Matthew Witheiler Views On Venture Outlook 2011

Jason Caplain recently let me know there's a great conference for people interested in venture investing called Venture Outlook 2011, Wednesday, February 09, 2011 from 9:30 AM - 11:30 AM (ET) in Raleigh, NC.  Leading venture capitalists explore trends in technology, start-ups, and where VC firms are looking to deploy capital in 2011.

One of the speakers appearing is Matthew Witheiler of Flybridge Capital Partners, Matthew found time to answer a few questions I had for him about entrepreneurs and the state of the venture industry. Here's the result.

John: What are the most important things an entrepreneur should have in mind when developing a business and a business model?
 
Matthew: When choosing a business and business model that may need venture capital funding, three aspects are particularly important: targeting a big market, having unique insight into how the business will win in that market and surrounding yourself with a high quality, passionate, relevant team to attack that market.

On the market size, venture investors typically look for markets that are $500M or above in size. We do this because our business is built on trying to find, cultivate and grow other businesses to an exciting outcome. It's one thing to build a $100M business in a market that is $1B a year where the business is 10% of the market and quite another to do the same in a $200M space where one has to capture 50% of the market to obtain the same outcome.

When it comes to attacking the market, it's important to know what will differentiate your business from others already in the market. Having a particular insight into the market being attacked is crucial in helping to make sure the business has a chance of gaining some customers or users. This insight can come in many forms: a unique customer acquisition channel, a disruptive pricing model, an improved experience, etc. The unique angle itself isn't as important as having one.

Finally, be sure the business being built leverages the skills of you and your teammates. An idea is only as good as the people executing it and the most successful businesses put together the best people to do so. Talk to people who have experience in the market being attacked and recruit the best of them to help you along the way. Be sure not to leave out the passion piece as well. If you're going to be living and breathing a business for countless nights and weekends, you best make sure you and your teammates have your hearts in it.

John: What's different for entrepreneurs today from five years ago?
 
Matthew: I think the main differences are that it's less expensive to get a business off the ground today and it's easier to get seed/angel funding. These two are closely tied together: since a business can leverage the cloud to get up and running less expensively than in the past, it makes sense that financing dollars flow into companies earlier than they have in the past given more can be proven on the same amount of capital. That's not to say that the average amount of capital needed to build and scale a business is necessarily lower today than it was five years ago, just that it takes less to get off the ground today.

John: What mistakes do entrepreneurs often make when pitching investors, and how can they avoid them?

Matthew: Some of the common ones are:

While trying to get a meeting with an investor:

• Sends cold emails - it's significantly better to get an introduction from someone who we know and, ideally, someone we respect than to email us cold
• Attaches a business plan to the email but no pitch deck - we get a lot of plans and tend to have ADD, making flipping through a handful of slides much more likely than reading even then first 5 pages of an 80 page plan
• When in a first meeting with an investor:
• One of the participants is checking email - if you can't hold the attention of the people you bring to the meeting for the hour, you probably can't hold ours either
• Does a poor job managing the time - we probably have an hour together – if you spend the first 20 minutes talking about the weather and the next 20 telling your life story, that only leaves 20 minutes to cover your business in its entirety; try to get into the pitch relatively quickly so we can have a discussion around your idea
• The materials don't address competition / what could go wrong and what you will do to alleviate the risk - every business has competition of some sort and challenges to worry about; you're fooling no one by leaving it out and it only makes us wonder if either you're naive enough to think you don't have any or that you're brash enough to think you'll pull the wool over our eyes by not including it
• The materials don't have a detailed ask - you should leave us knowing how much you are raising, why are you raising that amount, where that capital gets you and how much more capital you think is needed.

John: Thanks Matthew, and folks if you'd like to hear more from Matthew and his co-panelists, join him at Venture Outlook 2011, Wednesday, February 09, 2011 from 9:30 AM - 11:30 AM (ET) in Raleigh, NC.

Panelists:
•    Tom McMurray, former General Partner, Sequoia Capital and current angel investor
•    Hooks Johnston, General Partner, Valhalla Partners
•    John Burke, General Partner, True Ventures
•    Matthew Witheiler, Principal, Flybridge Capital Partners