Keep it simple, because VCs are stupid

investor like understanding the amount of value released and the value that can be captured by the company.

Nevertheless, it's amazing to me how often entrepreneurs leave out these basic elements.

When talking with an investor, an entrepreneur needs to explain fairly quickly and directly, how and why he or she is going to mint a ton of money. While an investor does care about changing the world, the entrepreneur's pitch still needs to connect the dots and explain why and how this venture will make money. There, I said it: Moe-ney, Moe-ney, Moe-ney, Moe-ney! Moe-ney!

Of course, there are exceptions. Some VCs may indeed prefer a more complicated story and might actually be OK with a lack of clarity in explanations about the business model, or the market opportunity or the value proposition.

Now, let's say it's your startup, and a VC funds you and your complicated story. The investors were smart, and did their homework, and figured out what you were trying to say.

Getting the money from them was actually the easy part. Now, you have to go sell customers a complicated story. You have to recruit managers with a complicated story. You have to convince alliance partners to partner with you with a complicated story. Or, God forbid, you have to raise another round of capital with a complex story.

Then -- if you get that far -- you want to sell your company. You are going to try to go public with a complex story? Convince a huge corporation, a management team of up to a dozen people, a board of maybe another dozen people with diverse backgrounds, to buy a complex story? That's going to be a tough sell. The bottom line is that complexity is a kind of tax on entrepreneurial effort, making it far harder for early-stage companies to do just about anything.

And that's probably the most important reason to keep your "investor" pitch simple. Keeping it simple is the hallmark of entrepreneurial success.

Related news, commentary, and predictions:

• Prediction: Google acquires Plaxo
• Prediction: The USF VC Confidence Index will rise to 3.70 or greater in Q1 2008
• Mark Cannice: The impact of Bear Stearns' collapse on entrepreneurs
• Matt Marshall: Even as Bebo big sale happens, lofty valuations will elude other start-ups
• News: Dow Jones: Web 2.0 investments peaking?
• Mark Henricks: Reality check: Are business plans necessary?
• Peter Rip: Death Valley: When Ventures Fail

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