Tuesday, September 9, 2014

Fundraising Pitches -- The Telephone Test


When preparing a VC pitch, I suggest two simple questions to help evaluate the pitch.

1)      After you present your pitch to the VC, does the VC become your champion?
2)      Can your champion persuade in 5 minutes the rest of the partners at their partnership meeting?  Or, do you pass the Telephone game test?

After a few pitches, most presenters quickly learn how to solve the first question.  It obviously helps, if the presenter can tell a good story (see prior blog post on Learning from the IPO).

Many presenters, however, don’t understand the importance of the second question, since it is normally hidden from the presenter.  It is a rare champion who proceeds with an investment without getting the support of the full partnership.  So, how would your champion present your company at the partnership meeting?
  • 5 minute oral presentation.  This is very easy for your champion.  But, these oral presentations are typically underwhelming, unless you already have multiple term sheets.
  • Create a short summary on why to invest.  That’s a lot of work, and the champion may omit an important point in the summary.
  • A short summary is copied from your pitch.  But, not all pitches have this kind of summary.
  • Your pitch is merely forwarded to the rest of the partnership.  This is the easiest answer, and thus quite common.  That’s why one VC friend counsels that the pitch must be self-explanatory (ie, clear and compelling with no voice over).  This counsel contradicts common wisdom for presentations, which says that the audience should not be able to just read the presentation.
Basically, you need to overcome the same challenge as the kids game, Telephone, where you have a circle of children trying to tell the same story to the next.  Usually, the final story is quite different from the first.  Here, you want the final story to be the same as the first – your pitch of the company.

Friday, August 22, 2014

The Series A Operating Plan -- Avoid Running Out of Fuel

When closing the Series A financing, it is helpful to worry about the next round.  Otherwise, it is easy for the company to run out of fuel.

Below are some suggestions for a company developing its operating plan for its Series A financing:

Be realistic.
  • Does the plan assume enough engineers and time to build a compelling product? Many times, this requires another release.  
  • Does the plan assume enough sales and marketing expenses to achieve the bookings target?  A simple metric measures the sales and marketing productivity, commonly called the magic number.  
  • Does the plan assume enough time to close the leads?
Keep the plan extremely simple, but understand the key assumptions/metrics.  Some startups build very complex financial models.  But, that only delivers a false sense of precision for an early stage company.

Plan for next financing round.
  • Will the next round be priced at 2x the Series A price per share?  If not, why should anyone want to invest now?  See blog post on Valuation challenges.
  • What Value Creation Milestones do you need to achieve to achieve that valuation target?
  • When do you need to close the next round of financing?  Usually 3-5 months prior to your zero cash date (some memorize this date, the ZCD).  
  • When do you need to start raising the next round?  At least 2 months before you need to close the financing.  
  • If possible, defer all expenses unless absolutely necessary to close the next round.  A high monthly burn scares the potential investors for the next round.
  • Be opportunistic on raising the next round.  Great startups close the next round before achieving the VCM's for the next round.  See blog post on Refueling High Burn Startups.
Many startups assume that the next financing will naturally occur or that the new investors will magically make it happen -- until the company runs out of fuel.

Monday, August 11, 2014

Planning for the IPO Transition

The IPO is a major transition for the company, because it significantly impacts three constituencies -- shareholders, employees and board.
Below are some suggestions for handling the three transitions:

Shareholders:  transition from private shareholders to public shareholders.
1) New public shareholders
     - Before the IPO road show, get to know each other.  The best investor due diligence is watching a company over time.
     - At the IPO, select right new public shareholder base with the right allocations and pricing.
     - After the IPO, continue to earn the public shareholders' support on a quarterly and long term basis.  Key factors are (i) the "consensus estimates," which becomes the street's financial plan for the company, and (ii) the company's strategic positioning, which impacts the company's long-term value.
2) Existing private shareholders.  Manage the overhang.
3) Develop a long term IR strategy to manage all shareholder needs.

Employees:  transition from equity/going public incentives to public company compensation.
1) Prior to the IPO, recruit new employees
2) Prior to the IPO, lock up existing employees
3) After the IPO, implement a public company compensation strategy.

Governance:  Transition from private company to public company compliance.
1) Implement public company finance, such as systems, processes, controls, reporting and risk management.
2) Implement public company board compliance, such as "independent" board members, active committees and many experts.


To help ease the transition, many companies t
ake advantage of the new SEC rules (eg, JOBS act), which allow a slower phased transition to becoming a public company rather than a quick abrupt one.

Sunday, August 10, 2014

Korean Cool >> Global >> More Korean Unicorns

This is from Euny Hong's new book --  "The Birth of Korean Cool:  How One Nation is Conquering the World Through Pop Culture."

The Economist wrote an insightful review of her book, called "South Korea's soft power:  Soap, sparkle and pop":

"FROM 'Gangnam Style' and competitive electronic sports to kimchi-flavoured pot noodles, South Korea’s cultural exports are eagerly consumed around the world. Filipinos are hooked on its dramas. The French love its pop music and its films. Last year South Korea raked in $5 billion from its pop-culture exports. It has set its sights on doubling that by 2017....

Much has changed since 1985... [when the] country had no mods, rockers or hippies.  Dramas were 'provincial and tedious.'...  From this unpromising position South Korea managed to charge past Japan to become Asia's foremost trendsetter, and Ms Hong interviews superstars, chefs and cultural critics to discover why.  She finds that cool can be manufactured, up to a point.  South Korea's is a side-effect of the culture-exporting machine that was created at the end of the 20th century and has been nurtured by the government ever since...."


The success of Korean Cool played a key part in the success of Com2uS global business.  It provided the confidence and experience to pursue a global strategy -- despite the initial failures.

Success will lead to even more success.  

Golf is a good example.  Ms. Pak Se Ri's victory in the 1998 US Women's Golf Open triggered a huge Korean golf boom.  This resulted in 9 Korean female golfers winning 13 major LPGA championships.

Saturday, August 9, 2014

Com2uS -- a Korean Unicorn

Com2uS's market cap exceeded US$1.2 billion today -- making it a Korean unicorn.

We invested in Com2uS in 2005 believing that mobile games would be a great new category but worried that a Korean startup would have limited upside.  Many worry about the relatively small Korean market.  VC's generally don't raise this issue about Israeli startups, because of their ability to go global.

For the last quarter, Com2uS reported record revenues of $41.5 million USD (43 billion KRW) and profit of $13.5 million USD (14 billion KRW).  

Interestingly, 68% of revenues came from outside Korea.  Com2uS's games are succeeding globally.  For example, Summoners War: Sky Arena (an RPG game) made the Top 10 for top grossing apps in 34 countries on Google Play and in 30 countries on iOS.  “We were able to secure our presence in both major and emerging markets around the world with the global success of Summoners War and Ace Fishing,” said Baek Yong Choi, Com2uS CFO. “With offices in the US, Korea, Japan, and China, we plan to solidify ourselves as the global leader in mobile games by leveraging our user base and know-how with all our titles going forward.”

Congratulations Com2uS!!  Also for becoming a Korean startup role model.

Saturday, June 21, 2014

Thanking the early customers of MobileIron

At the MobileIron user conference, MobileIron and Storm Ventures thanked 12 individuals "for your belief and trust as a four year veteran of the MobileIron Global User Conference."  These early customers are absolutely critical for the company's success.  Being first with the startup -- whether as the first customers, first employees (ie the founders) or the first investors -- requires a huge amount of faith and trust.

Ajay and Suresh, cofounders of MobileIron, gave these awards to those 12 individuals.
On behalf of MobileIron and Storm Ventures, we thank those 12 long-term believers of MobileIron -- especially since the company now has over 6000 customers.

Thursday, June 19, 2014

First Teaching Customers (the right ones)


At our LP meeting, Ajay Mishra discussed how he targeted the right customers and partners (even before building the product) and then closed them.  Ajay did it first as cofounder of Airespace and then later as cofounder of MobileIron.

Ajay emphasized getting enough different perspectives (from different potential customer segments and different potential go-to-market partners), especially from outside the bay area.

In raising the first $500k financing Storm for MobileIron, Ajay showed the report card on the original 24 teaching customers and partners for Airespace.
Ajay followed the same formula with MobileIron.