“If you can’t make it good, at least make it look good.”
Bill Gates

If you are planning on pitching VCs to raise money for your startup, there are several things you need to know.

First and foremost, you have to understand how VCs work:

 They look for financial returns for their investors (LPs)
 Raise funds
 Find good teams & companies to invest in
 Take “equity”, generally in the form of Preferred Stock
 Help grow them
 Bring managerial and technical expertise, as well as capital
 Control some company decisions
 Help them exit

The key is to understand how to work with them, and what makes them successful. Then you have to be clear about why you should partner with a VC, as the good ones can be great assets:

 Value Add Funds
 Recruiting
 Sector & Domain Expertise & Advice
 Growth & Exit Experience
 Access to Other Investors
 Managerial, Operational, & Technical Expertise
 Objective Advice
 Validation

And of course, what to watch out for, as the wrong partnership could be like a bad marriage. The most important thing is the alignment of objectives, clarity of shared vision, and chemistry. There are many things good VCs offer:

 Guide and support the CEO
 Help develop the team
 Bring strategic expertise and view
 Help identify the best technology stack, markets, product development, sales channels, partners
 Offer networks & contacts
 Help with finding talent, customers, partners, service providers, acquirers
 Provide financial expertise and strategy
 Help with business development
 Advise on an exit strategy

The next thing is identifying the right VC. Because it is important to find the right ones and approach them properly. Most VCs do not take any cold approaches seriously. So you must get a warm intro. Keep in mind the following:

 Sector & Industry Specialization
 Stage
 Check (Investment) Size
 Geography
 Competitive Portfolio Companies
 Dry Powder
 The Right Partner within the Fund
 Track record
 Resources & Mentoring
 Quality of Network
 Technical Expertise & Strategic Relationships
 Chemistry
 Reputation

Then you have to know your timing. As with many things in life, with raising capital, timing can mean everything:

 Sector-specific macro conditions play a significant role:
 Which competitors have sold?
 Which competitors have raised money?
 What is going on with key hires in the sector?
 Is there consolidation occurring?
 Is the sector becoming commoditized?
 Have the key premium buyers already made their bets?

Assuming you have the right team and are raising money at the right time, once you find the right VC, get a warm introduction, and get in front of them, in addition to a first-class pitch deck, they are going to want answers to some key questions:

 How much capital do you need to raise?
 What are your pre-money valuation expectations?
 What does success look like in 12 months?
 Who is on the team?
 What are you using the funds for?
 Who is in charge?
 What’s your go-to-market strategy?
 What if you have to pivot?
 What is your CAC?
 How are you going to recruit talent?

Making the Pitch

 Investors have a short attention span
 You must demonstrate passion & commitment
 Remember, you are a missionary and not a mercenary
 Your ability to build rapport is KEY
 Show a personal connection to the problem you are solving
 It’s all about storytelling
 Do NOT be fixated on the presentation or the solution
 If you can demonstrate the ability to build rapport with the investor, it signals:
 Your ability to recruit employees
 Sell the vision of the company
 Acquire clients
 Raise capital, and of course, deal with other investors
 It is about an 18-month cycle
 Know your landscape, be prepared

It’s all about the personal connection and storytelling

“The history of storytelling isn’t one of simply entertaining the masses but of also advising, instructing, challenging the status quo.” Therese Fowler

1. Teaser Slide: Make it Clear & Memorable
2. Elevator Pitch: 30 Seconds
3. The Problem: BIG Pain that You PERSONALLY Relate With
4. The Solution: How you are going to solve the problem
5. Demo: Why You Are Better Than Everyone Else!!!
6. Market Size: The overall target market and your initial slice
7. Business Model: How Will You Make Money
8. Proprietary Tech: What Advantages Do You Have
9. Competition: Know The Competition and You Measure Up
10. Go-To-Market Plan: How Will You Get Customers / Channels
11. Team: Who Is On Your Team
12. Results: What Have You Achieved So Far
13. Capital: What Do You Need & How Will You Use It

Many VCs have guest lectured in my classes at USC, and they say the same thing. They look for patterns and usually make up their minds within the first few minutes of the meeting. And the first time CEOs have over 30 meetings before they raise money. So, keep in mind what Theodore Roosevelt famously said, “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”

“You can change your world by changing your words… Remember, death and life are in the power of the tongue.” Joel Osteen

Have you ever wondered why the statue of Moses created by Michelangelo depicts Moses with horns on his head? More importantly, the damage this has caused throughout the centuries? Was this a satanic joke? No, it was a Bible mistranslation!

The ancient Greek translation of Exodus 34:29 reads, “when Moses went down from the mountain, Moses knew not that the appearance of the skin of his face was glorified.” This Greek translation is not faithful to the original Hebrew, but does give the sense of the passage – Moses’ face shone brightly.

The issue is verb קָרַ֛ן (qāran). The noun form of this verb, קֶ֤רֶן (qeren) has as its primary meaning, ‘horn,’ like the horns of an animal. However, this word can also refer to things that radiate from a common source. This noun refers to the rays of light in Habakkuk 3:4: “His radiance is like the sunlight; and in this instance, it referred to rays of light.”

And due to a simple mistranslation, “rays of light” became “horns”. And even though during the Reformation, translators removed the horns from the text of Exodus, Moses with horns became a common western, medieval depiction of Moses. The damage was done and has lasted for centuries.

What does this have to do with building, running, and growing a company? As Epictetus famously said, “First learn the meaning of what you say, and then speak.” We all need to learn to communicate effectively, as we continue to make mistakes daily at work and at home.

I am a firm believer that effective communication is the most important factor in being a leader and building a successful company. How else do you recruit the best talent if you are unable to articulate a vision? How do you instill trust in your clients? How do you get your team to work as a team? Jim Rohn said, “Effective communication is 20% what you know and 80% how you feel about what you know.”

Over the years I have been involved with many companies, as a CEO, advisor, and investor. When and where there is proper communication, there is success. Where there is none, what success there is will not last or scale. Technical skills are clearly very important, but they can be acquired. Communication skills have to be learned. And not everyone has the capacity, predisposition, or interest to learn it.

How many times have you heard managers say, What I meant was ..”, or our political leaders backtrack by saying, You have to understand what I said in the context of …..” As Peter Drucker said, “The most important thing in communication is hearing what isn’t said.”

More often than not, issues arise as people believe they have a clear understanding of a situation. But as George Bernard Shaw said, “The single biggest problem in communication is the illusion that it has taken place.” Just because I have said something, it does not mean the other side heard or understood it.

Another aspect is the choice of language. Mark Twain put it well when he said, “A man’s character may be learned from the adjectives which he habitually uses in conversation”. Be quiet and shut up have the same goal, with very different implications.

The key to effective communication is understanding the other side, relating to them at a personal and deep level, and speaking in a manner that is clear, concise, and understandable for them. We all have the desire to show off the depth and breadth of our vocabulary, but the proper command of a language belongs to those who cater the message to the listener. This can be learned but requires patience, humility, and awareness. But its importance cannot be overstated. As Paul J. Meyer said it well, “Communication – the human connection – is the key to personal and career success.”

So don’t “misunderestimate”, argue over the meaning of “is”, or fight a lawsuit over the meaning of “concerned”. Learn patience, take the time to communicate effectively, and all else will follow.

Alex is a proven tech entrepreneur, having started, led, and sold multiple successful companies. Most recently he was the CEO & Co-Founder of EdgeCast Networks. EdgeCast became one of the leading global content delivery networks, carrying 5% of the Internet traffic, operating in 20 countries, while accelerating and delivering the largest and most demanding websites such as Twitter, Tumblr, Dell, Sony, and Hulu. EdgeCast was acquired by Verizon, where Alex spent 2 years helping shape the strategy of Verizon Digital Media Services.

Prior to co-founding EdgeCast, he was a Co-Founder & CEO of KnowledgeBase, a SaaS-based enterprise knowledge management company with many Fortune 1000 customers, which was acquired by Talisma Corporation in 2005.

Before starting KnowledgeBase, Alex founded HostPro, an industry-leading web hosting and application services provider. In August 1999, Micron Electronics (MUEI) acquired HostPro. Alex was instrumental in helping HostPro grow organically and through acquisitions into one of the largest web hosting companies in the industry, with over 70,000 customers worldwide.

With more than twenty years of leadership experience in information technology and business operations, Alex has successfully led a number of business initiatives that include developing core technology solutions and bringing them to market, as well as managing day-to-day business, marketing, sales, and support operations. For his leadership, he has received numerous awards including E&Y’s entrepreneur of the year award in 2014. Additionally, he has extensive application development, security, and internet infrastructure experience, for which he has been awarded 23 patents.

Alex is an active investor in several venture capital funds and has served on boards of private and public companies such as Web.com (NASDAQ: WWWW). He graduated from Tufts University and lives in Santa Monica with his wife and children.

How did you become an entrepreneur?

“I worked for an Internet service provider, and my boss was the worst manager one could imagine. I learned everything not to do.” I was there for only 3 months before quitting and going on my own. My first company was Food Mood in 1996. “My partner and I were always hungry. We wanted to see the latest menus online and have the ability to order for delivery. We hated having a stack of menus in a drawer.’ We spent nights coding, went to restaurants, and tried to talk to managers. We all stayed at my mom’s apartment, and any money we made, we put into our business.” It was a good idea but too early for doing eCommerce for food delivery. Online ordering came about 15 years later, however, a connection led to some amazing deals to host websites such as Caesar’s Palace, Baskin Robins, Oral-B, and more….before we knew it we had transitioned to become a web hosting company.

What was the revenue model for this business?

We had a recurring revenue model. However, given the upfront cost of equipment, we had a negative cash flow. Since we couldn’t get any bank or VC financing, we figured out a different way to finance the business. I call it customer financing. We offered 5%-15% discounts for customers who paid long-term subscriptions upfront. “Instead of paying $50 per month, a customer would pay $500 for the year.” Kazerani highlights, “This model only works if you are constantly growing.” After cold calling and direct mailings were unsuccessful, we grew our customer base through magazine advertising. Though magazine ads were too expensive at first, we learned how to negotiate pricing with the publications, properly position ads, have a call to action, and effectively increase conversion. The company grew at a double-digit percentage month over month for 3 years.

How did you sell your first company?

“Multiple companies approached us, showing interest in acquiring HostPro.’ At the time we had no outside investors, no VCs, it was just us.” So we started a formal process by engaging Investment Bankers. Bids ranged from $12M to as much as $26M. The highest bid was half cash and half stock, and the second-highest bid, by Micron Electronics, was an all-cash offer at $23M. “We were conservative and took the ‘all cash’ offer. Interestingly, within 3 months, the stock of the highest bid went up to a value of about $50M, but eventually, with the tech crash of 2000, it dropped down to zero; we had made the right deal by selecting Micron. Post-merger we went and acquired many other hosting companies. I was 26 years old and I was managing about 600 employees.”How did you start your second company?

“In 2001 we started a Software as a Service company called KnowledgeBase. At the time, companies were outsourcing their call centers to Asia, however, there was a pain point in how you manage knowledge. We built an amazing software and landed some large customers such as Dell, AT&T, and United Airlines. But it was a niche, and too small of a market.” Kazerani points out, that there are only so many call centers in the world. To convince people why they needed the software and edge out the competition, they bought the first slot on Google’s AdWords, which sold the search engine’s first two results. “It took us about three months to close deals, whereas it took the competition nine months.” We were one of the first people to use Pay Per Click advertising to sell enterprise software.

Who is the core of the team?

“James Segil, Phil Goldsmith, Lior Elazary, Jay Sakata… with every company our core team grows as well. Phil is our head of sales—I met him on the first day of college. Some of the people you are meeting now while in college will become part of your core team in the future. James Segil is an amazing marketer and business development guru.” Lior and Jay are our tech partners who focus on various aspects of technology. Our core team is treated equally in terms of salary, bonus, and annual equity grants. We also try to get everyone to invest the same amount, but not always possible. This model allows all of us to be very aligned.

We give equity to all of our employees. At EdgeCast everyone had stock options, our receptionists, our salespeople, our engineers, and even people working in our network operation center.

What does it take to analyze the feasibility of a business idea?

“If we find an idea that we are passionate about (being passionate is key), we do a competitive analysis. How many people have tried, or offers are currently offering this product/service?” Tools like Crunchbase highlight competitors, their funding, and their leadership. Then we look at market size and decide if it is a big enough market to go after. We also look at the barrier to entry, how long would it take for us to bring a solution to market? and how hard it is for a new startup to catch up? and finally, determine the impact. After doing all of that, if the idea still has legs, we move to phase 2 which means we survey the market by talking directly to people and documenting their feedback, identifying partners, and thinking through possible outcomes.

“Anyone can veto an idea and that would stop the entire business idea. The team always comes before the idea. I would rather work with a great team and not do so well than to do well alone.” “Don’t worry if others think your idea is stupid, sometimes stupid works.…‘Everyone thought a couch sharing concept is a silly idea, and it turns out to be Airbnb.” Kazerani encourages sharing ideas: “You will learn if your idea truly solves a problem by talking to customers, and if you are afraid of sharing, it means the barrier to entry is low and anyone can catch up to you once you bring it to market.”

How did you start and manage EdgeCast?

“We started by wanting to be the creator of content, but download speed is so important that we pivoted to focus on a fast content delivery network for all content creators. Speed directly correlates with conversion.” Using $1M of our own money, 9 months later we had built a global network, a working product, cutting-edge self-service portals, and some beta customers. We raised $2.5M from friends and family and started signing up paying customers. Steamboat, a division of Disney, approached us wanting to invest and give their business to one CDN. We reached an agreement to raise $6M at a pre-money valuation of $26M, post $30M, and closed the financing in 2007. During the 2008 crash, many companies had massive layoffs, and Steamboat expected the same of our team. But with substantial growth, “We told them, ‘We are not going to fire anyone, but five founders will go to zero salaries.’ It’s like firing your most expensive and valuable staff without losing them. A year goes by and we told Steamboat, ‘everything is going well we have grown substantially, and the credit crisis hasn’t impacted tech. We are going to take salary again…and need some equity for past years’ deferred salary.’ We worked it out.”

In January 2010, we did a Series B financing and raised $10M. We had 250 employees at the time and our customers included all the major social media companies. We received an offer for $150M for the company and more if they reached other milestones. “But we thought we were doing a lot better than that—$150M was too low of an offer. We were on track to do $70M of revenue for that year. So we passed on the offer. At the end of 2012, we had to raise more money in order to increase our growth rate, and we were looking for $20M.” Kazerani says, “When valuing a company, it is about the growth curve, and growth rate, not the actual revenue. So when we are building a tech company, we would like to sell when the growth rate is increasing. When you get to the top of the growth curve, it’s flat, and it is too late to sell. Your valuation is actually far lower, even though your revenue might be higher”. For our financing, 5 VCs valued us at about $200M—one VC overvalued us at $350M. It was smart of them since they beat all the other offers and signed an exclusive time period to perform diligence. And they did do a ton of diligence. For example, they called 150 customers, both former and prospective. And eventually realized that $350M was too expensive. “They bowed out of the deal. We had to go back and redo our fundraising. Eventually, we were able to get a $200M valuation, and raised $20M.”

What happened between Verizon and EdgeCast?

“Verizon reached out to us in the summer of 2013. We started having some meetings. In the meantime, we started consulting with our Investment Bankers. The Bankers gave us some great advice, they told us not to rush Verizon, and to let them build their business case internally. Eventually, it received higher visibility levels of visibility within Verizon. They wanted more information, and we wanted them to commit.” Their first offer was $260M, which was so low I didn’t count. Agreeing on 2 more weeks of information sharing they offered $350M. We ended up negotiating and getting close to $390M.

“In our agreement with our last VC, they had a blocking right for any exit below 2x. They had come in at a $200M valuation, so they could block any deal below $400M. We needed it to reach over $400M. If it didn’t, it would come out of our pocket and dilute our investment Clearly the VCs were looking for reasons to block the deal.” One of the VCs slipped: “since the company was selling in the same year as their 2013 investment, he wouldn’t have to distribute back the proceeds to his shareholder, and could continue investing with his 2x return. Using that argument against him, he finally agreed not to block the deal as long as the deal closed in the same year. So we worked hard to make that happen. We closed on December 23rd, 2013.”

Lessons Learned:

• Appreciate the team. Trust is key.
• Go after a pain you identify with passionate about the problem you are solving.
• Understand the size of the market
• Figure out how you are going to sell your product/service early
• Manage conflicts carefully
• Make a deal that works out for everybody

“Underlying most arguments against the free market is a lack of belief in freedom itself.”
Milton Friedman

I was recently at the Le Web conference in Paris where Travis Kalanick, the co-founder and CEO of Uber was one of the speakers. It is ironic that the idea for Uber was conceived in Paris, France, where free markets and capitalism are under tremendous pressure.

What makes Uber an extraordinarily important company? In one word, freedom.

Disintermediation is the Internet’s biggest gift. Uber is one of the best examples of how disintermediation can transform industries in which unions, lobbyists, regulation, and bureaucracy have created obstacles to progress, openness, and competitiveness.

This is why wherever Uber operates, unions, lobbyists, regulators, and bureaucrats make every effort possible to block them, make them illegal, or otherwise stop them from operating. The same applies to other companies that are disintermediation of other inefficient industries.

As I travel a lot, I have the opportunity to speak to Uber drivers in different countries. They believe Uber has changed their lives, even the ones that used to own taxis before. What is more, is that they are now genuinely concerned about their ratings and quality of service. When was the last time a cab driver in New York, whose medallion costs one million dollars, showed any concern about his cost, quality of service, or your satisfaction?

Free markets are not about job security, regulations, collective bargaining, or keeping others out. They are about expanding demand and the universe of services and products and growing the ecosystem. It is about creating a bigger pie. It is about execution and providing equal opportunity.
Disintermediation is the key to free markets and equal opportunity. Equal opportunity, however, does not mean an equal outcome.

This is why it is interesting to think about what will happen when “Uberization” is applied to other industries, as it inevitably will!!

This model offers on-demand products and services, choice, quality, value, and of course, accountability. It is highly portable across geographies and industries. It is efficient, scalable, and offers transparency, flexibility, a feedback loop, and competitive, market-adjusted pricing. Such competitive pressures also push out the poor performers and bring down prices.

Clearly, this is not an easy task. Uber has demonstrated world-class execution and has thus made it look easy.

So imagine what if we applied these principles to the industries that need them most? Like health care, education, or government services? Imagine being able to choose your doctor the same way you chose your ride. I know this may be too simplistic, but if indeed this happened, the changes would have incredible ramifications.

Your appropriate medical data would be portable and available to the doctor of your choice on demand upon your selection of that doctor and the service. You will know how much most of your visits and procedures would cost before you select your doctor. The doctor would have to take transparency, accountability, customer satisfaction, and costs.

As disintermediation causes relationships to become more one-to-one, there will be a significant reduction in costs, bureaucracy, and administration layers, which of course is why those whose interests are aligned with the current system will fight this change.

But as Harry Browne said, “Voluntary association produces the free market – where each person can choose among a multitude of possibilities.” So as we cheer Uber on, we wait with anticipation for others to come along and Uberize our other dysfunctional industries, and maybe even government agencies.

“Brevity is a great charm of eloquence.”
Marcus Tullius Cicero

After having suffered through many a bad presentation, I have come to really appreciate an effective one. But what makes an effective presentation? As F.L. Lucas said, “And how is clarity to be achieved? Mainly by taking the trouble and by writing to serve people rather than to impress them. “ Here are a few key points:

1. Brevity is Bliss

A friend asked me to sit through a presentation for an online dog food company. The Founder/CEO had spent nearly $2.5mm of his own money and was convinced this was the most important discovery since the theory of relativity. Two and a half hours into the presentation, after I had asked him multiple times to get to the point, I finally stood up, politely told him I could not help him and left the room. Needless to say, he never raised any capital, and clearly, that’s because I am a heartless, blood-sucking VC and banker! As William Shakespeare said, “Brevity is the soul of wit.” If you can’t articulate a business idea in 15-30 minutes, it is not worth pursuing.

2. Know Your Audience

I once wrote a piece for CNN, which the producer completely altered before publishing. When I asked him why, he simply said, “You are not speaking to our audience.” It is very important to know your audience before presenting anything, to make sure you know their background, experience, interest in the sector, existing investments, level of technical knowledge, and expertise.

Especially when you are pitching VCs, it is important to do the diligence to make sure they are interested in your sector, are currently investing, have dry powder, invest in your geography, do not have any competitive portfolio companies, and focus on your stage, and write the check size you are in interested in. As Annie Proulx said, “I find it satisfying and intellectually stimulating to work with the intensity, brevity, balance, and wordplay of the short story.”

3. Focus on no More than Three Points

Remember the scene in the movie Amadeus, where his royal highness complained about “Too many notes”. Well, that’s a common issue! There is such a thing as too much of a good thing. As Thomas Leonard said, “Clarity affords focus.” Make sure people leave the meeting remembering the two or three most important points that are your strengths and differentiation.

4. Nobody Likes History Lessons

H. L. Mencken famously said, “A historian is an unsuccessful novelist.” Most people don’t like history lessons in presentations. If I do not know what you are talking about or need context, I will ask. During a presentation, I want to understand the ability of the presenter to communicate an opportunity, articulate an idea, and demonstrate powers of persuasion.

5. Focus on the Team – Do Not Rely Too Much on the Idea

People invest in people, not ideas. One of the key elements in a presentation is your ability to demonstrate your team’s credibility, relevant experience, commitment, integrity, ability to execute, and passion. There are many reasons why:

• The idea and company you start with will morph with time.
• There will always be mistakes and challenges along the way.
• Markets shift quickly and unexpectedly.
• If the idea and the market are indeed good, there will always be competitors with more money, resources, and access.

A smart, experienced team is one that thinks in an objective and thorough manner and has the ability to figure things out along the way, without falling in love with the idea itself. Flexibility, agility, decisiveness, and maturity are the qualities investors are attracted to in a presenting team.

6. Be Factual, Concise, & Clear

Every smart investor conducts extensive background checks and due diligence. Don’t overstate. Make sure your information is accurate. Remember, facts are not elastic. Do Not Stretch Them. Also, remember your assumptions are worth very little, without data to back them up. So be very clear, conscience and careful about explaining your assumptions and backing them up. As Marquis De Vauvenargues said, “Clarity is the counterbalance of profound thoughts.”

7. Avoid These Amateurish Mistakes

These are the comments we do NOT want to hear in a presentation. No explanation is necessary!!!

• These are very conservative numbers
• There are no competitors
• The market is a trillion dollars, and we are going to capture 1% of it
• I do not like partners
• My idea is worth billions
• The company will sell for $500 million in three years

8. Be clear about the opportunity and business model

We all have short attention spans. We are not going to waste time trying to figure out the details of your opportunity. If I have to ask you about your monetization mechanism, term, or business model, you have lost me. So remember what Gotthold Ephraim Lessing said, “For me, the greatest beauty always lies in the greatest clarity.”

9. Do NOT have ANY mistakes in your presentation

I recently received an e-mail from a young entrepreneur, who spelled my company name wrong among other things. He was also 15 minutes late to the meeting. Not a strong first impression. Attention to detail is expected.

10. Leave Them Wanting More

You do not have to completely open the kimono during the first meeting. Take it one step at a time. If you are doing well, make sure you leave something for the next meeting.

Giving effective presentations is not easy, requires practice, and takes a lot of preparation. But it is an important business tool. After all, we are always presenting in one way or another. As George Oppen said, “Clarity, clarity, surely clarity is the most beautiful thing in the world, A limited, limiting clarity I have not and never did have any motive of poetry But to achieve clarity.”