New York Entrepreneur's Week is coming up fast - it's only 3 weeks away.  For details about the week click here.

I'll be giving a candid talk on how to raise venture capital. 

If you're interested I'm slotted to speak at 1:15PM on Thursday November 19th.  Here's the schedule for the Startup & Early Stage track that week. 

• 11 tips for the VC pitch
• Definition of Strategy 
• Company Math vs VC Math 
• How to throw a kick-ass launch party (on the cheap) 
• How to setup an appointment 

Entrepreneurs often create new lingo to describe the novel elements of their business. They do this for good reason – it’s difficult to describe new ideas with old terminology. If a new concept takes numerous words to describe every time it comes up, you can bet that new labels and a new lexicon will be created to make conversation easier.

Developing this lingo is a good thing as it helps

1. Facilitate communication about these new ideas and
2. Creates a culture around the product. New terminology has a great way of making products seems special or unique.

A challenge, however, arises when this lingo is used in investor pitches without explanation. Generally, I think including this lingo in the fundraising process is a good thing as it shows marketing savvy and gives investors more of a sense that the product is truly novel. The key to using lingo successfully, however, is to be sure to

1. Only use lingo where it’s needed (if there is existing language for an idea, use the original concept) and
2. Take the time to define the lingo.

I have found that many entrepreneurs struggle to clearly define the lingo that they’re using. Since to them the new word represents a concept, their explanations are often very abstract, further confusing the matter. To define them effectively, however, these new words need to be explained in a context that investors can understand. If the new product is a technology product, for example (e.g., Drop.io’s ‘Drops’ or Twitter’s ‘Tweets’), the entrepreneur should be careful to explain the product in its most basic form. For example, one might describe a tweet as a 140 character message sent to anyone following the author.

If you have catchy lingo for your new product, be sure to test it on your friends. If they don’t get it, try explaining it differently –you need to adjust, not them.

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Every time VCs make an investment they believe that they are backing a company that is going to generate a healthy return. In reality, that’s not the case.

Even the most successful early stage investors experience failure rates in their portfolios that are probably surprising to people not familiar with the business. A rule of thumb is that for top performing investors one-third of their investments will ‘go to zero’, one-third will return the invested capital and one-third will provide a 5-10x return. Furthermore, in the early-stage model, the few companies that return 10-times or more on invested capital provide the vast majority of the fund’s total return to its investors (limited partners).

This reality has a few implications for entrepreneurs that are raising an early round of venture capital. First, you will need to convince investors that your company can generate a big return since VCs need to make every investment with the belief that it will do so. Second, you should expect that the market valuation for your company may be lower than your initial intuition tells you. Since two-thirds of the companies that receive venture investments generate mediocre returns for early stage investors, investors will likely perceive the riskiness of your venture to be higher than you will.

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After VCs have evaluated your financial model they may ask you to consider some additional scenarios. They may ask if there are scenarios whereby your company can extend its runway on a fixed amount of capital, increase revenues with more capital or operate with less capital under management.

Investors typically ask these questions for three reasons:

1. to understand the drivers of the business,
2. to identify investment structures that are a fit with their investment strategies, and
3. to ensure your company takes an investment that will be helpful to the business.

By understanding the drivers of the business, investors can help management teams ensure that they are operating the business to perform optimally. For example, if reducing the company’s burn doesn’t substantially impact its ability to generate revenue, there may be too much ‘fat’ in the company’s spend – an issue worth evaluating.

VCs also need to make investments that are consistent with their investment theses, while ensuring that the company has enough runway to achieve milestones and be positioned for its subsequent capital raise. Furthermore, VCs may ask you to evolve your capital requirements to align the investment opportunity with their investment strategy.

You should try to accommodate these types of financial model reviews as they

1. will help investors better understand your business,
2. position you to develop a productive working relationship with future board members, and
3. help ensure that you are deploying capital most effectively.

It’s worth noting that in order to engage in these types of scenario discussions you must ensure that your financial model is driven by variables that enable the creation of scenarios.

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It’s not uncommon for entrepreneurs to want to meet with VCs in a destination geography when they’re in town for business meetings or conferences. It makes sense to get more out of a business trip. While this is generally a smart strategy, trying to schedule your VC meetings at the last minute will likely lead to missed opportunities.

It’s important to understand that sending an investor an email stating that your team will be in town in a few days and would like to meet is not a practical strategy. There are two key reasons for this. First, VCs generally keep a busy schedule and might be booked a few weeks out. Second, VCs will often want to screen your business plan or have an initial phone conversation prior to agreeing to meet with your team. This additional step in the process may add days or even weeks to the process depending on how busy they are.

Inevitably there are times when the business trip is planned at the last minute. There may be little that you can do to contact investors early. If you do know you are going to be making a business trip and want to meet with investors, however, engage them as soon as possible.

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