EIA Week Three – Selling what you think people want.
Week three was crunch time. We were expected to market and get users in four days since we’d be pitching our product to Silicon Valley VCs on Thursday.
Developing a Business Model
Finding a business model is hard. We had a hard time figuring out what services we would provide and what our pricing silos would be and we ended up having a lot of debates over this.
I was pushing a “one price to rule them all” model where we would charge a monthly fee per head for an all inclusive service whilst Vi and Josh saw a more tiered monthly pricing model that also had one off services.
We realised after a long debate and lots of advice from mentors that my model wasn’t feasible initially so we went with the other model.
There were lots of good talks about marketing at EIA (you can find a lot of the slide here: http://www.slideshare.net/InnovationAcademy) but two really stood out and those were by the Leimgruber brothers – who run the influencer network neoreach.com.
I was familiar with Jesse Leimgruber’s work from his posts on Reddit and so I made sure I listened up when they were talking because both of them know their stuff.
They made one point very clear initially.
What’s customer development?
Customer Development is a LEAN methodology in which whilst you’re building your product you ask potential customers on what they want and then build it to match their needs.
Later on you can actually approach the people who provided feedback and sell them your product and hopefully you should have a high conversion rate since the product matches their need.
This is the email template that Jesse gave us for reaching out to potential customers:
As you can see, it’s a very soft sell. So our priming email was:
My name is ____, co-founder of CaterSquad and a recent graduate student from UC Berkeley.
Given that you’ve been catering for companies for many years now, I’d love to get your feedback and advice on the direction of CaterSquad.
CaterSquad solves the logistics of group ordering and delivery for large companies. We provide a platform of aggregated restaurants that provide food delivery. We’re looking to help restaurants get repeating business from large companies on a regular basis.
Are you available for a chat sometime this week? 15 minutes should be more than enough.
One of the key take away points is to make sure that the founder or CEO is the person sending the emails – your conversation rate will greatly improve.
Using this template we managed to get Vita Coco to sponsor us and provide coconut water with all of our meals for free and we also signed paid trials from teams at PWC, Accenture and a few others.
Wednesday night we all sat down and tried to get the pitch in order. We were all exhausted. The team decided Vi would be the one to pitch the product so that we had a coherent pitch that didn’t break up in to parts.
The actual pitch day was setup like this:
- There will be 8 rooms
- Each room would have 8 teams
- There would be 3/4 judges
- The pitch would be three minutes
- There would be a 2 minutes Q&A section
- One winner from each room
There was also a side VC competition for us where we would actually get to judge other teams in our room and choose to invest in them as if we were VCs and there was a prize for the best VCs.
So, Vi went up on stage and gave an amazing pitch. You can find our pitch deck here.
I made notes on every other pitch and I did a quick competitor analysis and market analysis to find the best companies to invest in in high growth markets.
For me a high growth market was a deciding factor. I remember one start up – an uber of tech support, which looked great and the idea sounded like it had legs but after research I found that the market was stagnant hence it would have taken years to recoup any investment.
On the other hand, there was an app that gamified chores and whilst I wasn’t too convinced on the idea I saw that market was growing hard and fast and we could see a 10x return in 5 years if their app caught on.
So, that’s the company I pushed to invest in and it was decided I would lead all negotiations. We scrutinised their financials heavily and when we went in to boardroom we used their own projections against them. We invested in them for $100k for 40% compared to their asking price of $250k for 20%. They even commented that we knew their financials better than they did.
Then it came to our turn to be invested in. We went in with $300k for 17% as our bottom and negotiations got very heated. I pushed for our valuation to be based on multiple on year one revenue that was in line with the multiple given to one of our competitors – the multiple on revenue given to our competitor was 14x. Eventually, through discussion we gave them a “heavy discount” on the multiple of 6x against a projected revenue of $500k for year one.
They didn’t debate our projections but instead accepted them and they eventually agreed to our 6x multiple on our $500k year one revenue which gave us a valuation of $3 million. They wanted 20% for $600k to which we agreed.
One of the VCs even said “bravo” to our negotiation. When we walked out I felt like I had won the Super Bowl, my whole team was proud of what I had done in both negotiations and the other teams were also impressed. No other team performed as well as us when it came to valuations but we completely missed talking about the board seats and liquidation preference. Which we didn’t discuss because it was in the term sheet and they gave us a fair term sheet and we gave them a fair term sheet with split boards and a 1x liquidation preference.
The End of The Road
At the end of the day the judges went back in for a discussion and apparently there was shouting and angry mentors. We heard that some mentors literally fought for teams to be put in and lobbied to get them through.
Sadly, we came second in our room (uber for tech support won our room) hence we didn’t progress to the finals on Friday but some of our friends did which was great! Overall, it was an amazing experience to learn from and I’ve made friends that I owe a lot to. We had a killer team.
EIA takes place again this July so I really hope you all apply for the program this year!