Paul Singh, a partner at the Silicon Valley accelerator 500 Startups, has successfully founded and sold multiple tech companies. But he learned much of what he knows about selling through his low-tech first job: Selling cars at CarMax in Sterling as an 18-year-old.
“I learned that you’re always selling something to someone,” he said. “That applies to raising money from VCs and, now, as a VC, to how we raise money from our investors.”
These days Singh splits his time between his native Ashburn and his Mountain View office, which, in addition to making a variety of early-stage deals, also incubates classes of roughly 30 start-ups at a time until they “go boom” (in the company’s words.) Launched in 2010, the firm’s portfolio now includes companies like TaskRabbit and Twilio.
Singh says he believes there’s plenty of investment money to go around — for those who know how to ask for it. In February, he visited the Fort, the new District-based incubator run by Fortify.vc, in order to give local entrepreneurs some tips on how to better pitch investors and angels. The small room filled quickly with an invite-only roster of founders seeking his wisdom.
“Entrepreneurs tend to be really good at taking advice,” said Richard Fawal, founder of the start-up WatchParty. “Often, it’s hard to get really clear, unadulterated advice because advisers will pull their punches. He didn’t pull any punches.”
In some ways, it’s a great time to be an entrepreneur. Angel investments increased nearly 5 percent in the first part of 2011 over 2010, according to the Center for Venture Research at the University of New Hampshire. There was also $5 billion more total venture capital investment in 2011 than last year, according to the National Venture Capital Association.
But the cost of creating a start-up has also decreased, meaning that more and more entrepreneurs are competing for those investment dollars.
“One major VC firm in New York I know of is seeing 1,500 deals a year,” Singh said during the talk. “You wonder why you’re not getting the full attention you think you deserve? The odds are against you because everyone else is raising money, and the bar has been raised.”
Singh laid out a number of ways start-up hopefuls can boost their chances:
●Another venture capitalist should make the introduction between a prospective investor and an entrepreneur, Singh said. And whatever you do, don’t try to pitch to an investor the first time you meet.
“The first time you hang out, your goal is just not to be weird,” he said. “In other words, don’t pitch me, bro. Social capital, in every industry, is important.”
Monica Beeman, a Baltimore entrepreneur and a former funding adviser for start-ups, said she agreed, having gotten to know the hyper-focused, exuberant nature of many founders.
“You really just need to have some interpersonal skills,” she said. “Don’t be a technologist. Be a person.”
● Once you do ask for the introduction, make sure the VC doing the introducing has already invested in your company — or at least has a good reason for not doing so, Singh said.
“Because if they’re not going to do it, why should I?” he added.
Fawal said that meshed with his experience — he only asks non-investing VCs for advice, not leads. “I would agree with Paul that if someone won’t invest, I wouldn’t ask them to introduce me to a new investor.”
●Sell what the investor wants, not what you need.
Angels are more likely to invest out of altruism or to live vicariously through the founder, Singh said, whereas VCs must earn a return on their investment.
“Angels may have exited from a start-up and are sitting at home with their Lamborghini thinking, ‘What’s next?’” he said. “They want the excitement of a start-up without all the work.”
Because of that difference in motivation, the two groups sign different types of deals. And when a VC turns you down, Singh added, it’s not a “kiss of death” — it’s just that the investor doesn’t see a clear return.
Fawal said those guidelines haven’t always held true for him when fundraising in D.C., arguing that many angels he’s encountered in the area operate more like venture capitalists in terms of their expectations for returns.
“Many angels here invest at levels that are angel-like but expect the kind of return that a VC would expect,” he said. “That’s one of the challenges that I have in terms of tailoring.”
●Do a demo, not a deck.
Singh said his eyes glaze over when an entrepreneur fires up a PowerPoint presentation. If you have a product, he said, demonstrate it for the investor. If you don’t have one yet, make wire frames and walk the investor through the user experience.
“People invest in people, and they want to know how you think,” he said. “The way I learn how you think is by being walked through something.”
That said, if you have traction, which Singh defines as users and retention, make a deck and put the numbers on the first slide.
“If 90 percent of your users come to site daily, that tells us you can execute,” he said.
On this point, Beeman recommends both a presentation and a demo, because a presentation can be used to show the investor the “problem” in the marketplace and the solution — which is usually the business being pitched.
●When you’re first starting out, don’t try to hit every angel in town. Instead, Singh recommends entrepreneurs in the early stages of fundraising make a list of targets and “surgically strike” the least essential ones first, one by one, in order to perfect the pitch.
Learning to respond to common investor questions will make a presentation that much more polished for the more important players, he argues. And once early investors are nailed down, feel free to cast a wider net.
Above all, “you have to remember that their attention spans are short,” Singh said. “You have to be meaningful. You have to give them something worth going after.”