Timing his pitch

Startup's life hangs on entrepreneur's 13-minute talk to venture capitalists

Roger Fillion, Rocky Mountain News

Monday, March 5, 2007

BEAVER CREEK - Anxiously stepping onto the small stage, Todd Vernon needed the room of wealthy investors to write his upstart tech company a $5 million check.

The 43-year-old entrepreneur and CEO took a breath. Vernon then launched into his fundraising pitch with a joke a venture capitalist could appreciate.

"Who do you trust about term sheets?" he deadpanned to the crowd of more than 50, hoping to get a response.

On a big screen beside the stage, a PowerPoint slide flashed two photos: one of socialite Paris Hilton, the other of respected venture capitalist Brad Feld.

The audience erupted into laughter at the mere thought: Paris Hilton espousing on the financial ins and outs of a document detailing a VC deal? Puhleese!

So began Vernon's 13-minute pitch to persuade VCs at a recent conference to invest in Lijit Networks Inc. to get it off the ground. The Louisville company's technology allows readers of blogs to search the online journals for information.

The funding pitch is a ritual entrepreneurs must perform to raise money for their companies. If they fail, their business risks dying on the vine.

Here's the story behind Vernon's pitch.

He actually began his prep work a year ago. At the time, he knew he was going to be out of a job at the Louisville company he had co-founded in 1997.

In February last year, Vernon climbed into his BMW and drove to the same VC conference here - at the swank Ritz-Carlton - to do some research.

He shelled out more than $2,000 of his own money to watch how entrepreneurs asked for funding from the scores of VCs at the 2006 Venture Capital in the Rockies conference.

Each year's VCIR brings together two groups: VCs from around the nation who want to invest in the next Google and execs from local startups, like Vernon.

Free time is spent schmoozing over poker or cocktails. During work hours, entrepreneurs make their pitches at live sessions attended by several VCs.

"I wanted to see what people were doing, what was working," Vernon recalled of last year's confab, knowing he'd return someday to ask for money.

He also asked people who made effective and concise pitches for a copy of their presentations.

The key, he realized, to getting funding for an "early-stage" business: Get VCs excited about the problem you're solving and how it's unique.

"You can't communicate the entire business in 15 minutes," Vernon explained. "If they're excited they'll find you and learn the rest. You want them to come back and talk to you."

Prior to his current job as CEO of Lijit, Vernon was a co-founder and chief technology officer of Raindance Communications Inc., a Louisville provider of telephone and Web-conferencing services.

In February 2006, Raindance executives agreed to sell the company to an Omaha telecom corporation for $110 million. "It was time to leave," Vernon reasoned.

But not retire. He wanted to hook up with a new outfit.

"I knew I was going to be on a team. Or I was going to start one myself," said Vernon.

He met Lijit's co-founder, Stan James, through Feld, the Colorado venture capitalist who writes an influential blog on the entrepreneur and VC scenes.

James, 32, conceived the principles underlying Lijit - using friends to sort the good Web sites from the bad - in a master's thesis he wrote while a graduate student at a German university.

So far, Lijit has landed $900,000 in funding, mostly from about 15 individual "angel" investors. The company employs nine.

Lijit's search engine allows blog fans to sift through favorite blogs for nuggets of information - the name of a good movie, for example, or tips about VC term sheets.

The idea is to get the information from a reliable source - hence, the Paris Hilton vs. Brad Feld joke.

Knowing Lijit would need millions, Vernon late last year filled out an application to pitch at the 2007 VCIR. Lijit was among the 30 or so companies picked from a crop of more than 100.

Vernon spent at least 45 hours developing the PowerPoint slides and talk he would use.

A good chunk of that time was spent at Dragonfly Coffee Tea & Spices in Louisville, his favorite local coffee shop.

He brought in his laptop, sat at a table and trolled the Internet digging up information about the market Lijit would be doing business in, the "vertical search" market. He also made phone calls and conducted face-to-face business meetings at his table.

"I didn't know what he was doing," said Dragonfly owner Patty Wilson, who's since gotten to know Vernon and Lijit. "He comes in almost every day."

Eleven PowerPoint slides formed the heart of Vernon's presentation. A key point: People use trusted bloggers to find information they can't find elsewhere.

"I've probably made 30 slides to get to the ones I ended up with," Vernon said a week before VCIR.

In late January, he began practicing his pitch on people in the VC and business communities. He showed his slides and gave his talk at four mock sessions around town.

After the first two, Vernon revamped his pitch, reducing the number of slides. He added two slides back after the third session.

By the time he was ready for VCIR last month, his pitch was clocking in at about 14 minutes. It had been as long as 17 minutes and as short as 10.

Venture capitalist Seth Levine, managing director at Boulder- based Foundry Group, was among those who heard an early version.

"My first impression was that his story didn't come through clearly," recalled Levine. "He positioned himself against his competitors - we're not X and Y - vs. stating clearly what he was doing.

"We encouraged him to come up with an example that would more clearly articulate what Lijit is up to," added Levine. "He did this and shortened the presentation."

Vernon also pitched himself. He pitched out loud while driving his car around town . . . or while sitting in his hot tub beneath the stars at home.

"I've probably pitched myself 30 times," he said.

On the morning of the presentation, Vernon went through his slides one more time in his hotel room. He put on tan slacks and a blue blazer but no tie.

About 9:15 a.m., he took the stage in a windowless meeting room at the Ritz-Carlton.

After eliciting the laugh about Hilton vs. Feld, Vernon turned to Lijit's technology for searching blogs and getting information linked to a blogger.

"Lijit makes people searchable," he said.

He reeled off other slides outlining the targeted market - the $7 billion market for placing ads in search results, for example.

And then he asked: "How do you make money?"

Answer: Through "highly targeted" ads that would appear next to the search results generated on a blog.

Vernon wrapped up his pitch by noting he wanted to raise $5 million and hoped to close on the financing by the second quarter.

Vernon then fielded questions from a three-member panel of VCs for a few minutes.

After his moment in the spotlight, a "relieved" Vernon walked to the back of the room. Colorado entrepreneur Jim Lejeal - a Raindance co-founder and Lijit investor - gave him the thumbs-up.

Since delivering his pitch nearly two weeks ago, Vernon has received four "inbound calls" from investors. He had three meetings with potential investors last week. He's scheduled a follow-up meeting for this week.

Feld, a Lijit angel investor and board member, is confident about the tiny company's prospects for landing more money: "I think it's going to be one of the hot deals that comes out of the 2007 funding cycle."

• 6:30 a.m.: Entrepreneur Todd Vernon starts his big day bright and early. After a quick shower and a run-through of his presentation, Vernon is off to the Venture Capital in the Rockies conference to give his pitch.

• 9:15 a.m.: A few hours after his practice run, some schmoozing and a cup of coffee, Vernon is ready to give his pitch. In 13 minutes, he sums up Lijit Networks to a roomful of potential investors, then fields questions.

• Noon: After attending several more fundraising presentations and partaking in some more schmoozing, Vernon goes to lunch. Mark Heesen, National Venture Capital Association president, addresses the conference lunch.

• 5 p.m.: After a stop at his hotel room to change and relax, Vernon attends a VCIR cocktail party. There's plenty more schmoozing because Vernon is hoping to raise about $5 million to continue to refine the company's service.

• 8:30 p.m.: After dining at the Ritz bar, Vernon heads to bed. He's done schmoozing - for now. The 43-year-old hopes his eventful day and well-rehearsed pitch has roped in several more follow-up meetings.

In his words: Keys to making a good pitch

Todd Vernon likens the key to a successful pitch to a stick figure riding a surfboard on a big wave, a concept he learned from a venture capitalist years ago. Here are his words:

1. The stick figure represents the team. If you have a good solid team with some prior experience that's attractive to venture capitalists, it lowers the execution risk.

2. The surfboard represents the idea or the product. You have to have a unique idea to stand out from the crowd.

3. The wave represents the market timing. If your product is being sold into a hot market that everyone is talking about, it's going be much easier to publicize the company, and ultimately the company will be valued higher.

4. VCs only invest when you have all three.

About Lijit Networks Inc.

• Headquarters: Louisville

• Founded: April 2006

• CEO: Todd Vernon

• Employees: nine

• Technology: Search engine that allows users to search favorite blogs for information

• Venture funding goal: $5 million

fillionr@RockyMountainNews.com or 303-954-2467