Rebecca's Blog
Why Engineers Make the Best Marketers

Engineers make the best marketers because, contrary to conventional wisdom, marketing is not a “soft science.” As a VC, I’ve done due diligence on hundreds of startups and am most impressed with those that run their marketing departments like engineering shops.

Taking an engineering approach to marketing simply means:

  • Test everything
  • Make decisions based on numbers
  • Abide by the rule that the customer is always right

The same tenets I learned in the offline world with Proctor & Gamble and later in the hyperactive online world with NextCard (the third-largest online direct marketer at the time behind Yahoo and Microsoft), still apply today. Whether promoting paper towels, online credit cards or a hot new Web-based service, infusing marketing with analytical discipline will set your startup apart.

Let me give you an example: I sometimes hear marketing people say they chose one direct marketing campaign over another based on what they thought was better design. Decisions should be based on tests, not educated guesses because we usually guess wrong. While at NextCard, the largest issuer of online credit cards at the time, we created a somewhat cheesy ad very early on with a picture of a thermometer and the tag, “How low can you go?” We always thought we would replace it with something more sophisticated. But time after time, it was the ad that tested the best. So we kept it in our rotation of ads. That ad converted more customers than any other. And the customer is always right.

The best marketing people I’ve come across at startups also share a similar language with engineers. They talk about raw data, hard numbers and whether test results are “directionally” or “significantly” meaningful.  They have formulas and systems in place to give them up-to-the-minute information on what ad unit is converting customers at what rate and at what cost. (BTW, “directionally” meaningful simply means the sample size used was not statistically sufficient but informative, while “significantly” meaningful means the sample size was statistically adequate and dependable.)

When I worked at Proctor & Gamble, the majority of the people in brand marketing held engineering degrees. And it’s for good reason. A superior analytical, data-driven mindset leads to great marketing.         

Transforming Healthcare through IT – VCs and Entrepreneurs Answer the Call

scope med record

The St. Francis Yacht Club in San Francisco has hosted hundreds of events over the years but nothing like the group we have here today. I am looking out at a room of 150 people at an event called “DC to VC: Investing in Healthcare IT Summit.” Policy leaders have flown from Washington, D.C to meet with venture capitalists, corporate executives, startup founders and CEOs to figure out ways to increase the pace and scale of innovation in healthcare IT.

I am a partner at Morgenthaler Ventures and had a hand in making this event happen. Morgenthaler is a firm with over 40 years of history investing in early-stage IT and healthcare companies. We are investors in a range of sectors including consumer Internet companies such as Siri, Evernote, NexTag and Lending Club to healthcare companies such as Ardian, Satiety, IPC - The Hospitalist Company, and Practice Fusion (the world’s largest cloud-based EMR or electronic medical records company).

Why did we put together an event focused on healthcare IT?

When I began my career in venture, I was encouraged to go after big opportunities. I saw no opportunity bigger than healthcare.  The sheer amount of money put towards it, and the inefficiencies within the system, make it ripe for disruption and change.

In terms of the size of opportunity, 17.6 percent of the US GDP is spent on healthcare ($2 trillion a year), and around $340 billion is spent on administrative costs alone.  And at the same time, while we spend more on healthcare per person than any other country (nearly 3X the average industrialized nation), we rank near the bottom on life expectancy and infant mortality among wealthy nations.

The opportunities and potential for new companies to positively impact not only the cost, but society in general, are immense:

For example, EMRs companies can reduce cost and improve results. 195K deaths per year are attributable to preventable hospital medical errors.  Only 1.5% of these hospitals have integrated IT systems.   Only 6.3% of physicians have fully-functional EMR systems in use.   Imagine the errors and inefficiencies if banking systems today were run with pen and paper vs. integrated IT systems.

The impetus for this event began almost a year ago on a call with Wil Yu, Special Assistant, Innovations and Research, at the Office of the National Coordinator for Health IT (or ONC for short).  Wil and I wanted to increase investor interest and activity in healthcare IT by better connecting the policy makers with Silicon Valley investors.

Thus, we set out on a small project with the goal of bringing together about 30 people.

Interest built quickly when we attracted top government policy makers such as Aneesh Chopra, the nation’s first federal Chief Technology Officer; Todd Park, the US Department of Health and Human Services’ CTO and co-founder of athenahealth; and Melinda Buntin, the Director of the Office of Economic Analysis and Modeling at the ONC. With the help of co-organizers, Venrock and SVB, we ended up with more than 170 RSVPs and a waiting list for a venue that could only hold 150 people.

Why the enthusiasm?

VCs and entrepreneurs are answering the call to improve our healthcare system and make good money at the same time. There are many segments within healthcare IT to explore – from business-to-business solutions in data management, analytics, payment and billing to consumer-driven services specializing in the “quantified self” and personalized health.  And, there are varied  business models to consider ranging from traditional SaaS-based structures to creative “Freemium” models offering free services and making money by selling aggregate data (like Practice Fusion).

Importantly, we also have a new vanguard of government leaders who are putting their money where their mouth is: $20 billion to be exact in stimulus programs such as the HITECH Initiative.

The time is now. I believe all the pieces are in place for the healthcare sector to undergo the kind of transformation that financial services went through 15 years ago. Banks, like medical offices and hospitals today, did not have the connectivity to communicate internally or with their customers. They did not have a standard format for exchanging data. Today, some medical offices still organize patient records and prescriptions on paper. That will change. With cloud computing, smartphones, Web technologies that enable sharing on a massive scale, and creative government programs like ‘Open Data’, the healthcare sector will be revamped over the next few years.

When Not to Take VC Money, as Told by a VC

This opinion piece first appeared on The on July 22, 2010.

dollar puzzle

I’m a VC and love what I do. I have the amazing job of working with entrepreneurs everyday to help them grow their businesses. So it might seem odd that I’m giving you reasons for not taking venture money. To be clear, I’m not saying you should never seek venture capital. Some of the most valuable companies on the planet today were funded by VCs. But taking money from a venture firm means that you are signed up for a specific growth path, and your goals and the goals of a VC must be aligned. Some startups are either too early or were never meant to take venture capital money.

In my opinion, it makes sense to bootstrap your company when you’re in the concept testing stage. If you can’t sell your product or service to prospects, then you probably don’t have a company. Don’t try to raise venture capital so you can test your idea. First, many VCs, like me, prefer to fund companies with at least some traction and momentum. And, you don’t want to sell equity in your company before you have a proven business model – you won’t have as much leverage with the VCs and will likely need to give a lot away.  Wait, and go for venture dollars when you have a proven concept.

Angels and super angels have grown a great deal in number and stature in the last two years, and I think serve an important role in the company-creation continuum. Companies in the early stage of development should seek angels because the structure of their terms is suited to this stage. They are typically simple convertible note documents. 

Be wary of venture firms with angel funds. Even if they are called something else, all the VCs know who they are. The issue is that if the venture firm does not fund you in your Series A, you can be left an orphan. If the venture firm that seeded you won’t fund you, why would someone else?  It is better to raise an angel round from angels. 

Now let’s say you’ve tested your concept and built a nice business that is getting traction and has revenue. Ask yourself what you want out of life. There are a lot of businesses out there with $5 to $30M in revenues that are profitable, but they are not generating “venture returns.”  However, they are very nice businesses to own and run.  Will netting $100K a month and running a small business make you happy? Then stay put. But if you want to swing for the fences and become a global leader in your space, you should consider bringing in trusted VCs with the network and the capital to help you. Our firm invested in Apple in the late 1970s when they decided to swing for the fences. Once you take venture money, you are signed up for a growth path that leads to a liquidity event (sale or IPO) in the next 5 to 7 years.

As an aside, I also have some definite opinions on how to handle incorporating your company in the early days, but that might be best left for another post. Word to the wise: There are very few reasons to be incorporated as a Delaware C Corp right out of the gate, except to make your lawyers richer. (Did I say that?)

What’s in Your VC Pitch? 11 Slides to Help You Secure Funding.

This contributed article first appeared in CNet on April 20, 2010.


Let’s say you have an ingenious new business idea and you’re ready to seek venture capital. Knowing what we VCs look for in a pitch could mean the difference between a term sheet and a rejection. I’ve seen hundreds of pitches.  And I can tell you that in today’s environment, the best PowerPoint slide decks – whether delivered by first-time entrepreneurs or veteran company builders – share similar structure, content and zing.

First, what’s changed?  I recently hosted a panel on “The Secrets of Pitching to VCs” at UC Berkeley, and I realized how much the environment has changed over the past 2 years.  Good ideas on paper are no longer being funded. Today, entrepreneurs need to show real traction even for angel rounds.

That said, the funding environment is improving.  The number of venture deals per quarter has increased significantly since the low point of Q1 2009.   The pace of investment by angel investors is the early indicator.  Angels are very active in today’s market. One angel I spoke to in early March had already completed 18 deals this year.  Angel rounds themselves are getting larger. I’ve spoken to three angels in the last month who are planning to raise institutional money and funds of up to $50M.  

You’ve heard this before and I’ll say it again: It’s a great time to start a company. More than half the 2009 Fortune 500 list of largest U.S. companies started during a recession or bear stock market, according to a study by the Kauffman Foundation.  More relevant to our discussion, some of the most successful VC-backed companies were started in a stressed economy. Count Apple, Microsoft, Dell and Intuit among them.

So for those who hear the siren call, the question is, “How do I pitch VCs?”   It isn’t rocket science, but it can often go wrong for those who aren’t prepared.   Here’s what I shared at the event for entrepreneurs at UC Berkeley:

Tip #1: Talk to the Right Person.

Figure out if you should reach out to an angel or a VC.  Angels are appropriate for companies raising anywhere from $25K up to $1.5M.  You should target a VC if you’re raising more money than that (unless you know a lot of angels).  Keep in mind that all angels and VCs are not created equal.  You should find out:  1) Is the firm currently investing and do they have funds? 2) Do they invest in your space? And, if so 3) Which partner at the firm is the best fit for you?  Targeting a clean tech partner with a gaming startup will not get you very far.

Tip #2: Get or Make an Introduction

How do you get a meeting once you’ve identified the right firm and partner?  The best, perhaps the only, way to do this is to get an introduction.  Cold calling or blindly sending in an email will likely get you nowhere.  An introduction can come from someone at one of their portfolio companies, an attorney, a professor or anyone who the VC knows.  If this is not possible, then go to where the VCs go. Find a conference that they will be at and introduce yourself.  If you are going to start a company, selling yourself is something you’ll have to get used to.

Tip #3: Hone your Pitch

Many entrepreneurs have a hard time putting together a compelling pitch.  My advice is to keep it simple.  No matter what the sector, all VCs look for the same things:  1) a disruptive technology or business model, 2) a team that can execute, 3) a billion-dollar addressable market (or one that will be created), 4) timing that is right for the market and 5) some level of traction.  

The Deck – What VCs Want to See

There are really just ten to fifteen slides you need in your PowerPoint deck.  That’s it.  You can make generous use of an appendix, and this is where you should put any specific answers to questions that you anticipate.  

Slide 1:  Tell me what you do. What customer pain do you address?  Include a short tagline here so I understand immediately.  For example, “Lending Club connects borrowers to lenders and thereby disintermediates banks.”   Whatever you do, do not hide the ball and take me through a number of background slides about the market before you tell me what you do.  You’ll lose me on slide 2, and I’ll be annoyed.  Get my attention right off the bat and focus the conversation.   Lead with your best stuff – tell me if you are profitable, have exponential growth, just landed a big deal tell me now.

Slide 2:  Who is on your team? How are they relevant? Who is missing?  Only discuss the relevant experience of the team – do not do a full biography.   I should be able to see what each team member will uniquely contribute.   Also, proactively point out who you need to hire.  Also, if relevant, discuss important advisors and board members.   One note here – do not have venture capitalists or angels as board members if they have not invested themselves.  This is a red flag. (If you’re that good, they’ll invest.)

Slide 3:  Introduce your product and tell me how it solves a customer pain point.   How does it uniquely solve the problem?  What is your competitive advantage?  What are users saying about it?  A demo here is always nice. 

Slide 4:  How big is your market, and why is the market ready now? Identify the segment of the market that you believe you can capture.   Importantly, why is the timing now?  What is changing in the market such that the timing is right for your company? Remember – being too early is no different from being wrong.  Thus, you need to convince me that the timing is indeed now.  For example, Autonet had to convince us that the timing for the car to be connected to the Internet was 2012.  Also, if it is a new market, speak to how it is evolving and address the need for your product.

Slide 5:  What is your go-to-market strategy, and how are you going to acquire customers?  How are you going to enter the market, and what are all the trigger points for expansion?  What success criteria will you need to see before moving to the next phase? What is your customer acquisition cost, and is there any way to acquire customers virally? 

Slide 6:  Where are you now – how much traction do you currently have? Show any growth and revenue you have.  If you have users who signed up and continue to use your product, show a vintage analysis so we understand how sticky the product is. 

Slide 7:  How do you get big?  What is your vision?  There are a lot of businesses out there that can run profitably and spin off a couple of million dollars a year.   However, in order to be venture investable, we must see a way that all the stars can align and you can be a billion-dollar opportunity.   What assumptions have to be true to make this happen?

Slide 8:  What is your exit strategy?  In the current market, IPOs are highly unlikely.  As a result, we need to know who would buy you, and why they need you.  Are there any applicable market comparables?

Slide 9:  What is the competitive landscape?  No matter what, you have competition.  Never come in and say you don’t.   Be open about who your competitors are, or will be, and of course tell us why you are better.  Remember – if there is no competition, this is likely not an interesting space to be in.

Slide 10:  Tell me about your financials with key assumptions.  For early-stage deals, revenue is a guess.  What VCs primarily look at is how your headcount and expenses ramp because this will tell us your burn-rate and how soon you’ll need more funds.  Ensure that the numbers are believable and line up with company initiatives.  Do not project financials more than three years in the future.

Slide 11:  The Ask.  How much money do you want to raise and where will it take you?  How much have you raised to date?

Appendix:  Here is where you include information to answer questions you may be asked.

Finally, be prepared to go “off-deck”.  If a VC is excited about your company, you will likely not get past slide 2 before they start asking you questions.   You have to be nimble enough to take them to the right place and answer their questions and then move on.   Do not rigidly stick to your presentation and force them to walk through slide by slide.   You may well find yourself skipping the formal presentation all together and entering into a dialog.  This is a good thing.

Of course, what’s in your deck is less important than the passion and conviction that needs to come through during your delivery. Having a tight, professional presentation tuned to how VCs think will allow you to focus on being yourself and impressing us.