source:
newmedia.com/newmedia/99/09/radar/Digital_Radar.html
---------------------------------------------
Pitching your hot new Web venture to a group of venture capitalists is a
little like walking over hot coals: You need to figure out how to make it to
cooler ground without stumbling. A typical VC firm will look at 4,000 plans
in one year and fund only about 20 of them. We talked to VCs to find out the
common mistakes that burn 199 out of 200 plans. Make no mistake; it takes a
lot more than a cool URL to sell a VC on what you're convinced is the next
Yahoo. You know the three keys: Understand your competition; have the
passion to sell your idea and attract talent to your venture; and write a
concise, well-thought-out business plan. Basic stuff, right? Yet you'd be
surprised how many Web entrepreneurs get hung up on just these points.
Topping the list of pitch faux pas is asserting that you have no
competition. "There is always competition, either direct or indirect," says
George Zachary, general partner with Mohr Davidow Ventures. After all, if
there's no competition, there's likely no market. It's also important to
outline how far the company has come and where you would like it to go.
"With many business plans, it's hard to tell what is planned for the future
vs. what has already been accomplished and achieved," says Brian Ascher, an
associate with Venrock Associates. In pitching a content site, it's
important to show that advertising and sponsorship are not the only sources
of revenue. "The problem with doing deals that rely solely on banner ads,"
says Ascher, "is that traffic needs to be absolutely enormous to grow a
large business, and that's very hard to do." Venrock recently funded
space.com, a site focused on all things outer space. "In this case, it turns
out that learning about space exploration is a hobby for a really large
number of people," says Ascher. Besides banner ads and sponsorships to
Fortune 500 companies, space.com is planning to sell space-theme products.
Kimball Atwood, managing director of Artemis Ventures, also believes that
advertising shouldn't be the primary revenue stream. "We like to see two or
three strong revenue streams," he says, pointing to affiliate programs (in
which a site gets a commission for sending traffic or sales to another site)
as an alternative stream.
Another big issue is scalability -- how the site is going to grow with
demand. "We shy away from niche opportunities," says Andreas Stavropoulos,
an associate with Draper Fisher Jurvetson. "We're looking for successful
business models that scale with the Web." As an example, he points to Third
Voice, a new community site: The more users that come to the site, the more
valuable the service becomes. The same is true of eBay. On the other hand,
Stavropoulos points out, an advice service with a human expert providing
input wouldn't be self-sustaining. Input from well-respected business people
with Internet experience is also key. "Advisory board members are a way to
extend the core team and add strengths that the company is not able to
afford currently," says Atwood. And within your team, it's important to make
sure that roles are clear. A sure turnoff is when one person is asked a
question and another member of the team jumps in to answer it. "If they
can't coordinate at this level, then how will it be when there are 200
people on the team?" asks Stavropoulos.
So what's on the radar screens of VCs at the moment? Niche or vertical
portals that appeal to a specific, finely tuned audience continue to be
hot -- especially those targeted at women, seniors, or children, according
to Ascher. Site ideas that are old hat include consumer sites that deal with
pet supplies, cooking supplies and gourmet food, and prescription drugs and
sundries. What's up-and-coming? Ascher mentions content-oriented sites that
can deliver data to cell phones and PDAs. But beware. The latest bandwagon
can also let you down. One analyst (who requested anonymity) described a new
TV service where users "bookmarked" TV shows so that they could retrieve
companion information over the Web later on. According to the analyst, the
pitch sounded good, but underneath, there was no substance. "A lot of
companies talk about 'big markets' but don't clearly define why their
specific solution is the one that consumers want, vs. what they want
consumers to want," says Stavropoulos.
THE VC's BOOKSHELF
These days, being a venture capitalist means getting about a zillion e-mail
messages a day. better to ask what books are really worth taking time to
read? Here are a few suggestions from Brian Ascher of Venrock Associates:
The Innovator's Dilemma by Clayton Christensen (Harvard Business School
Publishing)
A very thoughtful book that identifies technology with the capacity to
transform industries; it helps you figure out when the big kid on the block
can be knocked over or blindsided by an upstart.
Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream
Customers by Geoffrey Moore and Regis McKenna (Harper-Collins)
This book and its sequel, Into the Tornado, are great marketing books. They
clarify what a small company needs to do to turn into a much larger
enterprise.
FOR THE ENTREPRENEUR
Customers.com: How to Create a Profitable Business Strategy for the Internet
and Beyond by Patricia B. Seybold (Random House)
Upstart Start-Ups!: How 34 Young Entrepreneurs Overcame Youth, Inexperience
and Lack of Money to Create Thriving Businesses by Ron Lieber (Bantam
Doubleday)
Essential Business Tactics for the Net by Larry Chase (John Wiley & Sons)
Tushar J. Mehta
email: [email protected]
voicemail: (206) 405-2335