11

Build

“The purpose of the pitch is to offer something so compelling that it begins a conversation, brings the other person in as a participant, and eventually arrives at an outcome that appeals to both of you.”

—Daniel Pink, author, To Sell Is Human

• Three questions all investors ask themselves

• Do your homework

• Plan your opening

• Find commonalities

• Ask great questions and listen

• Play together

“You are screwed if you can’t make friends with an investor. It signals that you probably can’t build a team or recruit key partners, etc.”

—Dan Martell, Founder, Clarity.fm

“I don’t put money on anybody I don’t like.”

—Mike Rothenberg, Managing Partner, Rothenberg Ventures

“We had the approach from the second I joined, to sit back and talk to as many smart people as possible. We were fully aware that eventually those conversations would turn into fundraising conversations.”

—Jeff Avallon, Cofounder, IdeaPaint

“I’ll let the entrepreneur give their whole pitch, and then it turns into a conversation. The conversation is the best part.”

—Tommy Leep, Chief Connector at Rothenburg Ventures, and former Chief Connector at Floodgate Fund

The private wealth division of a very well-known investment bank has an axiom it discusses with every new employee during training. Potential investors will ask themselves three simple questions during a meeting:

And they ask them in that order. Unless someone likes you, they will never stick around long enough to find out if they trust you. If they don’t trust you, they will never want to do business with you, no matter how good your deal is. In the end, it’s not your pitch deck that decides whether or not you succeed on the road show; it’s your ability to answer these three little questions. In this chapter, we walk you through how to build relationships with your new contacts in a way that helps them answer those three questions sooner, rather than later.

In the very early days of the TreeHouse road show, Loomis got an intro through a mutual friend to a billionaire in New York City. “Why don’t we meet at my house?” the billionaire suggested. On the day of the meeting, Loomis made his way down Park Avenue, passing by buildings that have housed people like Jacqueline Kennedy Onassis, John D. Rockefeller, and the heir to the Johnson & Johnson fortune. Intimidated, he rang the doorbell. Someone escorted him to the office, which looked more like the library at Harvard. Gorgeous paintings lined the walls. As they sat down, Loomis tried to make small talk.

“I like the artwork,” Loomis said. “Was it painted nearby?”

“No,” the investor said. “They’re Rembrandts.” Of course they are.

Feeling insecure, Loomis reached for his pitch deck and started talking about this amazing business idea called TreeHouse. After five minutes of the “show,” Loomis could tell the investor was losing interest. What was it? He made a bold move.

“Would it be okay if we stopped talking about Tree-House? I’m interested in getting to know you better.”

“Good,” he said. “I was about to ask you to leave my house.”

DEEP DIVE

Do Your Homework

Want to make sure the person you meet with never answers your e-mail again? Show up unprepared.

Entrepreneurs and high-net-worth people are extremely busy. They have to say no to people every day. They don’t do it because they’re sadistic (not most of them, anyway); they do it because, if they don’t, their lives will literally fall apart. In the time it takes both of you to sit down and sip a latte, most investors will have fifty new demands for their time waiting in their in-boxes. Every minute there is a trade-off between things that are both important and urgent.

Busy people have websites with bios for a reason. Read them. People are flattered when you take the time to find out about them—their interests, prior investments, and especially, mutual relationships. Google is the best place to start. Then, search their LinkedIn profiles, company websites, and board memberships. Pay particular attention to the types of organizations they are involved in. You can find out a lot about a person with five minutes of internet research. After half an hour, you should have a solid idea of how you think this person can help you.

How to Research People You Are Meeting

1. Google their name and review the first two pages of results. Then, Google their name again, but this time add “filetype:pdf” to the query. It will display only PDF files and will likely turn up work they’ve written.

2. Follow them on AngelList. See what investments they’ve made recently and who they are connected to.

3. Follow them on Twitter. See who they follow and who they’re tagging and talking to.^*

4. Use Newsle. Newsle is a service that syncs with your e-mail, LinkedIn, and Facebook to find news articles on people you’re connected to. You can also use it to follow people you want to connect with.

5. Read their blog.

What You Should Know about the People You Are Meeting

1. Professional background

2. Mutual relationships

3. Personal interests

4. Boards they serve on, nonprofits they volunteer for or support

5. Marital and family status

6. Previous deals they’ve done, companies they’ve started, and industries and areas they favor

Background Profile Template

Plan Your Opening

You pull open the glass door to the café and walk through. As you look up, you catch a glimpse of a woman near the counter. She swipes and taps at her phone. You recognize her from the research you’ve been doing in preparation for the meeting. You approach her, introduce yourself, and offer to buy her a coffee. She accepts, and you both turn to get in line. The noise of grinding espresso and conversation swirls around you. The two of you stand silently, waiting to reach the barista.

What do you say?

By planning out what you say in those first crucial minutes, you will learn how to set the tone of a conversation. Your opening remarks should do six things.

1. Show That It’s Not All about Money

There is a palpable awkwardness in any interaction where asking for money is involved. They know you are only meeting to ask for something from them. You know they know you are only meeting to ask for something from them. Inwardly, you are both squirming. But what do you can do about it?

You make it go away by ensuring that your first conversation is not about money. Because the reality is, it’s not all about money, especially at first. In the beginning, your goal, and the goal of the person you are meeting, is to answer the question: “Do we like each other?”

2. Complete the Transfer of Trust

Pay attention to the transfer of trust the next time you sit down with someone you’ve been introduced to. The conversation almost always goes like this:

Do you see what happened? By connecting over your shared appreciation for your friend John, you completed the transfer of trust that John started when he introduced you and Bob over e-mail.

3. Show Confidence

Stand up straight, look the investor in the eye, and firmly shake his or her hand. Show that you are trustworthy.

4. Put Them at Ease

Everyone is insecure. Even the investors you meet. Of course you’re nervous; you’re about to put your baby on display and ask for a bunch of money. Recognize, though, that investors get nervous, too. You are a gamble to them. Use the personal information you learned from doing your homework to show respect for them and show that you care and are excited to get to know them better.

5. Make It about Them

Dos Equis has a series of commercials about the “most interesting man in the world.” The narrator tells of the feats of actor Jonathan Goldsmith (“He gave his father ‘the talk,’ ” “When he drives a car off the lot, its price increases in value.”) The campaign’s popularity drives home an important lesson about human nature: everyone has a desire to be perceived as smart and interesting.

When people feel smart, they feel empowered. When they feel empowered, they open up and share their ideas. Sharing ideas is called “play.” (More on that soon.)

6. Show Gratitude

Anyone who has enough experience to help you is going to be busy—very busy. That means that they have likely sacrificed something very important to take thirty minutes out of their day to meet with you—a couple dozen e-mails, a lunch with their spouse or an old friend, their midday workout. You recognize that sacrifice by expressing your gratitude.

Scripts for Your Opening

At a Presentation

“I’m so grateful to get to be here today. Thanks for taking the time to share your vision and hear a bit more about what we’re up to.”

“I’m really grateful to __________ for introducing us. Before I get started, I’d love to hear more about how you first connected with him/her.”

At a One-on-One Meeting

“I was really excited when we got connected because . . .”

“So, tell me more about __________. I saw it in your bio, and it fascinated me.”

“You and I have something in common . . .”

“I’m really grateful to __________ for introducing us. How did you first get connected with him/her?”

Find Commonalities

Commonalities are the passions and details of life that you share with the people you meet. The mutual friend who introduced you is the most obvious commonality you’ll share with the people you meet, but it won’t be the only one. Maybe you went to the same alma mater. Maybe you both like hockey, or are coffee aficionados, or are passionate about the same causes. As you research someone’s background, search for things that you have in common that you both would enjoy connecting over. Then, bring it up during your meeting.

By this point, you’re practically family.

Commonalities to Build Off

Ask Great Questions and Listen

It’s easy to get caught up in “nailing the pitch.” Especially during those first meetings, your nerves can give you tunnel vision. Overwhelmed by the pressure and the task in front of you, you lose sight of the fact that the person in front of you isn’t a cash dispenser and he or she didn’t show up to listen to a lecture.

People take meetings expecting to have conversations. So make it a conversation. Get phenomenally interested in the person across from you. His life should be so amazing to you that you would want to write a book about it. If not, why are you meeting with him? Ask questions about his life and listen to his responses. Ask his feedback about specific aspects of the venture. Tell him why you wanted to meet with him and why you think his support would be invaluable to you.

Would you rather give money to the entrepreneur who is sure that he’s right and isn’t interested in your thoughts? Or to the entrepreneur who is constantly learning and asks for feedback?

One of the most exciting parts of the road show is getting input from your investors. Many of their ideas are worth their weight in gold. At TreeHouse, Loomis made major changes in his business model after speaking with the founders and executives of Home Depot, The Container Store, Neiman Marcus, Ace Hardware, Apple Store, and Whole Foods. If you have the curiosity and humility to ask for feedback, you’ll be amazed at what you learn. Make it a point to not argue with what they tell you or try to defend yourself or your idea, even if what you hear sounds insane. Listen, take notes, and say thank you.

Remember, someone you know put trust on the line in order for you to get this meeting. Are you living up to that trust?

Questions You Can Ask

Play Together

Play might sound like an odd description for a first-time meeting with a billionaire angel investor, but that is exactly what most investors do when they are interested in an opportunity. Play implicates them in the venture; it puts them into the driver’s seat and causes them to look at the venture from the perspective of someone already involved. What does it mean to “play”?

Jesse Schell, designer of play experiences like Disney’s “Toy Story Midway Mania” and “Pirates of the Caribbean,” and author of The Art of Game Design, says this about play:

I can’t help but notice that most play activities seem to be attempts to answer questions like: “What happens when I turn this knob?” “Can we beat this team?” “What can I make with this clay?” . . . When you seek to answer questions freely, of your own volition, and not because you are obligated to, we say you are curious. But curiosity doesn’t immediately imply you are going to play. No, play involves something else—play involves willful action, usually a willful action of touching or changing something—manipulating something, you might say. So, one possible definition would be: Play is manipulation that indulges curiosity.

A key aspect of building a relationship with investors is indulging their curiosity and inviting them into a kind of play that involves your idea. You allow them to make suggestions about how to improve your business model, ask questions about your assumptions, and make connections about how and why what you’re doing is going to be world changing.

Make no mistake; letting others play with your idea can be hard. Entrepreneurs have invested a lot of time and heart in their ventures, and opening that venture to whatever brilliant idea the person you talk to comes up with is scary. And yet, this kind of openness is how powerful connections are formed, and it’s one of the quickest ways to refine the idea.

Does your venture have a physical component? Bring it. Is there a demo of it? Show it. Can the people you meet with go to something that you’ve built or created? Bring them there. Then, get out of the way. Let them play with what you’ve created and see if they’re interested in playing more. If they are, you will get the opportunity to play together.

You can recognize that someone is playing with you when they ask questions like, “What if you changed . . .?” or “Have you thought about . . .?” or when they make statements like, “That could be really great for . . .” These comments are the classic “yes, and . . .” principle of improv in action. They are taking your idea and running with it so that it becomes our idea.

When you’ve done that, you’re ready to move on to the next step of the friendship loop.

Venture Spotlight: Karma

“We’re building the first mobile provider that doesn’t suck.” That’s the opening line for Steven van Wel and the guys at Karma—a pay-as-you-go mobile Wi-Fi hot spot. They had built a lot of momentum after an accidental encounter with the managing director of Techstars New York and decided to go out for a $1 million seed round. Early on, they realized that there were two things about the nature of their company that either drew people in or repelled them. First, they were hardware. People have an immediate reaction to seeing a physical product—you either like it or you don’t. Second, they were a mobile provider. There aren’t a lot of successful small mobile providers, and to go after the AT&Ts was going to be a challenge—one you’re either up for or you’re not.

So, when Steven opened a conversation with a potential investor, he made those two things clear within the first three minutes. “I [would] always bring the hot spot,” he said. “The first thing I would do is pull out the device, put it on the table, and just leave it there. I noticed that if people play with it, they like it; if people don’t play with it, they don’t like it.”

In the span of about a month, Steven met with two hundred potential investors. “One hundred eighty people thought we were idiots,” he said, “and twenty people really liked us.” Many of those twenty people knew they were going to invest within the first three minutes. Steven reflected on it afterward, “That was sometimes really helpful, because if people are excited, they are really excited. It was a helpful way to filter out conversations that would lead to investments.”

The guys at Karma used the most controversial aspects of their business as a litmus test for revealing an investor’s interest. Instead of focusing on cajoling those who weren’t very interested in the first place, they led with what they knew would either scare people off or excite them enough to join. Every great idea has something about it that people will find either brilliant or idiotic. Find out what will create an immediate reaction in potential investors and communicate it as early as possible.

Handling Objections

Every venture has some sore spot it would prefer to gloss over or not mention at all. Often, entrepreneurs won’t even see these problem areas until an investor asks about them, and suddenly they find themselves caught with their pants down, wishing they had never taken the meeting.

The easiest way to keep from looking like an idiot in front of an investor is to spend your first meetings getting feedback from people you know and trust. These meetings will help you identify the weak spots in your business and learn how to address them honestly and directly.

You can start to uncover those areas now by asking yourself the following questions:

No matter how much you prepare, you will still get questions about your venture that you don’t know how to answer. Own your ignorance. A simple, “I don’t know the answer to that, I will get back to you” builds trust and gives you an opportunity to follow up. You can also ask investors for their feedback by saying something like, “That’s a challenge we’re still trying to solve. This is what we are doing right now to solve it, but do you have any feedback?” Don’t give a BS answer. It just makes you look stupid.

In your meetings, if investors ask you several of the same questions over and over again, add them in a FAQ slide in the back of your deck.

*Kimberly D. Elsbach, “How to Pitch a Brilliant Idea,” Harvard Business Review, September 2003, https://hbr.org/2003/09/how-to-pitch-a-brilliant-idea.

*Thanks to Mark Suster and his blog, Bothsides of the Table, for this tip, http://www.bothsidesofthetable.com/2009/06/19/getting-access-to-the-old-boys-club-how-to-approach-a-vc/.