Category Archives: investing

Thru the looking glass: Fund-Raising Lessons

Handling QA in investor pitches

Udemy’s Gagan Biyani wrote a super useful, practical guide on fund-raising lessons learned.  Gagan is a great Silicon Valley startup CEO: he’s tireless, he’s persistent, he’s nice, and he’s adaptive.  All that comes through in his post.  Give it a read here

He set an example that I wanted to follow on slightly with some of my own lessons learned and lessons borrowed.  I’ve gained the opportunity to participate in the fund-raising process from a few angles. As an entrepreneur, I’ve raised money for my own company, Moonshoot.   I’m also at times a venture capitalist/investor at BlueRun Ventures, so I see things from the other side of the table too.  

I’m putting together a series of posts, which aim to share these learnings.  I’m going to start this series with one of the most important –and under-discussed – elements of the fund-raising process: answering questions.  

“Say it once.  Say it well.  Don’t say it again.”

I attribute this quote to one of my best friends, Nils Gilman.  An intellectual historian, published author, and polymath, Nils is a fountain of knowledge, thinking and ideas.  He can also flat out turn out well-written text at a factory pace—it’s crazy.  He uses the above adage, in coaching me on writing.  I apply it to what we say, specifically when answering questions in a pitch. 

Why questions matter

Most fund-raising posts will focus on pitch decks, meeting etiquette, etc.  All that stuff is useful.  In my experience though, a key skill for any founding team is how to answer questions.  Investors want to ask questions to probe more deeply and to see how you respond.   In addition to getting us information we want, asking questions provides a different lens into the thinking and quality of the founding team.  How you answer questions conveys a great deal about you, your team,  your credibility, your command of data, etc.   You may not win by answering questions well; you risk a lot by answering poorly.

Where to Start

As answering question is more improvisational, it tends to get less attention than preparing a pitch, getting the deck in shape, etc..  Don’t ignore questions though—spend time thinking about how you want to answer questions.  Nothing is more painful than presenting a great pitch, only to feel as though you gooned a few key questions and lost your credibility in front of a potential investor. 

I recommend Jerry Weissman’s book, In the Line of Fire: How to Handle Tough Questions.  Jerry is a friend, mentor and teacher.  He’s one of the very best in presentation training and skills.  His thinking and exercises on Q&A (and among presentation planning) are among the best.  Get his book here.

I also recommend writing down the top 10 questions you expect.  Figure out how you want to answer them, and answer them that way.  As you go through pitching, write down the questions you’re getting, along with the answers you provide at the time.  Assess whether there are better answers you could have provided, and add that to your repertoire.  Evolve this so that as you do this more, you’re ready.    

My Observations

Few founding teams handle questions extremely well.  Many struggle with basics—hearing the question asked and answering.  For example, if an investor asks you if you’ve raised previous money, a simple “yes, we’ve raised $80K in friends and family” is a fine answer.  Instead, often there’s some whole discussion of who gave you money, when all it came in, why you took it, etc.   TMI.  Understand the question being asked, and answer it.  Remember the adage:

Say it once.  Say it well.  Don’t say it again.

Focus on this, and you’ll be in good shape. 

As you are focusing on this, I’ll add the two most common breakdowns I see in founders answering questions during a pitch.  Though different, they’re related.  Here are the two most common problems I see in answering questions in a pitch:

Answering about the unknowns

Founders are dealing with big unknowns.  Known unknowns and unknown unknowns.  As someone assessing whether I’d invest, I know you’re dealing with unknowns.  Its generally fine to say, “I don’t know, and here’s my plan to learn/figure out.”  So long as this is credible, that’s fine. 

There are two cases where that does not work.  First, you say you don’t know, when I think you reasonably should.  For example, this summer I spoke to a mobile location-based platform company seeking investment.  The exec with whom I spoke hadn’t heard of FourSquare.  This was unacceptable, as this person should have known of them—something he should have been able to figure out. 

The second is where you dress up the “I don’t know,” in a bunch of bullshit.  I have sympathy for this mistake.  As a founder, we want to know everything on the business.  We don’t want to feel like we don’t know an answer to a question.  We may even have some decent hypotheses.  But if you don’t know, you don’t know.  Just say, “I don’t know yet.  I plan to figure that out this way.”  BS is pretty easy to identify and its hard to watch.  I understand the temptation, but avoid. 

Answering about the knowns. 

If founders talk too much about what they don’t know, they are also prone to talking to much in answering questions on details that they do know.  The problem here is lack of empathy.  Investors are flying at a different altitude than the founder.  Founders have everything invested in a company, and are very close to the businness.  Investors are much more removed—trying to assess in a brief conversation the viability of potentially investing  money in a venture.  An investor is flashing through in his/her mind whether the market, the team, and product could be a fit.  This mismatch leads to times where an investor can feel a pitching founder is just off on a tangent and “in the weeds” to a degree that they won’t be able to manage or lead a company.   

Sometimes an investor really is interested in getting down into the weeds, but that’s pretty rare.  As a founder, you should know whether the investor is asking for that detail—if yes, then go into weeds.  If not, hold back. 

I posit that when most potential investors ask a question, they want to see whether a founder can understand it quickly and credibly clarify the essence of what I’m asking.  Sounds easy; hard to do.  Most of us are so close to our specific worldview that its difficult to context switch and communicate at a more bubbled up level. 

For example, I spoke by phone with the CEO of an outstanding company this summer.  Very clearly, they’d built a better mousetrap.  The issue was, no question I asked, regardless of how basic, had less than an 8 minute answer.  This did damage.  I literally got spooked because the executive’s answers were too disjointed and long.

As I reflect on this, it could well be that these symptoms are related.  As founders, we want to hide the stuff we don’t know and expand the stuff we do.  The result is unsurprising.  For stuff we don’t know, we retreat and hem and haw and deflect.  For the stuff we do, we want to expound and show you in 10 different ways why we know this particular thing.  The problem is, both are exactly the wrong approach.  Which leads me back to the mantra I’m repeating…

Say it once.  Say it well.  Don’t say it again.

In conclusion, I’m kicking off my series on pitching observations with a (hopefully) useful primer on answering questions.  Think about this.  Write down key questions you expect and prepare answers.  Track the questions you get asked and how you answered them.  Be mindful of whether you’re more effective saying “I don’t know, but…” or answering what you do know. 

And good luck.  Happy hunting. 

7 Comments

Filed under bootstrapping, entrepreneurship, free stuff for startups, investing, venture capital

Interesting Bessemer move to get Designer in Residence

TechCrunch reports that Bessemer has hired Jason Putorti, from Mint, as a Designer in Residence.

Interesting move for them, promising.

Gives Bessemer and their portfolio access to someone who can really help with a key discipline across the consumer internet properties they have.  If nothing else, having good clean design will pretty up sites.

Leave a comment

Filed under business, consumer, investing, venture capital

Quick take on Microsoft’s Bond Offering

NEW YORK - NOVEMBER 30:  (NO SALES, NO ARCHIVE...

Image by Getty Images via Daylife

Yesterday saw Microsoft making a historic first time bond offering.  While a first for the company, the $3.75B issue is relatively small.  Indeed, it’s not like they’ll buy Yahoo or SAP with that money. 

My own take is that there’s not much to see here—rational, low-risk, imminently sensible.  (Which no matter what else anyone might say about Microsoft, it has *always* managed its finances extremely well.)  From Microsoft’s point of view, it’s cheap money, about as cheap as they can get (aside of course from continuing to pull in free cashflow at $1B/month).  With the equity markets still poor, MSFT is under $20 currently, its blue chip stock doesn’t have the same power it did.  Might as well take their long-term debt: equity ratio to roughly 0.1, roughly a quarter of ORCLs. 

I’d not be at all surprised to see MSFT announce a non-trivial buyback of stock, particularly post Office 2010 beta, and as W7 launch nears.  The message will likely be to the market and to enterprise customers that a new wave of the desktop / netbook is upon us with high quality, on time releases from Microsoft.

Reblog this post [with Zemanta]

Leave a comment

Filed under business, investing, technology

Google : Not a bargain at twice the price (of MSFT)

Many have commented on Microsoft’s pending Windows collapse based on Gartner analysts Mike Silver and Neil MacDonald’s recent comments.  Some of discussed how, by extention, this sets Google up to win over the long-term. 

I know both Mike and Neil, and I think think that they are astute, fair-minded and customer focused.  I think their specific comments — Windows’ viability in the enterprise long-term given Windows Vista’s challenges — are reasonable. 

I think that whoever’s taking those comments and extending them to a death sentence of Microsoft broadly are blowing things way out of proportion.  

I actually think that Microsoft is probably a strong medium- to long-term tech buys at this point in time.  (Note: Though I have a small stake in MSFT at this time, I am not planning to trade in or out of the stock in the medium term.) 

My hypothesis is relatively straightforward. 

First, I do a heads-up comparison MSFT against Google on key financial metrics.  Here are several I chose:

  MSFT GOOG
Net Inc. (2007FY) 14.0B$ 4.2B$
Y/Y 12% 37%
CFLO from operating 17.7B$ 5.7B$
ROE 40% 21%
PE 17 39

Source: Google Finance

I think these growth numbers are staggering — for both companies.  Both companies are growing like gangbusters.  Google trounced the online market and delivered heart-thumping growth for a company it’s size.  Still, MSFT can feel proud in that it actually grew earning more than GOOG in 2007 on an absolute numbers basis. (Check the math.) 

Still when you stack up both sets of numbers and you put an investor’s perspective against them, I start thinking MSFT looks far more attractive.   To me this distinction–the investor’s perspective–is vital.  To an investor, absolute growth (where GOOG has the edge) is important, but not decisive.  Rather, to an investor, what one should look for is consistently better growth versus expectations.  Beating expected growth (and a consistently high dividend yield) over time is the best way to grow shareholder value over the long-term. 

Expectations are made clear in the PE number, where GOOG is literally more than double MSFT’s.  While I do buy that GOOG’s growth prospects on a growth rate trajectory are strong over the next 5 years, it’s hard to believe that it’s worth 2x a PE of MSFT over that period. 

MSFT is a big company, and it may be lumbering at times.  I think though that reports of its death are greatly exaggerated.  It is still a profit juggernaut.  It throws off oceans of free cash flow, which it can use to invest.  It does still attract and retain amazing engineers who want to ship things that will show up on millions/billions of devices or PCs.  Many have left, but many haven’t.  And it is a company that doesn’t know how to quit. 

It also has two undiscussed “aces” up its sleeve that I think are not yet factored into the PE difference that I see. 

First, MSFT has been a big company longer and has gone through many (not all) of the growing pains of being a big company with more than 50K people.  It knows how to execute pretty well with it’s 80K people. 

By contrast, GOOG has just hit 20K+ people and is growing liek gangbusters.  No matter how smart (and I know they are really really smart) they are, at some point there are too many people at any company, and there is the dreaded feeling of overhead.  Great engineers bolt; too many people want to see powerpoints with pretty designs and good punctuation; and decision-making will start to take longer. 

This is a law of physics, in my view, where over about 30K people, innovation starts slowing until management processes catch-up.  This is particularly hard at technical companies as engineers tend to scoff at management types as Dilberts who just screw things up and put processes in place.  But guess what happens if you let 30K people run around and just be engineers who have fun and no one puts a plan in place?  I’ll tell you what you get.  You lose the ability to ship great stuff.  You get too many cooks in the kitchen.  You get products that don’t meet their full potential (Vista’s a decent example).

This will hit GOOG (no offense), as it hits any company to some degree.  It may mitigate this somewhat, but it will have an impact.  The recent HuddleChat / AppEngine fiasco was a good lightweight example–looked to me like amateur hour over there at GOOG.  These types of things will happen again.  It’s unclear how well they’ll deal with this, but MSFT has had more runway with this problem.  My Vista crack aside, the sales force at MSFT is cranking these days, as are numerous product groups (like Server and Tools).

The second ace up the sleeve is starting to be more recognizeable: Ray Ozzie.  He is clearly stepping into about the biggest shoes one could ever fill in teh technology world, namely Bill Gates’.  His Live Mesh strategy is ground-breaking.  He is as visionary and web-centric a technical leader as there is on the planet.  If you watch and listen to him speak–without all the ABM bias–I think you’ll see a man who truly ‘gets it.’  He’s someone who sees the enormous power of the web, connectivity, devices, and so on to deliver amazing experiences.  His impact and influence appear to be rising–this bodes well for MSFT over the next 5-10 years. 

So that’s my case.  I find the lower PE and cheaper MSFT a better value to buy for medium- to long-term equity buyers.  If you want pure growth, go Google, if you want a better investment, go MSFT.

1 Comment

Filed under business, investing, tech, technology

My Prediction: MSFT will win YHOO at slightly higher price

Yesterday someone asked me at lunch whether I thought MSFT would complete the deal with Yahoo.  I’ve got no insider information, I’m not trading on this at all.  I’m just a guy who worked within the ‘Soft for a decade.  Here was my prediction:

Microsoft would get Yahoo.  MSFT may have to pay slightly more.

My rationale is that the current ploys of AOL/TW or the YHOO/GOOG don’t seem credible as deals.  They seem more credible as the final moves of YHOO’s end-game to get MSFT to raise it’s bid.  The moves as end-game likely have the capacity, in conjunction with the recent fall in MSFT’s share price, to drive a slight price increase on MSFT’s side.

Here’s my rationale:

First, the more interesting of the two ploys is the AOL/Time Warner one.  If I were Mr. Bewkes, newly minted CEO who plans to take over Chairman role at the end of this year, I wouldn’t get in a bidding war with MSFT on this with a 50′ pole.  Two key reasons. 

One, MSFT has a far better balance sheet: a ton of cash, margins that still throw off a ton of free cashflow, and effectively no debt.  Time Warner, on the other hand, not so much. 

Two, Mr. Bewkes is taking over a company still scarred by the historically catastrophic acquisition of AOL at the height of the bubble.  I could see an argument that things are calmer now, but think about it.  If you were Mr. Bewkes, would you really want your first big acquisition to be an internet juggernaut that you ‘won’ in a bidding war with Microsoft?  It’d be an interesting choice, I guess, but I’m dubious.  It’s more credible to me that Mr. Bewkes and TW are proving a stalking horse, ensuring that MSFT / MSN don’t get it too cheaply. 

The second Goog/Yhoo ploy is, in my mind, goofy.  The scenario appears here to be a short-term road test of a Google Ad Partnership, hopefully yielding data that would make a YHOO/GOOG partnership break-through or drive MSFT to a higher bid.  The level of crispness and detail around this is shallow–sounds like something being hacked together last second.  Are we supposed to buy that some short-term 2 week test is going to provide material data that’s going to really take things over the top?  It seems particularly random, given YHOOs claim it discussed a larger partnership with GOOG in Europe last year, but decided not to last year.  If the partnership wasn’t worth doing in Europe last year, why should I believe that a smaller test now is one that will make a difference now?

This “test” partnership sounds cute and spunky, but despite the name brand of GOOG being there, it just doesn’t ring true as a credible alternative. 

Sum it up together, I think MSFT ups it’s bid by under 10% and gets Yahoo deal by the end of the month. 

Other estimations welcome. 

3 Comments

Filed under investing, MS/Yhoo Deal, tech, technology

Buffett to Start A Bond Insurer For Cities, States – WSJ.com

Speculation has been rife since the sub-prime crisis from the past summer on what Buffet would do, sitting on an awesome cash position and of course a superb credit rating.

This drove BRKA from the low 100K$ per share up to near $150K by early December.

This move is a shrewd one–where Berkshire has a clear short-term defensible competitive advantage. It will be interesting to gauge it’s long-term defensibility.

I also like the move, as its an organic-growth strategy to take advantage of the mess in subprime. I prefer this far more than purchasing some Wall Street bank, e.g., Bear Stearns, which has been speculated on elsewhere.

[From Buffett to Start A Bond Insurer For Cities, States – WSJ.com]

Leave a comment

Filed under investing

Berkshire Hathaway Shares Down 5% As Barron’s Says Sell, But Bulls See Buying Opportunity – Warren Buffett Watch – CNBC.com

Barron’s says Berkshire stock will probably move higher over the next few years, but it predicts some financials, and even the S&P 500 stock index, will do better, “especially if Buffett’s glorious tenure ends.”Source: CNBC.com

It’s interesting that this statistic from the BrkHath Chairman’s letter is not reprinted.

  • Since 1965-2006 (41 years) Berkshire has outpaced the S&P500 by 11% per year on average. (21.4% CAGR versus 10.4% CAGR)
  • Less risk / std deviation in return over time than the S&P 500.
  • In same span, BrkHath’s Book value was down 1 year on an absolute level : 2001. S&P had 10 down years during same span.

Several points that I think about.

  • Investment firms unlike say software firms can be more driven by the top few people. This argues that after Buffett and Munger leave that the firm’s growth will slow.
  • On the other hand, having a firm that’s only had shrinking book value once in 40 years is a big, big achievement. That’s the kind of thing that gets at discipline and gets at an organization–not just a few individuals–being oriented and well-structured in their approach.
  • Similarly to do it again and again at lower risk than the S&P 500 is a testament to a discipline and approach that given it’s long time horizion, I’ve got to think spans beyond the two key leaders there.

A final note. Even after the past week’s Barron’s sell off, check out this chart comparing BrkA to S&P500 on YTD basis. BRK.A 23% v. S&P 3%.

Disclaimer: I am a shareholder, so bias may exist.

Berkshire Hathaway Shares Down 5% As Barron’s Says Sell, But Bulls See Buying Opportunity – Warren Buffett Watch – CNBC.com

Leave a comment

Filed under investing