Early Autumn 2024

Heard on THE RANDOM FOREST:

“If you must wear a belt with suspenders it may be time for a new pair of pants.” - Christian Templeton

Highlights:

This month’s newsletter is bursting at the seams with tons of subscriber-only content. The 4 new audio tracks and 7 external resources are must-read (or listen to) if you’re a founder, investor or someone looking to build on your brand.

What does a great fundraising pitch sound (and feel!) like? What can we learn about brand architecture from the case study of some great companies? The newsletter also provides some practical resources for those ready for but maybe new to fundraising. It demystifies the handshake protocol and the mechanics of a SAFE. Last and not least it interprets what recent economic indicators may mean for the future. Will we see more fundraising, jobs, spending?

But there's more to life than the Business section. Next month I’ll explore the intersection of technology, work and home. At the conclusion of this series I'll be compiling each audio track into a subscriber-only audio interview built with Gemini 1.5. Teaser: I'm excited to collaborate with a guest expert on this! Stay tuned for updates through the private subscriber groups in the footer below.

Audio Track 1: Perfecting Your Pitch:

Ultimately a good pitch starts with knowing your audience: Tailor your pitch to what the listener cares about. Investors want to know how you'll make them money. Don't try to close a deal on the spot but instead focus on capturing attention and making a lasting impression.

Structure your pitch effectively. Break it into four sections: Intro, demo, business and landing. The intro is crucial. Make it interesting, establish credibility, highlight the problem you solve and explain why investors should care. Show don't tell. Use the demo to visually demonstrate your product and its features, hinting at business model and growth potential without explicitly stating it. The business section addresses risk and opportunity. Communicate market size, business model, differentiation, team, timeline and traction to show investors the potential for return while minimizing risk. End strong. Leave a lasting impression with key takeaways and a call to action.

Practice makes perfect. Work on delivery and refine your pitch. And what doesn’t work? Too many flashy visuals, generic buzzwords and anything that comes across dishonest.

Advisor’s Take:

Having sat through a lot of pitches there’s a feeling you get from a great pitch that stands out. You feel the founder is doing something you personally care about or believe in. The more they talk the more you want to participate (an important test!). By the end you feel like you might miss out on something big. Not because their idea is too big to fail (you’re probably too late to make much money on these). But because they’ll find a way to win.

Demo Day recap as of October 11: I watched 20 pitches at the Bronco Ventures Demo Day yesterday and wanted to share a summary of the best hits. Each and every founder showed a ton of guts getting up in front of hundreds of investors to pitch. A few of the things that really differentiated the great pitches: The founder connected with the audience (asking a question or landing a joke). They made it personal (sharing personal motivation for their mission). And they adapted on the fly (relying on expertise when they forgot the prepared remarks or the AV failed). There was so much traction and innovation but here are a few things that stood out. First we are in the age of AnythingOps. AIOps, LegalOps, PeopleOps, SecOps. Some of the founders talked about a move to agentic AI. I think this trend is part of what’s driving better orchestration of operational roles that are currently fragmented. Another nice surprise was the number of low-tech ventures. Pet adoption, forest waste and even gummies. Founders reminded investors that sometimes the best tool to cut through a complex problem is a sharper razor.

Audio Track 2: What’s In a Name?

The latest episode of The Review from First Round dives into marketing and branding for early startups. It says that they should stay curious and adaptable. Build a bottoms-up brand. Develop a clear point of view, prioritize consistent messaging across personas and products and invest in high-quality content. Once that point of view is clear the startup should consider its brand architecture. A Branded House architecture relies on the primary company brand. Whereas a House of Brands architecture features a collection of brands.

Advisor’s Take:

I’ve worked for a couple of large tech companies that I’d consider Branded Houses. I also use a lot of products that are from House of Brands companies. In a Branded House I typically think of the company when I use the product and sometimes forget the latest name of the product. I’ll share an example from my career. Since I productized Wave for Dreamforce the product has rebranded as CRM Analytics, Einstein and now Tableau Einstein. But when I think about it I still see it as one of Salesforce’s Clouds (their name for product areas). To contrast with a House of Brands I think about the product name and sometimes forget which company makes it. This is common with consumer packaged goods.

The episode also takes the position that as a leader in an early stage company you need to have a hands-on approach to brand. I think this as a fitting application of founder mode. The recent talk, subsequent articles and parodies on founder mode have been Silicon Valley’s new favorite topic. I’ll put the broader debate aside and speak specifically to branding. When it comes to telling the story of what I’m about I do prefer to narrate in first person.

Case Study:

The company formerly known as HiMama was founded to help childcare programs engage with families through daily communication. The original name "HiMama" was chosen to convey warmth, joy and the feeling of seeing children's smiles through the platform. The company grew beyond family communication, becoming a comprehensive early education company.

It became clear that the name "HiMama" was perceived as exclusionary and that wasn’t the company’s intent. The company shifted to a new name and brand: Lillio. Lillio is meant to serve as an authentic voice for the early childhood education workforce.

This rebranding signifies Lillio's commitment to being a trusted partner for all early care and education needs. It centers around the company’s core values. The aim was to be more inclusive and embrace a more holistic approach to early childhood education. In doing this is leaned into one overarching brand for its various products and and personas. A classic Branded House architecture.

Advisor’s Take:

I’ve written about my experience with rebranding in an earlier newsletter. The experience I shared was helping a founder rebrand her website. My advice was less about the name and more about the aesthetic. In fashion we see the concept of “core” where a designer defines their visual aesthetic around a sub-culture. Lillio is a great example of a brand with a playful aesthetic centered around the sub-culture of early childhood education. The new name tweaks the playful aesthetic by making it more tech-forward with the input output (I/O) developer reference.

Audio Track 3: Let’s Make a Deal:

From the perspective of the investor unclear communication around whether and what you’re investing and getting for that investment can lead to misunderstandings and even reputational issues. Some startups may overestimate interest, and some investors misrepresent their intentions. Don’t be that investor. The handshake protocol provides a clear framework for handshake deals, eliminating ambiguity. It requires a specific offer with a defined valuation cap, followed by a confirmation email from the startup with a time-bound deadline for acceptance. This creates a clear paper trail, reducing the risk of disputes and discouraging misleading behavior from both parties. It also forces investors to commit upfront, eliminating the "free option" loophole. Reserving the right to invest after the round gets popular by giving a Maybe instead of giving a Yes or No.

From the perspective of a founder negotiating fundraising can be slow and cumbersome. When done right handshake deals can be useful to secure funding quickly and avoid losing opportunities. A deal that lacks clear protocols leads to uncertainty and potential for investors to back out. The time-bound nature of the handshake protocol gives startups a way to move on if an investor is indecisive. It also provides a clear process for documenting the deal and resolving disputes if necessary.

Advisor’s Take:

I get a number of inbound opportunities to invest and generally try to say No quickly if I’m not interested. When I’m not sure I try to think about what could give me more clarity. If the answer is time I generally say No to the specific request. I have seen some investors ask how a round is coming along before deciding whether to join in on the action. Nothing wrong with asking but I think a fast No is better than a Let’s See.

In practice what this will look like is the following:

During an investor day the investor says “I’d be interested in investing x thousand bucks.” The startup sends an email saying “Please confirm you’re in for x thousand bucks at a $x million dollar cap.” The investor responds Yes. You should still follow-up to sign a SAFE and provide wire instructions but you’ve now made it clear that you’re on the same page and created a record. I’d recommend using the standard SAFE documents. When in doubt a post-money cap-only SAFE is the go-to. I’ve seen discount plus cap SAFEs but they’re rare and generally unnecessary. In this situation I’d recommend negotiating the cap instead of going for a discount and cap. If you must wear a belt with suspenders it may be time for a new pair of pants.

Audio Track 4: Will It Get Easier?

The Federal Reserve has raised interest rates significantly over the past two years. This has led to higher borrowing costs for businesses. Some sectors have pulled back but a broader recession hasn't yet materialized. The expectation of a recession caused lenders and investors to become more cautious in 2023. As we fast forward to today the economy is strong but tough to predict ahead of the US election. Overall unemployment is relatively low but there are challenges in some sectors. Lenders and investors are returning to the market. And inflation is an increasingly important metric to watch.

Advisor’s Take:

I attended Norcal SBDC’s event on raising capital last year and recently went back through their updated materials. It’s easy to look at the various macroeconomic indicators and be confused about what to do if you’re looking to raise money. There’s one indicator I think could make a difference and am following closely. The Fed!

Post announcement update as of September 18: In a user poll THE RANDOM FOREST subscribers correctly predicted a Fed cut. What surprised many of us is just how large of a cut it was at 50 bips. The trend toward easier money (and more jobs!) as well as the resulting impacts I wrote about above will be even more pronounced than expected in the new year. As they used to say on Weekend Update that’s my story and I’m sticking to it.

External Resources:

^{_{Credits: Many thanks Y Combinator, Techstars, First Round Capital, MaC Venture Capital and the Small Business Development Center for the materials below. We wrote the summaries above and added specific tid-bits for our readers and listeners. These organizations produced and own their respective resources. We are consumers of these resources. There are no associated promotions or affiliations.}}

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