They Just Didn't Get It: VC Rejection
A billion dollar established market. Incumbent companies so despised by consumers that they are routinely sued over the poor quality of their offerings. A dynamic founder who has proven he can run lean and get the job done. A young VC liked the idea and took it to his partner meeting. What could go wrong?
A turndown. “They just didn't get it.”
Meet Erick Arndt and VacationJuice.com. A great entrepreneur and company who were just turned down at a notable LA VC firm.
When a pitch fails, it's tempting (and emotionally satisfying) to blame the audience. Erick took the harder road, and asked himself what he could learn from this rejection. His experience illustrates some great lessons for all of us who are selling an idea:
1) Don't settle for a phone meeting….go in person
2) Arm your advocates well
3) Well-meaning advisors can lead you astray
4) Take satisfaction in the knowledge that even smart investors miss opportunities
Go In Person
To save his time and the VC's, Erick's initial contact was via phone/WebEx. It seemed like a good call, as the VC was excited and the call wrapped up in less time than it would have taken to drive to his office. The downside? He only got a superficial view of the company, and didn't retain enough to transmit his excitement effectively in the partner meeting. An in person meeting creates a much deeper understanding, and is better remembered than a phone meeting.
Arm Your Advocates Well
You can't be in every meeting, so you have to equip your advocates to do battle for you. It's common for one partner to have to represent a company in a Monday partner meeting at a VC firm. Give them the right collateral. Erick found that he should have created talking points—key differentiators, competitive advantages, and the like. VCs look at dozens of companies, and discuss many in any given meeting. You can't expect them to remember the details of every company. Ask your advocate what the need to support them. At a minimum, they'll be impressed with your thoroughness, and they'll probably ask for things that are not obvious to you.
Well Meaning Advisors
Erick's PowerPoint deck was creative, attractive, and conceptual. It also failed to hammer home the key differentiator at VacationJuice, as Erick normally did that verbally. Several very experienced investors had validated the positioning. The problem? Without Erick to highlight the right points, the deck was to oblique for the casual reader. The lesson here is not to make your presentation overly simplistic, but you have to create a “leave behind” version that is dead simple and pounds the key points. An investment banker once told me “make it Dick and Jane simple.” (For those of you too young to remember Dick and Jane books, Google the term.) And remember, if your advisors have been helping for an extended period, their “insider” view can lead you astray.
Sophisticated Investors Miss Opportunities
After struggling through these lessons, Erick made a great philosophical comment: “So they turned me down. Some of their colleagues also turned down Google and Facebook.” He laughed over it and got back on the phone to the next prospective investor. That kind of resilience is critical to a founder, and laughter is a great stress reliever.
Erick's experience was typical, but his self-reflection was not. He won't fail the next time.
Steve Reich is a veteran entrepreneur and Angel investor in Southern California. Through his experiences with Digital Insight, LeisureLink, and Treasury Services, he has been with startups from launch to IPO. Reich has been funded by VC firms such Clearstone Venture Partners, Mission Ventures, Menlo Ventures, and General Atlantic. Steve is also an active member of the Pasadena Angels, and regularly mentors young companies. Steve's expertise includes leading winning sales teams, brand marketing, and operations management. He has extensive experience in business to business sales, SaaS technology, and eCommerce. Follow Steve at his blog at http://granitecreekblog.wordpress.com/. .