After my post on Metrics Based Management, I got a number of specific questions about how to best present marketing in the context of your venture pitch. One of those asking was Tom Demers, Director of Marketing for one of our portfolio companies - Wordstream. Tom had three specific questions:
- What do VCs look for in marketing departments they evaluate for investment
- How can marketers whose companies are looking for funding make their online marketing activities and results more "VC friendly"
- How does the VC community view SEM as a marketing channel - i.e. by and large is a company who has a search-heavy marketing program considered leveraged and savvy or is there still skepticism (or maybe just lack of understanding) amongst the VC community about SEO and PPC
Good questions all, variations of which I have heard many times before. Let me try to address them one at a time.
First, in terms of the actual makeup of the marketing department, there is no one-size-fits-all makeup. We invest in companies that do everything from selling an online service to consumers to selling large industrial solutions to governments or regulated utilities. The marketing needs across that spectrum are very different and, as a result, the makeup of the teams can be very different from company to company. The one thing that seems to be common to all of these companies is the importance of their online presence as the primary point of interface with their customers. And while I can't translate that into a specific set of marketing professionals in any given organization, what I can say is that you'd better be able to explain how you are going to effectively use the web to talk-to and listen-to your customers, prospects, and targets. How you get that across in your venture pitch gets to the heart of the second question that Tom asked.
Second, it is critical that you make your online marketing activities "VC friendly." Why? I address this a little in my post on connecting-the-dots. Investors in general look for patterns, and while an early stage venture capitalist should understand your business better than investors who will come later, they still like to connect a set of dots that are heading up and to the right. Unlike the old world of marketing where you were measured on more "soft" results, this means you need to aggressively measure your online marketing activities from the beginning with hard data. Don't think it's OK to simply add the measurement later. The longer you wait, the longer it will take you to build up the critical time-series data that shows a discernible pattern. Make sure you are tracking as many different elements as possible so you can, prior to pitching to potential investors, start to understand what are the true leading indicators to customer acquisition. And then present your progress on those leading indicators. Generally speaking, the more up and to the right those leading indicators point, the more interesting the opportunity to venture capitalists.
And finally, you bet venture capitalists are skeptical of SEM heavy marketing programs. I personally hate the idea of investing in a company that Google is going to make more money from than I can. That said, SEM has a very important role to play for any serious online marketer. While every situation is different, I like to see the knowledge gained from effective SEM being poured in to SEO investments that the company owns and that don't stop paying dividends when you stop writing the check. I've heard SEO described as free-beer and SEM as crack-cocaine - you want to get as much free beer as you can.