Surprising learnings from VC firms pitching to startups

In a twist on the startup world’s classic power dynamic, eight venture capitalists took the stage to justify why the best startups should come to them first. The lessons and differentiators are surprising.

By Adam Long, TheEthicalCEO.com

Pitching for investment is scary. Every startup knows it. So when venture capitalists humble themselves by reversing the power dynamic and take the stage to pitch, startups are going to pay attention.

That’s why last Friday night more than 300 startup founders crammed into Fishburners, a startup community space in Sydney, to watch 8 Venture Capitalists pitch their investment firm.

In Part 1 of this article, you’ll discover the surprising lessons behind the talks, and then in Part 2 see exactly how each VC pitched themselves.

Part 1: Surprising lessons from VCs pitching to Startups

The money now comes to you

That VCs are now the ones pitching is a telling sign that the pressure to not miss the next Canva or Afterpay (two Australian unicorns) is a growing concern for these investors. There are more startups than ever, but the ones that make Venture Capitalists their money need to grow by orders of magnitude, and those outstanding businesses are getting snapped up earlier and earlier by investors, well before the founders have presented to ‘every VC in the valley’.

This pressure to get in early has led to interesting acquisition tactics that VCs of the past would never have dreamed of. VCs are now investing in community managers, like Square Peg’s Imogen Baxter, so that their name is known amongst the startup community. Some create incubators, such as when Right Click Capital established The Founder Institute in Australia. Others are running meetups for industries they believe to be promising.

The most extreme examples are those that are actively doing outbound sales — hiring full time business development staff who scour the media for promising businesses, connect with the Founders on LinkedIn, and ask for coffees so that their fund can be on the radar early. In my time as the CEO of Smarter Drafter, every month I’d receive one or two unsolicited meeting requests with VCs, even outside of fundraising periods. The Silicon Valley adage that “you go to the money, the money doesn’t go to you” is finally shifting.

Just don’t cold call

But while you’re waiting for them to knock on your door, the best thing you can do is work on your network. Each of the VCs agreed that warm introductions were essential and cold pitches were a waste of time. One Community Manager, who wished to remain anonymous, confided in me that while they accept pitches on their website from anyone, they had never once invested in any of these companies.

Melissa Widner of NAB Ventures put it this way:

“If you’re not creative enough to get a warm intro to a VC, you’re probably not creative enough to start a company”.

Differentiators are hard to find

Having heard eight firms pitch themselves, it’s also clear that true differentiators are few and far between. All claim credibility from their team’s startup heritage. All have “value add” services, such as mentoring, advice, and participation as a Board Director (which can either be incredibly helpful, or the bane of a founder’s existence.) Increasingly, funds will also commit to supporting founders with business development, such as by introductions into their network.

There is one thing all VCs agreed on

In the panel session after the pitch, there was one surprising thing that all partners agree on: Choose the firm based on whether you connect with the partner as an individual.

As Justin from Equity Venture Partners put it: “Ignore the bluff and the sales pitch. Instead, think about ‘is that the particular individual at the individual fund that you could set across the table from for the next 15 years and have a comfortable conversation about business at every stage of the journey?’”

Or, in the words of my mentor Ian Neale, an ex-VC who now coaches CEOs:

“VCs are like hitchhikers. If you take them exactly where they want to go, they’ll help pay for the petrol. But if you don’t, they’ll kick you out and take the car. Make sure you get along with them.”

Part 2: VCs, in their own words

So if you’re sitting on a unicorn-worthy idea, which VCs should you talk to first? Here’s what they say in their own words:

Right Click Capital

Presented by: Benjamin Chong

Funding stages: Pre-seed to Series B

Preferred investments: Software-powered startups, that have a deep-technology solution or are in Internet of Things (IoT).

Ben is well known in the startup community for his bombastic charisma, with many startups infected by his enthusiasm as they participated in The Founder Institute Program. When asked “why you”, Ben emphasises that Right Click’s partners are ‘founders that are helping you to go global faster’.

“I remember Ari Klinger (another partner) and I dressing up in ties, trying to look older when we pitched our startups. We built businesses ourselves. We learnt lessons (meaning, mistakes), and had some exits.”

“Because we’ve been founders we sometimes push harder, but also know the time to sit back.”

Ben also points out that they’re the only Australian VC firm that’s part of a global network — the Draper Venture Network — which has also funded Skype, Twitch and Tesla. Right Click Capital also accesses a full time team of 7 people in Silicon Valley that help with market penetration. Once a year they host a summit in Silicon Valley to meet funders and partners.

Reinventure

Presented By: Rohen Sood

Funding stages: Seed to Series B, making investments of $500K — $6M.

Preferred Investments: Fintech and adjacent fields (such as reg-tech, compliance, blockchain)

Quite cheekily, Rohen adopted the pitch structure every founder is taught: Problem, Solution, Why Us.

Rohen believes that traditional VC and corporate VC are broken. The biggest issue is that Founders’ goals often don’t align with the KPIs of the VCs, who are driven by balance sheet, target fund lifespan etc. Rohen believes they’ve solved that by having pure financial incentives for the Reinventure VC team and having multiple funds with 15 year life spans (a typical fund’s life span is 7 years), which allows them to embrace long term thinking.

Reinventure are founding members of Stone and Chalk and Fintech Australia. They’re backed by Westpac, and seem to be just close enough to get some warm intros to potential customers at Westpac, and far enough away to remain independent.

For “value added services”, Rohen points to strategy support, the support of a Head of Community, a Talent and Recruitment officer that helps with hiring into the startups, a founder retreat, and a Slack channel to keep the portfolio founders connected.

Telstra Ventures

Presented By: Albert Bielenko

Preferred Investments: A few million in revenue, software-differentiated, large addressable market and companies that can leverage Telstra insight, data, or customer base.

This fund was based on the premise of “strategic insight driving return”, meaning that becuse Telstra has unique data about how the world is changing, they should be well placed to back winners. They’ve invested $450mil in 62 companies, including Docusign and Crowdstrike (who recently had their IPO in New York), both of which are now boast Telstra as a customer.

The key point Albert returned to again and again is that companies that receive investment from Telstra Ventures are helped to sell to Telstra business units and Telstra’s customers. Albert claims that this support has led to $314mil in revenue for the portfolio companies, and a customer base of 1250 Telstra customers, including Australia Post and CBA.

In addition to their Australian staff, Telstra Ventures has 5 people in Silicon Valley and 2 in mainland China.

Blackbird Ventures

Presented by: Tip Piumsomboon

Blackbird’s goal is to supercharge Australia’s most ambitious founders. In seven years they’ve backed 52 companies, who have raised more than a billion dollars and employ 3000 people. Their notable investments include Canva and Zoox (now worth $4bil).

Blackbird is driven by a belief that growth is supercharged when there is a community of founders, and, in support of that, run a large event called Sunrise, as well as the Startmate Accelerator. Tip gives the example of how the Atlassian team helped Safety Culture (a Blackbird Ventures portfolio company) to make key hires — including someone from Atlassian. Safety Culture grew, and now in turn invests back in Blackbird, creating more funds for investment. As Tip puts it: “it’s a virtuous cycle”.

Carthona Capital

Presented By: Damien Fox

Funding stages: Pre-seed, Series A ($1m-$2m investments), Series B ($2m-$4m investments), then follow on strongly ($3mil+ investments)

Carthona talks as much about committing to a sector as to a company. As Damien puts it, they’re “highly thematic”, choosing a vertical to invest in, researching it well, then making the ideal investment. The result of this is substantial research and connections that are available to support portfolio companies.

In the past, they’ve invested in agricultural robots, debt collection, real estate data and autonomous vehicles. They invest in Australia and overseas.

So why them? Damien makes a bold claim:

“We can get you into any C-Suite”.

NAB Ventures

Presented By: Melissa Widner

Funding stages: Seed to Series D, making investments of $500K — $5M.

Preferred Investments: Fintech and adjacent areas (such as reg-tech)

NAB Ventures was created specifically to drive innovation at the bank and to make NAB worth more. They started with a fund of $50mil, which soon doubled to $100mil. Startup experience across the team is one point Melissa highlighted, however, the NAB connection is the primary point of difference here, with Melissa saying “come to us if you want to get into NAB”.

Investments to date have included BrickX, a property investment platform targeting millennials, and the accounting software Wave, which recently sold to HR Block for over AUD$600mil.

Interestingly, NAB Ventures also tracks female representation amongst the foudners (currently 2 out of their 15 founders are female) and the executive team. As Melissa put it: “We invest in teams that can find customers, partners — things that are really hard to find. Well, can they find a woman?”

Equity Venture Partners

Presented By: Justin Lipman

Preferred Investments: B2B subscription based companies started by industry insiders.

Justin tempered his pitch by keeping the focus on the companies they’ve invested in. “Our business is our portfolio — just talk to them”, he said, while behind him a slide listed some of their investments, which include Madpaws, Biteable, Uptick, Design Crowd and Snooper. They started with a $25mil fund, then added another $35mil fund.

Justin also pointed out that they have “all the value add services you’d expect, delivered by our 6 person team”.

And the way to win Justin over?

“The best pitch ends when the founder says ‘you never asked the tough questions — here’s what you should have asked’. That’s how you win trust.”

Squarepeg Capital

Presented By: Eliza Jackson

Funding stages: Focus on Series A and B

Preferred Investments: Sector agnostic, but usually not biotech or pharmaceutical

Squarepeg started in 2012, with four partners, including one of the cofounders of Seek. With half a billion dollars under management, they’ve made investments in Canva, Prosper, Agridigital, Vend, Fiverr and others across Australia, Israel and South East Asia.

Eliza says their difference is in investing with high conviction, often leading rounds and taking a Board seat so they can be available to give advice. Eliza also portrays portfolios founder as being more in control, for example because investment time frames are set by the founders. When asked why founders should approach Squarepeg, Eliza was clear: “we let our founders speak”.

Adam Long is The Ethical CEO, a specialist in growing businesses that matter. He works with executive teams to develop their strategy and find revenue. See more at TheEthicalCEO.com

The reverse pitch night was organised by Zambesi, an education company, and hosted at Fishburners.

This article is the author’s personal opinion, based on information delivered verbally at the event.