How to pitch early stage investors
Michael Weiksner, known as Weiks, is a General Partner at Rostrum Capital. He invests in the next generation of platform companies and recently joined ConvoLounge for an AMA in which he helped answer questions from founders about their startups, fundraising, strategy, and more.
It was an incredibly insightful conversation — and impossible to summarize in a single blog post as we covered quite a lot of topics! You can check out the chat transcript for full details — in this post we’ll focus on how to pique the interest and pitch early stage investors like Rostrum Capital.
Think Platform Scale
Platform companies are outpacing traditional business dramatically and are the sole focus for Rostrum Capital investments. What makes a platform? Rostrum defines it as “a platform enables scalable interactions between consumers and producers. Typically these platforms are digital; the interactions are significantly enhanced; consumers are contributors to the platform, and the producers don’t create tangible goods but actually provide services.” For a “deep dive”on platforms and building next generation platform companies read Rostrum’s white paper.
Platforms are special because they have potential to result in transformational companies. Weiks talked about Mousera as an example from his own portfolio. Today’s clinical tests standards require all drugs be tested on mice — the testing is costly, error-prone and is manual. Mousera aims to bring modern technology into the space by automating everything, and collecting biometric data 24×7. In essence, Mousera is creating the Amazon AWS for drug testing. It’s a clear example of a highly scalable platform, a transformational company, “a multi-billion dollar idea and they are off to the races.”
Rostrum Capital prefers funding early stage startups. Here are some key points on this topic:
1) Early stage could be a concept, a prototype or basically anything leading up to a company that would do a Series A funding round in the future.
2) Financial projections are fine but what is more important are the business drivers. Financial projections or growth rate are not as important for early stage.
3) What kind of odds are you playing against? So far Weiks has invested in 1 of 40 companies — the current track record is 4 investments out of 160 companies evaluated. In other words, if you are pitching early stage investors like Rostrum Capital, you have about a 2.5% chance of being funded.
4) There is good news for first time founders out there — cold pitches are just fine. You don’t need to stalk LinkedIn profiles and bug people for intros. If you don’t have a connection, just reach out. Early stage investors welcome cold emails, pitches, tweets and comments on ConvoLounge chats!
Founder & Company Background
Have you previously failed and are worried to give it another go? Weiks says a past failure does not mean an automatic red flag. He would want to understand context and get to know the founder. What matters is what you’ve learned from these past failures and how have you applied your learnings in your new venture. For Weiks, having a founder with good character is absolutely critical.
Are you currently working at a company and want to break out on your own? Weiks advises: “Only start a company because literally you can’t stop yourself. It’s generally too risky to be a good ROI.”
Think Like the Investor (that you are pitching!)
The team at Rostrum goes through a “checklist,” if you will, when talking to a startup founder and evaluating an opportunity.
“When investing, my main goal is to understand what you are building,” explains Weiks. Specifically, he wants to understand who are the users and how do they interact? If the technology is great and can impact the world, the next step is to determine how Weiks and his team can “make it even more awesome with ideas and connections.” When things look good on this front, an investment is likely close at hand.
The next step is due diligence. Drawing on industry network connections, Weiks will fact check the information provided from the entrepreneur. He makes sure the project tackles a big problem and offers an attractive solution. He also looks for any industry “gotchas” that may exist.
As far as location goes, currently Rostrum Capital is focused on U.S. based investments.
Wanna know what gets you on the “no go” list for Rostrum?
When pitching early stage investors you really need to understand who you are pitching, what sector or industry they invest in and do your research ahead of time to understand if you are a good fit or not. Otherwise you are wasting your time and theirs. We’ve put together a quick cheat sheet for you on what Rostrum Capital is not looking for.
1) Consumer products
2) Saas Businesses — yes some platforms may be considered SaaS businesses but really what Weiks is referring to here is
traditional Saas businesses that require traditional marketing and track metrics like CAC < 3x LTV.
3) Unimpressive / desperate founders
4) Small market
5) Something that does not affect normal people’s lives
6) Lack of focus
7) Plans with a lot of “if this, then that.” Those are considered too risky by Weiks. Instead he prefers plans with “if this or this or this” and likes to see Parallel Plans which are better than Sequential Plans.
If you are a more seasoned founder, here are a few additional considerations:
1) Yes, you can take a full salary from the start once funded but you need to think about the least amount of salary that you require to live (without having the need for basics be a distraction).
2) Investing sweat in your company is a huge positive signal.
3) Only start the company if you literally cannot stop yourself.
4) Failing is not as bad as it used to be but your loss will be the opportunity loss of your time.
5) As a last piece of advice for founders: “You must be contrarian and right to win big — then it’s still really tough.”
Investing in Key Industries — or Not
Some investors tend to focus on specific industries or domains while others invest across varied areas. While chatting with Weiks, we asked about his approach to unfamiliar industries and expertise. Instead of turning things down, if a good idea comes across his desk in an unfamiliar domain, he reaches out to his contacts to see if he can get the insider insights necessary to achieve success.
He gave an example of a wearable technology company that improves athletic performance which was outside of his “wheelhouse.” He was able to bring in a co-investor with connections to Kevin A. Plank, CEO of Under Armour who is now helping close a major partnership with a top university. Out of his area of expertise? Sure. Out of the question? Certainly not.
As always, when pitching an early stage stage investor, it’s crucial to do your homework and learn about the people who will be evaluating you and your company. Find out what’s most important to them and then craft your message accordingly, making the details that matter most to them easy to access and understand. Hopefully this post helps you prepare to talk with investors like Michael Weiksner of Rostrum Capital.
Wanna get in touch with Michael Weiksner? Here are the best ways to reach him:
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Originally published at blog.convolounge.com on April 8, 2016.