How to Get VC Funding by Being a ‘Missionary, Not a Mercenary’

EdSurge Updates | Edtech Business

How to Get VC Funding by Being a ‘Missionary, Not a Mercenary’

By Blake Montgomery     Feb 15, 2019

How to Get VC Funding by Being a ‘Missionary, Not a Mercenary’

Evaluating the team running an edtech startup is the most critical step when considering investments, say two venture capitalists who will be coaches at the EdSurge Immersion Conference.

Esteban Sosnik, a General Partner at Reach Capital, looks for early employees who are unified.

“The most important thing about any company is the team: their talent, their passion, their mission alignment, their ability to hire and to become leaders of the organization. It takes a village to build these companies.”

He knows a team has a strong foundation if the members aren’t all the same.

Diversity for him encompasses not only gender and race but also business expertise and background. The first 20 employees are so vital, he believes, because they set the tone for the company’s future growth.

“You want to see the founding team complementing each other,” he said. “A homogenous approach and style of work isn’t as good as a heterogeneous one with complementary experiences and points of view. Many companies start with one technical founder and a business founder, for example.”

He sees a lot of similarity between pitching a company to a venture capitalist and to a prospective employee.

“You’re looking for leaders who can really sell a vision,” he said. “There’s a lot of correlations between pitching for funding and selling the company to an employee. You’re ultimately selling a story."

Sosnik also judges a company by its scrappiness. Doing more with less, he believes, is a hallmark of good judgment.

“We look at that ratio between how far have you gotten, regardless of where you are with the company, and how many resources did you have to get there,” he said. “We’re very impressed with people who have gotten relatively far with very little."

Jason Palmer, a General Partner at New Markets Venture Partners, has a rubric of eight characteristics he and his partners use to evaluate a company’s potential that also includes the business’ team: efficacy, leadership, top-line growth, high gross margins, a demonstrated ability to forge partnerships, capital efficiency, thought leadership, and a sufficient client base.

Though two categories use the word “leadership,” they’re not the same. “Thought leadership” to Palmer is “punching above the company’s weight in terms of industry awareness.” And like Sosnik, Palmer doesn’t only scope out the company’s founder to assess a business’ leadership and estimate its potential.

“We look at the leadership team, rather than the single leader,” he said. “Leadership is strong people in the top 5 slots of the company.”

A focus on “strong people” may seem difficult to define, so Palmer supplements it with a few set-in-stone metrics. Most companies, he said, fail New Markets’ “sufficient client base” test: the venture firm screens out companies seeking Series A funding that don’t have at least $1 million in revenue or a diversified customer base. For Series B, he said, that should be at least $6 million.

“Most others fail the second screen because they don’t have a focus on efficacy,” he said. “They don’t know exactly what ROI the customer is getting from their product.”

So now that you know what veteran VCs are looking for, how should you craft your pitch?

“The most effective pitches explain how the company is solving a really urgent problem for the customers that they’re selling to, a problem that school districts or colleges or educators are experiencing,” Palmer said.

So you’ve got a problem. Show you can solve it.

“Demonstrate how the company and its products solve that problem via research or evidence,” Palmer said. “Clearly articulate the ROI -- something like ‘Buy our $25,000 product, you’ll earn back $75,000 in efficiency savings.’ You should be able to quantify the solution because you know the problem and the solution so well.”

And what should you avoid?

“I see bad pitches all the time,” Palmer said. “A bad pitch will be overly focused on the product and demonstrating it, not showing the use case and what the customer and the company are trying to solve.”

And above all, show passion, especially if you’re the founder.

“We need to understand whether the leaders of a company are missionaries or mercenaries,” Sosnik said. “We only fund missionaries. If the reason for their company creation is only business, business, business, we’re not interested. We love founders who have a deeper mission behind the company because we know it’s a long, bumpy road, and many times in edtech it’s slower than entrepreneurs would like it to be, and that passion is what’s going to keep you persevering.”

Want to meet with Esteban and Jason? Join us at EdSurge Immersion on April 7th.

Evaluating the team running an edtech startup is the most critical step when considering investments, say two venture capitalists who will be coaches at the EdSurge Immersion Conference.

Esteban Sosnik, a General Partner at Reach Capital, looks for early employees who are unified.

“The most important thing about any company is the team: their talent, their passion, their mission alignment, their ability to hire and to become leaders of the organization. It takes a village to build these companies.”

He knows a team has a strong foundation if the members aren’t all the same.

Diversity for him encompasses not only gender and race but also business expertise and background. The first 20 employees are so vital, he believes, because they set the tone for the company’s future growth.

“You want to see the founding team complementing each other,” he said. “A homogenous approach and style of work isn’t as good as a heterogeneous one with complementary experiences and points of view. Many companies start with one technical founder and a business founder, for example.”

He sees a lot of similarity between pitching a company to a venture capitalist and to a prospective employee.

“You’re looking for leaders who can really sell a vision,” he said. “There’s a lot of correlations between pitching for funding and selling the company to an employee. You’re ultimately selling a story."

Sosnik also judges a company by its scrappiness. Doing more with less, he believes, is a hallmark of good judgment.

“We look at that ratio between how far have you gotten, regardless of where you are with the company, and how many resources did you have to get there,” he said. “We’re very impressed with people who have gotten relatively far with very little."

Jason Palmer, a General Partner at New Markets Venture Partners, has a rubric of eight characteristics he and his partners use to evaluate a company’s potential that also includes the business’ team: efficacy, leadership, top-line growth, high gross margins, a demonstrated ability to forge partnerships, capital efficiency, thought leadership, and a sufficient client base.

Though two categories use the word “leadership,” they’re not the same. “Thought leadership” to Palmer is “punching above the company’s weight in terms of industry awareness.” And like Sosnik, Palmer doesn’t only scope out the company’s founder to assess a business’ leadership and estimate its potential.

“We look at the leadership team, rather than the single leader,” he said. “Leadership is strong people in the top 5 slots of the company.”

A focus on “strong people” may seem difficult to define, so Palmer supplements it with a few set-in-stone metrics. Most companies, he said, fail New Markets’ “sufficient client base” test: the venture firm screens out companies seeking Series A funding that don’t have at least $1 million in revenue or a diversified customer base. For Series B, he said, that should be at least $6 million.

“Most others fail the second screen because they don’t have a focus on efficacy,” he said. “They don’t know exactly what ROI the customer is getting from their product.”

So now that you know what veteran VCs are looking for, how should you craft your pitch?

“The most effective pitches explain how the company is solving a really urgent problem for the customers that they’re selling to, a problem that school districts or colleges or educators are experiencing,” Palmer said.

So you’ve got a problem. Show you can solve it.

“Demonstrate how the company and its products solve that problem via research or evidence,” Palmer said. “Clearly articulate the ROI -- something like ‘Buy our $25,000 product, you’ll earn back $75,000 in efficiency savings.’ You should be able to quantify the solution because you know the problem and the solution so well.”

And what should you avoid?

“I see bad pitches all the time,” Palmer said. “A bad pitch will be overly focused on the product and demonstrating it, not showing the use case and what the customer and the company are trying to solve.”

And above all, show passion, especially if you’re the founder.

“We need to understand whether the leaders of a company are missionaries or mercenaries,” Sosnik said. “We only fund missionaries. If the reason for their company creation is only business, business, business, we’re not interested. We love founders who have a deeper mission behind the company because we know it’s a long, bumpy road, and many times in edtech it’s slower than entrepreneurs would like it to be, and that passion is what’s going to keep you persevering.”

Want to meet with Esteban and Jason? Join us at EdSurge Immersion on April 7th.

 

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