Beware the Valley of Death

While horse and hero fell,

They that had fought so well

Came thro' the jaws of Death

Back from the mouth of Hell,

All that was left of them,

 Left of six hundred.

– Lord Tennyson, The Charge of the Light Brigade

 

My partner Michael recently blogged about an interesting dynamic that is occurring in the venture industry, namely that for the last 2 years, and in aggregate for the last 10 years, the US Venture industry has been investing more into portfolio companies than it has been raising from investors.  For 2010, the numbers were $21.8 Billion invested and $12.3 Billion raised and for the 10 years between 2001 and 2010 the numbers were $245.5 Billion invested and $224.8 Billion raised.  Clearly this trend is not sustainable and the investment pace will need to decline. 

There are two other dynamics underway that are worth considering.  The first is, as many have noted, that it is easier then ever to raise seed funds and get companies off the ground.  At the other end of the spectrum, the second dynamic is that more and more of the dollars being invested are going to a smaller and smaller group of companies.  In 2010, 6% of the dollars went to 10 companies and if you include secondary purchases and recent investments from traditional VC firms in only three other companies (Facebook, Groupon and Zynga; Twitter is already in the top 10 deals), this number is more like 11-12% of the total capital invested.  In 2007, by comparison, more like 3-4% of the total capital invested went to the largest 10-15 investments. 

So what does this have to do with the Light Brigade charging into the Valley of Death?  Over the next few years in the face of a contracting venture industry, with more dollars going to very mature companies and very young companies, anybody in the middle (i.e. the prototypical Series B and Series C financing) is going to find life far more difficult.  In some ways this process is good: only the strongest of companies will survive.  But the risk is that companies pursuing real and valuable opportunities, especially those whose business models may not lend themselves to early explosive (often non-revenue based) metrics, may get caught in the crossfire.  So what is an early stage entrepreneur and investor to do?  A few possible suggestions for navigating the Valley of Death come to mind: 

  1. Build a syndicate that surrounds your venture with all the potential capital you need such that you don't have to go externally for subsequent financing rounds if you don't want to.  In so doing, be explicit about milestones and ensure you and your investment partners have aligned expectations.
  2. Alternatively, make sure your seed investors have an extensive track record of attracting up rounds from middle stage investors.
  3. Either way, take the time to cultivate relationships with potential financiers to both establish relationships and develop credibility as you lay out (and achieve) critical milestones
  4. Aggressively consider nontraditional sources of capital.  Early customer funding is obviously the best approach, but we are also seeing more corporate VC activity at earlier stages than we have in the last 10 years.  Corporate VC may come with strings that need to be carefully navigated, but executed properly there can be real benefits.
  5. Finally, and most importantly, from a company development perspective, make sure the size of the opportunity you are pursuing is commensurate with the amount of capital you require.  This sounds obvious, but we see many companies that realistically needs tens of millions in capital to create a company with less than $20M in revenue.  At the same time as ensuring the pot of gold at the end of the rainbow is large enough, focus aggressively on reducing risk and generating early momentum.  At the end of the day the middle stage investor is making a risk-reward tradeoff between your company and another investment opportunity in an environment when they can no longer make both investments.

Any other suggestions?

Budgeting Best Practices

Ahh December.  Between closing out the year, performance reviews, holiday parties and family activities, it is always a crazy time of the year.  And to top it all off, for most of our portfolio companies it also happens to be the time when annual budgets are prepared and presented to the Board for approval.  Having been through several such sessions in the last couple of days, I thought it would be worth sharing some of the best practices I have seen across our portfolio.

  1. Start early, but not too early.  In large companies, the budgeting process often starts in early October.  For earlier stage companies where much is in flux, this obviously does not work.  Conversely, starting the internal process in early December does not work either.  The best approach I have seen is to develop a high level forecast for the upcoming year in November and present that to the board for general reactions before refining and honing for final approval in late December.
  2. Use the budgeting process to drive alignment across your organization.  While it is easy to look at budgeting purely as a financial exercise, the most important part of the process is using the financial plan as a way to represent the organization's goals and priorities and to use the planning process to drive alignment across the company on these issues.
  3. Shoot for a confidence level of 80%.  There is always a debate in budgeting as to whether the plan should represent a stretch goal or something that is easily achievable.  While the stretch goal approach is often initially appealing under the theory that if you don't plan for greatness it may not happen, my experience has been that companies that have a history of hitting budget, tend over the long run to have more success.  While this is not necessarily a causal relationship, consistently hitting plans has a way of improving morale and developing a more accountable organization.  Conversely, letting the pendulum swing to far to "sandbagging" does indeed have the effect of not letting the dreams be realized, so in the end a plan that is a mixture of both and has a 70-80% confidence factor feels like the best middle ground.
  4. Explicitly identify upside opportunities.  Related to a plan that is 80% likely of being achieved, i think it is critical in the budgeting process to explicitly identify upside opportunities that could change the company's trajectory and what actions are being take to see some of these to fruition.
  5. Use a trigger based plan if you are operating in a highly dynamic environment.  For really early stage companies, or companies that are operating is a state of great flux, clearly identifying triggers that will move the company from the current plan to a new plan is a good way to ensure alignment.  For example, if you are running a company with an inside sales model, saying when leads reach a level of X or qualified opportunities of Y that will trigger hiring several more sales reps.  this allows you to this aggressively, but also realistically relative to resource constraints.

Finally, after all of this, remember your goal its blow through your objectives such that by mid-year it is back to the drawing board!

 

While VCs & Angels debate, focus on first principles

There has been a lot of debate lately in the investor community about VCs vs SuperAngels and the best approach to financing early stage companies.  If you are an entrepreneur, you could spend all day catching up on the blog/twitter traffic, which of course makes it hard to focus on actually building your business.  If you do have the time and want to wade in, these posts/comments from Fred Wilson, Brad Feld, Eric Paley, Dave McClure and David Hornik (via TechCrunch) will give you the overview.

Given that 90% of all potential investors will deliver advice that is self-serving to their own particular agenda, in approaching the question of how to fund your business, to me it makes sense instead to focus on first principles.  As a first pass, this entails answering three questions:

  1. How much money do I realistically need?  Put together an overall multiyear plan for your business, assume it takes longer and more money than what the plan suggests, and then determine what that means.  The simple point here is that the financing sources that are appropriate if you need a total of $1 million are different than if you need $10 million or $100 million.
  2. What amount of capital upfront allows me to significantly decrease risk and increase valuation?  While every entrepreneur would like to raise all the capital required per question one in one fell swoop, this is often unrealistic and will result in a tremendous amount of dilution.  Instead, think about determining what allows you to prove you can build your solution, that customers will adopt and it fits a market need, there is a sustainable business model and that you have a path to access the market.  Funding through milestones such as these will allow you to raise subsequent rounds of capital at higher prices.  In the digital media world this often can be accomplished with less capital, in other segments it requires more, but regardless of the segment you participate in reducing risk and demonstrating potential upside will always translate into higher valuations.
  3. Who do I want to work with, what do I expect to get out of them and are our objectives aligned?  When you bring on an investor, especially if they are on your Board of Directors, you will be together for a long time.  So make sure you both enjoy working with them, you see eye to eye in terms of the market opportunity, you are aligned in terms of what you expect from the investor and what they will be able to deliver, and there is agreement on the the ultimate goals for your business.  One of the greatest sources of conflicts between entrepreneurs and investors happens when this alignment is not in place from day one.

In all of this, avoid the trap of telling an investor your strategy is what you think they want to hear.  Instead, if you focus on what is right for you and your business, the answers should come to you.

From here to enternity

Earlier this week at the AlwaysOn Venture Summit East, Harvard Business School Professor Bill Sahlman declared that the "Median rate of return on VC will be 0% for the rest of eternity".  For those of us who have been in the industry for a while, this is not a new statement from Professor Sahlman, although the qualifier "to eternity" certainly is a new time frame for this claim (and for those of you keeping track at home, eternity likely exceeds the length of my investment horizon).  Rather than debate his point of view, when I heard this I sent out a tweet saying simply "I hope he is wrong".  Soon thereafter I got a reply, which I have heard from several entrepreneurs before, that went something like this: "Don't you hope he's right? We want entrepreneurs to get at bats, and the current model makes that possible".  


I was tempted to reply back quickly with the the short answer of No, but thought this topic may deserve more than 140 characters.  So here is the the longer answer.  In the short term, venture capital that is willing to be invested at a 0% expected rate of return is on the margin good for entrepreneurs in that it helps get companies funded and maybe some of these companies will emerge as real businesses and many entrepreneurs will indeed get their at bat.  In the longer term, however, it is unsustainable and bad for entrepreneurs for two reasons.  The first reason is that the abundance of capital leads to too many companies being funded in any given sector, with the net result being that interesting sectors that can support maybe 5 companies now have 20+ companies pursuing the same customers, partners, and employees and each company is weaker as a result of the level of competitive intensity for scarce resources.  The second reason is that venture capital as a "asset class" competes for capital from investors and if the returns are not interesting, capital will go elsewhere where the expected risk adjusted returns are higher.  Further, venture capital is an inherently illiquid investment and, because of the illiquidity, our investors look for a premium return when they can not access their capital for longer periods of time, just as you get (and demand) a higher interest rate from your bank when you commit to a 3 year CD versus the interest rate you get in your always accessible checking account.  The general rule of thumb is that venture capital needs to generate returns that are 500-1000 basis points greater on a per annum basis than a similar equity investment, say the S&P 500 or the Nasdaq 100.  As a result, unless you are expecting the broader public stock markets to decline by 5-10% per year, a 0% rate of return in venture capital is not sustainable and the industry as a whole will contract, resulting in less capital for the industry and entrepreneurial ventures.  So while it may seem appealing on the face of it to have the industry run for the broader good of innovation, in the end we – meaning entrepreneurs and venture capitalists together – need to earn our keep every day to ensure that capital remains available for great people and ideas.

VCs and Recruiting

There is an old expression in the Venture Capital business, coined initially I believe by John Doerr, that VCs are really just glorified recruiters.  Given a number of portfolio company searches I have been involved with over the past few months, this is definitely feeling like the case.  

So while I think the entrepreneurs in our portfolio companies do the real leg work in recruiting, and being an excellent recruiter and team builder is a key skill of the executives we back, there are a few important contributions a strong venture capitalist can bring to an executive search at a portfolio company:

  1. A broader context.  If a founder of a company is looking, for example, to recruit a VP of Sales, depending on what they have done before this could be their first time doing so.  An experienced venture board member, on the other hand, might have helped recruit dozens of such executives which provides a broader context in which to assess the executive's skills and fit with the given company.
  2. An extended network from which to surface candidates.  This can result in the VC surfacing up a specific candidate, or knowing enough people who themselves can surface up candidates.
  3. An ability to more deeply reference check a given candidate.  As anyone who has recruited executives knows, reference checking the candidate's background is critical to understanding their skills and fit.  But being able to do so "off-list" is even more important as the key to references is not speaking to the people the candidate provides, but rather understanding who, and speaking with, the references they don't provide.  By the nature of having been involved with many companies over the years, a good VC will often be able to get to these off-list references more readily than the executive team.
  4. An ability to help provide a candidate a third party perspective on the business and why it may represent a good fit for the candidate.  Talented folks will always have other choices and the best candidates will want to do significant diligence on the opportunity.  While not completely unbiased, a venture investor can often provide this perspective and share diligence on what led to their investment decision.
  5. An ability to keep executive search firms honest.  Search firms, while often an important part of a successful recruiting process, need to be managed to avoid them slacking off at the end of a long search or promoting candidates to finish the search regardless of whether the particular candidate is a good fit.  A recruiter is less likely to do this with the involvement of a venture firm given that the venture firm often represents a long-standing relationship and a steady stream of referrals.

So if you are an entrepreneur looking to build out your team, put your venture board members to work!

Get Your Organizational Wheel of Fortune Spinning

Wheel
A couple of months ago, I had a two week period when many of our CEOs were leading their own 360 degree reviews, where feedback is provided to them by both their direct reports and by the Board of Directors.  If you are a CEO/entrepreneur, I would highly encourage you to do this, as it is a chance to get feedback in a structured, formalized way and to surface issues that can be addressed before they fester and become harder to overcome.  It is also helpful as the skills and management style that worked when your company was 10 people may not be the same as the skills required and the approach you take when you are 50 people or 500 people.  

As part of their 360 process, one of our companies ran a structured workshop in advance of the review to identify what the Board, the CEO and the company’s outside advisors felt were important characteristics and skills the CEO required to be successful.  Here at Flybridge, we also have an internal set of questions we ask ourselves as venture investors before we get involved in a company that helps us as a partnership determine if a given entrepreneur is someone we want to be in business with. Putting these together, below are six questions that you may want to ask yourself, about yourself, as you think about starting a company:

  1. Are you a Pied Piper?  To me, this is a unique skill that allows entrepreneurs to articulate a vision for their company, instill confidence in their ability to achieve that goal and demonstrate personal leadership that leads prospective employees, partners, customers and investors to feel like they absolutely have to join the parade.  These are both personality traits such as authenticity and trustworthiness, but it also means having a unique perspective on a market need and how your solution addresses that need.
  2. Are you introspective and coachable?  Because no one executive has all the right skills and the needs of the leader change as the organization develops, understanding your personal strengths and weaknesses is critical.  This does not mean a lack of confidence; in fact some of the most confident CEOs we work with are the best at understanding where their talents lay. If you have an interest in learning more, A good resource on this front is Daniel Goleman’s book, Emotional IQ. Of course, to be successful you then need to build a team (see #3 below) that has complementary talents to your skills.  
  3. Can you identify, recruit and retain talent?  This is fairly self evident, but I have observed over the years that some companies are great recruiters and have a way of attracting the best people while others constantly struggle to do so.  And yes, the old adage of A players attracting more A players while B players attract C players is true and is something we have observed repeatedly over the years. To be a great recruiter requires constant networking, a disciplined and intense interviewing process and great follow through and sales skills.  I love some of the approaches Paul English, the co-founder of Kayak, uses as outlined in this article.
  4. Can you create alignment across your team in terms of the company's strategy and objectives? Often an entrepreneur is so convinced their way is the correct way, they fail to realize that the rest of the organization may not understand, or buy into, the path forward and will be, as a result, inadvertently working at cross purposes.  This si not to say debate and conflict across the team is bad, in fact it is critical, but coming out of the discussion there needs to be by-in and alignment.  As an example, I was at a Board meeting at the start of the year where we joked that the CEO must have had a button under the table that allowed him to direct each of the team members comments as everyone's strategy and goals for the upcoming year was 100% aligned with the direction the CEO had laid out for the company in the session he had with the Board alone.  Not surprisingly, since that Board meeting, the company has met all their goals and objectives.  Further, because everyone understands and believes in the goal, any mid-course corrections and decisions can be made quickly as there is a common understanding of what needs to be achieved.
  5. Can you operate at a fast clock-rate and make rapid, data driven, analytical decisions despite rampant ambiguity?  I believe start-ups win in part because their decision making cycle is faster than their would be competitors, so being able to make rapid decisions is critical, despite the fact that often there is very little information at hand to make such decisions.  Some translate this into swinging from the hip decision making, but I think the real skill is understanding the ambiguity, asking the right questions in terms of what information would help reduce the ambiguity as quickly as possible, overlaying that information with input from trusted team members and advisors, pushing forward with decisive action and then reacting if need be.
  6. Are you resilient enough to look at adversity and focus on what needs to be done to overcome the challenges and adapt as necessary? Like a shark that can't stop swimming, startups continually need to be moving forward and when the inevitable turbulence arises, it is important that a game plan to overcome the obstacles be quickly put into place, even if the execution of the game plan will take some time.  If the path forward is not obvious, a starting point at a minimum is developing a plan to get to the plan.  Further, listening to input and being willing to adapt, even if it means admitting the original vision has flaws is an important skill, although often easier said than done for strong-willed entrepreneurs

Interestingly, these skills together can be reinforcing in a positive manner.  I call this the Organizational Wheel of Fortune as outlined below:

Orgwheel
 

Let me know your thoughts and if I am missing any key questions.

Quick reminder of the challenges (and opportunities) in enterprise IT

Last week I did several reference calls on a new project we were looking at in the enterprise IT market.  In each case I was speaking with a senior IT executive at a large financial institution.  The calls were not to the company's existing customers, but rather to people I just felt would be thoughtful on the company's market opportunity.

As it turned out, each had actually evaluated the company's product and they started out the conversation by saying how impressed they were with the company's technical approach, how it was really innovative and superior to other solutions, and how much they liked the company's management team. So far, so good.

Then I asked the obvious next question: so did you buy the solution?  In each case, the answer was no. The why behind the no, however, is what is illuminating on some of the recurring  challenges for traditional start up enterprise IT companies.  Although they used different words, the consistent themes were:

  1. We went with our incumbent vendor.  We know their solution is not as good, but it is good enough and it is already integrated into our infrastructure and we know how to work with them.
  2. This project, while important, was not high enough on our priority list to get everyone's attention.  Given tight budgets, the only new initiatives we are doing relate to driving revenue or addressing pressing regulatory changes in our business.
  3. The company wanted to do a paid pilot with us to prove how much superior their solution was, but given a pilot required standing up new iT infrastructure and integrating into some of our core systems, this was a significant undertaking and not something we were willing to do given point two above.  Further, the pilot was required to demonstrate the business case which left us in a Catch-22 situation.

Many of the takeaways from this conversation are the same as I wrote about two years ago in my long enterprise IT post, but I felt they are worth repeating in the light of this conversation.  First, if your product/market focus requires a traditional enterprise IT approach, which for me means high touch direct sales with a product that requires some level of IT support and integration, you better make sure that:

  1. Your "superior solution" is significantly superior.  As in 10 times better, not 50% better.
  2. You are focused on a company's top three strategic initiatives, because nothing else is going to get funded in amounts or in a timeframe that will make you happy.

As you have likely figured out, these two things are hard.  In the fast paced technology world, sustainable 10x product differentiation is uncommon and fitting that with the ever-shifting strategic priorities of large organizations is even harder.

The alternative, of course, is to think creatively about ways to reduce the friction in the adoption process which is why we continue to be attracted to open-source, freemium and SaaS business models.  Instead of the conversation I had above, imagine if the customer was able to download/ sign up for the company's product -  without consuming any IT resources or getting into a lengthy procurement cycle – and then use the product and see its value.  If the product was easy to use and understand, did not require deep integration or if it did, the integration came "pre-built" via some partnerships, the potential customer would have been able to develop its business case and pre-qualify themselves as a relevant customer.  Thus they would consume minimal resources from the vendor until they raised their hand and said, I am ready to buy.  While this is by no means easy, if you have the right focus across your company in terms of product management, development and sales and marketing, it is likely an easier approach than trying to find that magical 10x better product that meets your customers top strategic priorities in an era of constrained budgets and shifting priorities.


Welcoming 10gen to the Flybridge portfolio

While I try to avoid promoting Flybridge portfolio companies on this blog, from time to time I will write about our new investments in the hope it sheds some light into how we are thinking about opportunities. 

Today it was announced that we recently invested, along with Union Square Ventures, in a New York City based company called 10gen. 10gen was founded by Dwight Merriman, Kevin Ryan and Eliot Horowitz and they are an open source software company that developed the non-relational database, MongoDB. 

We invested in 10gen for a few reasons:

  1. Strong founding team: Dwight was the co-founder and CTO at DoubleClick, Kevin was the President and CEO of DoubleClick and Eliot was a lead software architect at DoubleClick.  As a result, the team knows a few things about both building large scale web infrastructure and growing and scaling businesses.  We were also fortunate, in a prior life, to have been investors in DoubleClick so we also had the benefit of knowing the team well.  
  2. A belief in the "NoSQL" database market: while the name is a bit of a misnomer, we believe that databases are getting more specialized over time as users realize that the one size fits all relational database model does not often fit what they are trying to achieve with their applications.  Specifically, a schema-free, non relational document oriented database such as MongoDB is particularly well suited to web applications where scalability, performance and flexibility will be highly valued. Virtually all the web developers we spoke to in our diligence were using, either in production or in their labs, NoSQL databases with very positive results.  We expect this trend to only increase as more applications are deployed in Cloud environments as these databases are particularly well suited to that architecture.  
  3. MongoDB is a leading solution in this emerging market: while MongoDB was only recently introduced into the market after a few years of development, the product has been downloaded by tens of thousand developers and is in production at companies such as SourceForge, Business Insider and Disqus.

While there are other reasons we, in short, liked the team, the market opportunity and the company's specific solution.  We look forward to working with this great team to take advantage of this exciting opportunity.  If you have an interest in downloading the product, please click here, or joining the team, please click here.

Immigrant Founders

A few weeks back, I had the pleasure of doing a panel discussion at a TiE DC event focused on strategies for growing and financing entrepreneurial ventures.  TiE now stands for "The Innovative Ecosystem" and is a not-for-profit global network of entrepreneurs and professionals, although when the organization was originally founded TiE stood for The Indus Entrepreneurs and was focused on entrepreneurs primarily from India.  Befitting this heritage, most of the entrepreneurs I spoke with had Indian roots and as many of them reached out to me to discuss their ideas for their new ventures, i was struck – as i often am at TiE events – by the quality of the entrepreneurs, their passion for their new businesses, and the general level of aggressiveness in networking and seeking advice on how best to move their business forward.  All good signs for the local DC entrepreneurial community!

As I was speaking to everyone, I was also reminded of a study that was commissioned by the NVCA on the impact of immigrant entrepreneurs and professionals on the U.S. economy.  In short, what this study found was that over the past 15 years, immigrants have started 25% of US public companies that were venture-backed and that the market capitalization of these firms exceeds $500 Billion.  Further, 40% of US publicly traded venture-backed companies in high-tech manufacturing today were started by immigrants, including companies such as Intel, Solectron, Sun Microsystems, eBay, Yahoo! and Google.  For those of us in the venture industry, this is not new news as we see this in our daily lives as we meet with new companies, but it is interesting to think about why this is the case.

From my perspective, there are three reasons immigrants to the US make up a disproportional amount of the start-up companies backed by venture capitalists.  First, most of the immigrant founders were drawn to the US for either college or graduate studies in technology driven fields, so they are well trained technically and are no strangers to innovation.  Second, as I saw when I lived for a couple of years outside the U.S., being in a culturally different place tends to lead one to be more curious and to take less for granted, resulting in a proclivity to identify something that "just does not make sense" and therefore is in need of a solution.  Finally, immigrants tend to have a lower fear of failure and seem to be much more open minded to take the calculated risks that are required by entrepreneurs.  From my lens, I think this is because the shear act of leaving one's homeland to study and live outside of what is naturally comfortable is, in and of itself, a significant risk and that those who succeed in thrive in having taken that risk realize that with such decisions often come great rewards.

The frustration with this analysis is how hard the US immigration policy makes it for these talented folks to stay in the US, especially as they are leaving university programs.  If you want to stay in the US post university and work at a company, immigrants quickly discover the H1-B visa program is an annual mess and if you want, heaven forbid, to start a company, it is even more complicated.  It makes no sense that as a nation we do a great job attracting the best and the brightest to our world-class universities and then make it incredibly hard for people to stay, something that is exacerbated in today's world when the idea of returning home for an immigrant from India, China or the like is far more attractive for an entrepreneurially minded individual than it would have been 15 or 20 years ago.  I am not alone in seeing this as a lost opportunity for the US – both Brad Feld and Paul Graham blogged on this in a far more eloquent way earlier this year – but I wanted to throw my hat into the ring of pushing our policy makers to think more creatively about driving entrepreneurship and the associated job creation opportunities in this country.  I recognize this is not a politically popular stance for our elected officials, in fact one Congressman in a discussion of the visa issue recently remarked to one of my partners, "try telling that to the gas station attendant", but if they hear from enough people, perhaps the tide can change.

Family Traditions

One tradition that has developed in our family is that each night before they go to bed, my two oldest kids ask me about the new companies I saw that day and whether they were interesting as investment opportunities.  Apart from occasionally leading to "proud parent" moments when they dissect the business opportunity to a T, I am always struck by how some stories I hear retell easily and how others don't retell well at all.

While it would be easy to chalk this up to the more technology driven stories not making the transition from board room to living room, the common denominator is actually that great entrepreneurs have an ability to deliver a message that is compelling, concise and easy to remember such that it can be retold in a way that others understand it perfectly.  In our evening sessions, this has proved to be true whether the company is focused on consumers, SMBs, enterprises or OEM partners.  

While delivering a compelling, concise and easy to remember pitch such that I can discuss the opportunity with my kids is not terribly important, the gist of the message is.  Every time you make your pitch as an entrepreneur the recipient will retell the story to someone else and if all they get is blank stares, your likelihood of success goes down.  This is true if you are recruiting and your candidate goes home to speak to their spouse or significant other; if you are selling and your prospective customer discusses the opportunity with their boss or colleague; if you are speaking to the press and the writer reviews the story with their editor or tries to summarize in their blog; or if you are raising capital and your prospective investor discusses it with their partners.

What makes a good pitch?  The first key point is a simple vision of what you are trying to do and why this is important.  Far too frequently this gets bogged down in how you are doing something rather than why.  My kids, and anyone else for that matter, don't care that you have the best technical approach in the world.  Instead they want to know what the technology allows you to accomplish.  As an example, our portfolio company Goby launched today what they describe as a "search engine for your free time".  While the company is based on a tremendous amount of technology from very smart people at MIT, note they don't use the term "semantic" or "federated" or "deep web" in their pitch because, again, people care about what you help them to do, not how you can do it.  The second key point to communicate in your message is a sense for target markets and how broadly applicable your solution can be.  It is surprising to me how infrequently entrepreneurs fail to connect their idea with concrete market opportunities.  In the case of Goby, the connection point is that 71 percent of US adults find themselves frustrated with the irrelevant search results returned by traditional search engines and there is nothing more frustrating than spending your free time researching how to spend your free time!  Finally, the third key point in any pitch is how the idea, customer value proposition and market translate into a compelling business opportunity.  This is the point where my kids often surprise me with their insight based on the simple statement, "but Dad, i don't see how that would ever make any money".  At the end of the day, we are building companies and if there is no means to generate significant revenue, there is no company to be built.

Don Dodge recently had a good post on what should be in a short pitch, but the discipline I would encourage is to distill all your messages into a single powerpoint slide or if you are more ambitious, a single twitter message.  Either really forces the communication of what you do, why it is important, who cares about it, and how that will translate into revenue into a few, powerful sentences.  And then, when you are done, try it out on a 13 year old!