15.390 Class #5

1. 15.390 Class #5 How to Make Presentations of Your Business Plan

2. Your Audience • Here we’re going to focus on an investor, • But you’ll use this same pitch for: • key hires/co-founders • creditors/suppliers • possible partner companies • early customer prospects • visits to Sloan once you’ve made it!

3. Presentation Style • The listener will be judging how you will sound in front of other audiences. • An investor is going to be very interested in your presentation style. It is a good indication of how well you will play in front of customers, future investors/analysts, etc. • Potential new hires want to know that you can win investors.

4. What We’re Going to Talk About • Social dynamics and “performance” techniques. • The PowerPoint presentation itself.

5. Introduce the team (it’s a winning team) Make the business proposition look favorable Answer questions Reduce doubt/risk Show logic trail Be “on stage”: show teamwork, urgency, charisma, generate excitement (everybody wants to be part of the next hot thing). Goals of Presenting

6. ...before the armies take the field It’s likely that your job is not to convince them of the viability of your business idea/team/market, but rather to reinforce a hunch they already have. If coming in cold, be conscious of interactions before the meeting begins. Know what they know about you before your arrival: what holes in the story are they looking to see if you can fill? Most Battles Are Won….

7. Don’t underestimate a so-called “junior” member of the team. Examples of roles for others in the room: Who is your advocate? Who is going to do the checking-up on you? Who wants to take you under his/her wing? Who is going to object just to sound opinionated, and who has a real objection? Who might have a similar deal brewing? Who got burned on something similar a few years ago? Who has good relevant experience in your field? Know Who’s in the Room

8. The Dynamics in the Room • Your talk is your sales presentation in real time (they are looking to see how well you sell). • Assume that your audience has read your plan (or whatever you submitted in advance), but not all of them have read it well. • Anticipate questions and discuss before asked:“One question you might have…. is how quickly is the Linux market growing?”

9. Presentation Do’s and Don’ts • Use humor or try to cut through the invisible wall, but be careful, and don’t sound like a used car salesman or try to be the VC’s “best friend”. • Have a roll for all the people you bring (ideally, use 2 or 3 team members). • Don’t bring a half-relevant “grey-hair”.

10. Do’s and Don’ts continued... • Make no unsubstantiated claims wrong: “our drug will sail through the FDA” right: “we’re well poised for the FDA process, as our scientists have 40 years combined experience getting drugs approved” • Don’t exaggerate or use dramatic language wrong: “this market’s taking off like wildfire” right: “Most analysts agree that the market will grow 85% per year for the next five years” (and have the sources to show this) • Brag about each other, but don’t use exaggerations or adjectives … wrong: “Now I would like to introduce our awesome CTO who’s going to rock your world” right: “Now I would like to introduce our CTO, who was a Fulbright Scholar, and just sold his last company for $20 billion”

11. Do’s and Don’ts continued... • Don’t overlook “pre-meeting” and “post-meeting” interactions and socialization. • Don’t leave just because you’re at the end of the presentation. • Don’t try a demo or require special A/V • Be prepared for A/V problems, bungling something you’re trying to say, or a hostile or a dead audience. • Rehearse with friends.

12. … with dumb mission statements, lectures about how we’re evolving into an information-based society, or a venting of your aspirations to contribute to humanity. Get into it right away: first 2 minutes are key. Don’t Waste the Time of Your Audience...

13. Show Excitement but Not Hype • Remember the advice to make no unsubstantiated claims, even about silly stuff. • Start with conservative statements (you are building trust and believability). • Show realistic expectations, while dangling the possibility of a grand slam win. • Show ability to plan for contingencies.

14. Three sections: First 2 or 3 slides: executive summary, key points 10-15 more slides: details and further discussion Possible appendix: supporting research, Q&A Use graphics, charts, etc. to build credibility. Make them crisp and reflective of good news, but not flashy or over-produced. Cite believable sources. Use light text on dark background for presentation, negative for hand-outs. Don’t hand it out before you begin, don’t send it in advance. The PowerPoint Pitch

15. Looks like your Executive Summary This is why we’re a compelling team, why my/our background and expertise is relevant Here’s the market we are going after, and this is why it’s a great market Here are the resources we have (people, technology, head-start) These are the resources we will need ($) and how and when we’ll spend them, and when they produce results We’re building a company, not just a product (“category leader”) use some subset of the above; brevity/simplicity The First Two or Three Slides

16. a few tried-and-true stunts... After the First Slides

17. 1. “Box ‘em in”: (put everybody else in a bland category, you’re a new exciting category): True next generation enterprise-class multi-scaling ultra-cool stuff us! Clunky Legacy stuff competitor 1competitor 2 Simple translator boxes competitor 3 competitor 4 competitor 5 “Food salting and preserving” “Water-bound manual ice solutions” “Constant-Temp™ Refrigeration”

18. Bandwidth Content Transactions RoutersModemsBroadbandOptical Networks StorageHostingBroadcastCachingStreaming EGENERA “Box ‘em in” example: everybody else in a has-been box, you’re the next wave The Internet Infrastructure Build-Out

19. 2. The Upper Right Quadrant You! Good technology competitor 1 competitor 2 competitor 3 competitor 4 IBM Brokentechnology Comprehensivesolution Point product

20. service manageability easy upgrade proc. density price/perform hot-pluggable packaging open 3. The Features Checklist Egenera  Sun  IBM  Windows  Other Linux 

21. Ice shipments today $20b $80b World ice market $7 trillion All refrigeration and air conditioning applications Available untapped market 4. The Pyramid

22. Get Into Tactics... • Right away. Show predilection for action. • Show list of prospects, or early adopters. • Show familiarity with the market. • Described protected technology “secret sauce”, discuss patents/barriers(defensible,sustainable)

23. Have Detailed Finances • Show Business Model • Sales • Cost of Goods Sold • Cost of Sale • G&A • R&D • net • Cite comparables with other industries

24. Technology milestones you’ve already reached, and those you’ll need to hit (show awareness of an action plan and schedule);. Risks. Dependencies (good and bad); Insourcing/outsourcing. Good if you have a track record of delivering complex projects on time and on budget Show a Schedule

25. Show Capitalization Plan • Raise money one year at a time • Calculate monthly burn rates, major capital equipment, milestones. Example: • Round One: $950,000,Burn rate: $80,000 per month for 10 months, finish the product and launch first beta tests • Round Two: Product proven, x beta customers converted, raise $5m to finance the roll-out, sales will kick in during month x, run-rate will be x • Round Three (IPO?): Sales will be at $x, having grown x% over the past x quarters, forward year projected sales of x. Company will sell 20% at a market cap of ...

26. Assume Some Negotiation • Don’t get hung up in this first meeting on terms. • Appear easy to do business with; but not pushovers. • Don’t ask for too much “advice”; show that you know what you are doing…. and why you are doing it. • Keep certain things quiet… for now.

27. NDA’s • Good VC’s won’t sign them. • Be careful what you reveal. • Ask the VC’s where are they conflicted... or might be conflicted. • Let the VC present his company. Ask for references of companies he has worked with.

28. The VC’s track record… how many funds… which investments… how many winners…. Who are the limiteds (the source of VC’s $) How many did this particular partner originate…sit on the board of…. Which partner/associate will devote time? What does the VC bring besides money… what other relationships... Ask to see...

29. “Show this to my friend at [xyz fund] so we can co-invest” Go fetch: “come back when you have [xyz]”(but don’t confuse this with legitimate “due diligence”, which any interested VC will need to do) Ways a VC Might Say “Maybe”

30. 15.390A – New Enterprises The VC Pitch Chuck Digate cdigate@appliedmessaging.com (781) 676-6701

31. Personal Entrepreneurial Index

32. Credentials • Beyond Inc. • $3.0m 1st round in 1990 (Matrix, Merrill Pickard) • 3 rounds in total for $14m (NEA, Atlas, Trinity, Greylock, Highland, Novell, Banyan) • FreeScholarships.com Inc. • Subsidiary of MathSoft Inc. • Failed to raise venture capital in mid-2000 • Applied Messaging Corporation • $7.4m 1st round in 2002 (North Bridge, Polaris) • Now raising $10m Series B

33. Personal Considerations • Take enough time off before you jump • Rally your supporters early and often • Think really hard about your founding partners • Plan to spend several years longer than you would ideally prefer • Forget about building the next Microsoft

34. Product Planning • Do something difficult • Don’t bother with quick, “test the waters” products • Should take at least 15 months from first engineers • Must have patentable IP • Spend time with customers early in development

35. Team Building • Don’t be pennywise • Fill out the executive team early enough • Hire only “A” players • Hire at least one sounding board executive • Be very selective • Check multiple references • Use your VC’s heavily

36. Applied Messaging Case Study • Began working on ideas in late Oct ‘01 • Short pitch to NBVP in early December • Full NBVP partnership in early January • Term sheet a week later • Found a co-lead by April ‘02 • Spoke with only 5 firms • Closed 1st round on June 4

37. The Pitch • Content • Customer pain • Large, growth market 2 to 4 years out • Technology-based differentiation • Demonstrate fiscal restraint • Tips • Preview with your champion • Brevity • Bring your partner(s) and let them talk • Check your ego at the door

38. 1st Round VC Pitch Outline (1) • Applied Messaging • Company Overview • Instant Messaging Explosion • IM Industry Roadmap • Problem Statement • System Overview • Directory Services • Conversation Switch • Communications Topology • Conversation Templates

39. 1st Round VC Pitch Outline (2) • Target Customer Attributes • Application Sweet Spot • Product and Market Roadmap • Market Entry Strategy • Revenue Model • Competitive Landscape • Partner Targets • Financials • 1st Round Coverage • 5 Year Summary ($000) • Summary

40. IM Industry Roadmap Client consolidation; major new app vendors emerge First real applications appear; ISV integration 2005 2004 Fragmented corporate IM client offerings 2003 Consumer IM client 20M Corporate users 300M 2002 .NET deployment; app servers 2001 Early adopter IT acceptance; build-out infrastructure Consumer IM infiltration

41. Most corporate knowledge is in peoples’ heads Many time-critical issues are best resolved in groups But it’s difficult to get what you want when you want it But it’s just too hard to get people together in a timely fashion Problem Statement Need: System toconnect with the relevant people in real time, regardless of where they may be

42. Application Sweet Spot Expert Selectivity* Product Design Premium Support Corporate Memory Corporate Crises Client Portal Partner Relations Sales Force Support Investor Relations Supply Chain Mgmt Event Planning Ad hoc HR Information Channel Support Tech Support Customer Service Time Sensitivity *Level of specialization; group input rqmt

43. Market Entry Strategy • Get close to the money, enhance revenue • High ROI and short term payback • Sales force productivity • Customer satisfaction • Core product components • Sales lifeline • Client portal • Sales situation room

44. What Happens After 1st Nod? • Evolve the concept • Listen to your VC champion • Sharpen and narrow the initial concept • Talk to lots of people, customers • Demonstrate your ongoing creativity, strategic insights and flexibility • Meet the specified conditions • Don’t spend any money

45. 1st Round Observations • Only extraordinary VC’s will fund 2 guys and 21 PowerPoint slides • Most want a team, a prototype and early customers with whom to speak • Take your time choosing a CTO • A well-placed “mole” can tip the deal • Sleep on your final term sheet; the sun will rise the next day

46. 2nd Round VC Pitch Outline (1) • Business Plan Summary • Company Overview • Market Growth Drivers • Management Team • Global Problem Statements • Applied Messaging’s Unique Value • Application Sweet Spots • Web Conferencing Segmentation • MeetASAP™ • Real Time Convocation

47. 2nd Round VC Pitch Outline (2) • Competitive Barriers to Entry • Sales and Marketing • MeetASAP Offerings • High ROI Solutions • Sources of Customer ROI • Active Customer Pipeline • Target Global Partnerships • Revenue Mix • Financial Plan • Strategic Plan • Summary

48. Market Growth Drivers Instant Messaging Users Web Conferencing Revenue

49. High ROI Solutions • Sales Management • Sales force help desk • Account management sales tool • Professional Services • Expertise networks • Engagement and project management • Line Management • Managers’ communication center • Crisis management

50. Conclusions • Don’t settle for 2nd best • Deep pockets • Well networked • Rich experience • Raise enough money in the first round • Complete development • First paying customers • Don’t raise too much more than you need • Liquidation preferences may significantly reduce returns • However, you do need some “rainy day” money • Minimize number of VC’s on your Board