Having reviewed thousands of BPs as VC, some earnest advice to first time founders
Updated: Aug 23, 2021
Honest posts like this may come off as condescending, but every founder would wish someone just this honest advice like this.
I'm in a fortunate position with my employer where I've spent the last 5 years reviewing pitch decks and hearing pitches from entrepreneurs all over the United States. Their ideas spanned biotech, SaaS, CPG, agtech, and more. The clients I've worked with have ranged from first time founders, Fortune 500 executives, and serial entrepreneurs. I've seen a lot of failures, some go sideways and fewer successes.
Here's just some thoughts I've collected after having a slow weekend indoors to reflect.
Build a business, not an invention
I see this a lot with STEM or technical founders. They've finally managed to land on the calendar of a VC, and they waste the whole time talking about the technical ins and outs of how their awesome new invention is going to revolutionize the world. Unless the person listening to you also has that level of technical expertise, it's way over their head. VCs and investors understand business though. What's the business case? You may have found a huge problem and you'll solve it with your fancy new innovation, but what does it cost? What's your total addressable market? When will you hit profitability? If you don't come equipped with those answers, you're not getting anywhere
Focus on "you", not "I"
So many pitches end with something like, "If I just had the money, I can totally make this happen!" Notice that the statement has nothing in it for the investor. You're asking them for tens or hundreds of thousands of dollars, or millions. What's in it for them? Investors are not charities. Entrepreneurs often come to the pitch meeting thinking money is just going to rain from the sky if their pitch has just the right amount of buzz words and sweet promises of a future fantasy of becoming billionaires. An experienced investor is just going to roll their eyes at you.
Put yourself in their shoes. What would you want to know if someone was asking you for that much money? Wouldn't you also want to know what's in it for you?
Fundraising is a full time job.
It can easily take a full year from you building your pitch deck to finalizing your investment. It can take a full work week to find investors, woo them, get them to sign, and then manage them after the investment to ensure you're maintaining good relations. On top of all of that, you as the CEO have to manage everything else about your business - sales, marketing, logistics, growth, etc. Especially in this economy, no one is handing out free money just because you think you've got God's gift to mankind in your business plan. Expect to hustle. Hard.
Money is time and time is money. With investments one can build the business faster, may get more knowledgeable personnel onboard and significantly shorten the time it takes compared to boostrapping. With the caveats you have when having a vc in the business. I’ve been working with a scrum team that created a service point including the backend, technical infrastructure from cloud, physical devices as a kind of PoS-system, integrations with payment operators, voucher payment system etc. All in all operations were in 5 different countries. It took a few months with people who knew what they were doing. Bootstrapping something that a skillful team can build takes significantly more time, you may have unrecognizable problems that may halt the process and so on. And not to mention that most people have limited funds and with a family and mortage the leeway is usually months, not years.
Interesting. What other common dos and donts have you seen?
always have a co-founder?
less text and more pictures?
have a competitor slide or ditch it?
do market size slides work or are they mostly BS?
do patents and IP matter at all?
does traction/revenue beat everything else?
Most common issue I see is early stage entrepreneurs going after VC and sophisticated angels. Pro tip - They don't invest in early stage. If you are early you need to talk to real angels, who are everyday people and don't have 'angel investor' listed on their linkedin profile. From my experience anyone who has Angel Investor as a title is an opportunist. Believe it or not there are far more people out there who will invest in your company because they want to support you and don't want to get pulled into a ton of complexity. They truly want to help you out and want to put their money in a good steward of something and someone they believe in. Funds have rules and it's a very binary transaction. Either you have the numbers or you don't, yet so many people spend their entire time trying to impress them. Funds are doing a disservice to most of the people they speak with by not telling them they are just putting them into their sales pipeline for future reference if you ever do hit the right numbers. You may get there one day but you aren't going to 'get lucky'. The terms are confusing and most of the information out there is based around the hype of this very small chance of raising funds. If you don't believe this, the next time you are talking to a fund ask them what their funding requirements are. They will tell you, and then you'll wonder why you're even talking to them. They have rules because they are investing other peoples money, money they gave them based on the parameters they agree to invest in. Second biggest issue is entrepreneurs not knowing which category they fit into. If you're raising $1M, don't read strategies from people who raised $5M. They are totally different. The deck is different, the message is different, the timing is .. different. The entrepreneurs I work with I have them set a 2 meeting rule, if you haven't won someone over by then you're wasting your time. Call 3 is get the wire info or move on. Your goal is to blow their minds in the first 2 calls and if you're not doing that, you need to work on your presentation strategies. Lastly know exactly what you need and build a a plan around getting it. Much easier to raise $1M from 25k checks than finding someone to write $500k. And if you can't communicate exactly what you need, when you need and what you're going to do with it, nobody is going to have confidence in you. Bonus tip, don't be wishy washy. Saying things like 'we hope to raise' or 'if we could only' comes off weak and uncertain, the opposite of what's needed to get the money you want. Exude confidence in what you say 'We are raising X, our revenue WILL be yy by xx'. This is all rooted in being 100% confident in what you're doing and if you're not you need to work on whatever you aren't sure on until you are. I don't think you can fake it and if you aren't 100% stop wasting peoples time.
100% agreed. I'll add one more: investors have VERY standardized expectations. There are expected slides, expected messages, expected numbers they want to see. Your market size should be above $1bn, your growth should be two-digit month over month, etc. Yes, it's stupid and frustrating. But that's how it works, so as a founder, you must know investors' expectations and meet or exceed them at every slide of your pitch deck. I wrote a meta-analysis on what investors expect to see for a SaaS startup (here) and an illustrated guide to creating a startup pitch deck (here) if that can help. Also, pitch your startup on https://www.reddit.com/r/roastmystartup/ before pitching investors!
It is helpful to understand that this issue exists. It's just so frustrating that my worst encounter with an investor so far is "holy hell, a new idea that just may make millions from something small like 350k , it's a shame tho that it's a new idea and not something that everyone else is doing" I'm serious you would think people would want to try something new, since the current ideas don't work...... but the current ideas break even at least and while new ideas may be great or better, The investors seem to only care about what they KNOW works. And people who give out grants don't seem to be interested in a new idea....... more to the point they have told me flat out that they only give grants to those who they have given grants previously. If the money was used wisely, they won't need to come back for a 2nd or 3rd round of grant money .....that shows that the business is either greedy or a waste of money, since they obviously don't know how to make money from the money they have been given.
Investors want to sell you to the next investor. They don't care about your profit sharing plan.
Investors know, all ideas need validation, and all plans need adjustment.
Investors know, ideas are not secrets - how to realize ideas are.