Startup Talk Toronto's Startup Podcast with VC Verstra Ventures

Here is the transcript of the interview with Matan Hazanov of Verstra Ventures

​Direct from The Six, world-renowned, Canada’s largest city with Canada’s biggest thinkers, visionaries, and hustlers. This is Startup Talk featuring the founders, funders, innovators, and community leaders who have led Canada’s startup ecosystem right here in Toronto. You'll hear the challenges, the failures, the successes. Toronto's Startup podcast gives you the full story direct from the entrepreneurs and influencers who have made a difference. Now the host of Startup Talk, the founder of TorontoStarts, The Startup Coach.

Startup Coach:
Welcome back to Startup Talk. I'm your host, Craig Major, The Startup Coach, and with me today is Matan Hazanov of Verstra Ventures. Welcome.

Matan Hazanov:
Hi Craig. Thanks for having me.

Startup Coach:
It's great to have you. First of all, tell us about Verstra Ventures.

Matan Hazanov:
Verstra Ventures is a relatively new venture capital group based in Toronto. We invest in early and seed stage, specifically seed stage, startup companies, software startup companies.

Startup Coach:
Before I get into you as an entrepreneur, I like to talk about who the individual was growing up to get a picture of your personality. Were you a handful for your parents? Were you studious? Were you into music? What were you? Who was Matan growing up?

Matan Hazanov:
Yeah, it's interesting. I think I could sum it up. When I was growing up, I was one of those guys in school that you would never assume got straight A's but actually got straight A's. I was very much into sports. I hosted some epic parties at one of the houses that my father owned, which was really fun. My parents got divorced when I was very young, and they were very busy trying to help us live. My mother was working six days a week, 12 hours a day and that created a very independent streak for me. I had to motivate myself to care about school and to do well in school, and that's really helped me out throughout life. I was involved in a lot of sports and clubs and activities throughout my childhood and through university, and even after. I basically joined every sports team I could that didn't require buying expensive equipment, so I did everything except from like hockey and football.

Startup Coach:
Yeah, hockey is probably a good one to avoid only because the weird hours you're going to have to do. The 4 in the morning practices because of ice time and what not, but that sounds amazing. Sounds like you are very well rounded. You're both social and academic, which is not all that usual for entrepreneurs.

Matan Hazanov:
Yeah, it's interesting. I consider myself an introvert. I've been very introverted my whole life, but I kind of noticed very early on that if I wanted to succeed in whatever I wanted to, I remember this was when I was eight or nine. I had to get out of that shell and I made a concerted effort for many years, almost two decades now, to actually get out of that shell and be someone that can go out there and network, be the life of the party if needed and then get back into my shell when it's done and recharge my batteries.

Startup Coach:
It sounds like we have very similar personalities there. Did you always know you wanted to be on the finance side of business?

Matan Hazanov:
No, actually. I grew up in a family of entrepreneurs. I always knew I wanted to be an entrepreneur and build a business. And eventually invest in and support businesses. So when I was going through university, venture capital seemed like a good fit. I developed a very strong acumen for research and analysis and finance almost accidentally, but I always wanted to be an entrepreneur.

Startup Coach:
So before we met, I looked through your profile and you've got a lot of international experience working with capital, advising and mentoring startups. Can you talk about some of the other startups ecosystem in comparison to Toronto?

Matan Hazanov:
Yeah, one of them that's very interesting and unique is Israel. And I'm not only saying that because I'm Israeli and I was born in Israel so I'm a bit biased, but I think the numbers speak volumes for Israel as an amazing startup ecosystem. I think just last year they had something like $8 billion invested in venture capital in the country. Whereas in Canada, just as comparison, I think in 2019 we're, I don't have the final numbers, but if you take the first three quarters as an indication, we're going to do something like 6 billion. Israel, just for some comparison, Israel is a nation of eight and a half million people, compared to Canada, which has substantially more. Canada's one of the strongest venture capital ecosystems in the world. So it's really amazing what's going on there.

Startup Coach:
Canada's definitely harder to get money than many other areas of the world, but it's loosening up. And the number I heard it was between four and 6 billion depending on, I haven't seen the final numbers. So yeah, exactly.

Matan Hazanov:

The first three quarters of 2019 I think the numbers was something like 4.7 billion.

Startup Coach:
Yeah. And that's what I was looking at, so I didn't know where we ended. So now you are Verstra Ventures. Can you tell me about what kind of startups you invest in?

Matan Hazanov:
Yeah, we invest in early stage B to B software companies. We have some flexibility, but typically we will look for companies that sell Enterprise level software, focus on a particular industry.

Startup Coach:
So when you say Enterprise level, are you talking about startups who are B to B that are attacking the Enterprise?

Matan Hazanov:
That's right. I mean we've looked at and are open to investing in companies that don't focus on Enterprise, but B to B's, focusing on a particular industry is our sweet spot.

Startup Coach:
And you don't have a particular industry, you just want B to B in the startup to be niched down to a very specific industry?

Matan Hazanov:
That's right. I have a particular interest in prop tech, anything touching real estate, the real estate market. That just because of my own background and my network. So I'm looking to build some portfolio in that, but we're pretty agnostic in which industry we invest in.

Startup Coach:
Is it okay if I ask you about a couple of startups you invested in?

Matan Hazanov:
Yeah, of course. We just closed a deal at the end of 2019 in a fairly interesting company called Hyre, H-Y-R-E. They're essentially a labor marketplace trying to displace the archaic and inefficient staffing agencies. So imagine you have a hotel or a banquet hall that has peak seasons during Christmas time or some of the other holiday seasons, and they don't staff up for their peak demand. They have kind of a skeleton staff throughout the year and they rely on staffing agencies for their busy season. Hyre basically takes the staffing agency out of the picture completely. They disintermediate the process and make it much more efficient. So it's an online labor marketplace. They have tremendous growth and a great value proposition. Great team. That one I'm very excited about.

Startup Coach:
Hyre sounds interesting. I'd like to talk to them about how they're solving the fundamental problem behind this, which is people are unreliable.

Matan Hazanov:
Yeah, it's actually, when I was doing our due diligence and we spoke to the customers, one of the biggest issues that came up was the reliability of the temp staff. There's just not that great of incentive for people to show up on time and to do a good job because they're there for one or two shifts. So Hyre actually created an amazing system, a rating system, not just the staff does a certain job and then they get rated and that rating is posted online, which is a standard and basic thing you should have. They actually created a system whereby the staff get compensated for that shift based on the rating of the employer.
Startup Coach:
Nice.
Matan Hazanov:
Yeah. So the employer pays the same rate. So they don't get to rate less and then pay less. They pay the same rate, but the actual amount that Hyre keeps is less if the rating of the staff is high.

Startup Coach:
Oh, very interesting way to motivate the people because, as you know, in this kind of industry, and I've talked with a lot of different startups working in this kind of problem in different niches. Is high absenteeism, high alcoholism, substance abuse problems. And generally because it's temporary work and it's low pay that they can always find it somewhere else.

Matan Hazanov:
Exactly. And we found that the no show rate is next to zero with Hyre. Staff come on time with the right uniform. They do a great job and that's why their customers, Hyre's customers are using the platform quite regularly, which is very impressive. These are brand-name hotels that are using the platform. So it's pretty interesting company.

Startup Coach:
It sounds interesting because it is a difficult problem to solve and a lot of companies have it. So if an intermediary can solve that problem, a lot of people will jump on board.

Matan Hazanov:
Right. And on the staffing side you can make easily $20 an hour if you show up and do a good job, on the platform, which you won't get with a staffing agency.

Startup Coach:
Yeah. And being motivated to do a good job is definitely something that the employers are looking for.
Matan Hazanov:
Right.

Startup Coach:
So is there another company you want to talk about?

Matan Hazanov:
Another interesting company we invested in is called Savormetrics. And they sent us a... This is a kind of like a science fiction type technology where you can basically, using machine learning algorithms, figure out certain carcinogens such as in something like a potato. So imagine you have a big food processing facility, you can put a certain amount of potatoes or something into this box that will basically tell you a lot of information about that product or that batch of produce. And they're solving a big problem for food processors because they have to typically send out a certain percentage of the batch to some testing group or quality control group. And that process is very inefficient and it's not as accurate as Savormetrics is trying to make it.

Startup Coach:
And is it a destructive or nondestructive test?

Matan Hazanov:

What do you mean?

Startup Coach:
Yeah. I don't know enough about the industry so forgive me, but normally you take a batch and test it. Is it like the batch come out the other end and it's okay or we test it and we've tested this batch so the rest of it's okay and we can't reuse this?

Matan Hazanov:
Yeah. So basically they're trying to determine if they can use it for their products. If there's certain amount of, let's say, acrylamide in a product, they will not use that for a particular product because there's high standards for some of these companies, I'm not going to get into the actual names, but I mean these companies have very high standards. They deal with some of the largest retail chains in the world.

Startup Coach:
And what kind of testing techniques does it do? Is it sonic, is it chemical, how do you test this? Or is that the secret sauce that we can't talk about?

Matan Hazanov:
I'm not sure if I can talk about it. Probably shouldn't, should not take the risk.

Startup Coach:
Fair enough. So how do you and your company work with the startups they invest in? Different investors are hands on, hands off, assist, don't assist. How do you guys work?

Matan Hazanov:
Yeah. Aside from the basics of trying to help the network advising them whenever we can, opening doors wherever we can. It's one of the things we're trying to figure out is how do we add value. We are part of a much larger group with several hundred companies under its umbrella and one of our challenges is figuring how do we leverage our resources into the companies we invest in? It's a challenge because every company needs something different. Some entrepreneurs want more involvement, some want less, some need more involvement and don't want it. Essentially it's one of the challenges of being an investor spring. And how do you add value? We have a pretty deep network. We have a lot of very successful entrepreneurs that are in our group.

Startup Coach:
How do you select who you invest in?

Matan Hazanov:
So aside from meeting our basic criteria of stage and type of company, we look for a strong team. We look for a strong value proposition, so they have to be solving a major problem for the customer. And we're looking for a natural moat in the vertical that they play in. So if you can easily apply the technology or software to a different vertical without any modification, that would be a problem for us. So there should be some natural moat to prevent other competitors from entering your market.

Startup Coach:
Yeah, I often talk to startups about their idea or their product and they say it can be applied to any market and that always scares me. And I always tell them that they can't be talking to investors with that because that seems like a lack of focus. Because what market are you going after? Do you know what that market's willing to pay? Do you know what your competition is in that market? If you're saying all markets, then how do you possibly do your research?

Matan Hazanov:
Right. We actually find that entrepreneurs, some of them that don't have as much experience, think it's a good thing to be everything to anyone. They want to show that they have a $300 trillion market and if they only get half a percent, then they're bigger than Amazon. That is a mistake. Investors want to see focus. They want to see a reasonable, addressable target market that you can achieve with a certain amount of funding. And more experienced entrepreneurs figure that out.

Startup Coach:
And I always laugh at that. You said a half a percent. I always see where if we only get 1% of this market in a pitch and that always turns me off in saying, well, that sounds like you're just guessing and that's a standard thing rather than why aren't you telling me the tactics? Because they're saying going after 1% of a market for example, maybe that means that 50 000 hits on your website a day. Can you handle that? Because you need a certain amount of conversion based on... There's a lot of information that goes behind that and how are you going to drive that traffic and that ad and that revenue rather than just saying the 1%? What are the typical turnoffs that you've seen in a lot of presentations that startups do, and this wasn't in the question list, forgive me, that you've seen startups do that immediately turn you off or send up red flags?

Matan Hazanov:
Yeah. What you just mentioned is one of those red flags. If they rely on the size of the market for their own success, that is one of the first things that cause us to be concerned. People that lack preparation. If they don't know who they're talking to for example. So it's very positive when an entrepreneur does their research and homework on you and who you are and your firm. And if they prepare well. Sometimes we have entrepreneurs that pitch to us that you look at their decks, for example, their investment decks and there's just unprepared. They haven't thought through some of the key issues that they have to resolve to make a successful business and [inaudible 00:14:17] investor.

Startup Coach:
Yeah, it's very common and a lot of people, even at very early stage, they say they need a 150 000. I look at them and say, okay, if I write you a check for $150 000 right now, what would you spend it on? And they just kind of look at you like a deer in the headlights and say, well you've got a lot of work to do. What does it get me? How far does it get me? How far down the line? Are you prototyping now, are you releasing a product? Where are we in your timeline? How much analytics do you look at when you're making investment decisions? Because analytics and AI are very popular these days as far as projecting future and crunching numbers is determine whether this formula is from a combination of lifetime value, cost to acquire, et cetera. What do you look for when you're looking at a startup?

Matan Hazanov:
Yeah, so that depends on the type of startup. If they're going after Enterprise clients, cost to acquire customers is less relevant because the higher the contract value, the less it matters, so to speak at the beginning, at the early stages. If we're dealing with companies that have a lot of smaller contract sizes, then it matters more. You want to know that the company has or can make it into a science. They figured out how much it cost to acquire, what's the lifetime value. So when you pour gasoline on that fire, that you're not losing money or making money over time. I think regardless of the company size, we always look into the sales process. It's very important in terms of the length of the sales cycle, the deal closing rates, things like that.

Startup Coach:
Yeah. Oftentimes people miss the length of the sales cycle, which is so key. I've been in companies, either corporations or other companies and worked with startups where the sales cycle is 18, 24, 36 months and you've got to know that going in. Otherwise you're going to fail because you're going to run out of money.

Matan Hazanov:
Right, exactly. I've seen that mistake happen a lot where the company's pursuing some of the, like an automotive business. If you want to put any technology into a car, you have to give yourself years and you have to plan for that. But once you do that, the barriers to entry are so high that there's a business there. But you have to know that, you have to plan for that.

Startup Coach:
In the startup world, everyone talks about hustle. What have you seen succeed for startups to get traction and build their audience?

Matan Hazanov:
Yeah, it's very interesting. One of the main things that I think separate great entrepreneurs from those that probably won't succeed, is how far they can get with no money or very little resources. If it took you a couple of million dollars to get $100 000 in sales, it's not a good sign. One of the first questions we ask an entrepreneur is, how much money have you spent, burned or raised? Because we want to know you can have $1 million in revenue, but if you spent 20 million to get there, it's not as impressive as if you've gotten 200 000 revenue when you bootstrap to get there.

Matan Hazanov:
So that's one of the things. You have to be creative. You have to go out there and hustle and make sales and do it in ways that are creative. There's many examples like this. I heard a interesting story from an entrepreneur in the States where they were trying to put a food product in a retail store and, in retail, you have to sell them. You have to sell or else you're coming off the shelf. So what they did is they just went and basically gave the product away for free. They went into the stores and they handed out coupons for something 50 or 70 or 80% off, just to get it off the shelves. They looked at as a marketing cost and that's what you have to do sometimes because if it doesn't sell off the shelves, you're going to be taken off.

Startup Coach:
There was a vegan mayo product in the States that was doing this. They hired people go in and buy their own product back from the grocery stores to increase demand and sales. So interesting to see how that kind of tactics work.

Matan Hazanov:
Yeah, that's hustle. Whenever we see an entrepreneur that... I'll give you an example with Hyre as well, the company we just invested in. One of their largest customers and their first customer came from a presentation the founder was doing randomly. And through that they spent very little money, probably next to $0 on marketing and everything came through word of mouth and just pure hustle. Just going out there and knocking on doors.

Startup Coach:
It's interesting, reminds me of PayPal. A lot of people don't know this, but one of the reasons PayPal succeeded is they started reaching out to people on eBay who were selling products and one of their success tactics, they would just buy the product. Hey, if you can sell this to me via PayPal, I'll buy it. And they would go out and that would cause the sellers to go out and get PayPal button and get it installed so they could sell on PayPal and then PayPal would just buy it. And so buying a five or six or $10 product, or buying a customer made a lot of sense to them. So it's interesting these tactics to grow.

Matan Hazanov:
Right. One of the mistakes a lot of entrepreneurs make, and I made this mistake when I was starting my first company when I was 20, is thinking that money can solve your sales challenges. It doesn't always. Entrepreneurs that can sell, can sell without having a huge budget. And ones that can't, a huge budget won't solve that. And you have to see that going. You have to see that at the early stage and if you don't, you probably don't have a business there.

Startup Coach:
Yeah, and we're seeing some of the fallout of a few startups here in Toronto recently that have closed down from just not getting their revenue model to grow fast enough or getting it proper. And it's a shame to see, especially these ones that have been invested. What are the main reasons you've seen startups failing? Can you give us an example or two?

Matan Hazanov:
Oh goodness. How much time do we have? There's so many. The main one obviously I think is cashflow and I don't mean just they just run out of money. One of the mistakes I see entrepreneurs make, especially the ones that can raise money and have raised money, is that they assume they'll get a thousand percent growth year over year or something stupid like that. And they're expensive. They plan for their expenses as if they're going to grow that quickly. So they staff up, but their sales never materialize as quickly as they thought. So they run out of cash. What I advise entrepreneurs to avoid that is, plan as if you're going to grow 50% if you think you're going to go to 100%, but staff up as if you're going to grow to 100% and see how far that takes you. If it's only going to take you to three months, then you have to change your model here and that can avoid a lot of the issues.

Matan Hazanov:
Another one is timing. So some companies may have great team, great everything, but the market isn't there yet and some do. But I've seen that happen a lot. Another one is just a bad business model and I have a really great example here. One of the first deals I ever worked on and closed as a venture capitalist was maybe something like seven years ago. There's an Israeli company called Better Place, which created battery swapping for electric vehicles. And my firm essentially bought it out of bankruptcy, the main assets and the technology out of bankruptcy. The company raised about a billion dollars before it went bankrupt. And for a startup, that's a bit much.

Matan Hazanov:
What happened there is their business model just didn't work. They assumed that people don't necessarily care about owning the battery in the car and that you can just go to any gas station, so to speak, and replace your battery. The challenge there is you'd have to standardize all the batteries for that to work. So you'd have to convince the automotive manufacturers to standardize one of the only differentiators in their electric vehicles, which is the battery. And that just wasn't going to work. And they got one car, they were going to get GM on board, but it just collapsed before they can really convince people to do it. And they probably would have never convinced more than one or two manufacturers to do it.

Startup Coach:
Yeah. I noticed there's a manufacturer in China doing it and there's someone else that are the dropout battery replacement things and we'll see if any of that actually works. But yeah, just because exactly. You need a big enough portion of the industry to adopt the technology for mass adoption. Otherwise you fail.

Matan Hazanov:
Yeah. And you have to build the infrastructure. You have to essentially build a new gas stations. That's why they raised so much money. But yeah, that system can work in a fleet situation where you have the same cars and all the fleet is run by the same company, then it can work. But you're not talking about mass consumer adoption of electric vehicles through that.

Startup Coach:
Many startups come to me with an idea and they always want to talk to VCs and get VC money. Where do I get investment? Without spending any time and effort on the idea, when is the right time for an entrepreneur to start talking to investors?

Matan Hazanov:
I'd say now. An entrepreneur should always be looking to network and to building those relationships even before they need to raise money. You have to think of it like you're building a partnership and you're building a relationship. You don't go to someone and ask them for money and expect to close a deal the next week. The investor has to get to know you. You have to get to know the investor. It's a partnership. You don't just get into a partnership with people you meet randomly and get into partnership a week later. You shouldn't do that. More specifically, if the entrepreneur actually needs to raise money, they should leave themselves at least six months for the process and that's almost in the best case. It takes time to build those relationships and for investors to do their research and then closing the deal. Six months is a good timeline for when they should start the process.

Startup Coach:
Yeah. And then due diligence and everything else after that. So it becomes a pain. And I always say, if you're serious about investment, you should be planning to talk to a hundred investors in five weeks. I can't remember what article I read that on, and it seems to be around the right number. You've got to really hustle. I've got a lot of people to talk to five or six of us. No one wants me. While they're not in the right industry, they're not this. They're not that. There's all sorts of reasons. You're not ready. There's all sorts of reasons why. And it's like a dating game when you're talking to investor, you feel like you have to add value and be able to help the startup. It seems to me that during our conversation and if you can help them grow, then that's an investment you're interested in.

Matan Hazanov:
That's right. Yeah. It's almost shocking how many companies we see that don't do their homework on us. We are very sparse online with the information we provide, but it's pretty easy to find someone that we know and ask. Or just ask us directly in an email, what are you guys looking for? We always respond to emails and we almost always take a meeting or a coffee or a quick phone call. So yeah, an entrepreneur shouldn't hesitate to ask to meet people in the industry for advice or help. Most people that I know, including people in the VC world, people think we're always busy and we never take a meeting. That's not false, we're very busy. It's not an easy job. But part of our job is to actually meet entrepreneurs years before they're ready to raise money.

Matan Hazanov:
And I've never turned down someone for a coffee if it's just for advice. Most people I know wouldn't turn down someone for a phone call. If you present it as I'm looking for advice, even before you're ready to raise money, that's great. If you're trying to pitch them on a business that doesn't exist yet, that's going to be a problem. So build those relationships, but if you're not ready to raise money, ask for advice more than you're asking for money.

Startup Coach:
Absolutely. I think you need to approach the situation with more of a sense of curiosity saying, here's where I am, what advice do you have for me? Who should I be talking to? What are my next steps? And taking that forward. And the other thing when you're talking to investors is, you should be circling back every three to six months depending on it and just kind of whether you meet them or casual or coffee or email, giving them update on your progress. So you should always show progress between your chatting with your investors that you're developing this relationship with. So if over the period of two to three years you've seen it go from idea to first customer to product demo to all these things, you're more interested because you've seen the startup grow, the maturity, you kind of know where they're at rather than someone just coming in.

Matan Hazanov:
That's exactly right. We almost closed the deal with a company that I met in 2013 and the benefit there and why it got so far along the process, we didn't close it for another reason, but the reason why it got so far along the process for us is because I saw the company develop over time and how the entrepreneur learned throughout the process. And while on paper would have been more difficult for most VCs to invest, I had the story. I knew what was going on and I could speak to perhaps why they need to pivot or do something else. So it's very beneficial for an entrepreneur to build those relationships as soon as they can.

Startup Coach:
So let's talk about the different types and avenues of funding. Because there's lots of confusion around this. Can you describe for example what a friends and family round is?

Matan Hazanov:
Yeah. Sometimes these terms and definitions are a bit nebulous. They can mean... Friends and families is the same as angel and all those things. The way I would frame friends and family is a charity round. If someone is investing as a friend or family and they think they're going to make their money back or they're under the impression that there's not a 99% chance to lose their money, you shouldn't be taking their money. Friends and family is charity and that's how it should be perceived. And someone that wants to help you, that believes you have a great vision and they help you build a product, or market the product, or develop a prototype or whatever it is. It's at the very early stages and it's charity. An angel round is the same thing as friends and family except not charity. So it could be at the very early stages of a company, but you're talking about high net worth individuals who are okay with losing their investment, but they expect that you have some progress. Something to show for the investment for what you're asking for.

Startup Coach:
And usually what's the usual size of an angel type investment?

Matan Hazanov:
Over time I think it's increased. Angel investments even five years ago was a hundred, $200 000. Today it's become much more of an industry and there can be $500 000. I'd say anything under a million is in the realm of angel investors. I saw the latest data from the angel investment groups. Their sweet spot is anything under a million.

Startup Coach:
Yeah, it seems to be around the 500 000 mark, give or take. And it depends on what area you're in. But yeah, I would agree with that. And where does the seed round fit in with all this?

Matan Hazanov:
So I think there's a lot of overlap between seed investors and angel investors. The only difference I think between them is seed investors are usually managing somebody else's money. So institutional investors like venture capital groups, like us. Whereas angel investors are typically investing their own money. They don't have a mandate, it's just kind of whatever they like. I'd say that's the main difference. Probably seed investors can deploy more capital in a deal, but I'd say that's the main difference. They really work in the same stage.

Startup Coach:
Okay, and then when does series A come into play?

Matan Hazanov:
Yeah, series A's... There's a difference here between the US and Canada because I think in the US you can just multiply everything by two or three and that's probably the trend. But series A is when you've already shown that you can scale your sales process, that you've created the engine and you've proved out that the engine works. And usually that means you have a couple million dollars in revenue or a run rate of a couple million dollars. And it also depends on what industry you're in. Series A for a healthcare startup will be different than series A for a software startup. But generally you've shown that you can scale sales and you're looking to expand on that, maybe build out a new product or expand geographies, open up a new office. That's what I would say is where a series A starts. Whereas seed is, you've shown the economics work, you've shown product market fit and you're looking for that money to scale the sales process.

Startup Coach:
Would you say seed or series A is where you're dealing with multiple investors the most?

Matan Hazanov:

Yeah, I'd say that's about right. Seed stage you probably have one or two and series A you probably have more.

Startup Coach:
And where would we say Uber is now? Series Z?

Matan Hazanov:
Yeah. Uber's done being a startup I think. I think they don't get to claim that categorization anymore.
Startup Coach:
Yeah, but they are always looking for funding. But that's a different issue. So speaking of looking for funding, do you have some tips for founders seeking funding?

Matan Hazanov:
Yeah, I would say network. That's the first thing. You should always be networking. If you're an entrepreneur, doesn't matter how successful your business is, you're a salesperson, you're always out there developing those relationships. Networking with people like us, financers and venture capital groups. You should have a data room prepared. If you want to raise money and do it as efficiently as possible and get prepared before you start the process.

Startup Coach:
So let's talk about that just briefly. A data room has come up several times in the last month, talking to different people. Can you explain to startups what a data room is?

Matan Hazanov:
Yeah, so investors, before they take a business seriously, they'd ask access for your data room, which includes all your corporate docs. That can come later, but it includes your business plan if you have it for some reason, your financial model. Basically all the information about your business, like customer contracts, all the sales data. It would be a detailed look at the business itself. So it can include everything from business, employee contracts, things like that, just where the investors can make the determination if this is the right investment opportunity for them.

Startup Coach:
Yeah, we have a general list of what types of documents investors are looking for. Do you have a third tip for people looking for funding?

Matan Hazanov:
Yeah, sure. Work on your pitch, and that includes the pitch deck. I can't stress enough how important this is. You can have such an amazing business and talented entrepreneur, but they just can't get their story across, and sometimes that's difficult. You want to condense a story about your life and your business in 30 seconds or a minute or two minutes. And you have to do that. That's the goal. You have to capture someone's attention very quickly and be able to present a coherent narrative about why this is going to be a very successful business and why you're justified in asking for 10 times, 20 times the revenue multiple, something crazy like that. Where in any other industry or any other situation, it's just ridiculous. So you have to sell that. And if you don't do that very well, investors see so many presentations, so many pitches that they'll just turn off.

Startup Coach:
I agree. I get bored so quickly when people are pitching, for example, a blockchain startup and the first minute and a half is explaining what blockchain is. We know already. Can we move on?

Matan Hazanov:
Yeah, don't do that.

Startup Coach:
Because I'm already asleep and I've lost, I don't care. And I know that sounds bad, but I've judged over a hundred pitch competitions, nevermind from an investment point of view. So you really have to entertain us. And I also teach that data has very little convincing power. People make decisions based on emotion. So you've got to bring that when you're pitching and get that emotion out of the investor and out of your crowd.

Matan Hazanov:
Right. And an entrepreneur should understand what stage they're at with the investor. Entrepreneurs should understand that the investors are typically involved in many industries. They're not going to be an expert in your industry in most cases. So you have to take that into account when you're pitching to them. Sometimes entrepreneurs assume that whoever they're speaking to understands as much as them about their business or industry. It's a honest mistake, but sometimes you have to talk to them like they're five-year-olds and just explain that what is going on in your industry. And you have to find a way to do that very quickly and in a very compelling narrative. And sometimes you need a coach for that.

Startup Coach:
Absolutely. Absolutely. And it's funny, I'm a pitching coach with my pitch partner Will Greenblatt from Outloud Speakers school. We teach a course called Million Dollar Pitching and we've did pitch prep for Fundica, FFCON, a bunch of competitions here, and really we talk about the mind of investor and all that kind of stuff. And I talk about content in the mind of investor and how to get your message across and Will talks about delivery and passion and making sure you're actually emotionally under control and you're physically delivering. Where he does the acting and presentation skills and I focus on the delivery. And it's so important to get both of those right because if you're stale on emotional monotone, people are asleep. And if you're way over the top, people have stopped listening to your content. If you don't like what I teach, there's so many pitching coaches in the city, Kevin, the story architect, you've got to get out and practice pitching. Come to our startup drinks, open pitch, open bar and practice. Go to all the pitching events, practice, practice, practice, get it right.

Matan Hazanov:
Yeah. This is curious to know from your experience, what would be one or two things you keep seeing that entrepreneurs are not doing well in pitches?

Startup Coach:
They don't focus on the emotion and show the problem. They talk about the market, they talk about this, they talk about that, but they don't actually place the audience or the investor in that moment where they have the problem. So it's really connecting the dots of putting them in the mind of the user, where they're experiencing the problem that the entrepreneur is solving and then showing them the path. And a lot of times you're just talking about these complicated, too far down in the weeds. Look at my software, it does all these cool technical things. I don't really care. Who are you selling to? Who pays you for what and why do I care? That you can flip this bit or that bit, it doesn't matter right now. I want to know can you attract an audience? Are you going to be able to track the best talent?

Startup Coach:
Because if you can't tell me the right story then you're not going to be able to tell other people the right story. So that's one of the big things I see. And the other thing is not knowing your audience, not really understanding what the investor on the other side of the table is looking for. For example, we'll be done in just two minutes. For example, if you're pitching for a pitch competition, understanding the rubric and what those judges are looking for. If you're pitching to investor, understanding what markets they invest in and what opportunities are invested in, what conflicts they may have and how they help entrepreneurs. Understanding the mind of entrepreneurs. If they're looking for a 10 times investment, how are you going to get them there and where are there potential exit opportunities? Forgetting all that, you leave the investor missing a whole bunch of stuff. So those are the types of things I've seen.

Matan Hazanov:
Right. Yeah.

Startup Coach:
So unfortunately we're out of time today. I thank you for taking the time to come out. If people want to find out more, where would they contact you?

Matan Hazanov:
Go to our website, verstraventures.com or just look me up on LinkedIn.

Startup Coach:
Thank you for being part of Startup Talk today.

Matan Hazanov:
Thank you, Craig. I really appreciate it.


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