"We'll be acquired for $80 million in four years"
Want money for your venture? How about talking about the return profile?
I spent a couple of days at the 3 Rivers Venture Fair in Pittsburgh (Wellington was a sponsor), and must report that there were some common themes among the 25 or so private companies pitching for venture capital. Whether it was an information technology company or a medical device, many entrepreneurs talked about the unspeakable: “we will be acquired for $x in four years”. I must admit, you rarely see that slide in a Canadian pitch.
Occassionally the concept took the form of a forecast internal rate of return (IRR), but I was struck by how different the mindset has to be when you are pitching a business idea that includes a forecast date when you’ll be unemployed as the entrepreneur…although with a tidy sum in your pocket.
Many presenters included a slide about “transaction comps”, which I thought was a smart decision. If you only have 11 or 12 minutes in which to pitch, you don’t have much time to discuss your idea, the problem you’re solving, your market, the team. Getting VCs to realize that your chosen space can transact for 4x or 5x revenue is wise. The goal of any venture fair pitch, or initial VC meeting for that matter, is merely to whet the appetite for another discussion.
No one is cutting a cheque at a Fair, but you want to make an impact.
As you may have read in prior posts, I would never advise someone to talk about forecasts in year 4 or 5 when they are currently working on an opportunity which is pre-revenue. But clearly others in the business feel differently, as some of the presentations came from well-coached CEOs who wanted to leave their VC audience with the impression that they understood that part of the exercise was about making them money.
That is a different mindset, and one has to wonder if Canadian start-up entrepreneurs think enough about that. And if they do, do they talk about it in mixed company? It is a rhetorical question, of course, but where does that rank in the business plan?
With fewer doors to knock on than in the past 15 years, perhaps this slide needs to be dropped into your pitch.
MRM
Interesting. Too many pitches focus on the product and on educating the investor. It’s not about education and the product does not matter if the investor is not interested and if greed is not incited.
I do like the idea of knowing the transaction comps. Will add that into a late stage deal I’m working on now
Plus ca change, plus c’est la meme chose.
Ten years ago it was common for even very short VC pitches to include a transaction comps table. It was more often phrased as "these guys are getting bought while still private at 4x sales…imagine what we could get as an IPO!" I guess that kind of approach is back in style.
As a former VC, it is always a great hook to be reminded what valuations are doing, especially if it is in a space I don’t track that closely.
That being said, I think it should be the 5th slide on a 6 slide deck…not the first or second. I still want to hear "what we do", "how it is different" and "who we are" BEFORE I get to the possible financial upside.