we just need 1% of china

We Just Need 1% of ChinaAnd Other Things Never to

Tell a VC

Wait, before we start, who the heck am I?

9+ years in venture capital/private equityFirst with NJTC Venture Fund

◦Seed- and early-stage deals in and around NJNow with MentorTech Ventures

◦Investing in and mentoring startup companies◦Everything is connected to Penn!

Why Does This Matter?

Your idea is only a small part of your success

VCs are trying to get comfortable with the team they would back

Some of the things entrepreneurs say make them appear to lack credibility, seriousness or trustworthiness

“We Just Need 1% of China”

Sounds great, the market is huge

Ultimately, the size of the company is limited by the size of its market

“We Just Need 1% of China”

The first 1% is the hardest to get – 0 to 1 is a much bigger jump than 9 to 10

VCs want companies that will be market leaders, not 1% players

Shows lack of ambition & confidence

“We Have No Competitors”

Sounds like you’ve got the whole market to yourself

Few competitors means shorter sales cycles and more opportunities

“We Have No Competitors”If no one else is doing it,

you may not be solving a big problem

If it’s clearly a big problem, you are likely either overlooking competitors (bad) or willfully not mentioning them (worse)

For a lot of businesses, the biggest competition is “doing nothing”

“We Will Figure Out Our Business Model”

If you get enough users, surely that has significant value

Look how successful Twitter has been before really nailing their model!

“We Will Figure Out Our Business Model”

At the end of the day, most businesses are valued on profits, not eyeballs

There are rare exceptions, but you probably aren’t one of them

Have one or more concrete ideas for how to monetize (and don’t just say “AdSense”!)

“We Will Be Viral”

Virality is great – it can dramatically lower customer acquisition costs

Word of mouth can have far more impact on a given customer than traditional ads

“We Will Be Viral”

Few businesses are inherently viral

Have a Plan B for making sure potential customers know you exist

It’s a big internet out there!

“We Have A Great Team Who Will Join Post-Funding”

Top people want the security of a salary

Much easier to join a company that has the endorsement of a VC and the security of cash in the bank

As long as they join at funding, the VC should be OK with it

“We Have A Great Team Who Will Join Post-Funding”Why wait? The best leaders

are able to get people to believe in the vision and join early

VCs will call these people, so if you bring them up, the commitment better be firm

This isn’t fantasy baseball. Team dynamics matter. If you haven’t worked together yet, that is added risk in the business.

“Our Projections Are Conservative”

You have almost certainly cut them back and added in plenty of contingencies

Your product is so great it is sure to be an instant hit

“Our Projections Are Conservative”VCs hear this every day in

every pitch, but companies rarely exceed projections

Companies often have longer sales cycles than they thought, unexpected costs, etc. that they don’t know until they’ve been operating for a while

When you’re pre-revenue, a major revenue ramp is, by definition, not conservative

“This Is The Only Money We Will Ever Need”

Lower risk for the investors

Minimal dilution for everyone going forward

“This Is The Only Money We Will Ever Need”

Even successful businesses often need more money to scale

Investors want to know that your cash planning & management is realistic

Many investors would see this as a negative even if you’re right – they want to put more cash to work

Things to Keep in Mind VCs want to find great companies –

tell us about what you have right now that’s different and better

Show some kind of momentum. VCs won’t invest after one meeting, so show short term goals and reach them.

Back up as many of your statements as possible with third party data

Every early stage business has risks. Don’t deny them, acknowledge them and discuss your plan to cope.

Any Questions?

Feel free to contact me any time

Brett TopcheMentorTech Ventures3624 Market Street, Suite 300Philadelphia, PA 19104brett@mt-partners.com(267) 295-1395@BrettTopche