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Marketing to Venture
Capitalists - Part I
"It is
important to understand a VC's current portfolio, their goals, and the
market
knowledge they bring to the table."
from the desk of Peter Fillmore
December 2000
At the National Research Council, many great ideas have emerged
over the years, and many have gone on to successful commercial
application. Trillium Photonics is an NRC spin-off that recently
landed $10 million of equity investment from Mohr, Davidow Ventures
of Silicon Valley. I visited co-founders Simon Boothroyd and
Piotr Myslinski (CEO). Trillium is creating a new generation of fiber
optic amplifiers to meet a bottleneck expected when optical switching
becomes prevalent in backbone networks. Here are some tips you can use in
your start-up:
Know your target audience - A VC contact needs the same care as a
large prospect opportunity. Find out about their investment strategies and
portfolio before meeting. "As we met with VC's we always did some due
diligence," commented Myslinski, "we found out who their current
investments are, and sought advice from our friends in the business
community. It is important to understand a VC's current portfolio, their
goals, and the market knowledge they bring to the table."
Have a compelling market investment opportunity - There are several
questions VCs will all start with: What is the market size? Is there a
chance to build a $1 billion valued company? To have strong answers, think
through your "go-to-market" strategy options. Define a market space that
is large enough to be attractive, but focused enough to allow you to
become the leader.
The second question is really a set of questions related to creating
urgency to buy. Have you identified a bottleneck others are facing, and
solved the bottleneck? Is your solution unique, and do you have IP
protection? Is there a compelling reason for prospects to buy? Be wary of
compliments from early prospect discussions; you have to ask tough pointed
questions to really assess whether there is urgency, whether people will
act.
And lastly - does your team have the credibility to deliver? This includes
business vision, teamwork, and the ability to attract the rest of the
talent needed for successful execution.
Use concise communication tools to build strong perceptions - Don't
rely on a lengthy business plan. The main tool is your "two pager"
business opportunity document. It could be from 1 to 3 pages. It has to be
very polished, based on clear market structure and positioning
assumptions. It has to set up perceptions of value to VCs, and sometimes
be tuned for a particular VC contact. "Ours had a highly visual chart on
page one," said Myslinski, "so our value proposition was crystal clear."
The development of your plan should not start with the full "text
document" in today's investment market. Here's a sequence I suggest - 1)
develop marketing strategy & positioning messages, 2) write up the
opportunity statement - this includes your two pager and a PowerPoint
presentation, 3) write up the financial projections, and finally 4) write
up the business plan text document, and keep it below 20 pages, unless
asked for more. In Trillium's case "We had left a blank page for
financials in the plan we sent to Mohr, Davidow," said Myslinski, "but we
found this was of little concern to them - they had a strong understanding
of our market space, both in business and technical issues. It was easy to
talk with them. With other VCs we had met, a strong insistence on
financial analysis proved to be a red flag - these discussions proved to
be of little interest to either party."
If you have a technology background, be sure you keep the focus on
business issues, to avoid turning your technical strength into a
distraction. The Trillium founders can position themselves strongly in the
photonics business because, as Myslinski commented, "We have over 10 years
of research experience, with significant success in technology transfers
to industry, so we'll be ready for this emerging market."
Results for Trillium - "Our early experience talking to investors
helped us understand their culture," said Boothroyd, "So we were ready
when the financial markets were ripe." Now Trillium is growing and hiring,
and will be active at many events - including the Corel Centre high-tech
career fair in January, 2001. I closed by asking how they felt about the
years of seeking investment - they responded that "It was and still is fun
- all the way!" We wish them well.
Marketing to Venture Capitalists - Part II
Your comments, questions, and suggestions for future articles are welcome
fillmore@westpark.com
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