It is no secret, investors love cybersecurity right now. Cyber start-ups are sprouting up everywhere, and they are in need of investor sunshine. Likewise, investors are on the hunt for robust seedlings with the potential to rapidly grow their investment gardens. The market is hot, and this fertile ground has often generated some strange behaviors.
Initial investor meetings are some of the most important conversations a cyber entrepreneur can have. However, I have seen the ideas behind these promising ‘meet-ups’ wither and die. While the industry desperately needs great new technologies and passionate CEOs, acting strange or dismissive to investors is not a winning formula. Before you charge into an initial investor meeting, take stock in the importance of this intro and avoid making simple mistakes.
#1 There is a fine line between being “authentic” and being perceived as lazy
Lately, I’ve witnessed smart entrepreneurs bringing their alter-ego to the boardroom. At times, mordantly funny, more frequently, soul-crushingly sad. They evade questions, tell jokes and meandering stories, all the while feigning enthusiasm. They have minimal grasp of the market and their numbers, resorting to talks about hobbies and their long history in cybersecurity as proof of their personal qualifications. This leaves even the most exuberant investor asking, “Who is this person?”
Don’t run the clock down on the investor. Your hard work and greatness built this company and conceived of these ideas. Be yourself. Be confident. But mostly be prepared to get down to the details. The rapport will come. I know it sounds trite, but there’s a reason this firm or individual is taking the time to meet with you. Do not forget what brought you here. There is no substitute for authenticity, or brevity. Tell your true story and for God’s sake “be crisp” about it. Do not waste their time.
#2 Don’t Be Dismissive About Your Competition
With upwards of 8-9 new cyber companies entering the marketplace monthly – the competition is rife. Investors have done their research, and they want to know that you have too. They expect that you are expert on which players you will need to fend off over the next three years. Avoid being that guy or girl who points to the behemoth competitor and says, “Even though they have 60x more revenue than us, they are complete idiots”. Investors hate to hear a smarty-pants, pre-revenue or early stage start-up dumping on a company that has revenue, market share and customers. Likewise, realism wins the day on pre-revenue valuations. Present solid evidence to support your claims.
Competition is good. Let your referendum on competitors be the discussion of your differentiating methodologies, patents, functions and market realities that separate you from them, and place your technology in front of the pack. Start that discussion early in the meeting and know what you’re talking about. It is the central theme of your reason for meeting in the first place.
#3 Trust your team. Let them talk – No hostages
A big part of the strength of your appeal to an investor is the management team you have assembled. To the extent that they are important to the discussion, bring your leadership team. Your investor needs to see a mini representation of how you work together. Give each person an opportunity to discuss the meaningful aspect for which they are responsible.
I recently worked on a deal where the CEO did all of the talking. We would ask his team questions, he would speak over them, or cut them off mid-sentence, before they could answer. This made everyone uncomfortable and made the team look incompetent. It was evident that his executives were not trusted and were learning new information about the company, his philosophies, strategy, state of the finances, hiring, etc. all in real time. Their discomforting silence, and eye rolls only served to shift the entire investment question to whether the CEO was the “right guy” to lead. If your team is coming forward as part of the pitch, showcase its talents and value, be a united front, there’s a reason you hired them.
#4 Watch the “Glib” Statements
Very few things grab my attention as much as the occasional “out-there” comment on the state of the cybersecurity market, unpreparedness for the meeting or the CEO’s expectation of receiving business advice from the investor in an initial pitch. Think before you speak. Investors will get inexplicably stuck on your strange comments. Here are some winning meeting “openers” I have heard lately, straight from the mouths of CEOs, (I’m not making these up):
NDA’s are enforceable. An investor entrusting millions to your company might want you to show medical records to prove you’re in good health, or might ask what you ate for breakfast this morning. Be careful about creating imaginary information boundaries that make it appear as if you might have something to hide. Conversely, you should artfully defer your “deep facts” for the follow-on meetings. Remember, you’re initially there to generate interest and move the ball forward.
“The Cyber landscape is always changing, we haven’t really decided on product roadmap yet, or how we’ll use the money, we may need 5 or 50 new people, we’ll see how much money we get first.”
Duh. The plan for use of funds is central to the asking. If you do not know how you will spend the money, you are probably not going to be green-lighted for a blank check. It is not the investor’s role to make suggestions.
Awesome. An investor wants to know that you have narrowed them down to one or two proven and disruptive ones that can be successfully taken to market. Hundreds of use cases simply underscores the concern that you might not fully understand the market, product fit and integration capability or taken the time to focus on making good product marketing decisions.
No. Many believe a fireside chat is going to drive the point home. The visual presentation remains a necessary evil. It tells the investor that you have given this some thought. Be disciplined about some level of presenting. Investors will forget every word you say by the time they get to the parking lot. It is proven that humans comprehend and retain up to 67% of what is visually presented, compared to the less than 20% of verbal information processed and remembered. A topic as complex as cybersecurity must have accompanying graphical representation and succinct messaging. Less than twenty slides or pages should do it.
#5 “Some think our platform is a feature?”
If your “platform” has a limited proprietary code base, limited use, relies heavily on five other third-party products to function, or does not displace an incumbent product, it is not a platform. It is more likely a feature versus a standalone product. I am consistently amazed at the time and money spent developing “new” incomplete solutions that already exist in the marketplace, or are mere enhancements to the existing solutions. These products rarely succeed and I usually advise investors to avoid them.
If you believe you have the next game-changing, bright, shiny new unicorn of cyber technology, pull yourself together and really go for it. Have a great initial meeting. Be earnest in your market research. Use your time wisely. Speak as if you will never meet this investor again. Because odds are, you may not ever see them again. Shoot for under 10 minutes to state how your technology solves the specific problem. Seriously. Lead with the pain or problem your unicorn solves…concisely. Do not rely solely on banal statements like, “Gartner says this is a $3B market”. While that is important information to include, you can bet the investor already has an inkling of this. Stay focused on the assertions that offer insight into how you address your specific target customers’ needs.
Furthermore, consider the customer’s perspective, threat vector(s) or the current limitations of competitive solutions, to illustrate the problem your solution solves. Present your value proposition, the current landscape, position it early and build on it. Keep it all short and to the point. Keep your first demo to under 20 minutes. Pitch your solution as if the building you are standing in will burn down in 30 minutes. Investors will love you. When the smoke clears, you will have some time left over to be glib and entertaining.
Let your initial meeting plant the seed that takes full advantage of this cyber hot-house environment. Investors want to see you succeed. They want to take a nurturing role in helping your company to grow and prosper – be straight with them, be prepared. Cyber is a lush environment where if you have something special, the proper level of funding and investor relationship will give it the opportunity to fully blossom.