This panel was moderated by Alex Heath of Cheddar, featured Tim Draper of Draper Associates, Ann Winblad of Hummer Windblad Venture Partners, and Christine Tsai of 500 Startups, and the description read "Thinking of updating your deck? Our all-start panel lets you know waht they look for before they'll part with their cash."
Alex kicked things off by asking our panelists what specific areas they invest in and what they’re most excited about.
All the global enterprises are very early in the process of digital transformation - from software development pieces to integration pieces to enhance their competitive experience with the customer. So when we look at, as a futurist, we really are envisioning the future every day. I’m an opportunist, so it’s amazing how many enterprise opportunities come through the door in areas of the software stack we never had before, like DevOps - how software is being built is going through an incredible transformation since I was a software developer years ago. Almost everything we see these days is touched by data or AI, but we’re not looking particularly at AI companies, just as components.
Tim replied with:
Well, I think the world’s changing. I think this is one of the greatest transformations we’ve seen in the history of society. We used to be tribal and now we’re going global. It started with the internet, it lowered borders. Now we have money that’s decentralized, like Bitcoin. And Bitcoin also brought along with it bitcoin technology, smart contracts, blockchain, opennotes, the ability to go off chain and come back. And now, I’m seeing - we’ve just announced an investment in something called Unstoppable Domains. You can get a domain that is not controlled by anyone, impossible to be controlled by anyone, so if you want to put up a domain to see “Free Tibet,” you’re free to do that. SO I think this is the beginning of us becoming very much a global world. Customs, borders, are gonna disappear. All sorts of things are gonna happen, and governments are going to become more etheral, more virtual. So I’m looking at a world that’s more like that, so if you’re an entrepreneur, I’m Tim@draper.vc. I’m the only one who gives out my email address and I read ‘em all!
While Christine stated:
I think from the perspective that we have, especially at the global level, it’s very clear where all the best entrepreneurs are… it’s pretty spread throughout the world. The challenge with that talent existing universally, Thea access to capital, mentorship, resources, is not on par with Silicon Valley. So many entrepreneurs that we back, whether they stay in their own country or come to Silicon Valley, our mission is to find those entrepreneurs where they are. And we’ve invested in a lot of sectors, across SAAS, Devops, some crypto, and there are newer sectors that maybe we wouldn’t have invested in a few years ago, like deep tech, or finch, or digital health, just because the market is going in that direction as well. But myself personally I like looking at changes in demographics as well. In Southeast Asia, Latin America, there are very large populations - the majority of the population of Southeast Asia is under 30, there’s infrastructure things where here in N. America we’re accustomed to infrastructure but there there’s a lot of room there. What are the changes in people, in these markets, and what kinds of problems are they facing. You think about this from the perspective of women, and buying power, and their professional careers, what are solutions that help the problems they’re facing.
Alex then asked about diversity and access to capital.
We’ve always invested across North America, including Canada. We don’t initiate companies that aren’t incorporated outside of North America. But a typical company these days is very distributed. A company that we worked with on a recent exit that was bought by Salesforce for $6.8 billion dollars is very distributed… the distributed company is real. We’ve always invested outside of Silicon Valley. We have companies in Canada, Minneapolis, DC, Los Angeles. I’ll say the further we go from our HQ in SF, the higher the bar for the company we invest in, just because we can’t drive to the leadership or help in real-time on some problems. So distance = higher bar, but we do fund across all of N. America.
Well, I built the Draper venture network, and that’s a network of VCs around the world, and we tried to work out a deal with something called MARS here 20 years ago, we were trying to set something up with her, and she’s fantastic, for some reason it didn’t work, but we’re hoping to set up another office here. We have 24 offices around the world covering 48 cities around the world, and my goal is to support entrepreneurs wherever they may be. We o only have one Draper University in hero city, San Mateo, CA, but we’re planning on setting these up around the world, so e can grab entrepreneurs early, guide them, train them, and then fund them, and maybe these guys will fund them later on.
Alex then brings up what every presenter wants to know from the VC perspective: Dos & don'ts of pitching and advice!
Well, first of all, at the A round, it’s important to know that we’re not funding products, we’re funding companies. So don’t dive into features of your product and leave me not understanding what your TAM is, or why this is something big I should spend time on. Second is if I’m the right investor for you, we know a lot about enterprise software, we don’t know about your vision for the future, but you should captivate me, rather than educate me, so I want to be more educated by you, so I know you’re the one to fund. Years ago I took a meeting with a company called Hyperion, ultimately became a $3 billion dollar exit. The co-founders Jim and Bob, the first thing they did was say “Were creating a new category called Business Intelligence.” They rolled out a scroll with 500 names on it, and they said “We’ve talked to all of these companies, and if you fund us, they will buy our product.” It was very theatrical. But they had our attention in the first 3 minutes. And that was at a time where it was easier to get our attention, because we didn’t have cell phones. But you have to get our attention in the WHY you’re there in the first 3 minutes or you won’t get it at all.
I think when we’re talking about pitches a lot of people are interested in the pitch if it’s onstage or at a competition. IN many ways, the most pitching founders here will do are one-on-one conversations, so on that angle, what I would say NOT to do is make it transactional, making it feel like you’re one of many. Founders may have learned from sources online. I can understand creating that element of urgency, like "we’re closing the round next week," but I’d say to find a balance between creating that urgency - founders who’ve done their homework, where they say they’d really like your help, why they want to work with you -is it because of a check or the network. I’d say it’s still a founder’s market, especially in the Valley. I definitely notice when founders try to establish that relationship, how they follow up with you, if they treat you like a check versus really getting to know you as an investor. When founders do that, it’s noticeable.
Don’t be incremental. Don’t be the next improvement on Facebook. I’m thinking more “What should the business be” than how you should pitch it. Make your business MATTER. Make sure when you pitch it, that you’re showing a VISION of the future that changes humanity in some way, so that people look and say “wow, this is really exciting and interesting.” And don’t fake it. My job is to read your heart. I’m looking to see how passionate you are, how excited you are, whether this is going to be “Hey, I got an idea Tim, maybe we can do this” or “The world’s gonna change, this is gonna be so cool.” I can tell the difference as to which one of those you are. So when you’re pitching, first of all show your HEART, show your enthusiasm, what you’ve built, what you’ve grown. And then you also need to think in terms of "I’m a train leaving the station, you as an investor have a chance to get on my train or NOT." Not the “PLEASE GIVE ME SOME MONEY, I’m desperate.” It’s ok to say you’re desperate for money, but you also need to say "I KNOW this is our future, this is where we’re going, this is all the cool stuff that’s gonna happen because I’m so successful, and if you want to be a part of it, come ONBOARD."
Alex then asks: Would you invest in a company that’s the Uber of X?
I’d do it if it were Uber for space travel, haha!
Sometimes that really does work, because it gives you a baseline of where you’re going. But if it’s the Uber for something tiny - I mean, we’re looking for large opportunities, where you have room to grow. At the early stages we don’t have facts, just assumptions. So we’re buying into your strategic thinking that these are facts. If it’s big room to grow in…one of the things about pitching is don’t be over-rehearsed. I know people are in a lot of pitchfests, nobody gives them feedback, bu the worst thing is an investor asks a question on slide 3, and you say “I’ll get to it on slide 9.” You should be SO excited we’re engaging with you that you should let them understand it right then. If we’re interested, we’ll be involved in that, so it’s not like pitch tests at all.
Alex brings up: when you're evaluating a deal - what should a founder ask YOU?
I think most entrepreneurs are going in to pitch, so they’re not coming in to ask us a lot of questions. It’s kinda nice to make it a conversation. It’s ok to have a conversation, get to know us, but don’t ask me about how are your kids doing unless you KNOW my kids. I mean, my kids are pretty awesome if you haven’t met them. But don’t get into my personal life or anything, just “hey, how are you doing,” is fine, and you’ve got a job to do - pitch us, make sure we understand what it is you’re doing. And don’t try to jump too far, too fast. Assume I know nothing. That’s usually a good assumption. And then start from that. Start from how you’d explain it to your teenage daughter or grandmother. Start there. I think that helps when you’re pitching somebody. Think “I gotta get the basics down here first.” Because often VCs forget to ask obvious questions, the stupid question, and you need to give them the stupid answer to get them started on smarter questions.
Last but not least: Alex's final question is what are smarter questions to evaluate a deal?
Actually what I was thinking is oftentimes founders don’t ask questions. Some of it is also if they have EQ, if they’re aware of the other person, are they listening. Because I’ve seen some cases where the founders are pitching in a one-on-one meeting for 20 minutes, just talking straight, and sometimes I’d advise people to stop and check in, and engage, rather than prattle on for 20 minutes straight. Especially if it’s over the phone. So I think in terms of questions to ask, there’s typical questions about the investor, but if you’re talking bout your business, and the WHY question, why you should care, I’ve found a lot of founders don’t even ask. Sometimes it’s longer than 20 minutes when they talk. So if you want to keep the investor engaged, make it interactive, even just asking questions. If you’re really in a dialogue, getting them excited about your dialogue, vision and business.
I think one of the things, if you’re fortunate enough to get a full partners meeting, that’s a big deal. There’s only 5000 companies worldwide that got their first round of venture capital. So it’s smart to call up other companies in a portfolio and ask them what those meetings are like - “how would you recommend I handle this, and what should I expect?” You only get one shot at the full partners meeting. And you should ask about process - will you contemplate this for a week, how does due diligence work, when will you get back to us. You’ve had a really really important meeting. Although the partner who brings you in typically does do some prep, because they want to fund you, but if you go into a full partners meeting, a lot of things can still go wrong in that meeting.