“Entrepreneurship is like Australia. It looks beautiful, and then you get there and you find out everything is trying to kill you.”
So said Matt Price, an investor who recently spoke at Trailhead as part of its Lunch and Learn series on startup financing. The key, Price said, is unfair advantage, because entrepreneurs need to know what advantages they have over others.
“Your unfair advantages are in your team, experience, business model and product,” Price said. “But overall, knowing ‘what you don’t know’ ahead of your competition is where the magic is.”
Price, who said he’s been a part of 1,200 pitch decks and has worked with 219 companies, started his entrepreneurial career making wine because someone dared him he couldn’t, he said.
Instead of pitching your company’s strengths, investors want to hear about where the risk is in a company, and entrepreneurs who know that and can address it honestly have a leg up, Price said.
“Where’s the risk at in your deal?” he asked, mentioning product market fit, growth challenges, financial challenges, internal team issues and regulatory challenges.
For example, Price said he has been involved in a number of cannabis startups, which typically have to deal with regulatory issues.
More than 60% of the companies Price has worked with failed: 42% due to product issues, 38% to finance issues, 10% to regulatory issues, 6% to team issues and 5% to growth issues, he said.
Investors aren’t interested in gigantic reports about a market or a product, Price said.
“I’m not going to go through 25 pages. I’m not going to see your product,” he said. “What are the companies so simple that an idiot could run? Because at some point, an idiot will run it.”
Instead, Price recommended that entrepreneurs develop a six-page plan: three pages on how the company is going to make money for investors, and three pages on all the ways it might not work and how to fix them. In particular, entrepreneurs need to look for opportunities where nobody is currently operating, which he called the “white space.”
In addition, investors want to hear how they’re going to get their money back, Price said, warning against entrepreneurs who look at investors as checkbooks, rather than partners. Investors track how well entrepreneurs allocate capital, manage risk, build their team, drive performance and achieve goals, he said.
Finding the right investor is also important, Price said, noting the high opportunity cost of chasing down the wrong deal.
“My blind spot is, I can get tricked by energy,” he admitted. His “red flags” in choosing an investment are entrepreneurs who are name droppers or who “sell” too much.
It’s important to develop a minimum viable product – that is, the least complex version of the product that can attract customers – but that’s not easy, Price said.
“First-time founders and their teams seem to make this fatal mistake: Overvalue their MVP and wildly underestimate what proof of concept actually is and what it takes to get there,” he said.
Ultimately, entrepreneurs pitching for funding have to think like an investor, Price said.
“Honestly knowing where the risk is, and letting investors know as well, tells them you know what you’re doing and their money is being looked after,” he said. “The warm and fuzzy feeling gets funding closed faster.”
Boise needs to be ready, because entrepreneurs and venture capitalists from Silicon Valley are moving to places such as Salt Lake City because it’s cheaper, Price said. But Salt Lake City, too, is starting to get priced out, and Boise isn’t far away.
“If Boise does things right, that will come up here,” he said.