Startup Growth Blog: Trust Starts at 100% and Goes Down

Startup Growth Blog: Trust Starts at 100% and Goes Down

By Elizabeth Yin, former Partner, 500 Startups, and General Partner, Hustle Fund 

Investors (especially those who have been in the game for a little bit) are jaded. Winning over investors is not just about showing traction/progress (although that is a big component to getting investors on board). It’s also about trust. Fundamentally, investors have to trust you in order to invest in you. And, I think most investors will give entrepreneurs the benefit of the doubt…until they cannot.

So, trust in you starts at 100% on first interaction and only goes down from there. Your job is to make sure that you don’t screw that up. But, there are lots of ways to screw it up that you may not even realize that you are doing so:

1) You name-drop and overstate your friendship with a bunch of famous people who don’t know you really well

I cannot tell you how many people tell me they are BFFs with someone important (Person X). If you’ve hung out with someone a few times socially, that does not make you best friends with him/her, and name-dropping here does not help you build rapport.

If you really want to name-drop to build rapport, it’s much more effective to say how a particular person has affected you. e.g. “Person X’s ABC blog has been a great resource for me in my startup journey, and it’s been fun being able to hang out with him once or twice.”

2) You mix up the definition of common software startup KPIs

This is unfortunate. Often, I see entrepreneurs get the definition of common startup KPIs wrong, and it comes back to bite them even if it’s just an innocent mistake. For example, commonly, a lot of entrepreneurs of let’s say marketplace businesses will say they are doing $1m per year in revenue. But, really they mean GMV (in most cases). This is a really important distinction — especially if your business is making money by taking small margins between transactions (such as in a marketplace).

3) You act cagey about information

Early-stage investors understand that there is a lot of work to do in an early-stage startup. And you may not have all the answers (or most of the answers!) But that’s ok.

What looks really bad is when founders try to be evasive about their answers. If you don’t know the answer to something, just own up to it! But then explain your plan to figure out how you will figure it out. At this point, a big reason why people will invest in your company is related to their trust in you and your competency. So how you think about solving problems or getting to answers is actually very telling about a founding team. In some sense, you could say that your ability to answer questions well when you have little-to-no information is actually an opportunity to prove yourself.

But a lot of founders will act cagey and evade questions or beat around the bush when faced with difficult questions. This leads investors to believe that there is something either really wrong with your business or that you, as a founder, are not sharp.

4) You get defensive

I think a lot of founders who get defensive don’t even realize they are doing so. It’s actually really helpful to do mock investor meetings with other people before you start fundraising. (We do this in our program at 500 Startups). Investors can sense defensive founders from a mile away — it’s not just about what you say/don’t say but also about your body language.

You are going to get tough questions. You may even get inappropriate/borderline inappropriate questions. For example, what if an investor says to you, “You know I’ve only invested in founders with CS degrees from MIT / Stanford / Cal, because if things don’t go well, I can always broker an acquihire. Why should I invest in you?” No joke – people ask stuff like this. Investors will ask all kinds of things — if you and your co-founder are married, you will get questions about that. If you didn’t go to a name school, people will ask about that. If you are pregnant, people will ask you about how you will balance your job with your kid. People will ask you about how your race may make it harder for you to fundraise and what you will do about that if you can’t raise.

And some of these questions may be inappropriate so you may not want to take money from those investors. But many other questions will be fair questions but just tough to answer and will take you aback.

Practice mock investor meetings. Ask a friend to ask you the most inappropriate questions possible. Practice taking a deep breath before answering anything. You just cannot get defensive.

5) You don’t/are unable to address discrepancies between your answers

If you have discrepancies in your answers, investors will ask you about them. You definitely need to be able to address this well, otherwise, it will at best confuse an investor and at worst, make him/her think you’re a liar. For example, let’s say you tell me you have thousands of leads for your SaaS product that you cannot convert due to a lack of resources. And then later you tell me that you need money to pour into lead generation. And if I ask you, “Oh, why aren’t you focused on converting those existing leads?”, you need a really crisp answer. Either your existing leads are junk / not qualified, in which case, you should own up to it. Or, you actually have tried to convert your leads into sale but there is something wrong with your conversion/onboarding process. But, whatever it is, something doesn’t add up, and you need to be able to address this.

There are a number of other reasons why trust decreases with more interactions over time. But these are the primary ones I’ve seen in my interactions with founders.

This blog post has minor edits by 500 Startups Vietnam. Read the original article by Elizabeth Yin here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

To learn more about how to effectively manage investor relationships and successfully raise funds, join 500 Startups Vietnam’s Saola accelerator to work alongside experts who have collectively invested in 300+ startups.

San Francisco
814 Mission St., 6th Floor
San Francisco, CA 94103, USA

© 2010-2019 500 Startups

Startup Growth Blog: Raise for Milestones, Not Runway

Startup Growth Blog: Raise for Milestones, Not Runway

By Tim Chae, General Partner, 500 Startups

The most common thing founders are taught about fundraising is that they should raise for 18-24 months of runway (while “adjusting for increase in headcount, etc.”). That’s the advice you should take if you don’t want to fail. If you want to win, however, you should start thinking a bit differently. You’ll also notice that the best companies don’t tend to raise on a 12 month fundraising schedule but either much earlier like 6 months or much later. That’s because they’re smashing through their milestones ahead of schedule or they just don’t need to raise because their revenue is growing faster than the pace they can hire (yes, this happens).

After all, that is the kind of company you should strive to lead as a founder.

Because the “18-24 months of runway” advice is so ubiquitous amongst founders, a lot of new founders tend to miss the reason WHY that advice exists. The WHY is always more important than the WHAT in the road to success.

When a startup needs financing, it’s because of one of three reasons:

  1. need it to survive;
  2. need it for business growth (just a quick PA: headcount growth is NOT growth. It should be the byproduct of a growing business);
  3. because it’s basically “free”.*

*Most startups at the early stages are raising money for a varying degrees of mixture of (1) and (2). Unless you are Slack or Uber, it’s likely not (3) – even if you think it may be.

When an investor invests into a startup, it’s because of one of three reasons:

  1. their money allows for the startup to get to a size that’s multiples higher than where it is now;
  2. their help allows for the startup to get to a size that’s multiples higher than where it is now;
  3. they believe this company will get to a size that’s multiples higher than where it is now – regardless of their money or help.

The common denominator here is that investors invest because there’s a clear outline to it being a likely profitable investment.

So when a founder is looking to raise on “18-24 months of runway” and they communicate it so with their prospective investor without much substance around the business reasons why, it misses the mark completely between what investors want and what the founder needs.

To an investor, you might as well say, “I want to collect paycheck with your money for the next 2 years. I’m sure the business will be bigger in 2 years than it is now, but not sure…”

Investors are NOT funding a startup for it to survive, but rather for it to thrive. As a founder, stop thinking about how much money you need per month with added staffing and marketing costs and multiplying it by 18-24 to come up with the arbitrary number of your raise. Instead, think about what the next fundable milestone for your startup is and work backwards from there on staffing, marketing costs, etc.. THEN, add that 30-50% buffer. Then the funding narrative becomes, “I can grow so you get what you want, I just need what you can easily give (money or help).”

A fundable milestone is an achievement that is able to show next round investors that you have highly derisked the main risk factors of the previous round, while showing evidence of a high (or even better, higher) remaining upside.

I’d love to stop seeing founders raising arbitrary numbers like $1M and rather having founders say something like, “We’re trying to raise our (Current Round) to be able to raise our (Next Round). Based on (Next Round) comparables, we think we need to get to X KPI and prove out A, B, C to have a compelling reason for (Next Round) investors to become part of our story. We THINK we will likely need (add increase in cost events here – ie. “to hire (#) people to keep our growth,” “added marketing costs,” etc.). All that and using our current and low-end projected growth levels we think we can get there in 6-10 months, then adding (30-50%) buffer, we’d like to raise $XXX.”

The danger of not thinking about the actual reason why you raise a certain amount (usually if it’s just based on an arbitrary runway) is that there is no winning scenario. Likely survival scenario is that you’ll either over raise, give up too much equity, and overspend to accomplish the same milestone you could have hit for less. Likely fail scenario is that because you have more money in the bank than what to spend it on, you end up spending it in all kinds of unnecessary channels and never end up getting to your next milestone (like extra hires here and there, extra promotions here and there, focusing on way long term stuff without executing on what’s needed now, etc.). Yes, you can overfund yourself to your death. Either way, it’s likely a non-winning scenario.

For your next round, start thinking about which milestone you think you need to hit to get an investor excited and work backwards in coming up with the amount and what that represents from a time standpoint. That will help you raise quicker and get to your milestones efficiently while optimizing for equity upside for you and your team.

Read the original article by Tim Chae here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

To learn more about how you can effectively approach investors in your next funding round, join 500 Startups Vietnam’s Saola accelerator to work alongside experts who have collectively invested in 300+ startups.

San Francisco
814 Mission St., 6th Floor
San Francisco, CA 94103, USA

© 2010-2019 500 Startups

Startup Growth Blog: 11 Reasons We Didn’t Invest in Your Company

Startup Growth Blog: 11 Reasons We Didn’t Invest in Your Company

Fundraising for startups is never easy. One of the many difficulties is hearing a lot of no’s from investors. Very often, they don’t even share the reasons why. If you have ever been in such a situation, this blog post by Phil Nadel, co-founder and managing director of Barbara Corcoran Venture Partners, is for you. Read on to learn how VCs make investment decisions so you can better prepare for your next funding round.

Like most VCs, we often review dozens of deals each week. We have developed a funnel that enables us to quickly eliminate those that do not fit our general investment criteria (e.g. industry, stage, model).

The deals that survive this initial culling process are subjected to much greater scrutiny and due diligence. This process includes a thorough review of the deck, financial statements and projections; discussions with the founders, customers, and other investors; and a review of third-party information relevant to the company, its product, and industry. Companies are eliminated from further consideration during various stages of this process and, in the end, we ultimately invest in a small percentage of the deals we review.

When we decide not to invest in a company, we always take the time to explain to the founders the reasons for our decision. The purpose of this article is to provide a review of the 11 most common reasons why we choose not to invest in companies in hopes that some founders will find it helpful in improving their chances of raising capital.

#1 Lack of transparency/candor. If we detect that a founder is not being forthright, we immediately lose interest. Venture investing is based on relationships; being opaque makes for an inauspicious beginning of a relationship.

#2 Nothing proprietary/defensible. If a company doesn’t have something that is proprietary that makes it defensible against potential competitors, then its success will lead to its downfall.

What do I mean by that? Without a moat, the company’s success is easily replicable. The more success it has, the more competitors it will attract. But if it has a secret sauce — which could include technology, processes, knowledge, relationships, etc. — its odds of sustained growth are far greater. And while the first-mover advantage is helpful in the early stages, it usually doesn’t mean much in the long run (e.g. Myspace).

#3 No proven, scalable paid marketing channels. We like to invest in companies where our capital can be used to fuel revenue growth. If a company has not yet identified cost-efficient marketing channels that are scalable, they are more likely to burn through our capital experimenting and testing to find them.

We prefer to invest in companies that have already done at least enough of this initial testing so they can use our investment to scale the channels that are working. And we have a strong preference for founders who intimately understand paid customer acquisition and don’t reply to our questions about growth by saying “We’re hiring a growth hacker.”

#4 Don’t know your Key Performance Indicators (KPIs). We find there is a direct correlation between the depth of a founder’s knowledge of the company’s KPIs and the company’s success.

First, founders must demonstrate they understand which metrics are important to their business. Second, they must demonstrate they are properly measuring and calculating those metrics. Finally, they must know which levers to pull to affect each KPI and which KPIs need to be tweaked for the business to succeed.

#5 Short runway. When we invest in a company, we like to see that it will have at least 12 months of post-close runway. Raising money requires a lot of time and effort and distracts founders from growing the business. We want the company to have adequate resources to enable the team to focus on growth without having to worry about quickly raising another round. Also, the next round becomes much easier to raise if a company has demonstrated 12 months of improving KPIs and growth.

To calculate the post-close runway, founders must know the current cash burn and must have formulated detailed projections of how they will spend the funds they are raising and how much cash they will be burning each month post-close. This calculation can be done assuming: (1) zero revenue, (2) current revenue with zero growth or (3) reasonable revenue growth based on historical trends.

#6 TAM is too small. We often see companies that have innovative, sometimes ingenious, solutions to a problem faced by a relatively small group. For a company to achieve exit velocity, it needs to be addressing a large enough market to make its upside revenue potential meaningful to an acquirer. If a company can’t demonstrate to us that the size of the market that its solutions address is reasonable (for us, that is usually north of a $1 billion-per-year market), we usually pass.

#7 Pre-revenue or pre-ship. We find there is a disproportionate decrease in investment risk relative to the increase in valuation when a company makes its first sale. In other words, the risk decreases more than the valuation increases once a company graduates from pre-revenue to building and shipping a product for which someone is willing to pay. Thus, we think it prudent to invest after a company has made this first sale and has shown some early evidence of product-market fit.

#8 No vision. We like to invest in companies whose founders have a clear vision for how to grow the company to 100x its current size. While getting there will certainly require the company to deviate from this vision, not having a vision makes it infinitely more difficult. A North Star keeps founders on track, even in the craziest storms.

#9 Don’t intimately understand your competition. Companies often tell me “we have no competitors.” I generally find this difficult to believe and push back with “How is your target market currently solving the problem you intend to address? That’s your competition.”

Beyond this rudimentary knowledge, founders should thoroughly understand the solutions being offered by their competitors, which market segments they are addressing, and how they are selling. A company’s potential customers will be comparing the company’s product against other available solutions, and sharp founders will have properly positioned the product for success.

Not being extremely knowledgeable about these other options and differentiating your product accordingly is a recipe for failure.

#10 Lopsided founding team. Products need to be built and products need to be sold. These tasks require vastly different skill sets that are rarely possessed by the same people. We prefer to see a founding team with experience in a variety of disciplines, from engineering and development to sales and marketing.

Having all disciplines baked in from the founding of a company helps ensure that it creates both great products and products that can be sold. Yes, companies can hire talent in areas in which they are deficient, but then that deficient area is not really part of the company’s DNA. Plus, it’s always preferred if the folks managing the hired hands have experience in the relevant area.

#11 No skin in the game. We want to see that founders are 100 percent dedicated to the company before we jump in. At a bare minimum, they need to be working full time on the business. Ideally, they have invested a relatively significant amount of their own money in the company, as well. Paul Graham wrote that once founders take steps such that it becomes “unthinkably humiliating to fail,” they quickly become “committed to fight to the death.” We agree.

This list is not exhaustive, but hopefully, it gives founders a helpful checklist to make sure they are addressing some of the most common reasons why we (and probably other early-stage investors) pass on deals. And, by the way, if you’re doing all of these things right, we’d love to hear from you.

Read the original article by Phil Nadel here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

To build a winning fundraising strategy, join 500 Startups Vietnam’s Saola accelerator where you can work with experts who have collectively invested in 300+ startups. Find out more about the program and apply for the next batch at Saola Accelerator.

San Francisco
814 Mission St., 6th Floor
San Francisco, CA 94103, USA

© 2010-2019 500 Startups

5 tips for making your funding application stand out

5 tips for making your funding application stand out

Written by Emily King

Here at 500, every time a new batch opens up we receive a flood of applications to sift through. As we review them, we often see a lot of the same common mistakes repeated over and over, so we figured it was time to give a quick 101 on how to give your company the best head start when application time rolls around.

 

1. It’s all about the traction.

It’s important for us to understand what stage your company is at—be clear about any traction you may have and put it front and center. This will look different if you are a B2B or a B2C company, so we’ve broken it down below:

  • B2B: Highlight any pilots you have, and include if they are paid or not. Even LOIs are important to mention. If well-known companies are testing out your product, we want to know about it. Although you may not be generating revenue yet, this shows us that you’ve built something people want.
  • B2C: Talk about the velocity of your growth—this can be early stage or late stage. We want to see that you have momentum, so tell us how your user growth has improved since you launched. If you have just started charging for your product or service, talk about engagement or conversions within your customer base.

 

2. Break down your business model

Have you started charging for your product yet? The answer doesn’t have to be yes—but the answer should be honest. We want to know how your team is thinking about monetization. 500’s superpower is growth, so we want to find companies that are ready to scale.

 

3. Tell us your unfair advantage

Ideas change and companies pivot, but it’s the belief in the team that we’re betting on. If there are members of your team that have unique domain expertise, make sure that that’s clearly communicated in your application. We invest in a wide range of diverse and global founders; we’re not looking for big name logos or universities—we’re looking for the reason why your team will win.

 

4. Differentiate your product

As previously mentioned, we evaluate a high volume of companies during each application season. This means the chances of us seeing your competitor is high, so make sure you explain what makes your product unique and address any major competitors in the space. If you don’t think there are competitors in your market, you probably haven’t done enough research, so look again. Find the closest competitors you can and tell us why the route you’re taking to solve your market’s problem is smarter than anyone else’s.

 

5. Don’t forget your pitch deck

One of the biggest mistakes you can make is not including a pitch deck with your application. Think of your pitch deck as a chance to tell your company’s story. It should be clear, concise, and convincing. Talk about the problem you’re solving, and then present your solution and why it’s better than anything else out there. Include any notable metrics you’re tracking and the size of the market you’re looking to tap. And don’t forget to include your business model—how do you plan to make money?

 

NOTE: This article first appeared on 500’s website under the title “5 Tips for Making Your 500 Startups Application Stand Out

Author: Emily King

Emily is on 500’s Portfolio Management team, where she helps manage our community of over 2,000 portfolio companies.

San Francisco
814 Mission St., 6th Floor
San Francisco, CA 94103, USA

© 2010-2019 500 Startups

This pitch deck will rock your 500 Startups application

This pitch deck will rock your 500 Startups application

We’ve talked about how to make your application to 500’s accelerator stand out, and one of the key points we mentioned was ensuring you have a solid pitch deck. But what does a good pitch deck look like? We’ve looked at thousands throughout the years, so we have a few pointers on what makes a good one, and what mistakes to avoid.

We typically only spend a few minutes reviewing each deck, so keep it brief and don’t overload it with excessive text and images. A well-crafted pitch deck doesn’t need more than 10 slides and will have all of the following key elements (get our free template here):

Slide 1: Your Logo & Elevator Pitch

You only have seconds to make a great first impression and introduce your company, so how do you get us (or any VC) excited about what you’re doing?  We recommend using the following format to introduce your company:

A [product type] to help [target customer] with [#1 problem] by [#1 benefit] using our [secret sauce/differentiator].

No expert jargon, no buzzwords—explain it like you would to a 5 year old. It should be simple to communicate, and at the end of those few seconds we should know who your customer is, how you solve their problem, and what makes your product unique.

Slide 2: The Problem

After the introduction, the first thing you should do is talk about the problem you’re solving. Explain it from the point of view of your customer, rather than the global problem. For example, if you sell remote monitoring software to hospitals, instead of saying “40% of patients are not getting the help they need after discharge,” say: “Hospitals are losing $30B by not having the resources to monitor patients remotely.”

Slide 3: Your solution

Now that we know the problem, it’s time to tell us your solution. It’s important to introduce your product at this point, or you risk losing your audience’s attention. Tell us about your product’s key features and list the top benefits to your customer, and explain how you plan to solve the problem you presented in slide #2. This is a great time to show off some screenshots if it applies.

Slide 4: How it Works

Here you can go into more of the nitty gritty about the user experience and how the tech works.  This is a great place to showcase any proprietary or differentiating technology as part of your product. This is also another good opportunity to show off a few screenshots or workflows if they apply.

Slide 5: Traction

The best way to get our attention is to show us user or revenue growth; so if you have it, put it right after your product explanation. Typically, you would only show one metric of growth and put it in a chart. Highlight the current state of this key metric, such as last month’s Monthly Recurring Revenue (MRR – if you have a subscription business), or Gross Merchandise Volume (GMV – if you have an e-commerce or marketplace). Another metric to highlight is your growth rate Month Over Month (MOM). If you’re a B2B company, put a few of your more notable client’s logos next to your graph if you have them.

Image: 500 Batch 23 Demo Day

Slide 6: Business Model

How are you making money? And if you aren’t making money yet, how do you plan to in the future? Use this slide to tell us about your top sources of revenue, and prioritize them by size. Examples of common revenue models are:

  • Direct: e-commerce, subscription, digital goods
  • Indirect: advertising, affiliate, lead generation

Slide 7: Competition

You can’t avoid competition, whether direct or indirect, but you can show us how you’re different from them. The last thing you should do is say you have no competition—there’s always competition, and saying you’re the “first” to do something often shows a lack of knowledge about your space. Be honest, and show us where you excel in areas that they don’t. We like to frame this as:

Unlike [existing alternatives], [your product] [primary differentiator] and [secondary differentiator].

Your product should be the only one to offer this combination; and if you put it in a quadrant, your product should be in the upper right corner while your competitors would be in the other (lesser) quadrants.

Slide 8: The Market Opportunity

We’re looking for markets that are BIG, so there should be either a market size of >$1B or an expansion plan that will get there. Two methods for calculating market size:

  • Top Down: Find research that has been published by a third party.
  • Bottom Up: Calculate users against transaction value and frequency:
    • X customers in your market
    • $Y average transaction size
    • Z number of purchases per year
    • X * $Y * Z = >$1B

Slide 9: Progress to Date

Showing major milestones in your business tells us how much progress you’ve made so far, and where you are in the business. Examples would be when you launched (or when you plan to launch), when you landed your first customer, and if you gained any sort of recognition or award. This is also where you can show when you received any previous investments.

Slide 10: The Team

Here’s your chance to highlight your team’s unfair advantage. Many VCs will tell you that the team is the most important part of the company, and that couldn’t be more true—especially at the early stage. Ideas often change and businesses pivot, but the founders stay the same, and it’s the founders that we’re betting on. Here’s a few ideas that will help you stand out:

  1. Experienced entrepreneurs: Have any of you built and sold companies before?  This shows that you have an execution advantage.
  2. Deep product or tech experience: This shows that you have a product or differentiation advantage.
  3. Deep industry experience: Show that you have insider knowledge, and possibly a network to leverage as your advantage.
  4. Sales or customer growth at a relevant company: This shows that you have customer acquisition advantage.

Be careful not to be too verbose here—too much text will likely be forgotten, so highlight only notable achievements. One or two brief callouts per key team member is the perfect amount.

That’s it!

Ten slides is all it takes to show us what makes your company great. If you follow this guideline, it will greatly increase the chances that your application will get noticed. And if you’re still struggling with where to start, we’ve created a handy 500 Startups Application Pitch Deck Template to get you going.

NOTE: This article first appeared on 500’s website under the title “This Pitch Deck Will Rock Your 500 Startups Application”

Author: Rebecca Woodcock

Rebecca is a Venture Partner at 500 Startups, where she manages the San Francisco accelerator’s health tech track. Previously she founded CakeHealth.com (acquired in 2015), to help individuals track and manage their healthcare expenses, and was a TechCrunch DISRUPT finalist. She is recognized as one of 70 Digital Leaders by the United Nations, and has also been an advisor to the White House health data standards movement for patient access. You can often find her kiteboarding in Baja California Sur.

San Francisco
814 Mission St., 6th Floor
San Francisco, CA 94103, USA

© 2010-2019 500 Startups

Pitch, please: 14 must-read pitch lessons every startup founder should know

Pitch, please: 14 must-read pitch lessons every startup founder should know

Pitch Do’s and Don’ts, from a 500 Pitch Coach by Andrea Barrica.

A few reasons you won’t raise money:

  • Your business isn’t the right fit for VC (which is totally OK!)
  • Your business could be interesting to VC, but you have nothing yet. Stop pitching, and focus on building a solid business that solves a big problem, getting customers, and assembling a great team.
  • You’re not talking to the right investors, or you may live in a city without a mature ecosystem that supports early-stage companies, or…..
  • Your pitch sucks, and you can’t tell your story on stage or on the fly.

I can help with the last one.

Building a great business is more important than a great pitch, but if you don’t know how to tell your story, you probably don’t understand what is most interesting about your business. This problem affects more than just fundraising.

The hardest part about pitching is that it’s not about you. It’s a delicate balance between being authentically who you are, but more so focusing on what is important to your audience. This is what I help founders understand.

My Most Common Advice To Founders

  1. Don’t start with slides. Avoid templates. There isn’t a magic order, and templates often create boring, clinical, unsuitable pitches. Instead, master this question: what is most interesting about your business? (Seriously, do you know what it is?)
  2. Traction, Team, Tech, Vision – in general, most startups will fall into one of these categories. If you have (impressive) traction, you have a Traction Story. If you have a great team with a previous exit or serious domain chops, you have a Team Story. If you’ve built interesting technology (read: not a mobile or web app), you have a Tech Story. The problem? Most people choose the wrong story, try to tell all the stories, or think they have a truly interesting Team or Traction story – when they actually don’t. If you have nothing, you’ll probably tell a Vision Story, which means that you shouldn’t tell a Vision Story… and that you better bring the personality! Hint: When you figure it out, de-emphasize everything else.
  3. Stop selling the product. Sell the opportunity. Sales pitches aren’t investor pitches. With investors, it’s simple. Increase greed; reduce risk.
  4. Benchmarks by vertical. Know what good traction means in your industry, like:
    Marketplaces – 20% MoM GMV growth & 20% margin
    SaaS – 20% MRR growth, <5% churn E-commerce – >10%MoM growth, margins, repeat customers, average cart size
    Mobile – Engagement (# opens/day) especially if downloads/MAUs are early
    Social impact – focus on business metrics first before you dive into your epic vision. Order is key. Win their wallets, then their hearts.
  5. Don’t. Be. Boring. When dealing with a skeptical crowd, bring up something interesting as soon as possible. Dave McClure loves the traction sandwich and bringing up #s ASAP. Some pitches start with a shocking statistic. If you don’t have #s, mention a team brag, accolade, famous investor, anything you can. The most memorable pitches surprise, challenge, delight, educate, and inspire.
  6. Less is more. Good elevator, good pitch. Let the short pitch (i.e. 60-90 seconds) constrain you in the best way. In an investor meeting, let your answers be brief. If you are dominating an investor meeting, you are doing it wrong.
  7. Cut out detail & marketing speak. 90% of pitches I hear for the first time have way too much detail about the product and product features (looking at you, technical companies.) Cut out:
    Buzzwords like “disrupt”, fixing “broken” industries, “revolutionize”, “rockstar team”
    Forecasts of any kind beyond YTD
    Advisors/Investors (except REALLY famous people/relevant companies)
    Section for use of funds (we know you will hire developers & salespeople)
  8. Tell a story, and master transitions. Stories and case studies allow you to make points and brag (humbly). You can always tell a great pitch by the strength of the transitions – how the founder weaves each section of their pitch together in a cohesive flow and story.
  9. Nail Differentiation, especially if you are in a crowded space. (Hint: you should be able to do this in 1-2 sentences.) Don’t waste time explaining what everyone already knows, especially the problem. If you are a logistics company, don’t go on and on about how big the logistics industry is after you say it’s $4T. We get it. If you are a food delivery startup, don’t talk about the problem of not knowing what you’re eating for dinner. Everybody knows. In reality, a) that’s probably not the problem you’re actually solving, and b) we probably already agree it’s a problem — we’re just not convinced your solution is solving it. The more niche, international, or underground your problem/market, the more time you should spend educating. (Hint: there are no straight answers here – you have to iterate on sample audiences, but see #14).
  10. Focus on what you have learned. What are your key learnings? Steve Blank loves to ask founders this during pitch competitions, and it’s because investors are interested in the real story, not the fake Silicon Valley TechCrunch success theatre version. They also want to know they are investing in a team who can fail, learn, iterate, and move quickly.
  11. Bottom up, not top town market story, as Guy Kawasaki has often talked about. Narrow TAM, and be specific. Big #s on a slide make bullshit sensors go off.
  12. Don’t forget delivery. Don’t memorize it word for word. BREATHE. Beautiful, simple slides might distract an audience a little bit, but you are the star.
  13. Your pitch is not your business. Get in your best mental position; work out any insecurities. Come to terms with the imperfection of your company. Ban wishy-washy, apologetic, “trying” language. All startups are lopsided in some way.
  14. Avoid pitch feedback whiplash and don’t try to please everyone. The most successful pitches are often polarizing.

How I judge pitches:

  • Is the product and differentiation clear?
  • Does this pitch communicate the best possible version of this company? (I won’t know this unless I dig in deeper with you.)
  • Does this pitch teach me something, surprise me, or connect me to you as a person?

Read the original article by Andrea Barrica here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

Author: Andrea Barrica is a venture partner & EIR at 500 Startups, one of the world’s most active and global seed investors. She is passionate about emerging markets, social impact, and growing companies. Before 500, Andrea co-founded inDinero where she generated the first $1M of revenue in 9 months through referrals and her empathy superpowers.

 

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