Peter Thielâ€™s CS183: Startup - Class 8 Notes Essay
Eric Barker stashed this in Peter Thiel
At first I rolled my eyes but actually this is quite good:
Conceptually, pitching sounds easy. You are smart. You have a great idea and you tell people with money that great idea. Theyâ€™re rational; they give it to you.Â
But itâ€™s not that easy. What you essentially have to do is convince a reasonably smart person to exchange his capital for your piece of paper (a stock certificate) that is really nothing more than a promise about something that may be valuable later but, on a blind statistical basis, probably wonâ€™t be. It turns out that this is difficult.
Humans are massively cognitively biased in favor of near-term thinking. VCs are no different. Thatâ€™s curious, because youâ€™d think they would have overcome it, since good long-term thinking is sort of the entire nature of venture capital. But humans are humans. VCs are just sacks of meat with the same cognitive biases as everyone else. They are rational systems infected with emotional viruses (and infused with a tinge of wealth and privilege and all that implies). You must address both sides of their brains; you have to convince VCs that your proposal is economically rational, and then you must exploit their reptilian brains by persuading their emotional selves into doing the deal and overcoming cognitive biases (like near-term focus) against the deal. You should also offer VCs entertainment. They see several pitches a day (most bad) and that gets boring. Be funny and help your cause. In the tech community, even one joke will suffice.
This reminder is humbling: "No senior VC needs to do your investment. You should never forget that. Any senior VC that youâ€™re talking to is already wealthy and has many famous deals to show for it. Your company is probably not going to make a material difference to him and but does present a significant chance of adding to his workload and failure rate; there will therefore be a certain amount of inertia against the deal since on average most deals donâ€™t pan out but do take time."
I LOVE this Adam... this is where we are at now... and while some wil largue that putting personality into a pitch is wrong... we are seeing really positive results by just being ourselves and putting the emotion back into pitching ...
Definitely be yourself, and always do what you think is right.
That way you never have o look back and wonder what would have happened if you had been yourself and done what you thought was right.
This is actionable and important: Insist on an early morning meeting.
One of the most important things to understand is that, like all people, VCs are different people at different times of day. It helps to pitch as early as possible in the day. This is not a throwaway point. Disregard it at your peril. A study of judges in Israel doing parole hearings showed prisoners had a two-thirds chance of getting parole if their hearing was early in the day. Those odds decreased with time. There was a brief uptick after lunchâ€”presumably because the judges were happily rested. By the end of the day people had virtually no chance of being paroled. Like everyone, VCs make poorer decisions as they get tired. Come afternoon, all they want to do is go home. It does indeed suck to have to wake up early to go pitch. But that is what you must do. Insist that you get on the calendar early.
Also, minimize the choices with your ask: "In addition to getting to them early in the day (before theyâ€™ve had to make a lot of choices), you should keep your proposition simple. When you make your ask, donâ€™t give them tons of different financing options or packages or other attempts at optimization. That will burden them with a cognitive load that will make them unhappy. Keep it simple."
I have to +1 this one.. The only worse time is lunchtime when it's not a lunch meeting. You don't want to fight circadian rhythms.
Yep- Adam.. thats the number one rule... make your important and urgent lists .. and remember those points on your list that may be urgent are seldom important !
And the best advice of all: Early pitches must be simple.
Oh, and forget your slide deck: "Your only chance is to have a straightforward, content-rich deck, and then to leave it behind as soon as possible."
Peter Thiel is very blunt on the subject of Venture Capitalists: "The truth is that most VCs are not very good at all. The objective verification of this is that the bottom 80% of industry hasnâ€™t made any money in the last 10 years. The compensation is that the ones that do are really very competent."
80/20 rule again... :)
Great answer: "Most terms donâ€™t matter. Economics and control matter; discuss those soon. As for the rest, outcomes tend to be very bimodal. If the outcome is zero, terms donâ€™t matter. If the outcome is huge success, terms donâ€™t really matter either. Only for little-better-than-mediocre-exits do terms matter much, and those outcomes are pretty rare in VC."