Brett Sharenow is a trusted advisor on raising capital from VCs, PE, and Angel investors, for start-up, growth, pivot, and exit. Since 1995 he has helped companies raise more than $750 million and have facilitated exits valued at more than $6 billion.
Some of Brett’s client companies:
Venture and Private Equity Backed
• Verio (acq. by NTT) • Viator (acq. by Trip Advisor) • Dial Page/Dial Call (acq. by Nextel)
• Switch Lighting • Vistard • VirtualLan • Ethernetworks • GroWiseBeWell Academy
• Puronyx • Skylights • Husk Power Systems • Yonder
Private Companies
• King’s Hawaiian • Astrology.net (acq. by iVillage) • MagniGyro srl
• MarCom International • Putnam Consulting • Strozzi Institute • Skyline International
• SensoryScapes • Say it Better Center • Indy Electronics • Generative Somatics
Public Companies
• USWestDex • Pacific Bell • Pacific Telesis
• BFGoodrich • Fujitsu • Bay Area Cellular Telephone
• Olin Corporation • Pacific Bell Mobile Services
This episode we talk about:
- How does a founder/CEO know that their strategy will work?
- Should a company’s strategy be influenced by a financial model?
- What are the typical inputs and outputs in a financial model?
- What can a good financial model do for a company?
I want to thank Shmuel Silverman who made the introduction to Brett allowing this interview to happen.
Guest:
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Pre-Intro 00:00
You’re listening to the Silicon Valley podcast.
On this week’s episode of Silicon Valley. We do part two of our interview with Brett Sharenow. Last week, we covered such amazing topics as how does a founder CEO know that their strategy is working? Should a company strategy be influenced by financial models? What can a good financial model do for a company? And more? Today, we go even further and we dive into how does the fundamentals of a financial model work? What are the inputs and outputs of a financial model? What kind of expertise is needed to understand? And much more? Who is Brett Sharenow? He’s a trusted advisor on raising capital for venture capitalists, private equity and angel investors. He’s helped companies raise more than 750 million and has facilitated exits valued at more than six billion. This and last week’s episode combined. I felt I was again assessing MBA. I could not believe the amount of knowledge Brett was sharing with me. And I know you’re going to feel the same way on today’s episode. Enjoy.
Intro 01:04
Welcome to the Silicon Valley podcast with your host Shawn Flynn, who interviews famous entrepreneurs, venture capitalists and leaders in tech. Learn their secrets and see Tomorrow’s World Today.
Shawn Flynn 01:23
What about for the mergers and acquisitions, transaction, M&A transaction, or an IPO, for example? How do you redo the model with an event like that on the horizon?
Brett Sharenow 01:37
So, when financials model is built, initially, if you recall, we were talking about how much money is needed in the current round. How much money is going to metered in the next round and follow-on rounds. Part of building the model is really looking out five to eight years to what we call steady state, to where the profitability numbers reach a point where they plateau and will remain for some period of time. That lets us value the business. And whether it’s done on a revenue multiple or really for strategy purposes, we need to be using a discounted cash flow model in order to value the business, regardless of which methodology is used. The financial models actually already looking at exit, potential exit. It could be an acquisition transaction. It could be an IPO transaction. Either one of those is fine. And it could, of course, be a merger transaction. What we’re trying to do at the first round is figure out when we potentially could exit. What that exit will look like value-wise because that tells us this is how much money is being raised now. These are the returns over time and these returned will meet what the investor wants. When we’re presenting to an investor, the investor is always asking themselves the question, what do I need to believe in order to fund this business? And I was actually on the phone with a potential client two days ago, we were talking about valuation and they were really concerned about how much value the VC was going to give them in the A round for pre-money, because that, of course, tells how much of the company they’re going to have to give up and how much all the current investors are going to be diluted.
And yeah, it’s a good question. You have to boil it down, however, too. Are you going to be able to convince the investor what is needed to be believe in order to raise the money that you want to raise? And is the investor going to believe that? So absolutely critical to that first stage. Then as we’re looking to the actual transaction that what I just talked about comes into play there. If the investor believes that this company could be worth 1.2 billion dollars based on their expertise in the domain, knowing what the marketplace looks like, knowing competition, making their best guess as to this founding team and what this founding team has developed and how this founding team thinks, one of the things that investors look for all the time, and we can get into this more and a little bit in terms of presenting and what you need to do. But the investor really is trying to look at this and say, is this product positioned at the right time to meet a need and solve a problem? Is this team the right team to take this forward? Do they have what it takes to make the decisions they need to make when things in the external marketplace change. Which investors know is going to happen. Venture capitalist, when they put money and know that the financial model they’re looking at isn’t right. We’re not on our mission. We don’t know everything that’s happening. But they do know at oh, this is the way this particular founding team thinks about solving problems based on what they’ve just told me. I think that they’ve got the capability. So, the financial model and back to your question of M&A or IPO transaction, the financial model then gets modified over time. In two or three different ways in order to be able to do that transaction, because remember, we’re considering that transaction from day one. You have to, with quotes around, have to in order to raise your first round of money. What do you need to believe? This business could be and what do you need to convince the investors? The business could be to raise the round now and the next round and the next round if you need that. So that’s piece one. Piece two over time. You are going to have actual data from running the business. So, the financial models should be able to accommodate you inputting actual data from the income statement and balance sheet and comparing the two. How good is your financial model at predicting what the company is going to be doing? And are you in sync? So, you’ll have actual data. You will then be updating the financial model over time as you learn so much more about the marketplace or the assumptions that you made for the series, A round still good at B or C. What you need to change. To the point we discussed earlier, maybe you’re going after a different market domain or a different subsegment of the marketplace. You need to factor that into the model. So, you may need to add revenue streams. You may realize that additional marketing and sales is required to really get the traction you had forecasted. So, you need to update your assumptions on how much you’re spending there. All those kinds of things come into play as you update the model over time. The best models, when they’re built for the A round raise, even before that can be used to actually run the business over time. And the CEOs who know this want to have somebody on staff. That can use the model day to day to operate the business so that at the end of the month, the CEO and the team, the senior team and even at the director and manager level can look at the business and see how the business is tracking. This model then can be used for the M&A transaction to really position the business well for the highest valuation and to have a successful transaction at exit. I’m frequently brought in for clients that want to do a transaction. So, I had a client two, three days ago now call me for an M&A transaction. And this is a company, to your question earlier, who were going down a specific path and selling their product and selling it very successfully in to one channel, to one group of people. They took the product and they said, wow, there’s another place we can be selling this now that will benefit the company from a valuation perspective and investors, but will also benefit the world at large there you looking at moving into the medical arena and providing much more efficacious use of drugs with their product. So, they had a couple of options, and one of the options that they are exploring is to sell off the first segment of the business in an acquisition type of transaction and continue running this other segment. So, they called me to help them figure out. Number one, what they should do, how they should do it and how they should position the business successfully for a really good acquisition transaction in six to 12 months. So great place then to take a look at the financial model. Take a look at splitting out this component of the business and figuring out what value it’s going to be and what they need to do to get the most out of the transaction. And they can both from a valuation perspective and from setting themselves up for this next business in the best way possible with as much capital as they need to be really successful. So that’s a perfect place at the financial model. It comes into play for any kind of exit, whether it’s M&A or an IPO. And it really drives how to plan for that type of transaction. Now, of course, once that comes into play, here is timing. It’s not uncommon for a client to ask to do a sale or some type of exit transaction in an unrealistic timeframe. And I frequently get the question, I want to sell this business in one hundred and ten days. I have to smile because in order to position the company well for sale. Typically takes six to 12 months. And can we potentially do a transaction in 90 or 180 days? Maybe. But everything has to be aligned. Financial model has got to be built. There’s a lot of other things that need to be taken into consideration to do this successfully. So, timing becomes a piece of the financial modeling and the strategy to do a sale.
Shawn Flynn 10:52
I probably should have asked this question the very, very beginning. And I just thought about it more now. Can you describe visually? Because I saw I’ve seen on your computer the Excel sheet. Can you describe visually for everyone at home? How complex this model is, the number of cells and number of rows. What’s it looks like? So, because right now I think people when they just hear the name model, they may think of like a visual mind map or something. Could you explain in detail what this is?
Brett Sharenow 11:25
That is a great question. So a financial model for a business when we’re looking at the business is constructed in components. And the first component that I like to look at is how the model is structured tab wise. So, there’s a tab that’s got all the inputs on it. We talked about that, alluded to that earlier. And that tab is where all the input picks and facts are for the specific case that you’re running. And normally the way they’re set up is with a box around them and they’re in a different color. I use blue so that an investor who’s doing diligence on the company can look at the model and know exactly, oh, that’s an input because it’s got a box around it and it’s blue. It really gives the model, you and the company, a lot more credibility that you’ve thought through how you’re going to show this to them when you’re looking at raising capital. So, the input tab has all the inputs on it, including revenues, expenses, capital requirements. It’s got driver inputs. In other words, how many people do I need in each department to handle each given task based on some driver? Let me break that down a little bit more. There’s always a core group of people that the company has. Let’s just say a CEO, maybe a CFO, a CTO, chief technology officer. And then as the department builds out, the better models are built with the department being built out based on some driver. Could be number of units sold. Could be number of geographies that you’re penetrating. Could be. How many cases you’re making there for how many warehouses are required? There’s drivers for all different parts of the model. But the driver inputs are also here. There’s then financial inputs which allow you to look and construct the balance sheet. How many days receivable do we have on receivables? How many days payable are we assuming? How much capital is in the business? How much is equity? How much is debt? What kind of interest rates do we have? All those kinds of things are in there. That’s the input tab. There’s then a second tab, which is called the calc tab, and on the calc tab. That’s where all the calculations are done. There are no calculations done on the inputs tab. They’re all done in calcs. The beauty of that is, is that the investor can be assured that they don’t have to check every cell in the model for oh, they put a number in there. So frequently I’ve seen models built where there’s an equation and the equation has the number seven in it. And I asked the founder or team. What the seven here for? Oh, that’s because we’re doing seven warehouses. Well, that’s a problem because it means that in order to due diligence on the model, the analyst has to check every single cell on the calcs tab to see what your assumptions are. That seven should be on the input tab as an input because it’s an assumption of seven warehouses. At that point in time. So, the only hardcoded numbers that are on the Calc tab are months per year. Twelve, maybe days per year. 360. Maybe you’re changing units and you need a thousand multiply or divider. All that’s fine. The other thing about the Calc tab is that the calcs tab. There’s an expression, rows are cheap. So, you really want to make it easy to diligence and review the model for errors. So that means if you need to repeat a row to show something more clearly, you repeat the row. So, you bring down a number from the top to the bottom. Show what the number is so that when somebody is looking at this, they can say, oh, here’s revenues again. It matches the revenues. That’s a thousand rows above this in the model. But they brought it down here so that I can clearly see it’s the revenues line. And here’s the cost of goods sold line. And now you’re subtracting those two to get the gross margin. So, it’s a way to look at the model and makes it much easier to diligent and makes it much easier to check that there’s no errors. Or if there are, you can find the more easily. The next pieces that the model needs to be constructed as an array model. And that means when most people build a model, they have an equation. And it’s in a cell. And this, it says, equals, let’s just say two cells above it. The problem with that is that you could have a different equation in one column than the column next to it. Investors don’t like that because that means, again, they have to look at every single cell in your model to make sure that there’s no errors or changes. You always want to build formulas as an array. And what that means is in a specific row, if you look at the equation in one cell, the equation in every single cell in that row is the same. You can’t make a change in an array without changing the entire row. That’s really important for model building. Finally, then, the end of the day, you’ve got the calc tab with all the calcs in it. It comes down with an income statement, balance sheet and cash flow metrics. And as you look at the calc tab, you flow always from the top to the bottom. And for example, I’m just built a model for a client. We’re raising a 15-million-dollar series A round. That model has about eighty-six hundred rows on the calc tab. And it’s a lot, but it’s set up as a data model so that you can collapse and expand rows by section and you can focus on the section that is of interest at the moment. Makes it much easier to program it, recode it, check for errors and diligence it from your end and from the investor’s end. Then there are multiple tabs for reports and the reports are the actual outputs that you can print to show to founding team, the team that’s running the business. Investors, whomever. And there’s always a report by month. So you can look at monthly numbers. There’s always a report by month with an annual total. There’s always a report by quarter and by quarter with an annual total and then an annual report, and each one of those is on a separate tab. Venture capital investor like quarterly reports with annual totals. It’s a way that they normally look at a business. It takes away some of the month-by-month variability. Averages out to three months and really also still lets them see seasonality. They can look, for example, at the last quarter of the year for your particular product and see that the Christmas season. And that’s where 70 percent of your sales are for this particular product. So it gives them still a view on what’s happening. So that’s the basic structure that you’re looking at. And yes, they can get what some people call unwieldy. They can get really big. But if they’re coded well, with rows being cheap, with adding rows to show what’s happening above and below color coding as needed and expanding and collapsing sections, they’re not that difficult once you get walk through them. I’m frequently asked to walk investors through a model at the point in time where they’ve given a term sheet there in diligence phase. And I can usually walk an analyst team through a model in about two hours and answer every question they’ve got and give them a great level of confidence that the model was built well. They understand all the assumptions and that they can sign off on this for the partner to go ahead and fund.
Shawn Flynn 18:55
So what kind of expertise or training is needed to either create a model or actually understand the model?
Brett Sharenow 19:04
So they’re different. A good analyst who’s seen a lot of financial statements and who understands the way financial statements are constructed, can actually be walked through a model like I just talked about in that two hours. They understand the drivers. They understand standard sets of inputs, pricing, days receivable, days payable inventory, non-interest-bearing liability numbers. All those kinds of things. And they will get a pretty good handle on the model and understand structure in that two-to-three-hour timeframe. For the analysts, typically either a core experience in a finance department of a number of companies, MBA helps, but MBA alone doesn’t do it right. You can learn a lot in your MBA. But that allows you to get in on the ground floor. You then need real practical experience. So, analysts, those kinds of people, I mean, a lot of the analysts that work in companies now were former analysts at consulting firms, accounting firms, financial firms. To build the models a little bit different. We talked earlier about the art and science of building a model. And this one’s complex because in the multiple decades I’ve been doing this work. It’s rare that I’ve found a CFO who can build a good strategic financial planning model. And no bad to the CFO is it’s just not something they’re trained to do. Most CFO, they get MBA where they came up through the controller path of the company and they have a set of skills that allows them to generate the monthly income statement Balance sheet, cash flow metrics, KPIs can raise the red flag to the CEO and something’s amiss, can help solve the problem is when that happens, can make sure that all checks and balances are in place. But it’s a rare CFO that has built one never mind 20 financial models or 40, which is really what’s needed to do this well. So, the people that do this normally come out of one of the consulting firms that builds models for a living. That’s pretty typical. And again, really to do this well, you’ve had to build dozens of these in order to know the questions to ask, in order to be able to do the science part and the art part of the model and to be able to find those black holes that the founders didn’t know about at the beginning. Really typical to do that. So that kind of experience is usually what’s required to build a model. Well, multiple, multiple times.
Shawn Flynn 21:50
So what type of questions do you ask the CEO? Or what type of research are you doing to create this financial model?
Brett Sharenow 21:57
So questions come in multiple sets. The first meeting I’ll have after I’m hired with the company, whether I’m advising them on building their own model or building it for them doesn’t matter. I’m first going to want to understand where this interview started, which is the compelling case for customers. I really need to understand those three Cs at a level that an investor is going to want to know them. And I may provide assessments to the team that says I don’t think these three Cs are compelling enough. That happens a lot. The founders think they have it and they don’t really. It may be enough to convince an angel to give them money, but the venture capitalists and private equity investors are really looking for a level of depth and a level of thinking on the founding team sides that critical. So I’ll start off with the three Cs. I’ll then look at their financial model if they have one. And I really get under the covers for what’s there. Where did they come up with these assumptions? I want them to ground every single assumption for me that they are forecasting for the business and I want to know where the numbers came from. Is it research that they’ve done? Is it a gut feel? Is it a guess? Anything’s fine. But we need define what that pick came from. Where did the number come from? I’m then going to want to look at analyst reports. They’ve got on their business domain expertise in that area. I’ve done a lot of work over the last decade. So, I have a pretty wide view from both technology and non-technology businesses. And there’s a lot of questions I can ask even upfront with regard to is this business viable and do these numbers make sense? I use my gut as well, and that’s something doesn’t make sense. I’ll ask, hey, this this looks off. This is what is coming up for me. Tell me more about this. After that initial set of questions, I need to go back and do my research. I’ll use, of course, online tools. If the company has not gotten analyst reports from some of the major investment firms, I will gather those. I also use pitch book, which is a wonderful database for looking at investors, venture capital and PE transactions valuation. How much money’s been raised? What kind of raise strategy is it really gives a lot of background. So, I’ll use pitch book. I’ll use Crunch Base Link S.V. Bob Carr’s firm. I’ll use that. I’m really trying to gather from my perspective, my diligence. Does the case they’re making makes sense? I’ll then talk with industry experts in the domain. Either run the idea by them and the concept by them using an NDA as long as my client agrees. Or generically and really start to get a handle from the industry experts. Technology, product, whatever it is for. Does this make sense or are these expenses in the ballpark? And of course, I’ve got my own models and expertise from the last decades to check it against. And then frequently what will come of that is the kinds of questions that will reveal the black holes. Have you looked at these kinds of things? Somebody mentioned this other domain where you might want to sell your product. Have you thought about that? In most of the times, I get a yes, we have, but we rejected it. And then, of course, the question is why? And I want to understand more about that. Sometimes the reason that they rejected it is not a good one. Sometimes they rejected it for good reasons because short term investors want to see a focus for the business. Longer term, they’re fine with expansion. But if you’ve got too many things you’re working on in the short term, that’s a negative to investors. They really want to see a focused business strategy. So that comes into play a lot. So that’s a typical way I look at a new business, existing or startup to see what’s there, what do they have? and have they thought through all the things that need to think through? It’s common then that once the financial models built, the financial model will tell us some things that we weren’t aware of. For example, it may be that this particular company is looking at doing one warehouse in California and shipping everything from there. And it may be that they would be much better off both in terms of delivery to clients and costs if they had four warehouses scattered throughout the U.S., one in the south, one on the north, one on the east, model will tell us that because we can test it and then see what the results are.
Shawn Flynn 26:31
So, Brett, let’s go back just a little bit on working with the CEO, the founder of the company. And when they’re talking to VCs, I mean, we’ve talked a lot about these VCs analyzing the model. But can we talk about a little bit more of the CEO, the founder present in the model or present in the company with the model is a reference to the investor, the due diligence process in that capital raise.
Brett Sharenow 26:59
The CEO presenting and preparing the CEO for presenting really backs up to the raised deck. And the raised deck is just a slide deck. PowerPoint keynote typically used of the company in a view that the investor wants to see. There are many sample decks that are now on the Internet, which is great. And I highly recommend that you go out as a company and look at some of the pitch decks that are out there. And I’ll give a little bit more about what those should look like in general. But that’s where this starts. And the pitch deck is really a summary of what the company is about. What’s the product? What’s the problem in the marketplace? What’s the solution that you’re providing? How are you providing a compelling case for customers? Again, has to be in there. You have to convince the investors that this business does have a compelling case for customers. And then you have to have a go to market strategy. It’s one of the things that’s missing from 80 percent of the decks that I review. And the reason it’s missing is because it’s one of the most difficult parts of the deck to generate, because it really should only be one at most two slides. So how do you develop a go to market strategy that in and of itself is compelling, that needs to be in there. And then, of course, you’ve got a set of financials, forecast financials and you’ve got competition. Who’s the competition? Why are you going to win against the competition? And, of course, your ask, where are you asking for how much money? How long was it going to last you? what are the milestones? When are you going to need your next round? And I and I normally counsel my clients that the ask how much you’re looking for really should be at the beginning of the deck. And Clients say why? That’s normally the end. Well, the reason it needs to be at the beginning is it prefaces the deck and packages the deck for a way the investor to listen to what you’re going to present. For example, if you want to raise two million dollars and you tell the investor at the beginning, we’ve raised I’m going to use some numbers, two hundred thousand dollars in convertible debt from friends and family. And this is a two-million-dollar round. That sets their expectations about the business, about where you are in the life cycle of the business. And it allows them to hear the deck in a very different way than if you started and said, we’ve raised two hundred thousand dollars seed and this is a 12-million-dollar round. It changed the complexity radically. If you wait till the end to tell the investor how much you want to raise, the way that they’ve thought about this business could be way off. And a business that could have been incredibly exciting is now not. So, usually in the first three slides. I have a slide that talks about money raised to date. How what vehicle’s been used to raise and what you’re looking for in this round and how long it lasts. So, the slide deck. There’s a thing that I call the ultimate slide deck for a specific business, and I’ve devised an ultimate slide deck for what you should have in the deck. And that is a deck that literally will walk through investors through all the questions that you need. The next thing is that when you’re looking to present as CEO and the team, the big question you should be addressing is from an investor’s perspective. What do you need to tell them so that they believe what they need to believe, to give you money, to give you the amount of money you need and that they believe the return on that money is going to be close to what you say or big enough that they’re willing to give you that money. That’s what really defines the business. The first thing that the investor is typically looking for that you need to address in the first two to three minutes of your presentation, you need to get them excited. Investors are human beings. I know your widget is the best thing in the world because you developed it. You’ve got years in and they don’t really care about that. They just don’t. Within the first three minutes of your presentation, you need to excite the investors about your product. Now, I know you’re excited about it because you’ve been working with it for years and you’ve developed it and you know how much it weighs and all those kinds of things. But the investors really don’t care about that. They really want to be excited about your business. You need to excite them about the potential for this business, why this business is so compelling, and you need to win them over emotionally from pretty much the get go of the presentation to that. They’re going to really listen intently and really want to know more. I get the question a lot when I’m coaching a CEO through a deck. Well, what happens if they ask me information that I haven’t gotten to yet? And I normally smile and say, that’s good. That means that they want more. More quickly. You may not be going fast enough. They want to know a specific thing, but it means they’re excited. The same thing if they’re objecting to something, if they say, I don’t believe this or tell me why you believe this. That’s good. It shows a level of interest. It shows that they are objecting to something that’s there. And now you have the opportunity to convince them why your numbers. Right. Or how you came to that number. So that’s the first piece. The second piece at the investor is trying to look at is how does this CEO think? The investors know that no matter what information is presented, it’s going to change when things hit the market. When you start bringing the product out, when you start distributing, when you start manufacturing, whatever it is, market forces are going take into play here. And they are really trying to look at how is this CEO going to react when these things happen inevitably? How do they think? How do they deal with adversity? How do they deal with success? So, they’re really trying to get a read from you on. Can I trust this person to run this business? Ideally, investors are looking for a jockey that’s riding the horse best. They’re not betting on the horse kind of, but they’re really betting on the jockey first. And they’re looking for that jockey to run this company. The best jockeys are ones that they’ve worked with in the past and have been phenomenally successful for them. That’s their first go to CEO. If you’re not that person, you haven’t done a startup, or you haven’t taken a mid-market company through a raise or pivoted multiple times. They are trying to assess what level of trust they can put in you. Honesty is critical if you don’t know an answer. Don’t try to flesh it out and come up with a number. Tell them that’s a good question. I don’t know. I will get back to you within 24 hours with the answer or 48 hours if you’re traveling or something comes up. But don’t hesitate with an I don’t know. One of the things you don’t know as a person going into raise money from this particular set of investors is who else is in the marketplace that’s in stealth mode like you are. Most entrepreneurs, their comment is either there’s no competition, which we addressed earlier. Right. Direct competitors and substitute competitors. Or they say we’ve got it. Nail. There’s nobody like us. It’s quite likely that if you’re going to the right investors who have domain expertise in your domain, that they’ve seen other teams that have develop very similar products. They are then trying to decide which jockey, which team to bet on when they invest. And if you want to convince them that you’re the right jockey and you’re the right team, you have to present in a way that is emotionally exciting, addresses their questions and allows them to believe that this product or service will do what you say it’s going to do. And there’s a huge demand out there for it. For the raise. You’ve got the deck. You then need to practice the rule of thumb that I use for practice is one hour of practice for every one minute of presentation time to an investor. You should be able to get through your raised deck without rushing in 20 minutes. If there are no questions. If you stand up and practice and it takes you 40 minutes, there’s too many slides, there is too much information. VC will not sit for that. No investor will sit for that. 20-minute deck. When you’ve got questions on top of that introduction, at the beginning of the meeting, some chit chat. There’s your hour of a typical venture capital meeting. When I’m working with a client, once the deck is done and I’ve advised them and counsel them, accessed them and we’ve got a deck that works, I will have the CEO present and I will play the investor and I’ll change my hat. I’ll sometimes play the nice investor who’s the warm, good person who’s listening to them and really wants to know things and ask softball lobbed questions, easy questions. Once the CEO can handle those and is doing things emotionally and is getting me excited as the investor, I will play the not so nice investor that doesn’t believe them. And that is really pushing them. I’m doing that so that the CEO gets the questions from me and is able to settle and answer them and have way to answer them well before they get to the investor. Plus, remember, the investor is looking at this CEO for how they are going to handle adversity, which they know is coming as soon as they get funded and start bringing the product to market or potentially even before. So that raise presentation is crucial because you get one shot. You get one shot with each VC. Not two, not three. One. And if you don’t hit the first one, you’re probably out. Let’s talk for a minute about VC reaction. So, you presented now the meeting’s over or close to over and the VC can say one of the few things they can say, thanks. We’re not interested. And of course, your question should be awesome. Thanks for listening to me. Can you tell me why you’re not interested? You really want to gather information. You’re going to treat it with a grain of salt because it’s one-point sample. But you want to understand why they’re not interested. Most venture capital investors I have found will not say that they will be noncommittal. That was interesting. Let us think about it. That’s not a good sign. You need to treat that as a No. Anything other than a genuine yes. And I’m not talking about a yes. I heard you. Which happens a lot. We all have had that. I’m talking about a yes. I’m interested. We’re going to take this to the partner committee meeting on Monday. Because that’s frequently when venture capital partner meetings are. And we are going to talk to the partnership about this product. And we’ll get back to you. No later than Wednesday, midday with next steps, if the partnership is interested, that’s what you want to hear. When that happens, you’ll typically be asked back in if they’re interested to present to a wider selection of partners, potentially the whole partnership committee, the decision-making committee. For them to ask questions and to get a sense of who you are because they’re doing the same thing the original partner was doing. Do I trust this CEO to take this company forward? Do I trust them with my three million, five million, 15 million dollars of money? Are they going to make this successful? So that’s what you’re looking for. Anything other than a yes? We’re taking it to the partner committee. I would treat as a no. And then ask them. Great. Can you say a little bit more? Was this not compelling? Are there other jockeys that you’ve seen, other the teams that you’ve seen with similar products? Do you not believe that there’s a market? Whatever. I also counsel my CEOs that 90 percent of your meetings are going to be rejections. So you have to get to the point where you don’t let those rejections affect you. It’s hard, but you can’t let them affect you because you’re going to have a VC meeting the next day. The other key piece about presenting is that what I call the cohort’s strategy, which VC you’re presenting to in what period of time is really important to the success of a race. And you have to present to VC that have domain expertise and you have to present to top tier VCs in your domain in a timeframe that allows you to generate momentum. If I’m going to go out and get a recommendation from somebody I know, a colleague to go visit a VC and then I might get another one the following week and I might get one, two weeks after. You’re not playing the game well. You need to present to four to six VC in a week that all have domain expertise, not only you’re you presenting to the right domain firm, but you’re presenting to the right domain part. And you really need to define that strategy to be as successful as you can. It’s a place a lot of entrepreneurs blow it because they don’t understand how important it is, their VC cohort strategy, the partnership and how they’re moving this forward.
Shawn Flynn 41:23
Brett, thank you for taking the time to be on Silicon Valley. I mean, everything you mentioned there with the VCs. I mean, I think we could do episode after episode after episode. I almost feel like I’m getting an MBA here, sitting down across from you. And with that being said, it’s about time to wrap up. But you’ve given an amazing gift for people that are interested in writing a review for this episode and sharing it. Can you talk a little bit about that gift?
Brett Sharenow 41:47
Sure, happy to. There are, as I mentioned earlier, many different slide decks available online. Both generic slide decks for presentation to investors and slide decks of companies that have been successful in their presentation and in their pitch. I strongly recommend you get online and search for some of those and get a sense for what the decks look like five years ago, because there they are up there. What they look like in the last couple of years, what success people have had. And then I am willing to offer your audience that provides a review to this show, what I call my ultimate slide deck. And that ultimate slide deck is the generic layout of the slide. You need to have in your deck to convince investors that you do have a compelling case for customers and to give you money and to be as successful as you can possibly be in your pitch. So, yeah, I’m happy to share that as a download.
Shawn Flynn 42:43
Brett, thank you for this amazing gift. And if he wants to find out more information about you, get in touch with you. What’s the best way to go about it?
Brett Sharenow 42:50
Two ways for those companies that want to book some time with me. You can book directly on my calendar, on my Website. It’s broadscope.com b r o a d s c o p e .com forward slash book me. And there are two current bookings up there, a 30 minute and a 60 minute please book the 60 minutes. I can’t hear enough of your story in 30 minutes. It’s just not enough. And I’m happy to talk with you about business questions if you want to look at what it would take to work with me. What I could provide. What my assessments are of your business. You can also call me. My direct line is area code 5 10 4 1 9 0 1 0 0, 5 10 4 1 9 0 1 0 0. And if I can’t talk with you, then we’ll set up a time to talk.
Shawn Flynn 43:40
Brett will have all that information, the show notes, and there’s a lot of episodes we alluded to in today’s interview, we talked about Schmuel Silverman. His episode was on 5G technology. We also talked about Bob Carr, whose episode just launched recently, and a few others that we recommend going back listen to get all the great information that they provided. And this podcast itself on iTunes, Spotify, all these platforms, we highly recommend listening to it multiple time. Trust me, this knowledge, you just can’t get through one sit. And so once again. Brett, thank you again for your time day on Silicon Valley.
Brett Sharenow 44:12
Shawn, thanks very much for having me. It’s been great.
Outro 44:17
Thank you for listening to The Silicon Valley Podcast. To access our resources, visit us at TheSiliconValleyPodcast.com and follow our host on Twitter, Facebook, and LinkedIn @ShawnFlynnSV. This show is for entertainment purposes only and is licensed by The Investors Podcast Network. Before making any decisions, consult a professional.
