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THE ENTREPRENEURS REPORT:Private Company Financing Trends
 Winter 2008
Perfecting Your Pitch
By Brad Feld, Co-founder, Foundry Group 
As a venture capitalist, I’m constantly on thereceiving end of pitches from entrepreneurslooking for capital. Over time, I’ve found thatthese pitches fall into three categories:(1) The Introduction, (2) The First Shot, and(3) The Full Pitch. The same mistakes regularlyappear in each category—following aresome of the common ones and what you cando about them.
The IntroductionDon’t spam 157 VCs with a “Dear Sir”email.
It’s bad enough to receive a genericemail from someone; it’s even worse whenthey include all 157 recipients in the “To”line on the email. Remember to target youraudience first and then personalize youremails to them. Oh—and if my name is“Brad,” please don’t send me an email thatstarts off “Dear Fred.”
Don’t forget to know your audience.
I invest in early-stage software and Internetcompanies in the United States. There is alot of information about me (www.feld.com)and my firm (www.foundrygroup.com) on theWeb. I’m always amazed when someonereaches out to me to invest in a telecomcompany, a retail products company, a cleantech business, or a biotech company. Doyour research and make sure the VCs youtarget invest in the products or services yourcompany provides.
Don’t send a 73-page business plan via the U.S. mail.
While this might have beenthe right approach in 1972, these days youshould start with a short email that includestwo or three paragraphs introducing you andyour company. If you must, attach a short(less than four-page) executive summary.Make it easy for the VCs to either engage orsay they aren’t interested.
(Continued on page 7) 
Feature Articles 
Perfecting Your Pitch
By Brad Feld, Foundry Group 
................Page 1
How Do I Get Meetings with Investors?
By Babak Nivi and Naval Ravikant,Venture Hacks 
........................................Page 1
Silicon Valley Venture Capitalists’Confidence Declines to Lowest Level inFive Years
By Mark Cannice, Ph.D., University of San Francisco 
........................................Page 2
From the WSGR Database:Financing Trends
................................Page 4
Outsourcing: A Tool for Survival
.....Page 9
Avoiding Trouble: Provisions inPrevious Employment Documents that Every Start-Up CompanyFounder Needs to Know
..................Page 11
In This Issue
(Continued on page 8) 
How Do I Get Meetings with Investors?
By Babak Nivi and Naval Ravikant, Founders, Venture Hacks 
“VCs are generally bombarded byrequests for meetings, so a warmintroduction helps an entrepreneur’srequest float to the top of the list.
”
— Chris Wand, Foundry Group 
You’re not the only entrepreneur in the worldwho is trying to raise money. Investors getmore requests for meetings than they canaccommodate in this lifetime or the next. Sothey use introductions to prioritize and filtermeeting requests.You
could 
send investors a cold email, butyour traction, team, or product better be mind-blowing—and it probably isn’t.Getting an introduction is a test of yourentrepreneurial skills. If you can’t convince amiddleman to make an introduction, how willyou convince employees to join your company?How will you convince customers to buy fromyou? How will you convince investors to puttheir money in your pocket?So don’t spam investors with your businessplan. Instead, convince middlemen to introduceyou to investors. An effective middleman issimply someone investors listen to.
 Who makes the best introductions?
Not all middlemen are created equal. The qualityof the middleman helps investors prioritizemeeting requests—it’s easier to land a meetingwith a high-quality middleman, and if themiddleman is weak, you won’t get a meeting.
 
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THE ENTREPRENEURS REPORT:Private Company Financing Trends
 Winter 2008
Confidence among consumers, executives, andother constituents of our market economy hasbeen closely monitored for years, asconfidence is thought to be a necessaryelement for the proper functioning of ourcapitalist system. Over the last 18 months asthe credit crisis has taken hold, confidence inour financial institutions clearly has beentested and continues to be questioned. Whilethe sentiment of consumers and managersdoes play a significant role in our prosperity,confidence among the professional investorswho advise and finance the high-potentialnew ventures that propel entrepreneurialgrowth is also critical to the long-run healthand competitive advantage of the U.S.economy, as it is their investment decisionsthat determine, in large part, the pace ofinnovation in our nation. However, confidenceamong professional venture capitalists had notbeen systematically tracked.Beginning in early 2004, I began to gaugeventure capitalists’ confidence in the futurehigh-growth entrepreneurial environment inthe San Francisco Bay Area with a quarterlysurvey and report. My expectation was that anongoing indicator of VC sentiment could beinformative to entrepreneurs who are seekingequity financing and also provide key insightto the functioning of our high-growthentrepreneurial economy. To date, I havecompleted 20 of these quarterly surveys andreports and thus can provide trend data inSilicon Valley venture capitalists’ confidencein addition to the current absolute level.Further, most of the responding venturecapitalists provided additional insight into thereasoning behind their sentiment.The Silicon Valley Venture CapitalistConfidence Index (Bloomberg ticker symbol:USFSVVCI) for the fourth quarter of 2008,based on a January 2009 survey of 33 SanFrancisco Bay Area venture capitalists,registered 2.77 on a 5 point scale (with 5indicating high confidence and 1 indicatinglow confidence). This quarter’s reading fellfrom the previous quarter’s reading of 2.89 toa
fifth consecutive new low 
since theIndex was originated in Q1 2004 andindicates a continuing downtrend in venturecapitalists’ confidence.
The deepening global financial market turmoil and economic decline remained at center stage as a negative influence on venture capitalists’ confidence for the recent quarter.
In particular, the beaten-down financial markets and the resultingnegative impact of the liquidity prospects ofmost venture-backed portfolio firms weighedon confidence. This protracted delay of mostliquidity events (both IPOs and M&As) has ledto significant strain on the venture businessmodel for the near term. While these ongoingconcerns did predominate, a fundamentalbelief in the power of innovation, the prowessof entrepreneurs, and the unique strength ofthe Silicon Valley ecosystem for enterprisecreation remained strong. In fact, severalventure capitalists saw this harsh economictime as an ideal moment for thoughtfulinnovation and the creation of new productsthat would more directly solve customerneeds. Timing, though, does appear to becentral to sentiment. That is, while mostrespondents anticipate that 2009 will beanother difficult year, the prospect of pent-updemand for new entrepreneurial ventures andinvestment alternatives is expected to surfaceby 2010. While the exact nature of thereemergence remains to be seen, lowervaluations of new ventures, a laser focus onpositive-cash-flow operations, and the long-term perspective of patient venture capitalbodes well for an eventual recovery. Still, withthe quarterly confidence index at its lowestpoint in its five-year history, the comingmonths and quarters appear to present a verychallenging venture environment.
Caution has grown with the continued unraveling of the broader financial system, but hope for the medium term remains.
Kirk Westbrook of invencor wasconcerned over the ongoing economicenvironment but impressed by the robustgovernment response. He stated, “Although Ibelieve the global economy slid to the edge ofthe precipice during Q4 08, I am encouraged
Silicon Valley Venture Capitalists’ Confidence Declines toLowest Level in Five Years
By Mark V. Cannice, Ph.D., Associate Professor of Entrepreneurship, University of San Francisco 
54.543.532.5
        C      o      n        f        i        d      e      n      c      e        I      n        d      e     x
   2   0   0   4Q   1   Q   3   2   0   0   5Q   1   Q   3   2   0   0   6Q   1   Q   3   2   0   0    7Q   1   Q   3   2   0   0   8Q   1   Q   3
Trend Line of Venture Capitalists’ ConfidenceOver the Last 20 Quarters
(Continued on page 3) 
 
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THE ENTREPRENEURS REPORT:Private Company Financing Trends
 Winter 2008
that the atypical and expeditious reactions bygovernments around the world may haveprevented a fall into a much darker, 30’s eraeconomic crevice. . . . Disciplined cash focuswill be mission critical, but those concernsthat are good at both the management andthe articulation of the value proposition willlikely see opportunity in a less-clutteredenvironment as they move toward mid-2009.”
Stemming from the public market decline is the decreasing availability of liquidity events for venture-backed firms.
To thispoint, Igor Sill of Geneva VentureManagement argued, “We have certainly hitthe low ebb of a very dry cycle period forventure liquidity as measured by IPOs. . . .With this liquidity void, we will see few, ifany, new venture firms emerging, and frankly,few fundraising efforts from established firms.Some will even close down. We’ll be trying tosalvage, sell, or merge the promising start-upsand dispensing with those requiring too muchrunway and capital to break even. As for newstart-ups getting first-round funding, it will betough going.”
Some responding venture capitalists envisioned that a new direction for the venture capital industry may emerge from the macro economic malaise.
For example,Joe Mandato of De Novo Ventures stated,“Given the uncertainty in the environment, theindustry is trying to figure out what its courseshould be in the face of this environment.”And Dan Lankford of Wavepoint Venturesexplained, “[T]here is a good chance that theventure industry is ‘de-evolving’ toward itsroots of small, early-stage funds where thepartners made most of their money fromcapital appreciation.”
A Darwinian perspective was offered by some venture capitalists who expect that the current harsh environment will help identify the strongest firms with sustainable business models that make for good venture investments.
For example,Eric Buatois of Sofinnova Ventures said, “Inthese difficult times, only strong andmotivated entrepreneurs building companieson very strong foundations will get funding.We are likely to see very strong companiescreated in the next two years.”
And confidence in the ability of entrepreneurs to continue to innovate and in the Silicon Valley ecosystem remained strong.
For instance, David Sprengof Crescendo Ventures declared, “SiliconValley innovation and entrepreneurial spiritwill help America lead the way out ofeconomic crisis beginning in 2009, soonerthan most people think.” And Shomit Ghose ofOnset Ventures reasoned, “The macroeconomy is looking like the ‘08 Detroit Lions,with no hope of recovery till 2010 at theearliest. But Silicon Valley continues toproduce entrepreneurs with the talent anddrive of the ‘72 Dolphins. There are dauntingchallenges in the next 18 months, to be sure,but there’s also reason for optimism over thelong term.”
To conclude, the continuing fallout from the credit crisis and downward economic spiral (lack of exits, squeezed capital commitments, and fewer customers for portfolio firm products) has led to the lowest level of venture capitalists’ confidence in the five-year history of this quarterly survey.
Expectations for an ongoing malaise in thepublic capital markets and a shrinkingeconomy portend a continued difficultoperating environment for new growthenterprises and their venture backers. Assome respondents have suggested, theintense economic pressures on severalaspects of the venture business model maynecessitate an eventual adjustment to it. Andentrepreneurs, given lower public valuations, alonger holding period to liquidity, and fewerbidders, can expect more modest valuationsfor their enterprises. However, currentincreasingly stringent financing criteria andlower valuations may mean that many oftoday’s investments eventually will earnsignificantly positive returns. Further, aconfidence in the resilience of entrepreneursand the unique support structure of the SiliconValley entrepreneurial ecosystem remainsstrong. This underlying confidence coupledwith the belief that even stronger enterprises,tried by fire in this harsh environment, willemerge more vibrant and sustainable whenthe broader economic environment finallyrecovers, leaves cause for optimism in thelong-term resilience of the Silicon Valleyventure capital and entrepreneurial machine.The complete Q4 report and historical reportsmay be seen at
www.Cannice.net
.
Dr. Mark Cannice is an associate professor of entrepreneurship at the University of San Francisco, where he has taught since 1996. He also is the founder and executive director of the USF Entrepreneurship Program. Mark publishes a quarterly report on Silicon Valley VC confidence that has been widely referenced in the business media (including the Wall Street Journal, New York Times, Bloomberg, Reuters,Investor’s Business Daily, USA Today,etc.), as well as a similar report on China VC confidence. His articles on venture capital and technology management appear in numerous academic journals; he has co-authored a textbook in global and entrepreneurial management (published by McGraw Hill in four languages); and he is a contributing writer for The Industry Standard.Mark can be contacted at 
cannice@usfca.edu.
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