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September 17, 2009

The problem with Entrepreneur Pitches

Mark has a point.  Here is a recent e-mail pitch I received from an eager entrepreneur and the many warning bells that it set off.  If you want to pitch me an idea, please, please, please read this and DO NOT DO THE BAD STUFF.

I get pitched ideas for companies every day.  Lately I have been getting alot of renewable energy ideas.  In pitches there are many things that set off warning bells and start the bile coming up.  Here is an e-mail pitch I received last week and am using for illustrative purposes on what to NOT do.  I have redacted some names and details to protect the guilty.  If you are thinking of pitching me an idea, please do not do it like this. 

----Start of email----

Jon- thank you for this valuable introduction.

<MT: good to reference our mutual friend, bad to start ass kissing with “valuable” right off the bat >

 

Martin,

I hope this message finds you well. Given your previous leading roles in biofuels and current investment interest I find the opportunity to discuss our SUPER DUPER WORLD CHANGING IDEA <name removed> company with you to be an invaluable opportunity. I would like to give you a short summary on my company and see if you were interested in participating in a small "friends and family" round through a convertible note.

 <MT: no idea is an “invaluable opportunity”.  Cut the superlatives.  The “small” sounded good, but $125K is more like Nothing.  And I am NOT your friend nor your Family, so why me?>

XXX WORLDS GREATEST COMPANY is a seed-stage company developing the next generation algae platform for production of low-cost renewable biofuel. We will bring efficient genetic engineering and synthetic biology to algae to overcome critical problems currently limiting the immense potential of algae-based biofuels. We believe that genetic engineering of algae is the key to directly and aggressively address the major cost hurdles in algae-to-biofuels. An initial production modeling study indicates that our ability to avoid harvesting and oil extraction through oil secretion added to the capacity to increase total oil synthesis without tradeoffs in growth rate allow us reduce costs by 50% to 70%.

<MT: woa. a mouth full.  They are asserting their value prop right up front without knowing what I think about it. If they had read my blog they would have seen posts that say I believe the primary problem to be solved in Algae-Biofuel is the cost of the farm, not the growth rate, yield, extraction, etc.  This just proves they didn’t do their homework on me.>

 

I think this is a great opportunity. Our company has the true technical breakthrough that the algae field was waiting for, strong IP, bringing huge measurable benefits in production costs, and a founding team and advisors from top academic centers such as UCSF, Max Planck, HHMI, others. I will summarize the most important points about the company but please take a look at the attached executive summary for more details:

<MT: You think this is a great opportunity.  I fucking hope so.  Why are you wasting my brain with that piece of obviousness? Then you make all sorts of assertions on “strong IP, big names, etc.” then ask me to read more. Too many words, too much fluff.  Make it shorter, leave out the fluff.” 

- Problem

According to a landmark DOE study, microalgae are the only feedstock with the potential of replacing crude oil at competitive cost and scale. However, the promise of algae as a cost-effective, large-scale oil source has never been fully realized because existing algae do not simultaneously support (i) high enough rates of total oil synthesis and (ii) easy oil extraction. Most importantly, biologists have not been able to apply genetic engineering to algae to address oil production problems because of a lack of fast and efficient methods to express nuclear transgenes.

<MT: lots of assertions, no facts.  If you are going to have a section called “problem” make it clear ONE PROBLEM you are going to solve.  After reading this i don’t know what that is except maybe “efficient methods to express nuclear transgenes.” which isn’t a problem anyone can empathize with.  If i can’t as an investor empathize with your problem I am not going to invest.">

- Product/Platform

We have secured worldwide, exclusive rights for proprietary materials and technologies from the BIG IMPORTANT SCIENCE Institute that give us the ability to do efficient and stable nuclear genetic engineering in algae. This is a true breakthrough in the field. Essentially we are bringing genetic engineering and synthetic biology to eukaryotic algae.  Our initial product will be oil that can be readily processed by existing fuel infrastructures into commercially competitive transportation biodiesel. We will bring genetic engineering, systems biology, and synthetic biology to generate algae with high levels of oils, oil secretion capabilities, and better growth characteristics.

<MT: Oh, so this isn’t your invention, it is some else’s?  How much did you pay for that? If this is the secret sauce, shouldn’t i invest in that thing? And it requires you to “bring” six or seven other things together before you can succeed?  Woa.  Too many moving parts. No demonstrated proprietary ownership or expertise in any one.  #FAIL>

- Who Cares?

            * Oil companies

Every oil company is looking for an algal oil platform. We are excited about last month's announcement of a $600M deal between Synthetic Genomics and Exxon. Even though Synthetic Genomics is a competitor, we find this recent news to be very positive for our project. Our technology is much better than what Synthetic Genomics has announced. This legitimizes algae as "the" biofuel feedstock. Also, it means that every other oil company is going to be desperately looking for their own source of technology to rival that of Synthetic Genomics. We actually got a call from Shell two weeks ago and we are currently in talks with them.

<MT:  So wait a minute, it takes $600M to bring a competitor’s technology to market and you only need $125K to rule the world?  This is not a causal relationship. >

            * Algal oil companies

Current algae-to-biofuels ventures use approaches that only bring marginal improvements in costs, are limited to what nature offers, or use genetic engineering methods that have very limited abilities to express transgenes (i.e. chloroplast genetic engineering). Many of them have more than $100M in funding.

 <MT: Wait a minute, I thought you were one of them?  What would they buy from you?  No explanation of what the product is they would sell.>

            * Agricultural Companies

Companies in the plant oil business (Cargill, Bunge) have invested heavily in infrastructure for biodiesel from soybean and Jatropha. Algae oils yield are 10X greater than Jatropha' and 100X greater than soybean's.

 

- Value/Why will they pay for our solution?

With our ability to genetically engineer algae, we will perform proprietary metabolic manipulations and bioengineer oil secretion to attack the major economic hurdles in algae biofuel production. An initial independent production model indicates that our ability to avoid harvesting and oil extraction through oil secretion added to the capacity to increase oil synthesis without tradeoffs in growth rate allow us reduce costs by 50% to 80% (to around $60/bbl).

 

- Funding

We are currently talking with 2 VC funds. They are interested but things are moving slow. Other funds are asking for more data. We recently decided not to wait for outside funding to start doing experiments. We have planned a small budget for a small operation of 3 persons to work 5 months to accomplish some initial milestones while we continue negotiations. This will show some initial results, skin in the game, and will give us the ability to apply for grants more freely. For this we have set up a convertible note to help us raise a $125,000 “friends and family” round. In 10 days, we have already raised more than 65% from founders, relatives and outside investors in investments going from $5,000 to $20,000.  

<MT: Never use “skin in the game”.  Ever.  And What is the milestone you are funding here?  How does $125K fund a meaningful milestone to improve the valuation of this company?">

I hope this opportunity is of interest to you. Please don't hesitate to contact me if you have any questions. Thanks, and looking forward to hearing from you.

 

Best,

Eager Beaver Entrepreneur

 

Summary:

1. do your homework on me if you want to pitch me

2. Get rid of the superlatives

3.  Tell me exactly the problem you are uniquely able to solve and why it is valuabe

4. Tell me what the money you are raising is going to fund and why that milestone will improve the valuation of the company.

5. Make it short (one screen).

Posted by Martin at September 17, 2009 3:10 PM

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