If Moses had been an early stage investor, and if he had carried a third tablet from the mountain, it would have told entrepreneurs, "Thou shalt tell what you do and how you shall prosper doing so."
This unseen commandment is as basic to the creed of early stage investing as "Thou shalt not murder" is to religion, morality and secular law. And like the other Commandments, it is all too often broken. But the penalties for breaking the unseen commandment and for breaking the Ten Commandments are different.
I might not know the repercussions of sin, but I do know the repercussions of breaking the unseen commandment. You probably won't get funded. At the minimum, it will make your path to funding much more difficult.
Recently, I attended a meeting where several smart people gave short pitches regarding their emerging technologies and companies. There were more Ph.D.s pitching their concepts than the number of pitchers on the Cleveland Indians staff. And their effectiveness was about as good as that of those pitchers during an Indians losing streak.
The intellectual horsepower was there, as were some intriguing technologies, but the presentations were, on the whole, unimpressive. The presenters failed to clearly, and early in the pitch, state their value proposition. I had to work too hard to figure out what their product was and how it would be commercially exploited.
No plans had the "Wow!" factor to knock the socks off an early stage investor.
Given the lack of a clear value proposition, it wasn't surprising that other critical points -- such as the status of intellectual property, market size and nonfinancial barriers to entry -- were rarely mentioned.
The meeting was not, however, a waste of time. There were some potentially viable commercial applications presented by world-class scientists and researchers. And these scientist/entrepreneurs understood they needed assistance, and their egos did not get in the way of asking for it.
I was the sole service provider or person with relationships with capital who attended, and after the pitches, I was asked to address the group. I had no prepared remarks, so I just relayed The Truth and a few other tenets of early investing.
The Truth is as follows:
* In your opening statement, concisely explain what your company does and how it will make money, in terms anyone can immediately understand.
* Don't say how cool your technology is or what Forester Research projects the market to be in five years. Don't say how exciting the prospects are. Just say what you do, or will do, and how you will make money.
* Some call this an elevator speech; I call it "30 Words to Capital," for you should be able to convey the necessary information in 30 words or less. I can do General Motors in 10 words: "We manufacture vehicles and sell them to dealers and fleets." That is not all GM does, but it explains its core operations and value proposition.
You've worked hard to bring your emerging company to its current level, and my concept of The Truth might seem petty or pedantic, but it is one of the most important components of your success in raising capital. Erwin Bruder (firstname.lastname@example.org) is managing director of emerging enterprises for Cleveland-based Prim Capital Corp. He can be reached at (216) 830-1111, ext. 2220.