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August 29, 2012

Bryce Roberts had a quick post yesterday lamenting the state of startup investor pitches.  I’ve noticed a similar sort of trend. I think part of it is that there has been a move away from “meaty” pitches to more “vision” pitches.  I think that the standard demo day pitch at many accelerators is also setting a low bar.  Those pitches are usually intended as a short show for a large audience, and what might work in that situation is very different from what would actually be effective when talking to investors.

Overall, there has been a lot of valuable information put out into the web about how to best deliver a good pitch to an investor. Here are a few from Dave McClure, Ryan Spoon, and Venture Hacks.  But I want to comment on a few areas in more detail that I think are pretty important.

 1. Introduce your team first.  I’ve noticed pitch decks have moved away from this in recent years.  I can’t really understand why.  When you start a conversation with a person you are meeting for the first time, you always introduce yourself first.  I think it’s just a natural way to start a conversation, and a natural way to share the “WHY” behind the business you are starting.  I understand that if you have a small or less experienced team, it feels a bit like leading with your chin.  But one way or another, investors are most interested to learn about the people involved in a company, so I think it’s natural to address it up front.

2. Captivate your audience with secrets. Very early in the pitch, you need to explain to the investor why you are going after a BIG OPPORTUNITY that REALLY MATTERS.  A lot of ink has been spilled on the objective side of this – which is the need to prove that you are going after a BIG market. As I’ve said before, “it’s not big enough” is the #2 reason that VC’s pass. But market size data only solves half the problem.  A big part of this business is emotional – investors want to feel like they are being let in on a BIG SECRET or being exposed to a completely unique opportunity.

I love the way Peter Thiel articulates this in his CS183 class. Great pitches often take the form of: ““Most people believe in X. But the truth is !X.”

This has been true in our portfolio. Some examples:

CustomMade: “Most people think that buying custom is inaccessible.  But the truth is it could be really easy, and even cheaper than retail”

Directr: “Most people think making great personal videos requires lots of editing. But the truth is that if you shoot the right stuff, you might not need to edit at all”

Plastiq: “Most startups start by enabling small payments for new vendors.  But the big opportunity is in very big purchases in established categories”

The reality is, sometimes, no matter what you say, the opportunity won’t captivate the investor.  That’s life – this stuff is highly subjective.  But often, good entrepreneurs know how to make lots of people care about what they are working on.  And that matters for your pitch to investors, but also to partners, potentially employees, and others.

3. Give a good demo: It’s kind of funny that demo day pitches are increasingly done without a demo.  That said, I think an actual product demo is pretty important when pitching an investor.  As much thought should be put into a demo as the rest of the pitch.  It shouldn’t be a random walkthrough of the new user flow.  It’s your opportunity to show off your most clever and thoughtful touches.  Make sure to give a simple and brief demo that touches on some of the magic of your product.  If it helps, know where to go to show how your product compares to your competitors or how to demonstrate what might be going on under the covers.  Also, give context to what you are showing.  It might be impossible for an investor to pick up on a nuanced decision that you made with the product that you think is important, but they might come to appreciate it if you pause when you get to it and talk through the brilliance of that decision.  Also, don’t be flustered if the investor wants to take over and play with the product for a few seconds.  But try to control and guide the process as best you can. In general, good demos are pretty quick (~5 minutes), but the investor feels like they got a great appreciation for the product and the thinking behind your product decisions.

4. Show metrics that matter: Again, I think demo day pitches have become a little bastardized because all of them have vanity graphs that show numbers moving up and to the right, sometimes even without labels!  If an investor is really going to take a serious look at your company, they will want to look at the metrics in reasonable detail.  So I think it makes sense to present the metrics that really matter without throwing in the whole kitchen sink.  I’d suggest that in your actual pitch, you want to have

a.) The 1-2 metrics that showcase product quality.  It might be your churn metrics, the % of users that log in every day, referral rates, etc.

b.) The 1-2 metrics that are standard for businesses like yours that you should assume folks will want to know.  For consumer/social companies, that’s usually some measure of monthly unique users and daily or weekly active users (and/or a ratio of the two)

c.) The 1-2 metrics that are important pillars of your business that might not be that obvious.  For example, a company like TaskRabbit in the early days might show how long it takes for job requests to get filled relative to their numbers of users and Rabbits.

Final note – remember to also do your homework on the people you are pitching. Ultimately, the best pitches are conversations, and it’s most rewarding and natural to have a conversation when you feel like you are able to connect with the person you are speaking with.  I know it’s hard to do when sometimes, it feels like one meeting bleeds into the other.  But as I said earlier, this is a highly personal decision for both the investor and the entrepreneur, so I think it’s worth doing the homework to make the pitch a personal interaction as well.

 

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