Do not set the valuation of your company too high!
And more advice from Jillian Manus, Managing Partner at Structure Capital. Jillian Manus is an experienced banking and media executive, a technology investor, and an entrepreneur. She is the Managing Partner of the early-stage Silicon Valley venture fund, Structure Capital. Branded "Architects of the Zero Waste Economy" they invest in underutilized assets and excess capacity. Ms. Manus was named one of the top 25 early-stage Female Investors by Business Insider in 2021.
1.It is not about the product for investors!
When you are talking about the in-person pitch, there are several basic points I think founders don't understand. The first is we are investing in them. We are not investing in the product. We are investing in the concept of the product, but the product is going to pivot at a certain point. So, we have to first believe in them and how they present themselves to invest and trust in this relationship. A founder needs to present themself as confident without being cocky. And yet humble. I say that humility is important because it provides us the confidence as an investor that the founders will be teachable, and they will be receptive to constructive criticism. Without that humility piece, it is challenging to do that. The next is the emotional connection to the product. It is critical for the investor to connect emotionally with a product before they even know what it is and what it does. A company doesn't want you to buy a product; they want you to own a product. The difference between buying and owning a product is the emotional connection to it. How is it going to make my life better; what need does it fill? The founder needs to connect to the investor's emotional self before their intellectual self. It is almost a visceral reaction.
2.If you cannot say it, you cannot sell it!
One of the big problems with founders at every stage, but more at the early stage, is that they don't understand the importance of the brand. And it never should be an afterthought. The brand narrative has to be built, baked in when you are designing the product. If you cannot say it, you cannot sell it. When they are thinking of a name of a product, you have to understand that you need a name that people will remember, that is easy to spell, has a personality, and a mission manifesto. These are essential things. If you have a product that people can't say, can't remember, or spell, you will have a problem. A company years ago became one of our portfolio companies, and it was called Road Truck. It was on-demand towing. It was roadside service, but you couldn't remember the name, too generic. Eventually, we went with a whole rebranding of the company. We came up with a name that was easy to spell, easy-to-remember, and had the personality trait of the product. And could scale globally. We came up with Honk, and they are doing $100M ARR right now! They sell to insurance companies. They have a mobilized fleet with the best time and the best price. I had another company which was a mental health app for the black and brown population. They were initially called Henry Health. This app was for men and women. Who was even Henry? I rebranded the company to Hurdle which reflected the mission of the company.
3.Products rarely fail;it is almost always the people!
You have to establish your company's values at the beginning to build the culture and align the people you bring into the company with those values. It is everything from humility and transparency to accountability. I teach values training. The companies that do not use values as their Northstar we see are unable to navigate the challenges. Every time they hit a roadblock and don't have the values, they veer off course. My husband, Robert Chestnut, was general counsel to Airbnb for a long time and other high-profile startups. He wrote a book about this subject called Intentional Integrity. If you don't have the buy-in to the values, it is hard to succeed. It is rarely the products that fail; it is almost always the people.
4.Do not set the valuation of your company too high!
I see this all the time. If you set your valuation too high, you possibly set your company up for failure. Is that a risk you are willing to take? This could lead to a down round or a flat round. Neither speaks well for your company. You are creating trust with your early investors at the proper valuation. You need to think this thing through and not just throw out a number because everybody else around you is throwing out ridiculous numbers. When you are fundraising, you are trying to raise value, not just money. You are trying to attract the highest level of talent for your investors that will bring value to your company, not just numbers. I had a company that was two women who were working on building dev talent out of the Middle East. There was such a high demand for it. They had created this whole pipeline; it was very good. They had little revenue of about $100K because they just launched. The valuation was $16M! I said I would go in at around $5M or maybe $6M. They were offended and said no. They had already raised $300K-$400K at $16M. I asked them if that was a good idea. I asked them if they thought it was wise, and she said, "we're getting it!" Don't see yourself up for failure. There are so many ways a company fails, don't add this one.
5.Don't reach out to investors without researching their portfolio.
Know your investors. I get many emails and many pitches from people who have not read or not looked at our portfolio companies. But even more so than that, I would recommend not only know the investor but know the portfolio companies and how your company might leverage the existing ones. You want to be able to connect the dots. If they are not preparing well to pitch to me, how are they going to pitch anybody? They are cutting corners. If they are cutting corners, know that may be indicative of how they might build a company.