it. You know, if I hear that ago, I got in early, took a little bit of risk, but that was smart. What's evaluation?
Five nine while he's in, or she's and I'll look at it. Okay, so, that's the reason for a lower evaluation. In my mind. Now, there's another side to it. The entrepreneur things that they're doing. Great.
And, you know, they've got this great company and they don't want to give up that much, because they don't want to lose control of the company. Well, the minute you take investors in Frank, that you do, lose control the company. Because you're gonna have a board. Okay.
Every major decision in a startup is is approved, or.
You know, approved by the board, like it or not. And so the very fact that you have independent people, or investors on your board means you have lost a certain amount of control and it's not the end of the world.
If you have a good board, they're gonna be another strength or another positive point for investors to see that. There's governance in place. So I talked a little too much and this. So I'll stop here and see if that is enough information for what you're looking for.
Who that is enough information and it, it's a good broad answer means specific answers so thanks for that. And so, let's talk about fun breeding now. So let's pretend that we've got the valiation. Right?
What's the next step for a founder? Especially right now?
When would they spend dynamic ends so let's pretend that we have some sort of revenue, some sort of product and our evaluation is somewhat correct what's next?
Well, you've got, you've got evaluation, you've got a lead investor that does matter, right? Until you do have a term sheet, that's my question. Do you have a term sheet? No, I don't. So you don't have a term sheet, so you need to find the lead investor.
You can talk to everybody a world, but try to understand or discern during your conversation. If the organization you're talking with.
Will be a lead investor meaning they will write a term sheet. They will set the terms they'll set the evaluation. They'll set the initial board membership. They'll set the investing the best of the stock of the existing stock as well as amount of stock and all that.
Kinda stuff, and that's what you really have to have to get going it's ideal if you can find to lead investors who will share the deal, you know, but you need at least one once you have, that you have a term sheet.
Now, you go into marketing mode of the term sheet, and you leverage the reputation.
Hopefully, it's positive of the lead investor with everybody else you talked to, and you assist that lead investor in syndicating or bringing in other investors to participate in the deal in the offer. Okay, the term sheet is essentially an offer to invest.
So that is quite a shift because you're your story changes. Now it changes from. We're looking for the right lead investor. We have this opportunity.
This is what we believe is right, we've got validation of these points and, of course, this has to be
woven into a story, which I'll talk. I'll talk more about that.
If you like, then it's a matter of getting that term sheet negotiating and the, you know, most of the time, here's what happens you have to realize term sheets are sequential. So, term sheet today, they can take in seven, fifty thousand term sheet tomorrow, take another.
Maybe a million million, a half now, term sheet later on and each term sheet each a new investor coming in rewriting or writing a new term sheet.
Essentially gets to put their terms on top of the existing investors. Okay. Now not in terms of changing the stock, then to changing the board membership the pricing.
So I like that as well as other provisions that may harm or hurt the existing investors, depending on the situation,
you can have many,
many terms such as a reset of the stock option pool you can have a various other preferences given to the new investors preferences,
when the investor gets a decision,
investment preference to return,
in the way of capital is returned when the company is sold or liquidated.
So each new term sheet rewrites some of those terms. And so the first term sheet does not does not dictate your direction forever, and you may have a week term sheet in the beginning, but you'll get smarter ones later on down the road.
So, I, I really think the most important thing, if I could put it bluntly, because you're gonna take some money you're gonna have to hit some milestones is to get the right group of investors who will use their contacts and industry experience to advance the company correctly.
That's that's a bottom line for, in my perspective.
From my preserved, and it's a I like that approach and let's talk about that storyline that you mentioned earlier. So can you just give me some strategies of keeping a good pitch?
Because I think the main founders just underestimate the the pitch giving itself. So, when you actually speak, not the slides that you create, but the speech that you give to the investors. Alright.
So the very typical demo day, and the accelerator, or any type of vent is, I'll use my name. Jim Connor. I have an application that solves a problem about the way people spend money on entertainment.
I'm just making this up on the fly. Okay. We have a, we have an application that lets you select any other type of entertainment. You want queued up rate. It look at the radius of others, etc. Etc. Okay. Now we hear these all the time.
This is a typical scenario, and it's not in the story format and that hurts the entrepreneur for several reasons. One the most, the biggest recent hurting entrepreneurs. It's not memorable. Okay.
And why are you at a demo day speaking to investors? Because you want to engage them? And what does the investor do after the demo days over they drive home and they have dinner and they go to sleep the next day. They wake up.
And if you haven't told them a story, which is an, for memories, they've forgotten about you, they don't remember who you are. Frankly, they heard.
Five to ten to twelve stories that pitches that day and they're all kind of a mix and you email them and you don't get anything back. And it's a reason that you didn't have your pitch in a memorable format, which is typically a story format.
We're all growing up with the movies and television look at the story format, which is situation today, the satisfaction or problem, which leads to conflict. Now a solution. We have why it matters.
Why it matters to you why it matters the market who cares about it. Really? And if you can do that one is a lot more fun to give the pitch, you can have some humor in it and you can make it a little light hearted you can drill down on the data when you need to.
But the investor can relate that story, you see, if you go to a good movie, you think about this? I gotta take it with Hamilton. Great play, right? Big time musical. I can pretty well, I went to it. I can pretty well tell you the Hamilton playbook.
Sorry? You know what it was and how it now, the timing and everything else and of course, the, the tool that took place. So what happened? But I couldn't tell you if you can have him just read something to me.
So you wanna put your pitch into a format, which it kinda goes we have a massive problem. We have experience a massive problem in our healthcare system. Okay. The statement, right?
And then you're talking about that problem is you talked about the, the extent of the problem and what the costs are.
Then you talk about your solution to the cost and oh, I have to add one more and you talk about who cares about it and and it's important. You add why are you doing this?
I'm doing this because my sister or my brother had this disease. We were devastated by it. We had no alternative. We did all the research. There was no reasonable alternative. I said with my background and life side I gotta find alternative and undertook the research.
I find a grant from inner life. Some of the grants available out there.
And I found the technology or life science solution to this disease, and I want to see it through to help to vindicate my sister's death if you will and help people out there who have a similar disease. Something like that. That's that's that's got some emotion into it.
Okay. Right. Motions is pretty much key, especially the early stages.
So, I know my timeline is a little bit wrong here, and we should have started problem with these topics, but I will remember about now. So when is the good time to start fundraising?
So what should you have prior to begin this fundraising process? Should you have the documents? Should you have a advisory board? Where, what's that?
Let's say two or three most essential things that you should have prior to sorry final testing. That's probably the most important question you've asked right now. So far the other stuff is all good, but.
This is a yeah, I give you a couple premises here.
Or a startup to get far enough along to begin to talk to investors. Seriously, they're gonna need roughly two maybe three years. Okay, that's that's what we see maybe more but two to three years.
Now, if you're going to launch a company, or do a startup company or bleep, and you have a technology of approach, you really have to know a lot more about the market. Then, just, I think I have a solution to some problems, just out there.
And what I've seen some excellent counseling, be about is the amount of due diligence, an entrepreneur or an early stage teams should do before. They launch the company or launch their technology.
You know, when you tell the story, you're going to tell the story you can include the research you conducted, and what you learned during the research that convinced you that this was a work worthwhile effort that you're pursuing.
Well, that's part of your due diligence before you actually launch the company, you can do your, you can start developing a product, do a whole lot of stuff.
You can be keeping your full time day job if you wish do hoping, but do due diligence,
speak to corporate speak to customers speak to whoever there's gonna be your end user or your referral source speak to distribution talk to them because these questions are gonna come up during your pitch.
Okay. And you're gonna say that's an interesting question. What we found I believe this first, but our research showed we, this is the reality in the market.
So, what, what should you start to talk to investors after you've validated your ideas?
And it's a lot easier to validate and change your idea before you've gotten spent money on doing a product, then it is after you spent money, because once you're committed on a product develop path through down the road and you go oh, my God. We just realized this isn't right for the market.
Very, very hard to do that you get mutiny out of the team. They're upset that you made this change or wanted to make the change.
So the more research you can do, and I'm not saying you're going to defer your startup forever, but the more research you can do in due diligence, you can conduct to be sure you're on the right target better. It is.
I guarantee you, if you spend, you're doing that research, you're gonna change your mind. You're gonna change your direction several times, based on the results of the research. So okay. Move ahead. Get all that done. You get a team, do you need advisors?
Well, it's always nice to have advisers if they're recognized. Okay. If they recognize you can get advice is pretty easily. But, you know, having people who have experience in the industry is key, when I say recognize.
And then the most, and the next thing is to start, you know, your advisors by the way, I probably going to be your best source of introductions to investors.
Separately, okay, so good advisors. So, when you talk to somebody that's knowledgeable and they might be an investor, you say, I'd like to ask you to get them out and get them to be an adviser either formal or informal foremost. Always good. But informal is fine.
And then, as a as advice, you get the opportunity to spend more time talking to them about what you found about your technology hearing their feedback.
Eventually those advisors may become investors, or they will refer, give you personal introductions to those who are investors.
So, visors, they're very good thing to do as you talk to investors and gonna say I welcome your comments.
where we should be evaluation wise,
and you think we're ready to try to is there anything missing that in our presentation we should solve first or address first before we make a serious presentation to an investor group here that out address those issues and take that information before.
That's wonderful advice. I love it as short precise great advice. So, let's talk now about you yourself as an investor are you investing right now during this condemning?
Or are you waiting for the duster sale down? Well, I'm waiting, but I have to say this. I've been doing this fourteen, fifteen years and so I have a portfolio of a lot of companies. Some have failed.
Some are still there and the most important thing for many of us who are older in terms of the time we've been doing. This is to keep the existing companies we have a lot so we're trying to keep powder try and keep these companies alive because that's what we need to do. Second thing.
We don't know how long this endemic is going to continue. And we truly at least, I don't know the economic fall out so far that markets have been fairly resilient. We had a big drop. We've had to come back.
Now, we're in that first week or second week of June here, two thousand and twenty markets have bounce back had a bad day yesterday.
But you do want to realize that, psychologically, when especially angel investors get have these big downside downdraft in the market, when their portfolios go down, they become naturally more conservative. We're actually more hesitant.
So, with all the turbulence or volatility the market, which, you know, frankly, most angel investors are are there, they are there by default that causes them to to hesitate. On the other hand.
There is an argument and I see lots of activity going on in the discussions.
Term sheets are still being written and I see the angel groups are still very active again. They're doing it remotely through Google meet or meet up or assume.
Or, for that matter, there's no reason not to keep talking. I wouldn't be, but we're I wouldn't be offended if people just took longer. Right that's just gonna happen.
Right but but it's okay.
Yeah this is good at but my particular situation is, I'm investing in one education company right now, which I operate, and the other ones I'm keeping the companies live, so that's what that's and very straightforward.
I love it. Yeah, last question for today's interview is the call to action. So, what's that? One thing that Lisa should do as soon as this episode is over. So I know reaching out to advisors. Is it reviewing their pitch deck?
Is it's trying to pitch on some demo day or wherever it is? Well, this is gonna be very straightforward and simple and is what I do because I do a show.
I do a podcast, like you and I have a I've had a TV show called game changes Silicon Valley where I interviewed entrepreneurs and investors, and so on game changer dot TV. Didn't intend to give it the plug on that.
But I, you know, when I open the show podcast or show, I have about fifteen, thirty seconds to give the person a reason to hang in there or click off.
And so what I do is I write an introduction out hi to here, or I don't even say how I always start with a situation. Okay.
And then I record it on my iPhone or any software doesn't matter then, as I go through the day, especially in my car, I have Bluetooth there with the speakers. I play it back over and over and over. So I'm out for two, three hours doing Eran.
So, I'm playing it over and over and I also record maybe three different versions of it just so I can hear.
You know, long version, short version, mid version what have you and then my time to get back home that day and do at least a day in advance because I should do it more than today. But I do at least the advance. I rewrite the entire thing.
Because I listen to myself over and about that a lot of my comments were extraneous. They weren't necessary be. I was too long, and too long winded. I have thirty seconds, maybe forty five seconds to get their interest. So that's what you're working on.
when everybody today,
in my opinion,
should work on,
is there first forty five Michael their first minute to give it their first minute,
just working on the first,
man if you get your,
if you get your purpose today,
why you're here and you want me to listen to you,
and why it matters and who cares about this idea that you have?
That's me. I have to sorry about that. No worries. I turned everything off if you give it get that out in thirty seconds to sixty seconds to get that. Right?
And play that back an iPhone, you've just advanced your opportunity significantly for engagement.
So, that's it give your first minute pitch to your iPhone, get three or four versions of it, write it out, speak it into your iPhone directly, or use your ear buds and listen to it over and over and you will start to evolve a better pitch. That's my just call to action.
That's a great quotation. It's easy to do. And, you know, it really can improve your elevator pitch. I think that a lot of people will really struggle with that. Yeah Yeah. Yeah. Let me ask one more thing. Yeah. That's really important.
For entrepreneurs, when you pitch at any level, thinking about where you are, who you're talking to, and all you want to do is get to the next step. You know, there are people who go to coffee meetings with investors who want to write a check. Sometimes. I've said, well, what would you like to see from me next year?
Well, we'd love if you write a check. Well, thank you for the, you know, you haven't even and you haven't and address. The real issue of are you a fit in the market is all like that. Just realize what you want to do is the next step.
It is a series of baby steps that you can achieve and get and get momentum by the way investors. You know, most entrepreneurs who have invested a company. So they don't understand the disappointment.
When somebody has spent two, three years helping a company grow a lot of time, a lot of effort, and the money, and that company goes to smoke because of some really stupid things that happen along the way in experience management, whatever. So.
Most of us would say, well, my time is valuable to me and I want to. It's not that I don't believe you, but I want to be careful because I only have a certain amount of time. Today. I have some funds, but certain amount of time.
And as a early stage, invest company, you're going to need some support and some ongoing hand holding I think. And therefore, I gotta be careful. I gotta be diligent and I gotta be, I gotta filter out the ones that don't fit my reasons.
So, only that, by the way, when you get to know all I know it says, no for today, under the circumstances I'm operating now, sometimes it's a hard no, sometimes it's soft now.
Sometimes, I'm just not ready, and I gotta say the number of times I hear people say, knows who I, who I am friends with. I know it has nothing to do with a company. Okay.
So a lot of those have zero to do with a company and everything to do with external events that are now part of the companies pitch. Exactly. That's a perfect note.
And, you know, from me, myself, I'll just make sure that you remember the call to action.
People just review your pitch, basically review each multiple time, spend hours and hours and it's fine to spend hours on something.
That's one minute long, because people just struggle with, especially with elevator pitches. They're usually horrible at them. So thanks a lot Jim, for, for giving such a great call to action. I hope most of our listeners will actually do this.
So thanks. A lot for coming up for taking your time and to, for sharing your experience with the, with us today Thank you.
Okay constantly, thank you. Good luck. Hope your listeners benefit from this and take care now. Okay, absolutely. Okay. Bye. Bye.