52. The Hunt for Investors, Part 2 (Mark Peter Davis)

The Full Ratchet Podcast on iTunesNick Moran Angel List

Mark Peter Davis of Interplay Ventures joins Nick to cover The Hunt for Investors, Part 2. We will discuss the remaining questions including:

  • When an entrepreneur gets a first meeting w/ an investor, what should they do, and conversely, what should they avoid doing in that meeting?
  • After initial meetings, let’s say the entrepreneur has some indications of interest… what due diligence materials should a founder consider and prepare for?
  • How do you advise entrepreneurs w/ regards to deal terms, valuation and maintaining the appropriate level of control?
  • Tell us about the Founder Catch 22, and what should entrepreneurs do about it
  • You’ve written a lot about failure on your blog; can you talk about what you’ve learned and/or any lessons for entrepreneurs or investors.
  • Can you talk about some of the things you’re currently up to and most focused on?
  • If we could address any topic in venture, what topic do you think should be addressed and who would you like to hear speak about it?
  • What’s the best way for listeners to connect with you?

Itunes:  http://apple.co/1HGLuXh

Direct-audio:  http://bit.ly/1lXTNE8

SoundCloud:  http://bit.ly/1QfaMNm

Fundraising RulesGuest Links:

Key Takeaways:


1- The Search for Investors

Mark suggested that entrepreneurs spend less time looking at an investor’s website and their advertised thesis and spend more time looking at their portfolio.  What companies have they invested in?  What stage and sector are the startups at investment?  And Mark stressed the importance of the Pre-investment process.  He talked about how this exercise is a bit of a game and part of the game is to build relationships early-on.  If one is connecting with investors long before a fundraise, this gives the investor an opportunity to get to know and build comfort with the founder, the concept and the sector.  Mark said that, “it’s the little things that signal a level of competence, that makes it less scary to give them your cash.”  When an investor can trust an entrepreneur to follow-through on their assertions, they may just ask if they can invest before a formal fundraise begins.
2- Syndicate Construction
Mark suggested that founders build three types of investors into their syndicate.  There should be one party that is the trusted resource for the entrepreneur.  Another party that will de-risk future financings.  They could be a smaller investor, but maybe they most often cut a large check at Series A.  And the third investor type that he suggested is one that can take operational friction out of the plan.  Maybe they have expertise in the sector, the market, they have strategic contributions on the fundamental growth drivers for the business or have been an operator in a similar context.
3- The Three Necessary Components of a Fundraise
  1. The Bait:  The executive summary.  Doesn’t need to fully explain your business.  Just needs to address the basic characteristics of the business.  Sector, location, team bios, raise amount, traction.  The goal at that stage should just be to get a meeting.
  2. The Presentation:  The powerpoint deck.  More detail than the exec summary.  Includes a deeper dive on the previous elements plus some additional elements.  If you’d like to read more about what’s necessary in the standard pitch deck, you can check out the previous tip of the week called, the Elevator Pitch, that was covered on the episode with David Brown.
  3. The How:  This is the operating model, not the financial model.  It illuminates the key drivers of value and the key cost centers.  What’s the cost of customer acquisition in X channel?  What’s the recurring and lifetime value that each customer contributes.  With this detail it’s very easy to understand the go-to-market strategy, what acquisition data is known and what still needs to be tested.  This illuminates the key levers that the founder will pull in order to drive value and justifies the cost-side actions and need for outside capital.
And remember that the result of a successful go-to-market plan is market share capture.  Not the other way around.  The strategy should not be to go out and get 1% of the $10B market… the discussion should be about how the startup goes out and wins customers… with the result being share capture. 



Tip of the Week:  Tips for Fundraising Entrepreneurs