When you present your venture for investment, VCs will evaluate your venture across a number of dimensions. It is a difficult task, and talented investors work hard to grasp these fundamental issues and make a decision as to whether they will invest:
- Your vision
- The team
- The market—both its unmet need and its pain points
- The timing
- The product/service solution’s key point of differentiation
- The competitive landscape
- Your “go-to-market” plan
- Your execution plan
- The unit economics and financial plan
- Your competition
- The investments needed
- Your demonstration
- … and more …
Most helpful is when you give the VCs the insight they need to evaluate your venture instead of forcing them to discover the major issues for themselves. One chart in your venture presentation—The Venture Truth Table—can do this for them, and have a profound impact. The words “truth table” come from the field of logic within mathematics, indicating that if every statement in the table is true, then the conjunction of all these statements will be true.
In your presentation, you hopefully answered how you would execute your plan against the fundamental issues in the list above. But does the VC believe you?
Here is a powerful technique to work with the VCs and learn what they think:
Near the end of the presentation, give the VCs a list of what you believe are the most important risks concerning your venture. Your goal is to learn whether they agree that you provided them with the most important risks, and whether they agree that your strategy for mitigating these risks is sound.
We call this list the Venture Truth Table.
For each statement of a risk, first, ask the investor if they agree that it’s an important risk. Then ask them if they agree with your mitigation strategy. If they answer “Yes, Yes” - meaning yes, that it is an important risk, and yes, that they agree with your mitigation strategy, you should move to the next statement.
If, at the end of your list, the VC has answered “yes, yes” to every statement, they have no choice but to invest, or explain further what risk you missed or what solution they disagree with!
Suppose we did this for Siri (I wish we had, but we didn’t) and titled it “What A Siri Investor Must Believe ….” The Truth Table might look like this:
What A Siri Investor Must Believe
1. Access to web services through mobile devices represents a multi-billion dollar opportunity that has been gated by the pain of the user experience. Hunt and peck browsing and keyword search are difficult, time-consuming, and ineffective.
Do you agree? Do you agree with our solution?
2. Billions of people are searching the web every day and will save time and energy just asking by voice for what they want and getting their answer by voice as well.
Do you agree? Do you agree with our solution?
3. The financial model of lead generation will create an ongoing and exponentially growing stream of revenue for Siri.
Do you agree? Do you agree with our solution?
4. Our technology has been developed over decades, and it can be built within $10M and 18 months to allow Siri to understand a user’s spoken query and construct a spoken answer to that query.
Do you agree? Do you agree with our solution?
5. Our primary competitor is Google, and we likely have a twelve-month lead.
Do you agree? Do you agree with our solution?
6. Siri has thoughtfully solved the mobile search problem, and the Siri team is the world’s best team to solve it within the next 18 months with $10M of funding.
Do you agree? Do you agree with our solution?
If Siri’s CEO led this discussion and the VCs disagreed with a point, it offered an opportunity for a conversation and explanation.
If they agreed with all the points, only three possible outcomes are likely:
1. The VCs said yes to each point but indicated that there are missing points. For example, they might say that they disagree with the time and funding needed to build Siri. This is a great point, and the next presentation should include an explanation of this new point as part of the truth table.
2. The VCs said yes to each point, but they are not the “right VC” for the opportunity. Perhaps it is too early, too much money in valuation terms, or outside of their core competencies.
3. The VCs said yes to each point and they then agree to invest.
No matter what their answer, you will have learned a great deal from the discussion. Beyond that, you will have impressed the VCs with your capability to deeply understand the risks your company faces and your ability to mitigate them. Most importantly, you treated the VCs as potential partners and presented them with a partner deck rather than a marketing one.
You might argue that it’s too revealing to lay out all the issues needed to build your venture.
My answer is that what is most revealing is if you don’t lay out the issues and the VCs need to search to discover them. That is often the cause of that hard-to-hear phrase, “I pass.” Even worse, when they pass, you won’t know why.
Have you ever experienced this?
Do you disagree or have a question?
Comment below or reply via Linkedin or Twitter!
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