The First VC Meeting (Post 3 of Many)

Posted on Jun 7, 2009 | 4 comments


If you haven’t read any previous posts in this series consider starting here at the start.  It is sequential.  If you want to go to the post immediately prior to this one it is here.

So now you’ve told me who you are and why it is relevant to what you do.  You’ve given me the 60 second version of what you do in a single slide.  Now it is time for the “problem definition.”  I often think this is a good time for a 1 minute  diversion of how you got the idea in the first place (if it wasn’t covered in your bio).  I think that the “how we got started” adds a nice human touch to the pitch.  As the VC we’re wondering anyways.  It’s the most obvious thing in our minds, “how did you decide to do THIS?”  Just avoid creating a fake story that this was your life’s passion if it wasn’t.  It will come across as insincere.  If it’s a boring story, just lay the truth on us and move on quickly.

The problem definition (Slide 2) -

Houston ...

Houston ...

In order for an investor to get excited about your idea he or she needs to know that there is a big problem that somebody can’t solve today with the existing solutions on the market.  This is something many young or inexperienced entrepreneurs not only miss when pitching their company but more importantly miss when thinking about why they created the business in the first place.  I can’t tell you how many times I’ve sat in a conference hearing a new company pitch and they talk about product, product, product.  I call this, “inside out” in that you’re thinking about what you’re company is doing rather than the “outside in”, what the market is doing and how your company will help it.

People or companies don’t buy new products when they don’t have a problem (real or perceived).  In fact, people won’t even invest their scarce time using your free product unless it solves a problem they have.  So let’s say, for example, that you’re creating a website for people to sell their used car directly to other consumers (rather than selling it to a dealer as a trade-in).  Your slide might have a graphical depiction of the typical flow of goods and information from consumers as they try to sell their cars to other consumers or to car dealers.  You might have bullet points with data (or bonus points if you have it memorized and say it verbally): [data below fictitious, for example only]

  • 87% of consumers don’t trust autos that they buy from other consumers
  • 65% of all cars are sold from consumer-to-dealer or from dealer-to-consumer
  • 80% of consumers that sell to dealers get on average 15% below the true value of the car; and 92% of consumers that buy from dealers pay more than they would if they bought from consumers
  • Used auto sales represents a $275billion / year annual market size
  • The number one barrier to consumer-to-consumer car sales is a lack of trust

We solve this problem.  OK!  Now I’m awake.  It’s a big market and that market has a problem.  You’ve used data so I can understand the size and scope of the problem.  Now how on Earth do you solve this problem when nobody else has?

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