I spoke yesterday with Frank Chen at Andreessen Horowitz.
It wasn’t a “real” pitch. More like a “here’s my idea, now am I a complete idiot or should I go and make a real pitch” pitch.
The information I got back was invaluable. Some of it may only apply to A/H, but I think there’s a lot of general purpose detail here. Take notes.
1. A/H’s first concern is defensible intellectual property. If there’s real hard technology work going on, that’s good. On the other hand, a quick mobile app that somebody can churn out a copy of quickly, isn’t. It isn’t clear to me whether having a lot of existing traffic trumps this consideration – i.e. something that is easy to duplicate, but is already a market leader.
2. Total addressable market. That doesn’t mean “how big is the overall sector market”. Instead, they want companies to have a very good idea of what specific sector of the market they’re actually targeting, its size (both number of customers and annual dollar value), and also the likelihood of a specific potential customer in this market segment actually making a purchase. I think this means real market research, or minimally going out and getting anecdotal evidence from prospects. A/H look for a minimum addressable market of $100 million per year.
3. Reputation. VCs are extremely sensitive to their reputation. That means they won’t touch any company with even the slightest possibility of tarnishing their rep, regardless of profitability. Frank gave me an example of an online pawn broker that pitched them recently. Their whole justification is creating transparency for a sector that has a justifiably bad reputation – but A/H couldn’t touch them due to their being in that market. I believe this is because VCs primarily raise their funds from large institutional investors, such as teacher’s pension funds. That means they need to report back to their investors with regards to their portfolio, which in turn forces them to be somewhat conservative on this topic. If there’s any question whatsoever, they won’t invest. Frank also told me something interesting – this is often not the case with large angel investors. He recommended pitching to them first in this sort of situation.
4. Size of investment. Every VC is obviously different here. It sounds like A/H’s sweet spot is to make investments that are at least $10 million in size, and which are likely to return at least $100 million. I’m guessing that their having raised nearly $3 billion in the last couple of years is going to push their minimum investment higher, in order for them to achieve a decent rate of return. This will eventually push them out of certain kinds of industries, almost by default.
This is great info to keep in mind when actually writing a pitch “deck”.
The other thing I’ve noticed is that VCs by nature are really friendly people – they actually like chatting with people, and they rely on third-party referrals to build their “funnel”. Frank was almost effusive – after we discussed my idea, he repeatedly asked if there was anything else he could help me with, and said that he would love to hear of any other ideas that I come up with in the future. This makes sense in retrospect, but its a different experience than I’ve had with other kinds of high profile (and very busy) people in the past.
All in all, a fascinating experience.