How to Pitch a Top VC with Simon Menashy @ MMC Ventures

Summary Notes


In episode 39 of the 20 minutes VC, host Harry Stebbings interviews Simon Manashi, Investment Director at MMC Ventures. Manashi shares his journey from a technology-enthusiastic kid to a venture capitalist, emphasizing the importance of networking and warm referrals in gaining VC attention. He advises founders to focus on clear, concise pitches and be prepared for questions rather than overloading with documentation. Manashi highlights MMC Ventures' interest in Series A funding for companies with proven customer value and potential for growth. He discusses the evolving startup funding landscape, the role of government in fostering a conducive environment for tech startups, and the potential for technology to disrupt industries like healthcare, fintech, and logistics. The conversation also touches on the challenges of market creation versus entering established markets and concludes with Manashi's views on the importance of founders being open to feedback and the potential for private capital to alter traditional IPO pathways.

Summary Notes

Introduction to Simon Menashy

  • Simon Menashy is an investment director at MMC Ventures.
  • Responsible for leading new and follow-on investments and supporting existing portfolio companies.
  • Sits on the board of Sky Futures, Boutique, and We Do.

"Simon is an investment director at MMC Ventures, where he is responsible for leading new and followon investments, as well as supporting existing MMC portfolio companies."

This quote introduces Simon Menashy's role and responsibilities at MMC Ventures, highlighting his involvement in investment decisions and company support.

Background and Career Path

  • Simon grew up in London with an early interest in technology.
  • Had first computer at age four, which fueled his ongoing passion.
  • Engaged in entrepreneurial projects and led societies at university.
  • Worked on IT consulting for small businesses.
  • First job out of university was a strategy consultant at Deloitte.
  • Gained experience with large companies in technology, media, and telecoms.
  • Learned from senior colleagues and clients, understanding commercial problems.
  • Transitioned to venture capital for a more dynamic and digital-focused environment.
  • Networked and used recruiters to move into the venture capital space.

"I was a strategy consultant for my sins, mainly doing technology, media, telecoms kind of work."

This quote explains Simon's experience at Deloitte, where he focused on strategy consulting within specific industries, providing a foundation for his understanding of business.

Networking into Venture Capital

  • Networking is critical for entering the VC industry and for founders seeking investment.
  • Simon used his existing network of colleagues and clients to get VC introductions.
  • Warm referrals and trusted introductions can significantly aid in securing investments.
  • Most investments come from long-known individuals or trusted referrals.

"Most of our investments are people that we've known for a few years by the time we invest, or they're people that have come through really a person that we trust."

This quote emphasizes the importance of building relationships and trust in the venture capital industry, noting that many investments come from established connections.

Pitching to Venture Capitalists

  • Founders should use their existing networks for introductions to VCs.
  • Warm introductions help but are not the only way to secure investment.
  • Simon tweeted about inappropriate pitching methods, such as mass emailing in all caps.
  • Founders should avoid overly formal pitches and excessive documentation.
  • Being prepared for questions is more important than a formal pitch or extensive documentation.
  • In the first meeting, Simon prefers less documentation and more readiness for discussion.

"Honestly, I think a lot of founders make the mistake of thinking that they need to come up with a really big formal pitch."

This quote advises founders against creating overly formal pitches, suggesting that substance and preparedness for dialogue are more important than formality.## Pitch Meeting Dynamics

  • Pitch meetings often start as formal presentations but quickly turn into Q&A sessions.
  • Successful founders adapt to this dynamic, engaging in the discussion and handling unexpected questions well.
  • A concise pitch deck with 8-12 slides is preferred, allowing room for conversation and deeper exploration of topics.

"I think really first pitch meetings are not formal pitches that last an hour. They quickly devolve into question and answers and I think the best founders go with that and love the challenge and rise to it and you come out of the meeting feeling you've had a great conversation."

The quote highlights the nature of initial pitch meetings, emphasizing the importance of adaptability and conversation over strictly formal presentations.

VC Expectations and Testing

  • VCs test founders on their thinking, business model viability, and market understanding.
  • Founders should be prepared with data and reasoning to support their answers, even if they diverge from the pitch deck.

"They're testing your thinking. They're testing really, is the business model going to work? Really, is the market as big as we all think it is? And is that really addressable?"

This quote explains that VCs are interested in a founder's thought process and the potential of the business model and market, rather than just the information on the slides.

Meeting Duration Preferences

  • Ideal VC meetings start with a 15-20 minute presentation, leaving ample time for discussion.
  • Meetings that are booked for an hour can extend slightly if the conversation is engaging and productive.

"I would much rather that a founder comes in with 1520 minutes presentation prepared, which probably takes half an hour because I'll ask some questions and we'll have a nice chat around a few things and then we have lots of time to delve into different areas or talk about a particular challenge that I might have in the rest of the hour."

The quote suggests a preference for shorter presentations to allow for a more interactive meeting, with the potential to extend beyond the scheduled time if the discussion warrants it.

Investment Stage Focus

  • MMC typically invests in Series A rounds, where companies have initial traction, paying customers, and demonstrable value or ROI.
  • They also consider pre-Series A investments for companies close to meeting Series A metrics.

"So at MMC we're typically investing in the series A round. So for us that means a company that's got some initial traction, it's got customers, customers that are willing to pay and that are demonstrably getting some kind of value or ROI out of the product."

This quote outlines the investment criteria for MMC, focusing on companies at the Series A stage with proven traction and customer value.

Disruption in Industries

  • Disruption is often synonymous with significant improvements in efficiency, cost, or speed for customers.
  • Disruptive technologies can have negative impacts on existing producers and societal segments if not universally beneficial.

"I think when a lot of people say disruption, what they really mean is a new technology or a new way of doing things, or a new approach that makes something ten times better or ten times faster or ten times cheaper, and that's normally ten times better, faster or cheaper for some sort of customer."

The quote defines disruption as technological or methodological advancements that drastically improve products or services for customers.

Uber's Impact on Transportation

  • Uber has not solely replaced black cabs but has enabled new types of journeys and increased overall cab usage.
  • The service has disrupted inefficient transportation options and improved safety and convenience for consumers.

"I don't think it's replacing black cabs. There may be a little bit of replacement in the short term, but I think it's enabling totally new journeys."

This quote clarifies that Uber's role is not just to replace existing services but to create new opportunities and choices in transportation.

Future Disruption Opportunities

  • Technology allows smaller companies to operate as efficiently as larger ones, leading to potential disruption in traditionally difficult sectors.
  • Health, fintech, travel, and logistics are industries poised for disruption due to niche opportunities and technological advancements.

"I think we're moving away from a world where big means efficient, so big companies do lots of things in an okay way because I think now technology is enabling people to do very niche things in just as good way as a big company can do that."

The quote predicts a shift from the dominance of large companies to the rise of smaller entities using technology to compete effectively, signaling disruption in various industries.## Evolution of Industry Disruption by Startups

  • Traditional industries with physical components have seen less innovation until recently.
  • A new generation of startups is now transforming these big, slower sectors.

a lot of physical things involved. So it hasn't just been a software problem until now, those sorts of industries where we've had less headway to date, but now there's a new generation of startups that are starting to really change the way that some of those big, slower and quite comfortable industries work.

The quote emphasizes the shift in innovation within industries that were traditionally focused on physical goods and services. Startups are now beginning to significantly alter these sectors.

London as a Fintech Hub

  • London's historical role as a financial services center contributes to its status as a fintech hub.
  • The combination of financial services and a supportive tech environment fosters fintech growth.
  • Continued success depends on government support in funding, regulation, and small business assistance.

I think London's always been a financial services hub, or at least for the last few decades. So it's more a matter of technology changing every industry and the financial services industry being in London.

This quote explains why London is naturally positioned as a fintech hub, attributing it to the city's longstanding financial services industry and the infusion of technology within all sectors.

Role of Government in Supporting Tech Ecosystems

  • Government support is crucial but not the sole factor in creating a tech community.
  • Initiatives like the Enterprise Investment Scheme (EIS) and R&D tax credits have been beneficial.
  • Governments should maintain and enhance supportive schemes for startups.

I'm not sure it's entirely within the government's gift, but there's a lot that the government has done and can do and really successive governments of all colours.

Simon Menashy acknowledges that while government actions are important, the overall tech community's success is a collaborative effort. Government policies can significantly influence the startup ecosystem's health.

Changing Patterns in Startup Funding

  • IPO timelines for venture-backed companies are lengthening.
  • There is an increase in private capital investment at later stages.
  • Seed funding is more abundant with smaller, more frequent rounds.
  • Series A funding has not seen a significant increase in capital availability.

I think at the IPO end, when you're talking about very large startups or startups that aren't really startups anymore, the market's changed quite a lot and you're seeing a lot more private capital.

Simon Menashy describes the trend of more private capital entering the market as startups grow larger, which affects the traditional path to an IPO.

Funding Landscape and the 'Barbell' Analogy

  • Capital is abundant at the seed and pre-IPO stages.
  • Series A and Series B funding stages experience a scarcity of capital.
  • Institutional investors have not increased asset allocation to venture capital.
  • The limited number of VCs able to provide significant Series A funding is a community issue.

I think that's how we're seeing it practically, yes. So a lot of the Series A and Series B money, ultimately the lps in those funds are still institutions, pension funds, insurance companies, and traditional lps, and they're probably not making any more of an asset allocation to VC than they ever were.

Simon Menashy confirms the 'barbell' analogy, highlighting the concentration of capital at the extremes and a thinner middle in the funding spectrum due to unchanged investment strategies from institutional investors.

Characteristics of a Strong Series A Round

  • Series A rounds typically range from 1 to 5 million pounds.
  • Companies at this stage have some revenue and are developing scalable acquisition channels.
  • Properly defined KPIs and a plan for deploying capital effectively are crucial.

So companies raising anything from sort of one to 5 million, where they're probably doing something along the lines of half a million to a few million of run rate revenue, they've figured out their scalable, or they're starting to figure out their scalable customer acquisition channels.

This quote outlines what Simon Menashy considers a good Series A funding round, focusing on the company's revenue, growth strategy, and key performance indicators.## Investment Duration and Exit Strategies

  • The duration of investment for venture capital firms can vary significantly.
  • Some businesses may only be in a firm's portfolio for a few years before attracting acquisition interest.
  • Other companies may remain in a firm's portfolio for over a decade, especially if they continue to grow and it's not the right time to sell.
  • The financial crisis affected the ability to sell companies, but there's an expectation for a return to a normal holding period of three to seven years.

"So we sold a business last year called Base 79, which we had in our portfolio for five years. We've got a couple of companies that have been in our portfolio for only two or three years that are getting quite significant inbound interest in acquisition... But then equally, we have a company in our portfolio that's been there for more than ten years... So I hope it will come back to three to seven years. But right now, it's certainly at the upper end of that."

This quote explains that investment lengths can differ based on various factors such as business growth, market conditions, and strategic decisions about when to sell or continue investing.

Startup Pitch Red Flags

  • Defensiveness in founders during a pitch is a major red flag.
  • Founders who are not open to challenge and conversation may be difficult to work with.
  • A productive VC-founder relationship involves support, challenge, debate, and collaboration.
  • The willingness to evolve business models and experiment is crucial for a startup's success.
  • Venture capitalists prefer founders who are open to feedback and partnership over the long term.

"I would say defensiveness... if a founder doesn't seem willing to engage in that right from the start, then I think it's going to be difficult to have that sort of relationship. And also we've got to work with that person for it could be three to ten years."

Simon Menashy emphasizes the importance of a founder's openness to feedback and collaboration, highlighting that defensiveness can hinder the establishment of a productive long-term relationship with investors.

Market Dynamics and Investment Decisions

  • There is potential for startups to create their own markets.
  • Money spent on a new product or service might be redirected from existing consumer spending.
  • While established markets provide a benchmark for potential market size, innovative companies can deviate and create new market opportunities.
  • Understanding where consumer spending is coming from is essential when assessing market potential.

"I think very much the potential for market creation... Often a market can be money coming out of a consumer's pocket, so it's coming out of their pocket for your thing instead of the other thing... But over time, hopefully you can create your own market for some companies."

Simon Menashy discusses how startups can create new markets by innovating within established ones and how consumer spending can shift towards new offerings, highlighting the importance of market dynamics in investment decisions.

Venture Capitalist's View on the Apple Watch

  • Predicting the success of Apple products can be challenging.
  • The initial version of the Apple Watch may not be perfect but is expected to sell well.
  • Future iterations of the Apple Watch are anticipated to improve significantly and achieve success.

"It's dangerous to bet against apple on these sorts of things... version one is going to be rubbish, but still sell a lot, and version two will be much better and a big success."

Simon Menashy shares his personal view on the Apple Watch, suggesting that while the first version might have shortcomings, it will likely sell well due to Apple's brand strength, with improvements expected in subsequent versions.

Recent Investment in Growth Intelligence

  • Growth Intelligence uses machine learning and big data to improve B2B sales targeting and conversion rates.
  • The company was chosen for investment due to the size of the market, the universal nature of the problem it solves, and its use of advanced technology.
  • The simplicity of the message and the potential to improve sales performance made Growth Intelligence an attractive investment.

"An investment in a business called growth intelligence... it's a company that uses machine learning and big data techniques to solve a pretty simple problem... we liked it because it's a big market, it's a big problem... it's an example of using really smart, cutting edge technology and analytics."

Simon Menashy explains why Growth Intelligence was a compelling investment, highlighting the company's market potential, problem-solving approach, and advanced technological application.

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