Venture Capital & Marketing – A VC’s Perspective on Marketing, SEO, PPC, & Search

Recently I had a chance to pose a series of questions to Greg Gretsch, a partner at Sigma, one of our investors’ venture capital firms.

We recently recieved a second round of venture funding and while I was a member of the WordStream team when Larry got our first round of funding, I’ve never really been actively involved in raising capital. I had a lot of questions around how venture capitalists view marketing programs and the search space, which Greg was nice enough to answer in his post on the marketing portion of your venture pitch.

Greg spent even more time answering some of my follow-up questions via Email, and gave us the green light to post the answers on the blog. Since a lot of the audience here is either working in a marketing department, trying to learn SEO/SEM and grow them as a channel, and/or deep in the search space I thought getting a perspective from VCs on how marketing departments can help their companies secure funding would be useful for our readers.

Question 1: How Do You Position Your Marketing Tactics to Venture Firms?

From Greg’s Post:

“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.”

My Follow-Up Question:

I’m curious about the level of granularity you’d expect here, and to what extent you think those seeking capital should assume their VC audience is Web-savvy? I ask because it strikes me that at various stages of the funding process you’ll be pitching to people with various levels of experience in your industry and with your tactics – maybe it’s more a matter of getting the right meetings with the right people and tailoring your pitch each time?

Greg’s Response:

This is a little bit of making sure you’ve got the right audience.  If the VCs you’re talking to aren’t savvy about this, then you’re probably not talking to the right people.  VCs all come from different operational backgrounds, so you will get varying degrees of engagement on this from different people, but they certainly should understand the basics.

Question 2: What’s the Right Amount of  Marketing Information to Share with a VC Firm?

From Greg’s Post:

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.

My Follow-Up:

I think the question of granularity is an interesting one here as well: should founders fear data overload here? It’s an overly broad question but generally speaking do you think it’s more effective to err on the side of too many KPIs that may be difficult for an investor to decipher or is rolling up the data into a more digestible (and shorter) collection of metrics more likely to effectively tell your story to a potential investor?

Greg’s Response:

Fewer is better.  You want to be able to show a short list, explain why they are the most important things for you to be tracking, explain how you are managing to them, and show how they are improving over time.  That said, you are almost certain to get questions about metrics that go beyond what you’re presenting and if it happens to be something else that you’re tracking, then you’ll gain more credibility.

Question 3: How are SEO and SEM Percieved in the Venture Community?

 From Greg’s Post:

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 pored 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.

My follow-up:

Do you think this holds true for SEM software and service investments as well? Rand Fishkin posted an interesting recap of his funding experience where he states that a number of VCs pointed to some level of skepticism about SEO in general as a reason for not investing. If all things were equal do you think an SEM or an SEO investment would be more interesting long term? Would your concerns about being Google-centric be stronger than the perceived value from the “passive” benefits available from SEO assets?

Greg’s Response:

First, anyone who has pitched venture capitalists has had the experience where one VC thought X was the most important thing in their presentation and another thought the same thing was the least important.  You’re going to get lots of divergent input.  As for me, I am a true believer in the long term value of SEO.  SEM by it’s nature is a short term investment – you get a nice sugar-rush, but you come down off it hard.  Companies need to make sure when they are making those investments they are doing it as efficiently as possible and that they are learning from it.  SEO investments pay dividends long after the investment is made and, although you can never rest on your laurels, they create more sustainable value.  A company just has to show up, whether through SEM or SEO, when their prospective customers are searching out information on solutions like what they offer.  

Many thanks to Greg for his participation!