No Bullshit, Softball Questions

April 13th, 2010 by Jay Levy View Comments

I recently had the honor of moderating a New York Entrepreneur Week panel entitled Raising Seed-Stage & Angel Investor Capital in Today’s Environment.

The panel consisted of four early stage investor: Dave McClure of 500 Hats/Founders Fund, Geoff Judge of NY Angels/Metamorphic Ventures, Owen Davis of NYC Seed and Brian Cohen of NY Angels.

We wanted to avoid the bullshits softball questions that are usually asked at these events and you already know the answers to; I think I was successful.

A few of the key takeaways were:

The market for early stage funds much more vibrant than 12 months ago and there is plenty of capital out there.

1) The biggest pet peeves of the panelists when seeing pitches were as follows:

a) Not explaining the problem you are solving and just focusing on the product/service.

b) Glancing over the competition and not looking at the entire ecosystem of competitors.

c) Lack of customer understanding and customer interaction

2) The inevitable question around how do I contact an investor came from the audience and while views were mixed on the best way, it was unanimous that an intro from a mutual friend, colleague, partner, etc is by far the best! Some investors will look at ‘cold-call’ emails but increase your chance of getting thru the noise and get an reputable intro!

3) When posed the questions around what the panelists have learned from the one that got away (the investment they regretted passing on), the lessons learned included:

a) Don’t overly obsess with the concept if the team is kick ass and the idea decent they’ll figure it out.

b)Don’t drag your feet if you see something great don’t be afraid to jump in (this goes for investors and entrepreneurs).

Lastly, the topic of valuation came up and Dave McClure brought up a contrarian view on valuation; but it makes great sense. In essence the view was start low and get investors excited once you have a few that are interested (and vice versa) let them bid up the round. This avoids the situation where your price investors out from the get go with sticker shock.

Jay Levy

I believe the idea behind the comment was to create a really kick ass startup that investors are competing to invest in; in which case they will be against each other. The one that comes to mind in today's market is sentiment.I agree it doesnt work in all cases; but i think the comment around not shooting yourself in the foot with too high of a valuation is a very relevant one.

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dlifson

Re: bidding up on price... I think you need to be careful, because if you do this too aggressively, you'll end up with a bunch of investors dropping out / accusing you of "shopping around" your term sheet. And if too many drop out, they may all drop out. Our approach was to determine how much we wanted to raise and how much equity we were willing to give up, and calculate our pre-money valuation from there. That way, it might not be the best possible price (we may be underestimated demand) but it's close enough. If you're shooting for a big exit, the extra 1-3% equity you're negotiating over won't really matter, IMO.

I agree it doesnt work in all cases; but i think the comment around not shooting yourself in the foot with too high of a valuation is a very relevant one.

Our approach was to determine how much we wanted to raise and how much equity we were willing to give up, and calculate our pre-money valuation from there. That way, it might not be the best possible price (we may be underestimated demand) but it's close enough. If you're shooting for a big exit, the extra 1-3% equity you're negotiating over won't really matter, IMO.

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