Secret #12: Stress the Sizzle AND the Steak.

(This is the final article in the 12 part series, "12 Secrets to Attracting Investors to your Startup".)

Well, here we are: The final installment in this 12 part series. The beauty of publically committing oneself to writing N somethings is that you’re on the hook to deliver all N. A number of you, friends and strangers alike, have been good about… encouraging… me to get #12 out, as it’s been some time since #11. Why the delay?

Excuse #1: My own business has started to accelerate, leaving me with far less time to write. That said, success means having better problems to solve, so I’m not complaining!

Excuse #2: My self-imposed desire to “stick the landing”. Any group of N somethings should finish strong. The anchor in a relay race is the fastest athlete. TV & movie series are often ultimately judged by the quality of their finales. Will I end with a literal bang like Breaking Bad, or will I pull a Matrix and leave you pretending, for therapy sake, that I never wrote a final article? Sotto Keanu: “Whoa.”

Sealing the Deal
One of our portfolio company CEO’s asked me, just last week, how we went about "sealing the deal" with respect to deciding to invest in his company. Was it love at first sight? Was it an intuitive scoring rubric? Was it dispassionate quantitative modeling? I half-jokingly responded: “Yes.”

For us, “sealing the deal” is actually four distinct decision-making processes executed over four different time frames:

7 Seconds: Impression - What's our "blink" reaction? 
7 Minutes: Intuition - Is the pitch clear and compelling? (sizzle)
7 Hours: Insight - Does the business model math check out?  (steak)
7 Days: Impact - Are we still inspired 7 days (and 7 fresh ideas) later? 

Here's how we go about assessing each. 

T=7 Seconds: First Impression Assessment
It’s amazing how much one decides, fairly or not, about you and your business, in the first 7 seconds. Sure it’s a cliché, but you never get a second chance to make a first impression. I’ve gotten through twelve business articles and nearly 20,000 words without having to refer to Malcolm Gladwell, but I’d be remiss if I didn’t credit his “Blink” concept as being especially relevant in venture investing. There’s value in accounting for first impressions. Before we’ve had a chance to “fall in like” with someone… Before we’ve had a chance to “do the math”… You can only see things as an objective outsider once.

Believe it or not, we’ve actually built a system that allows us to capture and document our 7 Second instincts about every business we consider. Using tags (Web 2.0 folksonomies, anyone?) we ascribe a handful of simple semi-structured descriptors to every business we see. My friend Adam taught me the Japanese proverb “None of us is as smart as all of us”. In turn, we ask our network of 35 Limited Partners (i.e. Investors) to help provide us with their “blinks” on the hundreds of companies that come through our process. While we’ve found that a focus group of collaborative first-impressions can bring about the worst of vanilla groupthink, a crowd-sourced collection of quick individual instincts can be extremely useful. We don’t pretend for a moment that we’re individually doing anything more than judging books by their covers, but we do find a great deal of surprising value in the signal that tends to emerge from the collective noise.

Tips on making a great first impression:

1. Be Introduced: If at all possible, finagle a warm introduction to your potential investor. A personal introduction from their trusted colleague means that you’re “innocent until proven guilty”. That is, from T=0, you’re “a friend of a friend”, and the beneficiary of what my old friends Sanjay and Ryan like to call “Transitive Trust”.
   
   Much better to start a dialogue from a position of warmth than a position of stranger-danger.
2. Be Brief: Great literature is marked by descriptive flourishes and suspenseful nuance. Great business communication tolerates neither. If someone can’t smell what you’re cooking immediately, they’re simply not going to want to invest any time to sit down and read your menu, let alone consider your prices.
   
   My friend Joe McCormack literally wrote the book on this very subject. Brief: Make a Bigger Impact by Saying Less. Trust Joe: Craft a concise personal headline, and an equally cogent company headline. Explain the problem you’re out to solve, the novel way you solve it, and the value it creates for the parties involved. Then zip your lip and get out of your own way.
   
   Great musicians appreciate the space between the notes. So too do great communicators value the space for reflection, questions, and dialogue.
3. Don’t be tentative? Nothing kills your credibility out of the gate quite like tentative language. Ums, Likes, Kind-ofs, sort-ofs, and maybes. At their best, they’re filler that connote a lack of confidence and/or control. At their worst, they’re the mark of someone who doesn’t understand or believe in their own business.
   
   Linguists believe that tentative language, and her equally wicked stepsister, up-talking?, reflects a speaker’s desire to show deference to their audience by framing everything as an open question? This one time? at band camp? 
   
   As an investor, I’m looking for clarity and confidence, not queries and caveats.

T=7 Minutes: Intuitive Assessment
First impressions have been established, and you’re off to the races sharing the details of your business, past present and future. Entrepreneurs are typically exceptional people, and the temptation, for many, is to err on the side of making the presentation itself too clever; too precious in the telling of the tale. 

Tolstoy, in Anna Karenina, said: "Happy families are all alike; every unhappy family is unhappy in its own way." And so it is with investment pitches. No one has ever been denied capital because his or her presentation format was too formulaic. Demonstrate your ingenuity with your business, not your narrative structure. 

Tips on being as intuitive as possible
Tell a clear and simple story that hits on what matters most, in a predictable order. In many ways, this entire 12-part series has been an exercise in helping you develop your narrative, but in the spirit of aforementioned brevity, here is your cheat sheet for the perfect pitch: 

1. Personal & Professional Headline It’s shocking how many people never establish credibility by properly introducing themselves or their company. 
2. Problem Worth Solving What is the singular itch in need of scratching?
3. Clear & Elevating Solution Your novel, elegant scratch to the aforementioned itch.
4. Moat What’s to keep others from stealing your thunder?
5. Opportunity Size Why it’s a 100x, 10x, or at worst, 2x growth story.
6. Customers Who believes in this enough to pay you today? Tomorrow?
7. Go-To-Market Strategy What’s the plan, man?
8. Team Why are you the right jockey(s) for this horse?
9. Use of Proceeds What, precisely, will you do with our money?
10. Stick the Landing Call to action, inspiration, “Where do I sign?” 

T=7 Hours: Insight Assessment
We’ve shaken hands, come away smiling, and mutually agreed upon a timeline for next steps. My partners are now talking about you and your business behind your back, and my team is now crunching your numbers and researching your model, your sector, and your competition. Sizzle (story-telling) has given way to steak (business-modeling), and our self-described “geeks and wizards” are using Excel-and-friends to assess whether your business outcomes are likely to be half as rosy as your own portrayal.

By now, you’ve done most of what you can do to secure our interest, but there remain a few tips that can make all the difference.

Tips on navigating the Insight Assessment

1. Drop a note to the investor to thank them for their time, but much more importantly, to share your thoughts as to how a specific kind of partnership with that specific investor might be uniquely beneficial. From my side of the table, there are two kinds of candidates: those interested in cash, and those interested in a partnership. The former forwards us “copy-pasta” (i.e. boilerplate messages) prior to, and shortly after, our meeting as a matter of their stark, industrialized, six-sigma fundraising process. The latter dares to spend a little time in thoughtful consideration of how we might be able to help them with our knowledge and/or our network. We’ve yet to invest in the former.
2. Provide additional materials, as appropriate, in response to key discussion points. Doing so demonstrates that you recognized specific areas of interest and/or concern during the dialogue, that you’re willing to “open the kimono” as needed, and that you have the motivation and professional wherewithal to follow up. Importantly, this also arms the investors with the fodder they’ll ultimately require for number crunching during their diligence. If you can surprise and delight your investor at this stage with an avalanche of rigorous, well-organized, supporting documents, they'll begin to rest easy knowing that you're more than a sparkle-fingered storyteller. You're the real deal. 

T=7 Days: Impact Assessment
We typically allow ourselves a full week to reflect on a deal, even if the number crunching only takes a few days. We do this primarily to overcome what psychologists call the recency effect. There’s a tendency to give undue weight to the latest and the loudest. If we were forced to decide on a deal, a la Shark Tank, on the day we sat down with the entrepreneur, we’d probably write about 3 times as many checks. (In fact, it turns out the Shark Tank investors end up unwinding a healthy percentage of their deals after the excitement of the show tapings.)

By giving ourselves at least a full week to consider each deal, we’re also forcing ourselves to begin engaging another fresh batch of 5 to 10 interesting companies. If your story is sufficiently impactful, sufficiently elevating, its shadow will rise above the current clatter, and as they say about the keepers: Absence makes the heart grow fonder. 

The plain truth is this: Legitimate investment opportunities gets more interesting, not less, the longer you spend peeling back the onion. This is precisely why car dealers and door-to-door window salesmen can only offer that "one-time deep deep discount" if you "act immediately”. A false sense of urgency implies desperation and helps no one. 

Tips on navigating the Impact Assessment
The impact assessment isn’t easily “gamed” through tips and tricks. You and your investor either have a powerful, lasting affinity towards one another’s business, or not so much. But honestly? That’s totally ok. A week's (or heck, month's) courtship is small potatoes compared to the (on average) 7-year investment relationship that’s at stake. Sales guru Mahan Khalsa nails it when he says that while there’s “nothing wrong with [no], there’s everything wrong with making [no] needlessly more expensive”.

Said another way: It's much better to part early as friends than to divorce downstream as bitter partners.

Bottom Line:
We prefer to invest in founders that make a strong first impression, and back up an intuitive case for investment (sizzle) with an insightful business plan (steak). We favor companies whose stories continue to resonate with us for several weeks, as they tend to make the best partners for several years.

In Conclusion
It’s been my intention to bring raging transparency to the workings and considerations of a seed-stage venture investor. I hope that any of you entrepreneurs who’ve read these articles come away with a better understanding of my side of the table, your own business, and the ways we might work best together. For my colleagues in the VC community, I hope that my small contribution has brought you some fresh perspective. And for those of you who don’t necessarily fall into either camp, I’m happy to have taken you on a tour of Venture Concepts 101. Maybe this series has motivated you to consider starting a business, or perhaps, investing in one. In either case: I heartily encourage you to do just that as I believe that entrepreneurship is one of the most positive forces in the world for generating lasting economic and social value.

Onward,
mB

(I manage Ringleader Ventures (www.ringleaderventures.com), a seed-stage venture capital firm in Chicago, IL. My team and I are constantly asked: "What do you folks look for in a company when you invest?" After talking to over 1,000 founders, and investing in a handful, I can say confidently that we're on the prowl for 12 core elements. I've shared these 12 Secrets to Attracting Investors to your Startup over the past  few months here, and at www.ringleaderventures.com.)