I was recently very involved with a portfolio company’s Series A fund-raise. The CEO would ping me with various VC questions and I would coach him on what they were after and then we would brainstorm on how to best respond. “Why don’t VCs just say exactly what they want?” he pondered. It was perfectly clear to me what they wanted I told him –“I speak VC”. We shared a moment discussing just how hard it must be for an entrepreneur to go through this process who doesn’t yet speak VC or have a very motivated mentor or investor by their side who does.
I then read Joanne Wilson’s post about “off the grid” entrepreneurs which discussed this exact issue. She describes these entrepreneurs as “entrepreneurs who are not familiar with the verbiage that gets tossed around in the start-up world” and she worries that in this funding environment, they may struggle to get capital without engaged investors by their side. Exactly.
So, what’s an ‘off the grid’ entrepreneur to do?
Surround yourself with people that have been through the process. The more your peers discuss their experiences, the more you will learn the language through osmosis.
Read. There are resources like Brad Feld’s Venture Deals, CooleyGo, Quora and more to help educate you.
Try to bring on investors today who accept that you are not yet proficient in this language but have the experience and bandwidth to guide you through the process in the future.
You need to be able to translate VC questions so that you respond with the information they are after. If you do not understand the intentions of their questions, it is impossible to have a meaningful conversation about your business and therefore, funding will not follow. Here are some terms that I know have caused entrepreneurs pause in the past…
KPIs. Stands for Key Performance Indicators and are the main metrics that drive the success of your business. You want to understand what the key metrics of your business are and measure them like mad. You want to clearly articulate how your metrics are improving, why you expect them to improve even more over time and the impact that will have on the growth and/or profitability of your business.
TAM & SAM. Stands for Total Available Market and Serviceable Addressable Market. Your TAM is the size of your total market and SAM is the segment of your TAM that your product or service addresses. When VCs ask how big your market is, you want to be able to discuss the overall market but more specifically, what part of the market you have a shot of capturing.
Cohort analysis – A cohort is a group of people who share a common characteristic over a certain period of time and cohort analysis is a study of these cohorts. Understanding how you look at your customers and how they behave over time, ideally tells a story that either 1) your product or marketing is improving and/or 2) you better understand your target market as you know which customer groups behave the best. It also lets the VC know that you are data driven and being thoughtful about your actions.
Go-to market strategy – this is your action plan for how you are going to reach your customers. Be ready to share how you are targeting your audience to begin and if you have the data, what your conversion or adoption rates have been. Many founders start with their most obvious target audience and then expand from there while some start with a certain geography and plan to expand into new geographies after they have figured out the playbook.
Network effects – the phenomenon whereby a good or service becomes more valuable when more people use it. If applicable to your business, be ready to discuss with VCs as this is one of the strongest competitive moats you can build. We VCs love network effects.
Most importantly, if you do not understand what an investor is asking, ask them to clarify. Guessing your way through an answer is only going to make you look like you don’t understand your business. You deserve to work with VCs who are collaborative and excited to coach. Quality VCs want to work with entrepreneurs who are not afraid to ask questions. After all, curiosity is a key trait of great entrepreneurs. We want you to be constantly asking questions about your business, so be inquisitive. Ask investors. Even if that investor doesn’t make an investment in the company, you’ll be more prepared for the next meeting and maybe learn something that can help you be a better leader.
If you have subjects you would like me to cover, please DM me on twitter, @jennylefcourt