Thoughts on Early Stage Startup Pitches
I interact with a lot of early stage founders, most who are trying to raise money. Since I find myself giving a lot of the same advice, I wanted to provide a playbook that might be helpful. Not all angel investors and VCs want the same thing, but there’s an elementary litmus test. Consider the following and it should help you manage your time and resources.
Vetting you, the founder:
Early stage investing means risk and you, as a founder, are part of the risk profile. A track record of success is evidence for future returns. Repeat entrepreneurs get the easiest pass on this, but that’s because they’ve already been put through the ringer. They’ve done the hard things and they’re prepared for the challenges ahead — be it known hurdles, or unknown curveballs that can cost time and money. The potential for loss is subjectively reduced.
If this is your first time founding a business, you should point to other indicators of success:
a) Led a business unit at another top tech company
b) Integral role in scaling or managing a similar business
Alternatively, domain expertise is another strong point in your favor:
a) You’re an expert on the field into which you’re selling and have years of experience
b) You hold a patent on proprietary tech
If you don’t have a gold-plated resume, you need to validate yourself by other means:
a) Warm introduction from a respected member in the community, be it another founder, investor, or executive in a relevant field.
b) Acceptance into an accelerator or incubator program.
At the earliest stage of a business that intends to scale, investors are buying you, your network, your acumen, and your hustle. Even the best laid plans often result in a fundamental business pivot, and investors want to know why you, specifically you, are the best one to relentlessly hunt down success.
Vetting the Company:
Suppose you have the stellar background, but what evidence supports that your company is a fit for the market? Traction and Validation.
Some products are obvious winners out of the gate. Don’t plan for that.
Some investors are visionaries. Don’t expect it.
Traction showcases demand and hints at potential growth. Too many founders spend time perfecting a product, building out bells and whistles. My advice is to get something in the market. What’s the lightest weight delivery mechanism to put your main value in front of customers? Proving a need within the market is validation.
Important note: likes, followers, media, traffic, and awards are all vanity metrics. That’s not validation. Fans ≠ Customers.
Vetting the Industry:
The next piece an investor will consider is your industry. Are you going up against giant incumbents who own the space or are there other nimble startups disrupting at speed? What allows you to squeeze in and carve out market share?
My favorite version of this question is “What’s your moat?” — what defends your business from being easily taken down? Hint, if your answer is ‘a better interface’, you better be able to validate that with an incredible acquisition strategy.
You need to clearly identify your target; who are you selling to? Is there an atmosphere of adoption and experimentation?
If the market is saturated with competition, are they well entrenched? Where are they failing? Is there an obvious gap in the market?
A good friend flips the question to ask, “Is there a market in the gap?”
Just because a function isn’t fulfilled, doesn’t mean there’s demand. It’s on you to prove it.
Take a cue from Douglas Adams and one of my favorite books:
At the early stage, most of the investment is in you as a founder. If you’re not finding traction… experiment and iterate, but do it thoughtfully. Measure everything. Data driven decisions (even with few data points) speak to your management style. Find the balance between diligent strategy and rapid hustle.
You may have the whole equation down: right founder, right product, right time, right industry — but this doesn’t guarantee investment or success.
Get out there and build relationships with investors. Before you meet, learn about their portfolio, their thesis, and interests. A good early investor wants you to be successful, and brings more to the relationship than dollars. You’re looking for a partner in growth who has insight into the market and building your type of business.
Raising money is not the goal, it’s a hurdle. To quote another good friend in the business. “When someone closes a round I don’t say congrats, I say good luck.”
So, good luck to you founders and feel free to get in touch with questions about raising money or pitching.