At the preseed, pre-VC database phase, future of work themes seem to be on a continuing big trend. I’m seeing all manner of variety in recruiting, hiring, training, relevant interviewing at scale for everyone involved. How do they stand out when they all seem to have the same secret sauce? Certainly it does depend upon who they are chasing; which segments, what the spend is in the market, and use cases.

The entrepreneurs who are paying attention to the market problems in hiring and HR are trying to fill the gap in a way that makes sense to them, either through automation/technology, through recruiting, or education/mentoring.

The broader theme these entrepreneurs are chasing is in response to structural shifts in the workforce, and perhaps there is a cyclical element. Some of it certainly is pandemic-related, but other factors are in play. Many people have retired, recent uncertainty around H1B visas have to some extent stressed the candidate pipeline for work across the spectrum, and the workforce infrastructure at all levels (physical and tech) are short on support. Physicians, nurses, AI talent, biotech, restaurant workers, plumbers, you name it… Remote-work and services have come to the rescue in the interim, in some cases, but not all.

Inflation seems to be turning into a medium-term trend, which could influence a shift of incentives in the workforce. If we have a few more emergencies to put pressure on logistics, then prices could remain held artificially high for longer. Its effects can certainly feel long term to the everyday participants in an economy who suddenly have to deal with diminished buying power.

Long-term, people have been having fewer children and we’ve been relying on tech/immigration to fill in the gaps. Remote work has become normal. Some companies are trying to push for their employees to meet in person, but strictly in-person companies will not be cost competitive against those who continue to hire remote workers. Nor can they compete/provide the intangible benefits of working from home. Amidst all this, entrepreneurs are chasing an HR Tech wave with all manner of solutions. The tech can, it is believed, replace some of the work that was being done before.

For entrepreneurs to differentiate in a market where everyone is seemingly solving the same problem, without much thought/analysis, it can feel like execution/results is the bare standard objective metric that an investor should use. There are market forces at work that shape the opportunities, but predicting market direction can be difficult. Less objective, more gut-feeling-based, observations about the management team don’t necessarily solve the problem either. With deeper industry knowledge, it is easier for an investor to parse through the opportunities. Even with industry expertise, markets shift and it can still be difficult for an investor to stand in the shoes of the customer to determine what their actual needs are and how one solution is better than another, if the entrepreneur doesn’t know to begin with.

Here are nine mistakes that an entrepreneur can make when presenting their pitch.

1. A deck for reading and sharing should not be used when giving an oral presentation. The former will require a lot of words to explain your company. In the latter, too many words will distract from what you’re saying. Stick to 3 bullet points, size 30 font, about 30 seconds per slide if you’re restricted to giving a 5–10 minute pitch in person. If you have an hour, use the pitch as a means to bring everyone up to speed on your company, then leave the rest of the time for Q&A.
2. Don’t focus too much on the technology or product. Maintain balance. It is important to communicate the different aspects of your business so that investors can understand the value in what you’re doing. The product is just one part of it.
3. Don’t ask for an NDA at the start of the conversation. If there are technical aspects of what you are doing that are unpatented, don’t go over the specifics until due diligence. See point #2 above.
4. Present in person if you can. Phone calls and web calls can be OK, but many investors will want to meet in person before they write check. They want to get to know you.
5. The team is 50% of the investment outcome, or more. Don’t just gloss over the slide. Answer the question on why this is the team to make it happen.
6. If you say you need money to build product to get the customer, then you’ll know it can work, you’re going about things the wrong way. It is better to interview a decent representative sample of customers, wireframe it for them, go back for feedback, and adjust your idea based upon their responses. It is better to have decent evidence that something will work than to assume it will work, even if you do come from the industry.
7. Really think about your market. Not the market from a study where it says $X was spent last year. The math is: how much do you charge for your product. Multiply that by how many customers there are. That is your market. Is it growing? How much? Why is this an opportunity now?
8. Oftentimes, the financial slide is a hockey stick. This slide is expected. Don’t describe the numbers as “conservative.” Many investors will cut any number you put up there in half. And entrepreneurs need to know their numbers; they need to understand the assumptions behind the numbers. Your financials should reflect your operational assumptions. They should reflect goals and milestones you plan to achieve with investor dollars. And, if you’re really looked into it, you’ll be using your most realistic numbers, instead of your optimistic or conservative trajectories.
9. Demonstrate a can-do attitude. Demonstrate that you can learn from your market, from your investors. Demonstrate that you’ll be a good steward of their money.

Investors like a good story, and a good story has a familiar format. The closest you can get is to structure your deck into a familiar story format. Before you worry about the deck, you’ll need to gather some information together. Once you have it, organize it based on the structure below. Put the story together before you put the slides together. It is better to talk it through with some investor or entrepreneur friends you might know. Then, when you feel that you have the story down, put the deck together in the following structure:

1. Investment Thesis. You will need to understand why you’re doing what you are doing. What is your passion? Why are you the person to make it happen? How long can you work for free if you need to? Will you be willing to stick around?
2. Customer Problem. You’ll need to understand your customer problem, from personal interactions with your potential customers.
3. Solution the Customer is paying you for. You’ll need to understand that the customer, from interviews, appreciates the solution you are proposing and is paying for it (the solution), or is willing to pay for it.
4. Why now? Why is this an opportunity now? Why hasn’t this been done before. If so, why didn’t it work out? What has changed in the market today? Why isn’t this an opportunity in a few years?
5. Market. Understand the total addressable market. Approach your market question from the top and bottom. Ultimately, multiply the number of customers who would actually pay for it if they just gave you the time to sell them on the idea, multiply that number by your price. that is the market you should start with. You should understand the assumptions you are making about this and know why it could be smaller (total serviceable market). Is it growing?
6. What does your competitive landscape look like? More importantly, you need to think about your problem-solution set and along those characteristics, how do you differentiate? Who are the players? Do you have intellectual property?
7. Product. Often, entrepreneurs will demonstrate their product at this point. In practice, this could be a few snapshots, and you can walk through a use case that your customers have already highlighted for you. You do want to make sure this use case represents the market you identified earlier.
8. Business Model. How do you make money? How do you market and sell this? Are you making money in licensing? Are you making widgets at a certain cost? Are you distributing? Are you selling through channels? How do the economics work for everyone in the value chain? Does it scale?
9. Team. Why are you best suited, as a team, to make this happen? How long have you known one another. Who is full time vs. part time. Who are the key team members here? Where do you plan to grow? Do you have a board of directors?
10. Financials. How are your operational assumptions baked into your financial projections. How much have you realized this year? How much is in the pipeline? How can you reach the targets you’ve set for yourself and are you making reasonable assumptions. Why is this the most likely scenario?

In addition, be prepared to discuss the terms of your raise and how you plan to invest the capital to reach your milestones.

I look forward to getting on the phone, having lots of coffee with some of you, or randomly meeting you in the hallways of day-time startup events.

For those of you who are just getting into the spirit of fundraising for the first time, it is a good idea to reach out through your networks to accredited investors and get referred into various angel groups in the PNW. If you’re not sure where to start, reach out to me. I’ve spoken with a lot of entrepreneurs to help navigate the investor ecosystem and I do occasionally refer companies to other players (VC’s and Angels) and they refer companies for SWAN Venture Fund. I prefer to refer companies in a way that doesn’t bruise the ego of the entrepreneur too much and doesn’t obligate a VC into a phone call they don’t have time for: I will typically have a call or coffee with VC’s and go over a list of companies I’m looking at. If they state interest in a company, I send over contact information and they reach out directly. They do the same for me.

A knowledge gap that is a source of great frustration for entrepreneurs and investors is knowing which market you can sell equity in; entrepreneurs just won’t know until they talk with a few investors and ask for advice:

1. If you’re raising angel money, don’t use VC numbers/terms for valuation and fundraising; it will chill interest quickly. VC’s and angels use the same language but have different economic expectations and different risk tolerance levels. Google the “halo report” for valuation metrics.
2. If you’re raising from VC’s and you’ve managed to get a meeting or conversation, get a sense for what metrics they are looking for first before you get into the pitch. This conversation is better spent with an associate. Sometimes you can tell from their investment behavior – check out Crunchbase for that. Don’t assume, but you can get clues from any press you find. Get on their radar “early”; everyone likes to be in the conversation early.
3. Don’t lose focus from your customers, your product, your market, your business, your team. Fundraising is important, but should not be all encompassing.

There is a lot going on. Stay focused. Build something that changes the world for your customers, for the better. Stay caffeinated this fall!

Summer season is upon startup land in the PNW. Investors will dwindle away to vacation up until July 4th, then it will be difficult to close funding from formal Angel groups and VC’s until after labor day in September.

Don’t panic! SWAN Venture Fund will be considering companies for investment over the summer.

As you may know, we closed our second angel fund in April this year of 2018 and we’re searching the Pacific Northwest for the right companies to invest in.

I sat on panel of judges today with John Sechrest, Nat Burgess, Taylor Soper, Joe Wallin, and Jeff Bianco. We heard pitches from six startup companies:

• FanWide: http://www.FanWide.com
• Trenzi: http://www.trenzi.com
• Haiku Deck: http://www.haikudeck.com
• Latchel: http://latchel.com
• Oli Fitness: http://olifitness.com
• PotaVida http://www.potavida.com

Trenzi won the contest and Latchel won 2nd place.

A comment about beauty contests: “losing” one doesn’t mean your business is a bad business. Your customers determine that for you.

I visited with startup attorney Joe Wallin and entrepreneur Michael Schneider for their Law of Startups podcast. You can check it out here:

http://www.thelawofstartups.com/podcast/2017/3/29/episode-98-nate-doran

In August 2015, twenty four investors and I came together to form SWAN Venture Fund on the premise that entrepreneurs needed funding in the Pacific NW.

When we talked with entrepreneurs and listened at pitch meetings, we became aware of how prevalent the crazy term sheets and crazy valuations are. Over coffee, entrepreneurs would often tell me “he said/she said we’re worth this.” And I’d raise my eyebrows and explain to the contrary. Perhaps, they had read articles about companies that have received silicon valley venture financing at a certain valuation and decided their pre-revenue startup should be worth about the same. Or they’ve gotten lost in valuation discussions, gave up on trying to come to market terms, and asked for a convertible note, because it was “easier.”

In Seattle, and pretty much anywhere outside of the valley, it becomes clear to anyone who takes the time to do the research, that there are multiple private markets for equity. Angels and VCs do rub elbows from time to time, but can have different investment strategies, motivations, and therefore price startups differently. Angels and VCs use similar language, but sometimes will have different meanings and expectations. But VC’s often will have a bigger megaphone than angels, about the deals they close. So, it should be no surprise that entrepreneurs and other advisers might take their valuation cues from VC rounds. This might even lead entrepreneurs and others to believe that VC’s are the only game in town. But, if you look at the statistics, the opposite is true. Angels fund 10 times the number of seed deals than VC’s, every year.

Up to this point, the angel community hasn’t been openly pushing back on entrepreneur valuations in Seattle as it could. The terms are getting in the way of the conversation. Sticker price shock overwhelms investors’ ability to see the quality of the company. This is a private market; buyer and seller still determine equity price, but the buyer isn’t haggling and instead buys stock at sticker price. And seed-stage valuations have climbed year over year until they’ve exceeded investors’ willingness to buy. Entrepreneurs often complain that they can’t raise money because angels aren’t interested enough or have impossible-to-achieve standards. I often hear entrepreneurs say: “If I could just raise money, I’d do x, y, z. Then it would be worth so much…”

The result: entrepreneurs were having a hard time raising money. Their difficulty isn’t just because fundraising is hard, but because they aren’t pricing their offering appropriately for the angel market.

Individually, angels don’t invest enough to create leverage in the conversation for a great startup to change terms. In groups, individuals still have little leverage around deals they understand. Entrepreneurs won’t change terms for a single $25k or $50k check.

We formed SWAN because when we speak up as investors and put our money where our mouths are. Then we begin to bring valuations back to reality and deals close.

I’ve been in the Seattle Angel community for a little over 4 years as of the writing of this opening post. I left Keiretsu in December of 2014 in pursuit of new horizons – to set up the SWAN Venture Fund and work on other projects, like this blog.

My last role as “Entrepreneur Director” for Keiretsu Forum Northwest was to discover, coach, and prepare entrepreneurs for Angel fundraising. These companies more-frequently came from Oregon, Washington, Idaho, and Vancouver, BC. But I also collaborated with the Bay Area and Mid-Atlantic regions. During that time, I helped a lot of companies raise money in the Pacific Northwest, met a lot of wonderful people in the startup and PNW angel communities, and I made a difference. Keiretsu Forum NW reported that their angels invested $53 million into ~70 companies during my time there.

We have ~10 active angel groups in Seattle (Alliance of Angels, Bellingham Angels, Element 8, Keiretsu, Puget Sound Venture Club, Seattle Angel Conference, Seraph, Tacoma Angels, TAGS, WINGS, Zino) that invest between $30 million and $50 million per year among startups raising their first $500k to $1.5 million (depending upon how you count the investments made). There are also several independent funds forming to invest at the seed stage (Seattle Angel Fund, SWAN Venture Fund). But, beyond the first or second round, Angels aren’t in a position to support a company with a bridge note or priced round.

Yet, there are a lot of great entrepreneurs who are actively attempting to raise money for their companies with little success. These companies are considered either too immature for angel investors or have reached a saturation point in the Angel equity market with little interest above what they have already raised (some close friends of mine in the startup community).

I have several theories about why this happens, but I won’t cover all of them in this post. One theory is that in terms of the volume of startup investments made, Seattle’s investment community, like the rest of the country outside of the valley, is not a venture capital town. It is really an angel investing town and the unfortunate part of this is most of the entrepreneurs price their equity rounds for VC’s, not Angels (which can be a bit of a shock for some). There are just more opportunities for angel deals here than there are for venture capital deals, (which is also true at the national level).

You should know that there are multiple equity markets: VC fund-raising and Angel fund-raising in Seattle are separate equity markets. For example: there are many companies attempting to raise $500k seed rounds from angels with premoney valuations 2x-3x above the national average of $2.5 million – $3 million (in the annual Halo Report). I’ve met many entrepreneurs who understand that this is an issue, but started raising with higher valuations ($5-8 million VC seed premoney) because they thought they could raise money from VC’s. But when they could not obtain VC funding, they adjusted their valuations at or below the average Angel premoney values and were then better able to raise Angel financing. These entrepreneurs are a minority. Many entrepreneurs who couldn’t get VC funding and didn’t adjust their valuations in time, eventually ran out of money and closed their businesses.

So, there seems to be a need in writing this blog, for the entrepreneurs who have the perception that there is little funding available, to help you find. What will this look like? Blog material written by me will probably be a collection of interviews with founders, pieces about companies, and thoughts about startups and fund-raising. I am open to collaborative work with entrepreneurs and other blogs because this is about you and for you. As this blog grows, there will be a separate page of resources available for entrepreneurs to help you navigate the PNW investing scene to learn about and better connect with the investor community.

I hope this finds you well. Cheers!

Nate Doran