As Cohen noted, it's a result of seeing so many pitches that investors can offer insights into what works and what doesn't work in a pitch. Here are a few of the most common mistakes that Cohen along with other investors list:

1. The pitch lacks clarity

You should be able to give a clear description of what your company does - what needs it meets and how it does so. This should be short and succinct - think "elevator pitch."

2. You don't talk about your team

As Chris Dixon suggests, you want to pitch yourself not your ideas. In other words, it's important to be able to describe what it is about you and your team that gives you the skills to accomplish your business's goals. Highlight what you've done in your past in order to demonstrate your abilities.

My friend, Chris, sent me a link to Why Venture Capitalists Avoid Innovation: They Like Making Money, written by Andy Singleton.  It was interesting reading, but I don't agree with many of the conclusions. 

One of the author's complaints is that VCs "claim to be in the business of innovation, but they also talk constantly, often in the same paragraph, about how much they want to avoid innovation."  However, Singleton is confusing 'innovation' with 'risk.'  There are lots of types of risk with any new venture:  technology risk, team risk, market risk, competitive risk, development risk, sales and marketing execution risk, financing risk, etc.  A brief word on each:

• Technology risk -- The risk that some fundamental new innovation just won't work.  This tends to come up more often with 'hard' technologies like semiconductors, energy, drug development.  This is different from development risk.
• Team risk -- The risk that you either can't build a team with suitable skills or that the team you build won't work effectively together.
• Market risk -- The risk that the market for your product won't appear.  Perhaps you are counting on some market shift in the future.  If it happens, you'll be the big winner because you saw it first.  If it doesn't, you may be dead.
• Competitive risk -- The risk that existing competitors in your market can fill the need that you are trying to fill more quickly than you can.
• Development risk -- The risk that your development team will be ineffective and fail to build a product that works well and/or is done on schedule.
• Sales and Marketing Execution risk --A set of risks ranging from getting the product requirements correct so that engineering builds the right thing to the ability to generate sufficient awareness and demand for the product to the ability to actually get customers to part with their cash in exchange for the product.
• Financing risk -- The risk that you can convince investors, now and/or in the future, to invest in the company in light of all these risks.

There are probably other risks (add in the comments), but these are the main ones I think about.  One problem in Singleton's post is that he equates innovation to risk, and most likely technology risk.  I look at it differently.  I think that an investor looks at any early-stage company and weighs the risks versus the potential upside.  If they can mitigate the risks and the upside is big enough, they invest.  If the risks look too big and the upside doesn't justify them, they pass.

How would you mitigate some of these categories of risk?

• Technology risk -- Is there a proof of concept or prototype that demonstrates the technological achievement?  Has the team demonstrated the ability to project the technology advance in the past?  Is there independent diligence that validates the planned technological advance?
• Team risk -- Have you worked with the team before?  Have some of them worked together before?  Does that validated track record give you the confidence that they can execute the plan?
• Market risk -- Are there early market trends that will tell you if the market is shifting in the direction you are hoping for?  Is there a fallback or interim plan that will keep the company going if the market shift happens later than you predict?
• Competitive risk -- Can you gather some competitive intelligence that will give you a hint of what the competitors' plans are?
• Development risk -- Similar to team risk: Does the technical team have a validated track record of developing similar projects with high quality and on time?
• Sales and Marketing Execution risk -- Another team risk:  Does the Sales and Marketing team have a validated track record in specifying the product correctly, building awareness and demand, and closing profitable business?
• Financing risk -- Does the plan give the company sufficient cushion to ensure that they can get far enough to attract additional investment?  Will an objective new investor be attracted to this opportunity?  Is there room for a reasonable valuation step up in valuation while still leaving room for a new investor to make sufficient money?

From my experience, the most common reason why a venture-backed IT company fails isn't technology risk but sales and marketing execution risk.  Products are poorly specified, requirements aren't honed sufficently, products are positioned poorly and undifferentiated, sales teams are ineffective, etc.  It's hard getting all this right.  If you don't, even the best product won't sell.  In fact, great sales and marketing execution can make a success out of a mediocre product.

The second most common reason is market risk.  Oftentimes start-ups are projecting that a new market segment will open up that they can capture.  If it doesn't happen, or doesn't happen before the start-up runs out of money, you are in trouble.  Hopefully, there is some sort of fallback plan.  If not, you are probably dead in the water.

Most VCs take on some level of technology and development risk as history shows that many times these can be overcome.  In fact, the first thing I read after reading Singleton's post was about Bloom Energy.  If that's not VCs backing innovation, to the tune of $400M, I don't know what is.  Of course, I am sure that these VCs see gigantic potential upside and had plans on how to mitigate the risks before they invested.  And, there are many others in clean tech, drug discovery, etc.

Some of Singleton's comments on the state of the VC business are accurate, but don't impact the calculus around these risks.  Some firms are more risk averse, but they still evaluate deals along all these axes.  An innovator has creative ways to mitigate these risks.  That's the type of innovation that VCs are looking for.  There are very few deals with no risks and big upside.  Instead, most VCs are looking at how some or most of these risks can be overcome.  It may be a high bar and may not always sound reasonable.  Perhaps they are looking for business innovation rather than just technological innovation.

Before you present your company to an investor, make sure you have thought through all these risks and what you would do to mitigate them.

This week's op-ed piece (Microsoft's Creative Destruction) in the New York Times from Dick Brass, a former Microsoft VP, was a wake up call for the tech world. In a thoughtful but ultimately scathing piece, Brass describes how and why Microsoft gradually evolved from an innovative company with first-mover advantage to a technological also-ran scrambling behind just about everyone in bringing new products to market:

"As they marvel at Apple’s new iPad tablet computer, the technorati seem to be focusing on where this leaves Amazon’s popular e-book business. But the much more important question is why Microsoft, America’s most famous and prosperous technology company, no longer brings us the future, whether it’s tablet computers like the iPad, e-books like Amazon’s Kindle, smartphones like the BlackBerry and iPhone, search engines like Google, digital music systems like iPod and iTunes or popular Web services like Facebook and Twitter. [...]

Microsoft has become a clumsy, uncompetitive innovator. Its products are lampooned, often unfairly but sometimes with good reason. Its image has never recovered from the antitrust prosecution of the 1990s. Its marketing has been inept for years; remember the 2008 ad in which Bill Gates was somehow persuaded to literally wiggle his behind at the camera?

While Apple continues to gain market share in many products, Microsoft has lost share in Web browsers, high-end laptops and smartphones. Despite billions in investment, its Xbox line is still at best an equal contender in the game console business. It first ignored and then stumbled in personal music players until that business was locked up by Apple.

Microsoft’s huge profits — $6.7 billion for the past quarter — come almost entirely from Windows and Office programs first developed decades ago. Like G.M. with its trucks and S.U.V.’s, Microsoft can’t count on these venerable products to sustain it forever. Perhaps worst of all, Microsoft is no longer considered the cool or cutting-edge place to work. There has been a steady exit of its best and brightest."

Obviously, something happened to the culture of the company, changing the very direction of what it means to work at Microsoft. One way to conceptualize this is to think about the "impenetrable layer of suck" that tends to grow at just about every company -- especially those already bloated with layer upon layer of middle management. On her Strange Attractor blog, Suw Charman-Anderson has posted a fantastic graphic showing how this "impenetrable layer of suck" works. Creative ideas never quite make their way down through an organization. Note the squiggly red lines that are the "social media fissures" -- these are just about the only way that innovative ideas work can find their way down to the rank-and-file members of an organization.

You can read the New York Times op-ed piece as a bit of grumbling and mumbling from a disaffected former employee -- or as a warning shot fired across the bow to other tech companies like Yahoo, Google and Amazon -- all of which are no longer young, frisky, risk-seeking startups. Apple may no longer be a young start-up, either, but it has thus far avoided the "impenetrable layer of suck." Steve Jobs has almost single-handedly enabled innovative ideas to come to market through charisma and sheer force of will. Which explains to a large degree why Microsoft was never able to realize the full potential of the Tablet PC, while Apple was able to generate a market sensation around the iPad.

[image: The Impenetrable Layer of Suck via Strange Attractor]

Wired on Failing Early & Often

Wired Magazine's January issue is a survey of one of our favorite topics: failing early and often. Several of the stories highlight the value of a diverse team in creating breakthroughs (a.k.a. radical collaboration.)

In case you don’t have time to read the whole issue, here’s a highlight:

"The diverse lab, in contrast, mulled the problem at a group meeting. None of the scientists were protein experts, so they began a wide-ranging discussion of possible solutions... the intellectual mix generated a distinct type of interaction in which the scientists were forced to rely on metaphors and analogies to express themselves... These abstractions proved essential for problem-solving, as they encouraged the scientists to reconsider their assumptions. Having to explain the problem to someone else forced them to think, if only for a moment, like an intellectual on the margins, filled with self-skepticism."

Silicon Valley is known the world over for its acceptance of failure as a rite of passage. Technology legends from Netscape founder Marc Andreessen to Apple founder Steve Jobs have all experience failure, revived their careers, and then gone on to change the world.

In other places, failure means disgrace. But according to futurist and Stanford engineering professor Paul Saffo, in the tech-obsessed valley, “the spires of success are built on the rubble of failure.”

This religion runs so deep that it now has its own conference, FailCon. At the first annual event in San Francisco today, entrepreneurs and venture capitalists shared war stories about their failures so that the next generation can learn from them. The experience of failure often gives entrepreneurs the drive to make a comeback, accompanied by the constant fear that they could one day experience that failure again.

Max Levchin (right), the chief executive of social apps maker Slide, said that he once spent nine months perfecting a software scheduling system at his first startup. Then, before he could get his banner ad technology onto the market, DoubleClick debuted its very similar service. His startup collapsed while DoubleClick sold for billions to Google. There was a time when Levchin was $14,000 in debt and had maxed out his credit cards.

Levchin said he regretted that he didn’t have co-founders on board who could tell him when to stop and change direction. He said he has since developed an “internal compass” that tells him when he has “turned into a zombie” and it’s time to call it quits. Lots of people make the mistake of not recognizing they’re zombies.

“Lots of companies that I don’t want to insult are fucking dead,” he said. “Their user base is fluctuating. The employee base is fluctuating. They have adapted, but they have not gone from walking to flying.”

Levchin went on to co-found PayPal, which eBay bought in 2002 for $1.5 billion. Such success puts pressure on entrepreneurs to succeed with their next effort. Levchin said he wasn’t ready to say whether Slide is a success or a failure. The company has undergone restructuring, but it’s on its way to profitability, he said. How does he define success? Levchin said success was when his employees were rich enough that they could buy their houses with cash.

Mark Pincus (right), founder of social gaming firm Zynga, said he doesn’t like good press about his company because it reminds him of his “fear of failure mode.” He said he should be thrilled that Fortune, Forbes, and BusinessWeek have all written about his company.

“I should feel happy, but I feel shitty,” he said. “I feel like the emperor with no clothes.”

He said that both social games and Zynga have a lot of potential, but they also have a long way to go before they should be considered successes. When you inevitably fail, the best thing you can do, Pincus said, is to be in a position where you can intellectually and emotionally own your failure. At that point, he said, “You know you can control your own destiny.”

As for learning from failure, he advised the audience members to surround themselves with people they can learn from — people like his venture capital board member Bing Gordon.

Venture capitalists weighed in to talk about how they can smell failure in a startup. Christine Herron, a partner at First Round Capital, said that she can tell, after she goes to multiple board meetings, that nothing has changed at a startup. It is still chasing the same goals, but isn’t making any progress. By contrast, at companies that are learning from failure, she hears how they say the market changed and how they adapted as a result. Jonathan Teo, a vice president at Benchmark Capital, also said that adaptation is a key indicator that a company is learning from failures and moving on to new strategies.

Adeo Ressi (top picture, right), founder of TheFunded, a venture capital watchdog, said that every decision at a startup is crucial. He said that entrepreneurs are feisty, but the worst thing that can happen is for people in the company lose hope — hope in being able to finish their tasks, get things done, or otherwise pull off the impossible.

Dave McClure, an angel investor at Founders Fund, was tough on his panelists. Vinay Mahagaokar, director of product at app maker RockYou, said that his company was too slow to perfect its RockYou Pets app, which managed to get a million users on MySpace. RockYou eventually got sharper about refining its apps by watching its audience numbers more closely and ferreting out how it could hang onto its users for a longer period of time.

“That’s not a failure,” McClure said.

But Mahagaokar said that success and failure are relative. His company’s pet app fizzled, while Slide and Playfish went on to create more popular apps. You may be happy with how your company has performed, but if somebody appears out of the blue and outruns you, your company is a failure.

While Pincus is doing well with Zynga, he first saw failure with Tribe. Despite the fact that Tribe is still considered one of the first social networking sites, the founder has since learned that if you're going to fail, "fail fast" and do it with clear success metrics in place.

Another startup that has managed to leverage failure for success is customer service platform Get Satisfaction. On a personal front, co-founder Thor Muller failed in raising too much money at a time when his then company Trapezo lacked direction. When the bubble burst, Muller was free to start Get Satisfaction with co-founder Lane Becker. Although you wouldn't normally relate their company with failure, Get Satisfaction offers startups an opportunity to fail publicly via a Q&A-style platform.

Says Muller, "Companies used to get away with failing quietly. Now it's amplified, it's even SEOed. Good companies know that one of the best ways to convert people into loyal customers is to make amends for a failure."

In March, ReadWriteWeb found that after customers complained about a company on Get Satisfaction, they often immediately offered solutions to fix it. We named it the leading idea aggregator for businesses.

Says Becker, "There's value to perpetuating failure. As entrepreneurs need to believe that our successes will be at the end of this trajectory of failures, and we're not the only ones capitalizing on it"

Becker went on to argue that bloggers and entrepreneurs were just as tied to the cycle of failure as Get Satisfaction. "Entrepreneurs need us to fail, otherwise there'd be no new companies to fund. Bloggers need us to fail. They need it to write at least two blog posts - one when we start and one when we finish."

While Get Satisfaction's presentation put failure into a new context, the message was an upbeat one. The systemic failure that happens due to poor market conditions, poor social sentiment or new technologies displacing old ones is a necessity. Without a willingness to take risks and fail, experimentation and new innovations would cease to exist. For most of us, that's the reason we're in the technology industry to begin with.

Photo Credits: Rebecca Reeve and Firefly the Great

Failures are the stepping stone to success.