In this interview with Jeremy Glaser, who is a partner at the law firm Mintz Levin and also serves as Co-Chair of the firm’s Venture Capital & Emerging Companies Practice, we discuss the various tools that are used for raising outside capital for a private company. The executive summary and investor presentation are key tool, but there are others as well. It is critically important that all the tools focus on the target audience: private company investors like angel investors and venture capitalists.
Patrick: This is Patrick Henry, the CEO of QuestFusion with the Real Deal…What Matters. We’re here today with Jeremy Glaser, who is a partner at the law firm Mintz Levin. Jeremy is the co-head of the Venture and Emerging Company Group at Mintz Levin. Jeremy has been a guest on the show before. Take a look at his other episodes. He is a very insightful guy. Tell us about yourself and your background.
Jeremy: I’ve been working with entrepreneurs for 32 years. I started out because I loved technology and I always wanted to help entrepreneurs raise money and grow businesses. That’s what I’ve been fortunate enough to do for my career. I’ve helped companies raise angel money and venture capital money, and then ultimately get to the end game, which is a nice M&A exit and an IPO.
Patrick: I can attest to the fact that Jeremy is an expert in these areas. He has been a key sounding board for me on a number of different things over the years. One of the great things about Jeremy is that he’s also been on the startup side as a member of the management team of a startup company, in addition to being the corporate attorney guy. I think that experience and insight has been very valuable.
Today we’re going to talk about the toolkit of raising money for your startup or emerging growth company. This includes things like your elevator pitch, executive summary, presentation or your business plan in the form of a presentation, cap table and financials. These are all of the things that investors will want to look at.
Give me a sampling of your client base. Of the executive summaries and presentations that you’ve been sent, what percentage of those do you think are excellent and suitable for raising capital for the audience of an investor?
Jeremy: I’m going to high with which percentage is suitable, and I’m going to say 1%. It might be less than that. Honestly, it’s almost unheard of that I get an executive summary with the pitch material that’s a PowerPoint from a company and founder the first time and it’s ready to go. I might be hard pressed to find a time when that’s ever happened. I think there are reasons for that.
The reality is, you and I are in the business of reading these things all day. We help people write them all day. It’s what we do. This is not what most founders do. That’s not their business. They’re doing this for the first, second or third time.
It’s not something that they’ve done over and over again. They haven’t read hundreds of these. It’s not that surprising. I think that’s why there is so much demand out there for people to get help in getting their executive summary, business plan and PowerPoint presentation done right and directed towards the right individuals.
Patrick: When you run into these situations, what kind of guidance do you give the entrepreneur about this?
Jeremy: There are a number of things. Often, I will start with, “Here are some materials that I’ve come across. They are business plans that are well written. Here is some good information on the internet.” I will send that to them and say, “Take a look at this. Read this.”
I’ve written an article that’s posted on my LinkedIn profile. It’s very specific about what should be in your executive summary and how it should be laid out. That’s from my experience of having worked with thousands of executive summaries and hundreds of venture capitalists, and getting their feedback over many years.
I’ve asked them what they’re looking for and how these things should be structured. If there is one major takeaway when people are putting their executive summary together, you have to remember who your audience is. I work mostly with technology companies.
They are in software or the biotech space. They come in with deep expertise in that industry. They write the executive summary as if they’re talking to a tech person who understands the technology or is investing because of the technology. And, while the technology is a key component of getting an investor interested in your business, what really makes the investor interested is that they see that they have the ability to make a lot of money off the money they’re going to invest. The major error that I see in executive summaries is that they don’t write it from the perspective of telling the individual how they’re going to make money off the technology.
Patrick: You brought up the point about the presentations being focused on a customer audience. I get these presentations, and 90% of the time, it’s talking about the product, and 10% about the business. I understand it. If you’re a founder and you’re extremely passionate about your product, you want to explain every detail and nuance of that product to me so that I understand it, too.
Unfortunately, although I’m an engineer, I will never be as excited about that as you because I’m on the investor side. I’m investing in multiple things, not just one thing. All of my eggs aren’t in one basket. In fact, only a small portion of my net worth is on very risky angel and venture investments.
I need to be in real estate. I need to be in large cap stocks. I need to be in these other things. You have to show me how you’re going to provide this massively superior return if I take a risk on this very risky startup. That is 20% on the product and 80% on the business, clearly describing the business model, how you make money, why you make money, why this team and why now. Most of these companies don’t do that.
Jeremy: They don’t even have that in there. More than half of the executive summaries that I get for the first time don’t answer those questions that you just listed. Where’s the business model? Where’s the revenue model? Why are you the people who are going to be successful and conquer this particular space? It’s not there.
Patrick: It’s essential. When you get an executive summary, is the purpose of the executive summary clear?
Jeremy: Obviously, they are all being written to raise money. I think they all start from that perspective. Very often, it’s not clear. Again, they’re writing it to themselves. They’re writing it to talk about this great new invention or technology that they’ve created. But they’re not really focusing on who the audience is.
One of the very first things that I tell people when they send them to me is, “This is great. There are a lot of really good nuggets in here. But you have to take a step back and remember that the person who is reading this is going to be reading 100 of these a day. They will need to very quickly decide if it’s something worth pursuing.”
They will say “no” to about 99 out of the 100 they read that day. The question is, how do you stand out to make sure that you’re the one and not the 99?
The way to do it is to give them the magic formula. You have to tell them very quickly and think about what their day is like when they pull up that document and read it. What are you doing? Why does it matter, not to the entrepreneur, but to the investor? Why are myself and my team the people who will make this a very successful business? If you don’t answer those three questions really quickly, you’re going to end up in the round file.
Patrick: It is very short attention span theater when dealing with professional investors. They are looking at so many deals. This is the same if you’re in a face-to-face presentation. It is the hierarchy of raising capital foundationally in a strategic plan. How big is your market? How fast is it growing? Who is your customer avatar? What is the competitive landscape? There is a competitive landscape in every business, even if it’s substitute products, new entrants or if you’re doing something in an innovative way.
Jeremy: When you get an executive summary that says, “Competition: none,” you think that’s fine, right?
Patrick: It’s beyond naïve. I don’t have a word to describe it, and I get it all the time. I get it in situations where I can go on the internet after the meeting and find 30 competitors that are much larger, better capitalized and have a product.
I can’t tell the difference between their product and your product that you just told me is highly differentiated. It’s possible that it really is different, and you did a poor job of explaining that. It could be that you’re entering a commodity business. It might be a great business for you.
Maybe you have friends that will buy it, but it’s not going to be a multi-million or billion-dollar company, which is what professional investors are interested in. I see presentations that people don’t get through because it’s physically not possible to present that much information in the allotted amount of time.
My rule of thumb is three minutes per slide. If it’s an hour meeting, it’s really a 50-minute meeting, and 20 of that if for Q&A, whether it’s interrupt-driven or at the end. Hopefully, it’s interrupt-driven. Fifteen slides is a lot, including the summary and call to action slides. Having about 10 to 12 content slides that you can get through is better.
It’s rare that I see a good story. When you’re dealing with short attention span theater, you have maybe two to five minutes to grab their attention and get them interested. If you don’t get them interested in that time, back in my day, they were on their Blackberries. Today, they’re on their smartphones. They’re disengaged. Once you lose them, it’s really hard to get them back.
Jeremy: I think that’s such a good point. You have to find a way to express your vision, let them see it and be part of it. Fundamentally, that is storytelling. I’m a big believer in storytelling. When I have the opportunity to speak, present or moderate a panel, I bring this up. I say, “Don’t tell people facts. Tell people stories. Give them examples of things that you’ve seen and done.” That’s what sticks. I don’t know that entrepreneurs do that.
Patrick: It’s rare. When I see it, it’s like a work of art. It’s so beautiful. The ideal situation with storytelling around a business is, what’s the customer problem? If I can have the prospective investor understand that problem at a visceral, deep, emotional, gut-wrenching level, and then show them the solution that alleviates the pain, they understand that’s a big market opportunity. That’s a lot of customers who will spend a lot of money on this stuff if it really works. That’s an interesting opportunity. When you just throw facts at people, it’s really tough.
Jeremy: I’m thinking about how I need to change my elevator pitch as a lawyer, based upon this input. I’m not kidding.
Patrick: The old days of the 30 or 40-page business plan are long gone. It’s about two pitch decks. One is a teaser pitch deck to get the second face-to-face meeting. The other is a more detailed pitch deck with a set of financials and a cap table. Are you seeing that?
Jeremy: I don’t think I’ve seen a true business plan, like in the old days, with 50 pages listing the market and how they built their projections. I haven’t seen one of those in 20-plus years. It has completely evolved into a one-page executive summary. Make it one page.
When I have people give me executive summaries that are four or five pages, I say, “What are you doing?” No VC or angel is going to read a four or five-page executive summary. They probably won’t even read your one-pager. They’re probably going to read your first paragraph and make a decision. You mentioned that visceral reaction. It’s either going to grab them or it’s not, in that first paragraph. If you don’t have it there, it’s over. Keep it to one page.
Then there is the presentation. As you mentioned, sometimes it’s a smaller presentation. It’s an abbreviated version. From my perspective, I don’t want them to share too much that’s proprietary at an early stage. Then they can have a more detailed one, where you get into more detail about the secret sauce. Then you’re a little more comfortable sharing.
Patrick: There is a good psychological reason to do it that way, too. Leave them wanting more. Always have something that you hold back so that they want that next bite.
Jeremy: It’s true. With the executive summary, often I will get one and it says, “We’re selling $2 million worth of our company for 20%.” I say, “Why would you do that?” They say, “I don’t want to waste my time talking to an investor if they’re not going to understand that my company is worth $10 million.” I say, “No. That’s a completely wrong approach.
You want them to get so invested in you, that by the time you’re ready to have the conversation about valuation, they want this deal.” If you put it there at the front, they don’t have the investment.
It’s very easy for them to say, “It’s a good idea. Good management team. The valuation expectations are not realistic. Forget it. Let’s not look at it.” Why would you give them the opportunity to quickly say no? If you got them hooked and more invested, down the line, you’re going to get them to that number that you need or want.
Patrick: There are two things. It’s a timing issue, and venture capitalists know how to do math. It’s one of their strong suits. If they don’t know how to do math, they will have an analyst that knows how to do math. The key thing is to let them come to the conclusion based on your financial model.
Have a financial model that’s compelling and that you can justify. State your assumptions. They might disagree with some of the assumptions, but at least you stated them instead of saying, “Some magic moment happens. Someone lays hands on my company and, all of a sudden, it’s worth $1 billion.” Let them do that part.
It’s also a timing issue. There is this big debate. In my ask, should I tell them what my pre-money should be? If you don’t do it, then you’re wrong. If you do it, then you’re wrong. I’d rather say, “This is what we’re looking for but we’re flexible. For the right investors, we’re flexible. We’re going to work with you. It’s important to me as the CEO, and my founding team, that we have you on board with our company for these reasons.”
Jeremy: I think that is the best advice for entrepreneurs. It always baffles me why we have this debate about whether or not you should answer that question about valuation. I try to express to people that the VC is asking you your opinion about valuation, not because he wants to know how much he has to pay to buy your company. It’s because he or she wants to know if they should waste their time talking to you anymore.
You should never answer that question. The only way to answer it is the way that you just mentioned. “You’re a great venture capitalist. I think you’re going to be a great partner. I am sure we’re going to reach an agreement on valuation. Now let’s talk about the deal, the company and different steps of revenue.” It will all get worked out.
Some people say, “Then aren’t I wasting my time? I spend three or four weeks with this person and then find out they’re not going to step up to my valuation.” My answer is, no, you haven’t wasted your time. You’ve improved the possibility that they might pay a valuation that you would find acceptable by going through that process.
If, at the end of the process they didn’t, you can always say no. You’ve gained a lot from the experience of going through that process with them. There’s no reason to cut off the opportunity to get a deal done prematurely when they haven’t had that investment of time and energy, to get to the point where they’re in a position to say, “We think the company should be valuated at X.”
Patrick: Raising money is a process, not an event. The latest data came out from Y Combinator. The average time to raise a seed round is five to seven months. My experience with Series A and Series B is very similar. You have a couple months of planning.
As the CEO of a private company, when you’re not raising money, you’re always evangelizing and trying to raise the next financing round. Maybe you’re able to do a tack-on round with some strategic investors. You’re always out there. The process where you say, “I’m going to raise my next funding round,” takes time.
Smart investors will see what you told them the day you met them. They’re going to see where you are at each successive stage. They want to draw a line through those dots. Mark Suster has written a blog about this. You need to have meaningful milestones that you can accomplish in that six-month period. Under commit and overdeliver. Meet those milestones. Show progress during that period of time. Do you see that as being a thought process that a lot of entrepreneurs have? Is it something that they need guidance on?
Jeremy: I think they need guidance on that. I don’t think they view it that way. Most of them view it as an event. They think, “We’ve been building the business. We’ve been doing all of these things internally. Now we have to raise money. We’ll raise the money and then we’ll go back and focus on the business.”
I don’t think they see the process, and I think you’re right, that they should. This conversation leads me to an important realization. Unfortunately, most entrepreneurs try to short circuit the process.
They don’t understand that they need to have all of these building blocks down below before they can say, “Now why is this a good investment opportunity?” We need to pull them back a bit and say, “Spend the time doing the things that are in your book.” What are the fundamentals of the business? What’s the market?
Patrick: Do the homework. Do the prep work. The fundraising process, in my experience, is a gut-wrenching arduous process and you don’t know if you’re going to be successful at it or not. No matter how well your company is executing, no matter how good it is, there is so muck skepticism out there. It’s a numbers game, like anything in sales.
Let’s say that you have a venture capital firm with a $200 million fund. They have to make investments over successive rounds. If they’re a Series A investor, in order to maintain their investment, they need to keep some dry powder for Series B and Series C investments. Maybe they have three or four partners. Each of those partners might do four deals a year.
Jeremy: It might be less per year. It might be two.
Patrick: You have two deals on the low and with three to four on the high end. That’s a big fund. If they are a mega-fund, they’re going to have more partners. They’re looking at so many deals. Maybe they are interested in your company, but the timing is not right. Maybe they believe the business idea is good, but not the team.
They might think, “I’ve already made an investment in this space so I’m not going to make another investment in this space.” You can’t take it personally and think, “I’ve had 30 meetings and I haven’t closed a deal yet.” This is hard work.
Jeremy: I agree. We’ve been talking a lot about what you have to do to get ready to write your executive summary. You need to make sure it’s the right one. You have to practice the pitch. All of that is really important. The one thing that we haven’t talked about is, once you’ve done all of that and you have your pitch down, there is the process you need to go through in order to find the investor.
I’ve been lucky enough to work with a lot of folks who assist companies with fundraising. I’ve been involved with helping companies get introduced to VCs. I’ve personally developed a process that I use, that I’ve found effective. It results in what you’re describing.
You work very carefully with someone like us or another outside professional to come up with a list of the appropriate investors. These are the ones who invest in that space and still have dry powder in their fund. You put that list together. Then you identify who you know.
You want to have a warm contact. Sending a pitch deck without that, it’s very unlikely that you’ll get anyone to read it or get feedback on it. You identify these folks. Who do you know? Who do you know that knows them? Once you do that, you blast out an executive summary to all 100 of them at once, right? Of course not. But that’s what every investor does that is not properly advised. No. You never do that.
Patrick: Is that a general solicitation?
Jeremy: I believe it’s not. We could get very technical about how you found these people and emailed them. In general, it’s probably not.
As a matter of whether or not it’s going to be effective, it’s so wrong. I’ve tried to educate folks. It’s not an event. It’s going to be a process. It’s going to take time. You want to identify 5 to 10. I prefer 5 for the first go.
These are going to be funds that know the space, know one of us well and who will pay attention and give us good feedback. We’re going to send them our materials. The likelihood of those first 5 or 10 investing is close to zero. That’s not why we’re sending it to them. We’re sending it to them because we’re going to learn a ton.
Despite our best efforts and homework, we’ve missed something. We’ve missed some gap in the market. We’ve missed some gap in the competition. We’ve missed some gap in the revenue streams. There’s something that we’ve missed. We’re going to learn a lot and iterate. We will probably do that at least two or three times, which is why I like to do five. You do five, and you iterate. You do five others, and you iterate.
Maybe within those first 10 or 15, there are one or two who say, “After you’ve made these changes, come back and see me.” Maybe. Sometimes you don’t get that. Once you’re 10 to 15 in, you have something where you think, “This is pretty darn good. I feel more comfortable.” Now we can start going out to a broader audience to see if we can get some real interest in the company.
Patrick: I think that’s sage advice. It’s like in college football. There are situations where number one plays number two the first game of the season. But normally, you have a tune-up game. Go out and test it with someone who probably won’t be a lead investor, but they could be someone that you’re interested in.
Don’t waste your time on just anyone. You want to get good, valuable feedback. Get that feedback. Get that refinement. That’s the beauty of computers versus printed paper. I’ve been in situations where I’ve refined my presentation within an hour of one meeting and the next. I know there are some key nuggets that came out of the first meeting. I’ve added things to my FAQ. You are constantly learning and refining.
You’re in a dynamic world. The environment is changing. Being aware of what’s going on is really important. Sometimes there is a dampening effect. After you’ve gone through it, you catch 90% of it and you’re not changing it as much. Even then, you might find little tweaks. A lot of these people are very smart. You have to listen to their feedback and solicit it.
Many times, they won’t just volunteer it. Have a thick skin but remain receptive. Don’t get defensive. One of the things I coach my clients on is how to defend something without coming across as defensive. Unless you can do that, you will have a really hard time raising money.
Jeremy: That’s a really good point. You have to be open to hearing the criticism. I’m picturing some of the presentations that I’ve sat through. I’ve seen entrepreneurs get defensive about questions they were being asked. That’s the end of the presentation. It’s over. I’ve also seen where someone says, “I have a question about X.” They respond, “I deal with that in slide 17. We’ll get there then.” No. You stop and deal with that question, right then and there. People are not flexible and they can’t iterate.
Patrick: You are investing in a person. You’re investing in a team. You’re investing in a business model. But they all go hand in hand. Many of the unasked and asked questions are about, “Is this a person I can work with? Is this a person I can trust? Is this a person I can believe in? When we’re in battle together in a difficult situation, will they be flexible? Will we be able to work this out?”
Jeremy: That’s so important. There is something you said that ties into this trust. It’s the storytelling. When you’re working with entrepreneurs, how do you get them to develop that story so that it flows, pulls in the investor and they can experience the excitement in a way that’s visceral?
Patrick: It’s about doing the homework. What market are you servicing? What’s your unique value proposition? Who is your customer? What is your customer avatar? What does your industry structure look like? What are the strengths, weaknesses, opportunities and threats?
You need to have that set of information available so that you know what problem you’re solving. There are typically multiple “whys” around that. Maybe there are five layers of “why” to get to the root of the problem that you’re solving for this customer. Why is it so important?
Customers have thousands of problems. Is this on the top two or three list of problems they need to solve that is causing them immense pain in their business or life? If it is, then can you describe that through an analogy, metaphor, case study or some way that people can relate to?
You have multiple tools to tell that story. One might be better than another. If something is extremely technical, you don’t want to describe it in such a way that someone needs a PhD in physics in order to understand your story. It goes back to knowing your audience. How do they think?
Know as much as you can about the individual and their experience. Describe it in such a way that they can hear you and understand. At a fundamental level, it starts with problem-solution. So many entrepreneurs that I see feel that it’s about the product, or the solution.
They don’t start with the problem. If they do describe the problem, they don’t describe it at a deep enough level to get to that root point of why it’s important. If they get there, then many times, they don’t have the other things. They don’t have the story, metaphor or analogy.
Jeremy: I don’t think a lot of them have that. You said something interesting. We tell entrepreneurs, “Do your due diligence on the investor.” It’s not just your investor who should do due diligence on you. You really need to do the due diligence on the investor before you send them something. Before you show up for a meeting, you need to understand the person’s interests. Today, with the internet, you can find out a lot about an investor. Then you know how to talk to that person. You’ll know what will resonate with them. You can’t just have one pitch. You have different pitches based upon the audience, the particular person and the particular fund.
Patrick: The warm contact, the mutual person that you and the prospective investor knows, if you’re using that relationship appropriately, it’s not just, “Hey, send me an intro email.” It’s about, “Tell me a little about this guy. How do you know him? What are they invested in?”
Jeremy: It’s Sales 101. People need to think about it the same way as a sale.
Patrick: Do you have any parting comments or thoughts on this topic?
Jeremy: I think the fundamental message is that you have to do homework. You can’t expect that you’re going to write a business plan and an executive summary, and then off you go, and you start sending it to investors. If you do that, it’s likely that you will fail.
I love what you said earlier. It’s not an event. It’s a process. You have to take the whole process. You can’t skip steps. I think that’s the fundamental message. Get with people who have done it before. Get the information online. Read Patrick’s book. Watch videos like this. Venture capitalists tell you right on their websites what they want and how they want it presented. Mark Shuster has some incredible stuff on his blog.
Patrick: You have to set aside some time, either every day or every week, where you focus on strategic activities. Raising money is a strategic activity, but it’s such an important part of being a growth company CEO. Without growth capital, you don’t have the fuel to drive the growth of the company. That’s a big part of your job. Obviously, the operational part is another huge part of your job. You need to have both of those things.
Jeremy: Whenever I tell CEOs that they have to do all of this work, and they won’t be able to find someone who is going to raise money for them, that they have to do it themselves, they say, “But I’m so busy.” I say, “I get it.” Being a founder of a startup company, you have three jobs. You are the CEO, running the business. You are the head of HR, hiring everyone and managing the team. You’re the CFO fundraiser, raising all the money. You have three full-time jobs. All of them can take 70 hours a week. Welcome to the game.
Patrick: Jeremy, I appreciate your time and perspective. This is Patrick Henry, the CEO of QuestFusion, with the Real Deal…What Matters.
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This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters