July 18, 2007

How to get from “who the heck are you?” to “please, have the fish eye” in 5 easy thinks

Filed under: Start-up First Aid — Administrator @ 10:59 am

Every now and again, we walk out of one of those “Hi, my company is the best because…” meetings wondering how in the HELL we made it through the last 45 minutes without handing the lad a cheque just to make him go away. Quite frankly, we’re not sure how many more of these meetings we‘ve got left in us before we go all Green Goblin and stuff. 

Indeed, we thought it prudent (and helpful) to cobble together a list of 5 thinks investees might want to keep in the back of their minds prior to pitching their wares (for the first time) to an investor. 

And with the help of the Donald, Austin Powers and Pat Sajak we’ve laid these thinks just below:

–Think #1–

What is wrong with Trump’s Hair?  NOTHING – it just works!

People are critical of things out of the ordinary – like the Donald’s hair – people say, “why doesn’t the guy get a new hairpiece or something?” Probably because it is his real hair (plus, have you seen his wife?), thus in spite of all the criticism about his hair style you have to give the guy credit, for better or worse, it’s a gorgeous marketing ploy.

The way people feel about Trump’s hair is the same way 8 out of 10 China based venture investors feel about companies they meet for the first time. To wit, they have already made up their minds that they will question the legitimacy of the venture. Full stop!

The reason for this is that for every original idea there are at least 30 “me too” regional ventures looking to address the exact same market and solve the exact same problem. The apparent genius (or special sauce) of the company may be visible on paper but is rarely digested – unless you start the conversation off highlighting what is so special about your hair, or rather your “me-too” company, you may find yourself back-pedalling when you should be striking.

Objective is to make the investor a true believer in that you can do no wrong – Clintonian Politics!

–Think #2–

Powered by MOJO!

“So I started to work my mojo, to counter their mojo; we got cross-mojulation, and their heads started exploding…”  Austin Powers

A founding partner at an American based a global (my bad) venture capital fund once told me that there is only one “data point” he looks to take-away from meeting the CEO of a start-up, and potential investee, for the first time…and that is “mojo”.

What he was referring to was that “yeah, baby, yeah” connection between the investor and the investee – unfortunately, this is not something you can learn, model in an algorithm, or allude to in a power point presentation – it is either there or it is not.

However, what is in your control is ensuring that your mojo isn’t muffled or distorted by noise and prejudice. Remember – you need the investor to first, feel comfortable with your ability to lead the company and second, that the company has legs.

So how do you neutralize the environment to ensure the mojo pipeline is unfettered and, perhaps, more importantly (if you are a ghost) you never hear the phrase “…so, you’ve been in China for how long?”

Here are four (rather obvious) suggestions you might look to deploy in the first five minutes: 

Tell a memorable story (filed in brain under: “lessons learned”) that demonstrates your ability to make snap, accurate decisions, emphasising the fact that this occurred in China and most importantly is happened 7 or 8 years ago.

My go to story is about the time I was working for a local automotive manufacturer in Tianjin (1993) and was handed “legal” blueprints for synthetic brake pads for one of those Daihatsu “mainbao che” vans by some random guy who asked me to help source capital to build a factory to make these parts – the fact that I was not only a university student in China for another 2 weeks but also, at the time of the hand-off, lost in the factory in a maze of hallways looking for the bathroom, didn’t seem to mater. How does this demonstrate I can make snap accurage decisions? Er…I’m not locked away…am I?

Look presidential, or rather make sure you look comfortable in your role as CEO. You’re the leader and as the leader the perception is that you are the person driving the company – it doesn’t matter whether you surround yourself with smart people or you are the smartest person in the room – all that matters is that investors feel comfortable that you are the “go to guy” when all hell breaks loose (or servers crash as 3:17am).

Repeat after me: Track Record! Track Record! Track Record! There are two words that describe this point more accurately – serial entrepreneur. But, we aren’t going to use this word because you’ll earn full points on the BS Bingo board game (along with “paradigm shift”). Get creative, but get to the point (something I have a hard time doing) – bum rush the investor with proof of your entrepreneurial and managerial acumen.

Do your homework on the investor’s background especially if he/she is a celebrity in the venture capital word – never ever kiss butt however do try and find something in their background (or portfolio investment) whereby you share a common interest.

–Think #3–

Kansas City Shuffle

“What’s a Kansas City Shuffle? A Kansas City Shuffle is when everybody looks right, you go left. It’s not something people hear about. Falls on deaf ears mostly. Requires a lot of planning. Involves a lot of people. People connected by the slightest of events. Like whispers in the night, in that place that never forgets, even when those people do. It starts with a horse.”    – Bruce Willis, Lucky Number Sleven

Have you ever had a complicated problem rumbling around in your head for days on end and finally, out of the blue the answer explodes into your head? That rush of clarity is what you want your investors to feel once it occurs to them that your technology company isn’t a technology company at all.

What the heck am I talking about? Arguably, the best China exits (in the VC space) – purely from an economics and operational perspective – have been those cases where the market prices the company as if it were a technology play, the venture’s user base scales like an Internet company, and the management operates the business as if it where a brick-n-mortar. For example, at the time of c-trip’s NASDAQ listing the management pitched the company as “the Travelocity of China” however less than 30% of total revenue was generated from online related sales. Peal away the layers of c-trip’s operations and you’ll find a massive call-center. (C-trip trades on a 73x trailing PE).

In truth, most technology companies in China are actually brick-n-mortar businesses – the trick is in the unmasking which is an event you want to control – the worse thing possible is when the investor comes to terms with your business before you’ve been able to explain your execution strategy. To wit, you’re discussing the benefits of technology when in the back of the investor’s minds he is thinking “…the success of this company rests on the ability of management to execute not the technology”.

Control your shuffle. No break dancing allowed. If, at the core of your business, it is all about the execution (or content aggregation), then say so but in such a way that you take the investor’s breath away with the simplicity and brilliance of a Kansas City Shuffle.

–Think #4–

Wheel of Fortune

Contestant: “Pat, are there any letter Ms in the puzzle?”
Pat Sajak:
 “Yes, one M.”
Contestant: “Pat, I’ll spin. Pat, are there any Cs in the puzzle?”
Pat Sajak: “Yes, there is one C.”
Contestant: “Pat, I’d like to buy a vowel…the letter A.”
Pat Sajak: “There are three A’s…that will cost you US$4m.”
Contestant: “Pat, I’d like to solve the it. MATERIAL CHANGE.”

You’ve just spent the last 45 minutes roping the investor in – there is a strong sense of brotherhood and peace on earth – he’s bought into the business concept. What you don’t want to do is lob a hospital pass at the investor in the form of a material change (operational, business, funding, etc) without a well mapped out strategy for resolving the issue.

You’ll earn points for openness and transparency – if you don’t know the exact solution/answer, you should just say so – the caveat being don’t leave the investor hanging – introduce numbers, supporting evidence, multiple options, and most importantly have a good sense of how it is going to impact (either negatively or positively) capital requirements for ongoing operations.

Avoid situations where you’ve just finished explaining that the amount of capital you’re looking to raise is US$4 million and how you intend to fully allocate the funding within the first 18-months…oh, and by the way, there is a strong possibility that we’ll face a material change in our working environment that might require an additional US$4 million. Yeah, this is one of those moments you really need to have a well thought out strategy on the back of a good feel for how this will impact the company’s equity structure.

Take away: Don’t make the investor guess how you plan to resolve the puzzle – make sure he/she understands you’ve fully thought this through.

–Think #5–

Please, have the fish eye…

It is a Chinese custom to give the (arguably) tastiest, most prized piece of the fish to the guest of honour this tasty little morsel being the fish’s eye. What youre hoping to hear, or rather the sense you want to get from the investor at the end of your meeting is that you’re going to get that eye.

The way it tends to be presented in most conversations is in (or some derivative of) the following phrase: We are not investing in the idea so much as we are investing in the team..(“er…pending terms and conditions).”

How do you get to this point really depends on you and your teams mojo!

Good Luck!

July 11, 2007

You can look…if I let you…but don’t touch my Harry Potter!

Filed under: Social Networks,Video/Film,Web 2.0 — Administrator @ 10:23 am

Yesterday, around 3:15 pm, I jumped into the elevator and waited patiently as it dropped the 40 floors that separates my office from the Bloomsbury bookshop in the lobby – the sole intention of my trip was to pre-order the final Harry Potter book, Harry Potter and the Deathly Hallows.

When I rolled up to the checkout counter and asked for the sale form the sales assistant, Lucy, she asked me, “…do you want the adult version or the children’s version?” I asked, “What’s the difference?” Lucy responded, “Nothing really, just the cover…”

I didn’t hesitate one nanosecond and yelped, “Of course, I want the children’s version…it has the way cool cover art!”

Scratching my head, I’m thinking, “What’s going on here?!” Are adults embarrassed to be reading a Potter book? It’s not like you’re a Rabbi sneaking a shot of whiskey hidden in the scrolls of a Torah or something. It is just a book.

When I got back into the office, I did a little research and discovered that Bloomsbury first introduced the alternative adult cover when they launched the fifth Potter book. The reason, according to my source at London’s Bloomsbury HQ, was that “…bankers and lawyers on the high street – older people – were rather embarrassed at being seen reading a book with a childish cover…”

An hour later, I went back downstairs to the Bloomsbury bookshop and asked Lucy what percentage of people pre-ordered the adult version over the children’s version – indeed, the adult version accounts for about 45% of the total sales – up dramatically from around 15% of total sales for the fifth book.

This shift, if you will, started me thinking about what could happen to Facebook – now with over 30 million active users – as its popularity with the older crowd grows. Will the net natives – Facebook’s core user base – revolt and jump ship?

Check it out – the latest monthly figures (June 2007) reveal that the number of visitors between the ages of 25 – 34 increased 181% while the number of visitors 35 years old an older increased by 98% – definite signs of traction from the moms and pops of the world.

Will it peak? Eventually, sure, but not for while. And, if anything, the madness has only begun to build. Wait to see what happens when word gets out that US-based venture capital fund, Bay Partners, has launched a fund targeting all those odd lot developers (most haven’t bothered to register as proper corporations) responsible for the 1,500 odd Facebook applications. Tsunami anyone?!

Let’s be frank – this attention – going mainstream – is exactly what investors and creators of the site want to see – it means higher advertising revenues, more functionality, and increased credibility (eventually, leading to a fat pay cheque – cha-ching). Nothing wrong with this, of course. The issue is – what happens when the kids lose control and the adults takeover? Is Facebook in for a face lift – are we going to see brand extensions – different covers?

I don’t know for sure what is going to happen however my gut feel is that Facebook is nearing its peak. One of the key drivers or attractions of Facebook was that fact that everyone’s identity is real – that is why I use it – I actually “know” the person I’m talking to – or sending crap to – in many ways, the friends on my page are the same people I’d call up for drinks or share a joke with – it is purely social (i.e. I’m not looking to network – business cards…be gone!). However, the more random openness of the site the more opportunity there is to dilute this “real identity” flavor.

It just seems to me that when the kids discover something fun, unique and, well, pedestrian, the adults come in and institutionalize the damn thing – effectively, sanitizing the juices and mojo that shaped the community in the first place. How many kids/students want to hang out with random adults? None. How many kids/students want their parents looking at their drunk partying photos? None.

Unlike a Potter book, you can’t appeal to a wider user demographic by changing Facebook’s cover – the heart and soul of the site rests in the content provided by the members not a single author. So, no, I don’t think the answer is to have an adult version and a children’s version – the answer is, “mom, dad, you can look…I let you…but don’t touch!”

Copyright © 2004 - 2012 | Ymer Venture Capital Asia (Hong Kong) Ltd.