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Posts Tagged ‘Investors’

Tactics to Avoid Telling an Investor “I Don’t Know”

In Angel / VC on November 16, 2011 at 5:09 pm

In the securities business, if a customer refutes a stock trade, they can come back to the stockbroker and claim they Don’tKnow “DK” and the broker has to eat the trade. DKs famously annihilate trust. Don’t DK a potential investor! DKs are penalty points in building trust!

When I was in a military academy, we were taught to answer: “I don’t know Sir, but I will find out for you!” Since you can’t know everything on the spot, here are some preparation tricks to avoid DKs.

– Maintain a list of industry resources. If you get asked a technical question, offer the document and any insights that you have on identifying the answer.

– Be confident. When you are looking in to the future, there is only so much certainty you can have. Be confident on your current plans and convey points that you are confident about today. Prepare yourself to answer forward-looking questions with a modifier like “Here’s what we know today….”

– Avoid taking meetings alone. Even if you have to conference someone in, it is best to have the safety net of another point of view when answering questions.

– Do not provide openings to the unknown in your presentation. And never let a slide be smarter than you! If something can be left unsaid during an initial meeting, let it be. Hit the high points at initial meetings, as these are essentially get-to-know-you sessions. Keep your slides simple. Technical slides are prime opportunities for you to drop several DKs.

– Listen closely to the question and don’t be afraid to ask the person to repeat the question or frame it in a different way. This sounds simple, but I have seen very intelligent and seasoned executives botch this. I have witnessed executives give answers to questions they THOUGHT they had heard. And 99% of the time, the answer to the real question would have been easier. Don’t drop a DK on a question that was not asked!

– Practice. My team works extensively with executives to prepare them for roadshows. When management teams truly understand the value of this exercise, I find the best learning moments are via the role of an antagonizer – that person that inevitably asks all of the tough (and sometimes offensive) questions. My career has been spent in many meetings with Wall St analysts and portfolio managers. The stereotypical Wall St investors do not care much about being polite – they like to throw curveballs and antagonize executives with tough questions. Why? Because the savvy investors have found that they like to see how executives conduct themselves under pressure. An executive’s reaction to antagonizing questions can be more indicative of success over the business opportunity at hand. So find someone you trust and get them to ask you all of the tough questions. Practice your answers. List all of the things that could “throw you off” and have a plan to get through all presentations without dropping a DK with a panicked and irritated look!

Patrick E. Donohue, CFA
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VCs know your gonna blow their money…

In Angel / VC on December 8, 2010 at 10:07 pm

I am following an interesting trend. Venture capitalists know that they historically invest more money in deals than may be required for success. In large part, VCs fall in this trap because they need to put so much capital to work per deal to collect management fees or risk returning committed capital.

It’s hard to make sweeping generalizations about the venture capital community, but at the risk of doing so, most VCs are in the business of raising capital themselves and deploying it so they can collect management fees. Therefore, VC firms have a motivation to raise larger sums of money for their funds and to deploy large pieces of capital because it all takes the same amount of work as smaller sums of capital. Since they get paid a % based on assets deployed, big numbers motivates them.

That being said, I have read and heard first-hand that many venture capitalists recognize and will admit that their incentives are not necessarily aligned with proper deal structures. That’s not a softball statement for VC hawks that proclaim, “no kidding, their vulture capitalists…”.

I am highlighting this insight because I believe there is a strong trend in super angel funds and more pragmatic approaches to achieving business goals for the a) investors and b) the funded. Case in point, do a search on VC and angel investing on YouTube and you will find several videos where VCs and angel investors make statements to the tone of the best deals where started out early with little capital, like Google and Facebook.

My advice if you get VC money: TAKE it and HOARD it. Don’t buy junk with your logo on it or other items that don’t fast track you to commercialization… Go execute and act is if you have lint in your pocket. Your financial backers will be quite impressed, as a matter of fact, they may just submit a HBR article about the experience because you will have been a “black swan” in their world.  You will get investor support for a longtime when you have demonstrated prudence with investor’s capital. So, keep an eye out for VCs getting more active in early-stage investing and the emergence of super angel funds and let me know what you are seeing.