Having been a part of, easily, over 100 venture pitches, it’s hard not to put myself in the shoes of the venture capitalist; listening to entrepreneurs talk about their ventures as though I intend to invest more than I could possibly manage.
The marketer in me, having listened to far more pitches than I’ve given, can’t help but pattern match; taking data in in order to optimize the performance of that with which I’m working.
And thus, having socialized this idea countless times, it seemed clear that it was time to put pen to paper and share with you what comes of a marketer listening to pitches, and an investor giving them: how to give the perfect fund raising pitch.
Who, What, When, Where, Why, and How
Simple, no? Hardly. I’m astounded by how few entrepreneurs realize that the story about your business has to include those 6, seemingly simple chapters. How often have you sat down over coffee with an entrepreneur, excited in what they’re doing, and willing to help, only to be disappointed as they leap right into what they’re doing and how; all too often leaving it right at that. The willingness of investors, advisors, mentors, evangelists, and professionals to work with you depends on their expectations of those 6 things aligning with your story. Consider how you characterize each of those 6 chapters:
Techstars famously reinforces that they only thing that matters, in the consideration of ventures for their accelerator, is the team: Who’s involved. And yet, most venture pitches stick the team near the end of the pitch…. “Oh and by the way, these are my co-founders. Paul was a Sales engineer at Yahoo before working as a fractional CMO for various startups in Silicon Valley.”
Well that’s an exciting way to introduce your team. Here’s where they worked and the title they had.
Oh and here’s a picture of him.
If the team is so critical, are you giving us their resume or are you explaining to us WHY these individuals are worth investment? “Paul helped launch a successful local search technology and was featured in the book Online Marketing Heroes as a result of his work with Yahoo, and HP where he developed many of their search programs. In the process he was involved in securing over $50M in venture capital; a result of his track record in growth and ensuring that the ventures with which he is engaged secure market share, and not just a few customers.”
How do you introduce your team? And how important are they to your success?
If this isn’t self-evident, you should go back to a day job. The simplest way to characterize what you are doing is to explain it to your grandmother. AngelList encourages the Like X for Y model and that can work but it presumes that people know X and Y. If you’re like WhatsApp for Cars, and your audiences doesn’t know what that means, you’ve lost them.
Repeat after me: No idea is a new idea. If your explanation is bogged down in details because you can’t simplify the story, you haven’t done your homework on the market (and aren’t worth an investment). There are ventures in progress, ventures that have been tried, ventures from which you can learn. Abandon your concern about ideas being stolen and your need for NDAs; figure out what needs to be said to get to the point and keep it simple. We’re creating the technology that makes it possible for cars to communicate with and update one another in real time, at no cost.
Why on earth would you create such a technology? We’ll get to that in a second, this is the what.
Well, now, obviously. No. Why now? Tell me about the market dynamics that make the investment, now, ideal. Why hasn’t this been successful before? What’s evolving today that gives you a competitive advantage? What’s coming that will result in your having a first mover advantage?
It’s said that timing is everything but entrepreneurs invariably fail to communicate how timing, when, factors into what they’re doing.
Let’s stick with WhatsApp for Cars for a second, and though likely a terrible idea, how does when apply?
With the standard adoption of bluetooth in vehicles, on board computers tied to cameras and sensors, and apps such as DASH putting all of that data in your pocket, only now can cars start to communicate with one another. And when iBeacons start showing up in cars, automatically checking people in to their vehicle when they sit down to drive, we’re ahead of the market that will inevitably tie Twitter to Tesla.
Those of you that have read here know that I’m a passionate advocate of culture and industry. To wit, consider how the philosophies of the people around whom you live and work, define the culture in which you engage. In turn, that culture creates communities. Communities create businesses. Businesses, with shared philosophies, foster industries and industries blend to drive economies. Thus the economy in which you work, wherein you are raising capital and building your business, is the result of the shared philosophies and culture there. Begging the question, are you in the right place? Do the philosophies there align with your own, and that of your business? Prove it. Explain it.
Should our dream of enabling cars to chat be built in Detroit, Silicon Valley, or Austin? Should it be built for luxury brand vehicles alone or for those purchased by tech adopters first? Are we going to develop a proprietary platform or open source something with a focus on Android?
Where is of such paramount importance that whether or not you raise capital often simply has everything to do with the philosophies of the investors with whom you’re speaking.
While I don’t agree with the sentiment, as it overlooks what’s really going on, it’s often complained that Austin entrepreneurs get turned away by Silicon Valley investors, and that Silicon Valley-like ideas could never get funded in Texas. True? Not really, but the perception exists because more often than not, the underlying philosophies are misaligned. Texas has one set of strengths, beliefs, industries, and resources while N. California has another. Be sure you are speaking to the expectations of the community in which you are having a discussion. Your success has just as much to do with where, both physically and in terms of the market, as does an actor trying to break into film from Des Moines.
The most enjoyable and frustrating exercise you’ll experience. The most important. And all too often, the most overlooked. There are 3 directions your why is going to:
- Because we need capital for the following reasons
- Because we’ll achieve the return you’re seeking
- Because this is going to happen and we’re the people that will make it so
Challenging is that there is no right answer and yet, the way you explain why says everything about your ambition and motivation. You make or break a conversation with investors at the why. Why?
Unless your answer aligns with the expectations of the investor, you’re done. This is the subtle difference that’s hard to appreciate in the philosophies and cultures that drive different startup and investor communities; it’s not that investors are looking for lean startups, unicorns, nor customers, but that the investor who is comfortable with investments that have clear return, won’t invest in the entrepreneur who doesn’t care what it is.
A simple way to understand the nuances of why might be to look at the stages of investment and appreciate that the objectives of each stage often align with a type of investor. Banks and revenue based financing sources are seeking a clear and measurable return. Angel investors (true angel investors), should be comfortable with the entrepreneur who is changing the world, as they themselves have been in their shoes and aspire to continue fostering innovation. Venture Capital typically aligns with clear needs, investments, and while not guaranteed returns, clear, quantifiable milestones and progress.
Why are we creating WhatsApp for Cars? Hell, I have no idea, it’s not a very good idea is it? Perhaps:
When cars no longer need a driver at the wheel, they’ll need human-like AI chatting between them to keep them apprised of traffic, construction, and accidents in a way that the passengers can engage – that they can chat too.
(hey… that’s not bad. If you agree, I might have an investor – if you don’t; my pitch is done and nothing else matters does it? Until the why, WhatsApp for cars didn’t really seem like a good idea.)
We’re building a native iPhone app with which users log in via Facebook to use Facebook Messenger based on location.
|Who doesn’t want to invest in the next social mobile local startup!?
Seriously, while you do have to explain how you are going to build your product or service, it’s important to appreciate that where most pitches fail is that they only explain how it works, not how they are going to get to market.
No Marketing, No Money
At the heart of the philosophies of your audience, is that some communities (some investors) consider marketing an investment, while others consider it a cost. Let me be direct in pointing out that you aren’t going to raise capital without marketing. That’s not to say you need to hire a CMO and I’m not pitching you to engage with me, but marketing is NOT advertising and customer adoption. Consider it a cost, with only a measurable return, if you must, but marketing is the practice of arriving at the answer to these very questions: How are we building this (what do potential customers want)? How are we going to get to market? How do we know it’s working? Sophisticated investors expect an investment in marketing so that they aren’t spending money just so you can get to these answers.
If you’re how concludes simply with a line in your financial model for a marketing budget, and an affirmation that you can acquire customers through SEO and social marketing, go home; you don’t deserve any money. What is the market? What are the trends therein? How are you going to be relevant? With whom are you trying to partner? Why should the media and public care? Essentially, HOW are you going to market?
Meeting the Expectations of your Audience
Of paramount importance is knowing your audience. In the dozens of successful pitches that I’ve been involved with, the all important deck is nothing more than reference material. You need to be so intimate with these chapters, sleeping with all 6 of them, that you can speak to your venture in such a way that appeals to the audience in front of you. You lead with what matters to them and answer their questions with the answer they are seeking.
There is no book of right or wrong answers nor approaches. God forbid, for example, you lead your story by saying you’re a lean startup (I can’t count how many entrepreneurs start with that when I sit down with them). So what? No invests in your approach; there is no methodology that works. If there was, those that knew it would keep it to themselves long enough to be billionaires and take over the world… hmmm… see if you can book a meeting with Gates, Page & Brin, or Zuckerberg.
It’s not that easy.
Is your approach relevant? Does How matter? Is Lean Startup sound? Yes, of course. But you really have to understand what Lean, or whatever your approach, is encouraging and what it means for your business.
Grace Ng, co-founder of Javelin.com, recently explored the 5 pitfalls of Lean in such a way that I was inspired to finally write this piece about funding. Why? She’s in the business of implementing Lean and thus appreciates what’s really at the heart of how: why. She affirms that far to many Lean practitioners start with the wrong hypothesis, that they’re testing the wrong things for the very reason that they fail to understand how to properly ask WHY.
Because…shoppers aren’t buying enough products.
“This is another common way of forming a hypothesis,” posits Ng. “But, this is the business perspective problem hypothesis. Startup founders see this as a huge problem they need to solve for, but it’s a business problem, not the customer’s problem. Ask why again.”
Because customers don’t think the product recommendations are authentic.
If that first hypothesis doesn’t sound like 99% of entrepreneur’s pitches, I don’t know what does. Okay… so how much money do you need to sell more products and start making money? Have you ever been encouraged by investors, after you pitch, to go get more customers? Ask yourself why. The first appeals to a very specific type of investor, while the second reaches another. Your answer, your hypothesis, your why, has everything to do with whether or not you raise money.
Successful startups are always driven by right team (WHO), at the right time (WHEN), in the right place (WHERE), with a focus on innovation and marketing (WHAT & HOW). Period. If you’re missing a component of that, you’re very very likely to fail. (Notice, I didn’t say that it has to do with your strategy, your business plan or model) Without the who, when, where, what, and how, you will likely fail, but without the WHY, you will.
Lead with What Matters. Why?
That’s the very question, erm… answer. does the what matter or the why?
Perhaps by now you’ve grasped where I sit as an advisor, and the philosophy from which I consider investment. If your why isn’t consistent with my expectations, I wish you good luck; the rest is just a matter of practice. I believe that the entrepreneur who’s why is consistent with my own, can’t fail; I engage with entrepreneurs for whom why is everything: to change the world. But let me reiterate, that doesn’t mean why is what every investor understands, nor is my expectation for why consistent with others’.
“Do you know your Why? The purpose, cause, or belief that inspires you to do what you do.”
|Those are the words of Simon Sinek, assuredly someone who can explain the importance of why better than anyone.
The author of Start With Why puts it brilliantly, “Working hard for something we don’t care about is called stress. Working hard for something we love is called passion.”
With whom would you invest? The passionate entrepreneur who will find success? Or the hard working entrepreneur trying to sell a widget into a market? What happens when the one without passion meets failure?
What is less important than why and why is more important than how. Frankly when matters more than how and I might even argue that where trumps how.
The Perfect Startup Pitch: Why, Who, When, Where, What, and then How
Having read all that, here’s the punch line. I suspect, 90% of those reading this are rethinking their pitch; almost everyone I know pitches: What, How, and Who with a smattering of When and Where.
No. Start with Why:
- Why are you committed? Why are you doing this? Why should people invest? Why will customers and potential partners care? Why will you win (or, not fail)?
- Who are you and why are you right for this? Who is your team, why, and why do they agree?
- When was this not possible before now? When will the market embrace what you’re doing? When will we hit milestones and when is it considered successful?
- Where is this right? Not just physical location, which should touch on the resources, industry, experience, and media sophistication available therein, but in which customer market? On which platforms? With which integrations? Don’t lose the deal at this stage because of the market, make sure you know how you’re right.
- What is it? Now punch them in the gut. You’ve already won or lost the investment – we are the people and this is why you are investing in this thing. Your audience already agrees or disagrees with you so your what is concise and intuitive enough for your grandmother to understand.
- How we’re building this. How we’re going to market. How we’re partnering with you, our investors. How we can’t lose.
If I can help, let me know.
I feel that as cliche as it might sound about beating down the “Why” concept, we must. As much as we want to evolve the entrepreneurial community to think about impact startups, the investor community in general has even more work to do if this is going to be successful.
I would like to see a study with a cross section of all the investment that goes into startups. From there divide it up by region, by industry, and by track record. What are the trends. From there I want to see where is that “old money” coming from. Who administers it? Why? Who are they beholden to. See, once we understand who holds the true purse strings and we can educate them in a way that appeases their risk averseness and fear then more cash will flow out allowing there to be a new test bed where we can learn how make impact investing more efficient and successful. Until then there will be only a handful of investors, and angels who might support an entrepreneur trying to do good along their path. We are at a cross-roads. We must change the way we do, look, and treat business.
The WHY doesn’t have to be just “mushy” “I want to save the Panda’s”. No, you can have that but also have the impeding and urgent facts. We have to become more intelligent in our path, without creating an “artificial bubble”. We can remember those days when the dot-com bubble burst. Did you didn’t hear people complaining about all the dumb cash flying around? No, because it was cool, and if your weren’t spending it, you were un-American, and didn’t want to get rich. It wasn’t so funny when it all came crashing down. We don’t have to do this, we can create steady and even “slow-growth” with companies who can be here for the next 20-50 years. I know its hard to imagine. We suffer from “JG Wentworth’itis” (yes I just coined that) [Its my money and I want it now].
I am all for big returns for investors, but we have to be clairvoyant and see how to we build for the future. “Oh, Brother, you don’t understand the market, the market wont tolerate nothing more than a 7-10 year max return with a 10x multiplier” “We need 1bn dollar valuations” “Investors must vest, thats the way the system was set up.” Well then we need to address that system. We American’s created, we can help address it again. The SBA program was successful because it was backed by the government and it has done wonders for businesses that don’t fit that high risk profile. It’s given them that leeway to grow. Why can we create something similar to that in the middle, within the Angel level that will allow for smarter, long-lasting, businesses to be built? It can happen, we just need a community who holds to those values. We don’t have to change overnight, but we much start changing today, and gradually.
TL;DR “Why” is multi-modal and multi-dimensional and this is good. Investors must be too. Without that we’re not moving forward.
Brilliant idea Ruben re: the investment community. What has been their macro-economic impact? Where? And How? Until they communicate their why, we can’t possible engage with them efficiently.
We should clarify too that the why can’t be mushy. Not if you mean it to be effective. We all want to save the Panda’s but that’s not a compelling reason for anyone to do anything with you. That’s the greatest challenge most Social Good ventures have – they express their mission, their passion, as their why; that’s not the same as explaining why they are doing what they are doing, why they’ll be successful, why they are deserving of support.
As for why we can’t create something similar to the SBA for entrepreneurs who endeavor for more than a small business, isn’t that the responsibility of the startup incubator? If there’s a clear need for something like the SBA for startups, perhaps we need to look at their efficacy.
Great article Paul. Being on the flip side of the coin as an entrepreneur that has more experience giving pitches than judging them, I think a lot can be gleaned from this topic. It can be easy to overlook the importance of who in a pitch because you spend a majority of your days thinking about your what, how, and where.
Why… Something that is so ingrained in the fabric of the initial idea, yet can produce a unique road block. Because if you cannot effectively communicate your why, you have lost your audience at step two. In order to appropriately address your why, you must understand your audiences’ why.
Why is your audience there? Why are they involved in the startup game? Why do they invest the way they do? I think you nailed it on the head, until both parties understand each other’s why, effective communication is near impossible (or at least extremely difficult). Which raises the question, why do incubators exist? To appropriately analyze if something is reaching its goals, we first must know what its goals are. And perhaps more importantly why those goals have been chosen.
How would entrepreneurs benefit from this new form of the SBA? What other sources of funding will this replace? Why is it necessary, and why isn’t it already in existence?
Brilliantly said Cooper; yes, WHY is typically ingrained in the very spark of an entrepreneur but it seems to be the story, the message, most frequently lost as the business starts to build. We’re drawn to customers and revenue, hell, Angels and the Lean Startup ideals encourage us to be so drawn, and too many focus at the expense of remembering simply why.
Soooo many thoughtful insights in this “Manifesto” to pitching and the comments are compelling – a practical “call to action”.
There are oceans of capital all over the world…
The real problem or “secret” is that there are too many ways to skin the cat to raising capital.
There are simply too many things to think about and do to get capital from the “audience”.
There’s a solution via automating the “Why” in how the why is packaged and sold to the audience.
You see kickstarter, angellist, gust, and other “marketplaces” attempting to do this – but it’s just the beginning.
Raising capital is a pain , but “why” does it have to be?
I represent startups and VC groups on a regular basis so I know both sides of the coin pretty well and strangely enough, a fancy presentation trumps a viable idea more often than not.
I have had “money” clients get pitched by people with horrible ideas and fancy materials, and even though the numbers would never work out these clients still push hard to figure out a way to get the deal done. Alternatively, an idea that obviously could work, tied to a poor presentation, dies at the table nearly 100% of the time.
Most startups seem to be seeking insignificant amounts of money from my VC clients so the loss of that money just isn’t all that meaningful; that is why a high-end pitch is so important when you are only looking to raise a few hundred thousand dollars. If you are asking for millions of dollars then the pitch better be excellent and the numbers reasonably viable.
From a legal perspective, startups should always make sure that their corporate books are in order before making a pitch. If the money group wants to proceed then their lawyers will step in and messy corporate books can kill a deal. These books are simple to create and maintain so anyone looking to pitch their startup should take the time it takes to clean up their corporate records.
Great point about the books Douglas, not only so that records are straightforward and accessible, but such that the team raising capital can easily understand the implications of various investments. When raising $1M, you’re going to be asked, “What are you going to do if you only get $500k?” Be prepared to answer that!?
[…] investors.” Immediately speaking to the importance of the entrepreneurs “WHY” and “WHO”. The actual perfect pitch leads with two most important but elementary of points: WHY (since we start with that) and WHO […]
[…] and “Who,” which are two of the most vital, yet elementary, of points when attempting the actual perfect pitch. The reason behind this is that people will always start by asking “why” you have your […]
This is an informative article about the pitch.
As far as I’m concerned, pretty much everything that Simon Sinek says is gold.
[…] I have this talk I give startups about how culture, pitch, and messaging align and how not only does a business need to do that work, a city/region should do so, by industry, to really distinguish the economy. Got it recorded once but it looks terrible. Idea is this…Philosophy drives cultureCulture drives values. Values drive vision.Vision drives mission. The extremes (philosophy and mission) are all but concrete. They don’t change. How we work, what we believe in, what we set out to do, etc.Culture and vision are fairly immutable but evolve over time and as the team, stage, etc. evolves.Values actually change frequently. As we tackle different markets, have different products, or need to meet different expectations. These become our Value Propositions but you can see how they’re driven and bookended by a clear Mission and shared Philosophies, and Culture and Vision that align us. How that aligns with messaging, a pitch, communications, etc… Who WhatWhenWhereWhyHowCompanies, industries, cities, and communities that thrive are clear about those. Thing is, we don’t communicate and prioritize them in that order, we so this way..WhyWhoWhenWhereWhat HowAnd when we’re clear about those, they align with the first set of thoughts…Mission: why, who, whenVision: who, when, whereValue Prop: who, when, where, whatCulture: when, where, whatPhilosophy: what and howGood culture starts with shared philosophies and requires an established mission and vision. Developing and retaining that culture requires good communication (and I think Austin is a good example of a city that struggles with all this): why, who, etc.https://seobrien.com/why-where-matters https://seobrien.com/perfect-startup-pitchhttps://seobrien.com/ancient-startup-communities-greece-rome […]
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