First Impressions: How To Pitch a VC

I’ve been “on the other side of the table” at Venrock for only a few weeks, but I have seen enough entrepreneurs pitch us to make a few observations. Here are some quick do’s and don’ts when pitching a VC:

1. Make the most of the meeting. If you have been invited in for a meeting, that means you have passed the first filter. In the last few weeks, at least 40 deals have been sent to me via email. This is fantastic, but it is like drinking from a firehose. Every deal deserves a careful look. But so many come in that not all can make it to the next step. There are a bunch of reasons a deal may not turn into a first meeting: too small, too big, too early, too late, wrong space for the firm, idea doesn’t appear to have merit, competitive with an existing investment, etc. If you do get invited to a meeting, this could be your only opportunity to meet with this VC, so you had better bring your A game.
2. Bring your A game. These points should be obvious, but trust me, not everyone prepares well. Be sharp, consider bringing one or two of your co-founders or key management team members. Be confident but modest. Bring a presentation. Even if the meeting appears to be casual, you should bring a laptop and your deck. You should have a fantastic presentation: well laid out, logical flow, covers all the most important information (opportunity, market size, product, competition, basic P&L, expense structure, team, technology, capital needs, use of proceeds, capital needed to breakeven) and is easy to read and follow.
3. How long? Your presentation should last 30 – 40 minutes at the most. If you can’t tell your story in that amount of time, you haven’t distilled it down to its most important (and backable) essence. Be prepared for VCs to jump in and interrupt your flow. Stop to answer the questions, but then continue. If you get finished in 40 minutes, you leave about 20 minutes for questions and some non-structured dialog, which helps VCs see your personality and start to evaluate your leadership qualities.
4. To Demo or Not To Demo. My feelings here (which probably differ VC to VC) is that if the demo is brief and shows something powerful and unique, then go for it. For example, if your demo shows that your tool/product is so easy to use you can demo it in three minutes, then do it. If you demo is highly complex, takes a long time, or doesn’t make a strong point, then leave it at the office. Always a good idea to provide a URL for the VC to take a look themselves. But, if you made it to a meeting, they probably already had a look.
5. Set the stage for follow-up. End the meeting by telling the VC where you are in your fund-raising process. For example, “We have met with two other firms and are planning on seeing a few more over the next week. We are hopeful to receive term sheets within the next two weeks.” Or, “We have two term sheets already and plan to make a decision by Friday of this week.” The reason this is important is that VCs can move fast when they need to. VCs have a weekly partners meeting where your deal will likely be discussed (if there is interest), so you will need to wait for that to happen. It’s fair to ask, “When is your next Partners meeting?”

I am sure I will have more thoughts over the coming weeks and months. As an entrepreneur, I know it would have been helpful to understand this process before going in to pitch all those times. Hope you find it useful.

Why DRM Will Fail For Video, Too

The Digital Entertainment Content Ecosystem (DECE) is a new effort to introduce an interoperable DRM standard for video content. Many of the standard’s specifics are still being worked out but we know enough already to be confident of one thing: DECE will fail.

Why? Because the consumer is now in control. And all DRM solutions simply make a digital media purchase less attractive. DRM files are inherently restrictive. Consumers want easy access and an affordable price. The DECE proposal offers clear benefits to the industry, but does it promise consumers a better experience than what is available today with DRM-free files?

Consumers now have and expect flexibility. They want to watch an episode on their iPhone or in their car, on their computer or at home. They want to enjoy a program when, where and how they want. DRM renders media files inferior to an easily found alternative: free illegal copies. This is the essential challenge facing the Film and TV industry today.

The pressures are real enough: the increase of consumer entertainment options, declining viewership numbers and stagnant DVD sales. Is online distribution the solution or another threat? The music industry’s response to that question is instructive.

The music industry’s experience over the last ten years illustrates what happens when a newly empowered consumer meets business practices that refuse to engage with new realities. It tried DRM interoperability standards– notably PlaysForSure, and the Secure Digital Music Initiative (SDMI) — all of which have failed. It tried legal means, creating a new villain in the minds of a generation but having little effect upon pirate activity. It insisted on a DRM solution with the first viable distribution partner (Apple), creating a single dominant digital retailer and a closed ecosystem under Apple’s control.

In the past year the music industry has shifted. The move to licensed sales of DRM-free MP3s has increased distribution and is growing the digital music market. It’s also a tacit recognition that piracy will not be stopped through technological or legal means. The good news is: they can compete with it by offering a product equal to or better than the pirated goods.

The Film and TV industry has vowed not to commit the same mistakes as their music industry brethren, yet DECE is precisely the same tactic which wasted precious years during the music industry’s SMDI fiasco.

The Film and TV industry seems most comfortable with a streaming, ad-supported, model as shown by the recent IMDB distribution deals and support for Hulu, YouTube, and the streaming activities on their own sites. But the embrace of online streaming is at odds with the industry’s fear of DRM-free electronic sell-through. Streaming is not ‘safer’; recording streaming video content is no more difficult than recording a broadcast program to a VCR and millions of consumers are already “stream-ripping” from Hulu and YouTube instead of purchasing downloadable files.

The other issue with putting all your eggs in the streaming basket is that streaming does not address a customer’s needs for portability. How many portable DVD players and video iPods do you see on planes these days? None of these portable video devices are enabled by streaming solutions. Only wide-spread, interoperable EST (electronic sell-though) addresses this consumer segment.

DRM-free EST gives consumers what they are looking for: convenience. It allows a customer to purchase video programming online with the same certainty they get when buying a DVD: it will play on all my video players. DRM’d content forces the customer to consult a matrix of compatibility questions: Will this file play on my device? Will it play on the new device I buy next year? In most cases, the answer is no. EST also opens up another revenue stream. It may compliment, or compete with, streaming. Either way it’s a win for the industry and consumers.

This is the lesson that the Film and TV industry needs to absorb: to win the fight against illegal files you must give consumers a product that performs as well as the illegal alternative, price it fairly and increase convenience through expanded distribution.

The challenge is to shift focus from our historical ability to set expectations and begin catering to the expectations of a newly empowered consumer. The music industry has acted on consumer demand for DRM-free entertainment, albeit years later than necessary. The opportunity is here for the Film and TV industry, all we have to do is sell the people what they actually want to buy.

My presentation to Erik Brynjolfsson’s “Economics of Information” Class at MIT

My presentation from Book Expo in June about DRM and Audio Books