When it comes to startup pitches, Dan Gordon might just have heard them all. In over a decade as technology partner at medium-size venture capital fund, Valhalla Partners, Dan estimates he’s heard at least 10,000 pitches. That’s about three to four 30-minute pitches every working day for ten years.
For the Malcolm Gladwell fans, it means Dan has put in the kind of time on venture deals that Mozart has put into mastering the piano.
What’s cool about Dan is that, despite his vision, he remains approachable and patient. He shared his insights as a venture capitalist and Silicon Valley tech entrepreneur with the aspiring founders of Washington, DC. If you can’t wait to find out how to perfect your pitch, check out our fireside chat with Dan -- but don't miss our highlights below.
The Legend of Dan Gordon
You can learn a lot about people by asking about their heroes. Dan admires the Greek legend of Odysseus, best known as the modern/complicated protagonist of Homer’s epic ten-year journey depicted in The Odyssey. Perhaps the perilous-but-rewarding adventure reminds him of his own 30-year journey through Silicon Valley’s tech world that led him back to DC.
In November 2015, Dan explained to the crowd at Startup Grind DC:
“Odysseus was wily. Athena said to Odysseus with admiration, ‘You’re almost as wily as I am,’ and that was high praise. Against impossible odds he longed to get home -- as I do tonight -- and he had to weave through Sirens, Cyclops, Circe, and all kinds of stuff. And, he did! He did it with a combination of guile, wit, and compassion. He was a mensch. He did a good job.”
Critical to success is learning to persuade others to support your idea. Before his journey, Odysseus convinced 50 Greek warriors to hide inside the legendary Trojan Horse to penetrate an enemy’s fortress. As a kid, Dan had a bit less success convincing neighbors to buy the 400 seed packets it would take to earn the chemistry set advertised in a comic book “so that I could make things that stunk and blew up…” but the experience taught him to respect the tough jobs of sales people. Eventually, he says, with a brand of self-deprecating bluster, at times reminiscent of comedian Lewis Black, minus the anger he “learned you either sell or you work for someone who sells. A star was born!”
The Tech Pioneer Days
Dan was raised in Washington, DC, from the age of three when his father, a doctor, moved the family here from San Francisco for a temporary fellowship that turned into a 50-year sojourn. Before and after earning a B.A. in Mathematics and Biochemistry from Harvard in 1972 and nine years later earning a Master’s in Computer Science from New York University, Dan followed his love of building things in Silicon Valley, first in hardware; and then writing software until the late 1990s.
He explains: “Ordinary people just didn’t write software ‘til Steve and Steve came along.”
He described the earliest culture of programming mainframes as a priesthood housed in over-air-conditioned spaces with raised floors and punch cards.
Of all of the software he wrote, Dan says he’s proudest of being part of the team that built Quickbooks, Intuit Inc.’s software for individual financial management. What was great about Quickbooks was his friend Ridge Evers’ concept that you could actually make billing simple. Every other person in the market did the opposite, made billing as complicated as possible.
He jokes: “It’s probably going to go on my tombstone: ‘He made billing a snap.’
By 1998, Dan had been part of several successful tech companies, but felt it was time to launch his own business so his future didn’t require competing on price with programmers in the global tech market. He learned that being employee #1 or #2 was much harder than being #50 or #100. He acknowledges there were times he was blindsided in trying to launch several endeavors by failing to recognize associated risks.
After trying to launch a startup that didn’t start up he admits: “I washed up on the shore like Tom Hanks in Castaway.”
He changed course and spent the next five years analyzing tech markets for PricewaterhouseCoopers (PwC). He also worked on his pitching skills:
“We used to go out and pitch our services to venture capitalists, we’d try to get tech diligence gigs, which, believe me, is a waste of time...We had much better luck with private equity firms, who are writing much bigger checks and are much more humble about what they know.”
The Outer Game: The Akido Approach to Fear and Greed
During the years pitching to investors, Dan, a psychologically minded guy whose father and wife are both shrinks, deepened his insight into understanding investors’ hidden motivations and fears. He says:
“Investors are bipolar -- it’s fear or greed and there’s nothing in between. The sad thing is that you can oscillate back and forth between fear and greed really easily.”
The challenge is to inspire investor greed by draining away the investor’s causes for fear.
Aspiring entrepreneurs can begin doing this right from the start:
First, Get Introduced
Always get an introduction to investors from respected professionals who understand the market and know the individual firms and what they look for. Valhalla gets referrals from other respected professionals, such as accountants and lawyers like Cooley’s Mike Lincoln, DLA’s Jeff Lehrer and others.
Next, Get to Know the Investor Before you Need Them
Get to know investors when you don’t need the money. Let them know what position you’re going to be in X number of months and why it will require their help for things like expanding into new markets. Return as predicted with milestones met or, preferably, exceeded.
Nail your timing. Read Next: The Truth on When and How to Approach Investors
Dan warns that the very thing you say to make investors feel greedy, can make them fearful. For example:
What you might tell an investor to stimulate greed: “This market could get to be as big as Google’s.”
What the investor might hear: “Google can be your competition.”
Last, Connect by Being Yourself
Dan’s journey changed course towards the money side when pitching PwC services to Valhalla Partners. When asked what he thought about the security business, Dan gave what he says turned out to be an inspired answer:
“I said: ‘People don’t give a damn about security, they give a damn about appearing to be secure. They’ll pay almost anything to seem to be secure, but they won’t actually do much to really be secure.’ They loved that. They thought it was edgy and right on and showed that I wasn’t afraid to take a stand.”
When Valhalla raised their first fund they said they had a role on the team for somebody who understands technology and markets, then offered Dan the job. Dan observes that his path into the VC world is the exception rather than the rule. He explains, all kinds of people sneak in through investment banking, but the gold standard is still to have been an executive at a successful startup.
The Inner Game: The Secrets of Intelligent Pitching
Over the past decade, Dan has noticed the patterns he sees time and again in pitches and has developed strong opinions about what constitutes an intelligent one. It’s among the entrepreneurship classes he teaches around town and he’s writing a book on it.
Intelligent Pitching Highlights include:
Know your Audience
Reduce investor fears by showing you understand them. Be careful! Sometimes attempting to address an investor’s hierarchy of wishes or woes can stir up a greater, more personal, issue. Try to address the most important things at the top of an investor’s list that tend to be personal.
“Entrepreneurs trip up most on the investor’s fear of looking like a fool,” Dan says.
Promising someone you can save thousands of dollars in costs could backfire when it excites a higher woe such as looking like a fool. One thing that investors care deeply about is managing risk. How do you show you understand that? Acknowledging their need for control through board governance and an interest in reducing risk by giving out money in dribs and drabs at various milestones.
Cast Your Spell
Know where the audience is at the beginning of the presentation. What are they thinking? Craft a plan to move them to the next place you want them to be. Repeat.
Assess Your Impact
What do you do when an investor interrupts you? Welcome it! When investors are sitting there looking completely inert, they’re bored. That’s a very bad sign. When they’re fidgeting with their toys, that’s worse. Be flexible. Structure your whole presentation for interruptions. Get good at jumping around to answer questions when they are asked.
Well, that’s nothing like Shark Tank, and that’s the point. Dan says:
“People get their impression of pitches from Shark Tank, and Shark Tank is complete theater. There are a few VCs that are jerks, but for the most part, the most successful VCs are really, really nice. You leave every discussion with them feeling like you’re their special friend. And, why not? It’s like a bouncer in a bar. You don’t want the person to cause trouble, you want them to leave the bar quietly. Regardless of whether you think [an aspiring entrepreneur] is good or not who knows what they’re going to come back as next year? It behooves you to be friends with everyone. So, a real VC will be as kind as can be.”
Share the Facts: Why so Greedy?
It helps to understand the economics that drives investors. For every 100 startups that a VC backs, 70 will fail. If you are going to return the money to the backers, the 30 startups that make it are going to have to make 3.33 times the money invested in them just for the VC to break even. Dan explains:
“The people who back VCs don’t mind breaking even if they get a chance at the big hits, but they’d much rather do better. If you want to do better, you have to have companies that sell for three or more times what you put into them and in a small number of years. People who put their money in VC funds don’t want to put their money in there forever.”
A greed-evoking investment is a company that could potentially double its revenue every year for about 4-6 years. So, do you have to show this in your pitch? Not exactly. Revenue is relative to how you can do vis a vis your industry competition. Dan says:
“It’s a two-edged sword. If you tell me that, I won’t believe it and it’s going to put me into fear. No one could ever achieve such hockey stick growth with a market like that. But, if you don’t put such a slide up there I’d say, well, that’s not good enough growth. I can’t show that to my backers. What you have to do is make an argument that the growth could be like that.”
The secret to intelligent pitching is to communicate effectively. Give investors what they want upfront in a framing slide:
First, frame the situation:
Who you are
What you do “and not in a cutesy way,” says Dan, “nice and quick, e.g., we’re trying to make a new app to make cigarette smoking unpleasant,”
Where you’re at, like, “We have a working prototype and we’re looking for funds to scale it to a couple of cities.”
What you’re asking: “We’re asking for $1 million to fund that.”
Next, state the market need and value proposition:
The purpose isn’t to inflame the investor’s greed, it should be used to reduce their fear by showing them you understand your market.
The top problem for customers is x and it’s a big market. Be brief and to the point.
In 30 seconds anyone who is listening will either agree with you, disagree, or have no opinion but be willing to listen.
“The purpose of the market slide is to lower your investor’s fear,” says Dan, who emphasizes there’s no room for lazy thinking here like a claim you think you can get 5% of the market. Nobody gets 5% of the market, at least not at first.
“The way you lower their fear is you show that you understand the dynamics of the market. The way you show you understand the dynamics of the market is by having a bottom-up theory: Customers in this market spend this much on this kind of thing and we think we can get them to spend some of it on ours. Here’s how many of them there are in the market and if we multiply them by how much they’d spend on our thing we get to an addressable market."
Finally, offer a respectful look at the competition and your differentiation.
Start with large incumbents and cover what’s good about startup competition and how you prevail. “That kind of thoughtful treatment is persuasive and rare,” says Dan.
Ever the realist, Dan notes being funded by VCs is an exception rather than the rule. It’s a fading business model with giants like Google jumping in to buy hot products while they’re cheap. What about Steve Blank’s Lean Startup concept of building a minimum viable product with the least amount of money to get somebody to buy it? Dan concludes:
“Lean Startup is a complete fad, but pure gold, it’s absolutely true. Failing fast, doing a lean startup, talking to lots of customers before you build a product, building the smallest product you can, those are recipes for success.”
Dan Gordon and Brian Park met through DC’s regional Innovation Corps (DCICorps.com), the educational organization founded and funded by the National Science Foundation where they both volunteer. ICorps promotes understanding of lean startup technology by pairing people producing great research with budding entrepreneurs and mentors with business experience willing to harangue them during a boot camp in which they have seven weeks to speak with 100 customers and refine their minimum viable product. Dan also teaches entrepreneurism classes at several DC-area universities.