The not-so-secret secret to getting investors interested in your tech
I was part of a pitch meeting recently that perfectly illustrated a thought that I would like to share with all tech founders who are looking for financial backing. This observation is simple, yet fundamental — People buy products, not technologies.
Don’t get me wrong. I’m a tech geek myself. And I strongly believe that technology leads to the largest breakthroughs and opens countless new opportunities. However, such breakthrough innovation is hard to spot and evaluate, leaving founders struggling to raise money. I believe the following can help.
After reading this article, you’ll know:
- Why it is best to focus on the “Why” instead of the “How” when building your product and then presenting it in a pitch.
- Seven things that will make your pitch deck stand out. These are also presented in the form of a downloadable checklist.
Background
The meeting mentioned above was with an organization at the seed stage, led by an all-star engineer with FAANG experience. Market with great potential. Top-rate research from a leading university to back everything up. Software was still a little rough around the edges but clearly on the right track.
Every piece of the puzzle seemed to be in place. Yet I had heard that they were having trouble raising money. How was this possible when everything looked so good on paper?
After meeting with them and hearing their pitch the reasons for their troubles were obvious to me. They had failed to understand that investors (and later on: the market) are much less interested in the tech standing behind the product than the problems the product solves.
The power of Why?
Tech founders often don’t notice the difference between an innovative technology and an innovative product. If an impressive leap forward in one doesn’t lead to a commercial opportunity in the other, then it can be hard to build a business out of it. That was exactly the problem that was on display during this meeting.
The company I described earlier was justifiably proud of the technology they had created — clearly best in class, as shown by beautiful graphs of their impressive speed benchmarks and all the other specs that put it on a different level.
But the challenge started when I introduced a simple word into the conversation.
“Why would clients need this? Why should anyone care about this? Why is it better than the status quo?”
It seemed like ages before they could come up with an answer to any direct question that started with “Why….?” It was as if they had never considered their clients’ perspective. It was hard to believe but they were simply stuck when it was time to explain the commercial value of something that they obviously knew so well from the technical side.
And that’s one of the major challenges you can face as a tech founder while fundraising.
Think about it — if you can’t clearly explain the value for the user, you’re failing your potential customers by leaving them confused as to why they should be interested. For me, as an investor, I’m at a loss because I can’t reach out to my network of contacts and potential customers for their feedback if I don’t understand the answers to those “Why?” questions myself.
Add these factors together and you set the stage for one of the biggest mistakes of any early-stage product — building and funding something that people don’t need or don’t understand why they need it.
That doesn’t mean that at an early stage you have to be able to pinpoint your clients’ deepest needs. But you have to start with a good understanding of your client base and the value that your product brings — even in the form of a hypothesis that can be tested later.
The bottom line is that if you can’t explain your product’s value and what your tech does, no matter how impressive it is, you already have one foot out the door of your pitch presentation and the other will soon follow. While you’re talking about the “How” of your product, the investors are focused on the “Why”.
Get on the same page with them and you might get this reaction…
Otherwise, that kind of disconnect is never going to end in an agreement. I can’t stress that enough.
This isn’t to say that you have to abandon the proper terminology and labels behind your work when making your pitch or getting investors interested. It doesn’t always happen, but you will meet professional VCs with a deep tech background that can keep up with most specialist language and ideas. I am one of those people, but it doesn’t mean that I would prefer to dwell on the tech issues over focusing on the “Why” of your product.
7 things that will make your pitch deck stand out
I’ve seen the problem of flawed pitches up close and I want to share some advice for how tech founders can improve their chances of securing funding by adjusting the way they present their products. For a downloadable checklist click here.
1.Answer the “Why” questions.
Be ready for these because you will hear them. Understand and explain why customers will need your product, who your customers are, the benefits that will persuade them to pay for it and what you offer that competitors don’t. If you can’t do this, you’re not ready for your pitch meeting.
2. Be your own customer.
Think about what it’s like to use your product as a customer. What aspects of your work does it improve? How does it make your life easier? I especially like the common measure of asking if using it at work will get you promoted. If the answer is yes, you’re doing something right.
If you’re curious how it looks in practice, check out my podcast with Maciej Ciołek about his user-centric approach in building Zowie.
3. Don’t be blinded by your own stats.
While you might be understandably impressed with the statistical performance of your own product against the competition, consumers look at things differently. Unless they translate directly into concrete benefits, consumers are rarely interested in technical standards. If your solution is 10x faster but waiting times are not a problem, no one will care. If your product is 10x cheaper but cost is not a pain point, no one will care. If your tech is generally better but existing solutions address 99% of use cases, no one will care.
4. Focus on where your product answers needs.
There are teams that can demonstrate dozens of use cases for their product but none with real traction. This is very often an indication of either not understanding the users well enough or a lack of focus among members of the team. Instead, look for the most important use cases. Frame the value of your product in terms of the use cases where it can help the most.
5. Burning needs can change the calculus.
Which are you willing to pay more for — to fix a clear problem you have now or to avoid a kind-of problem you might encounter in the future? The answer is obvious. When something is “burning” lots of people or organizations now, they’re ready to buy your solution now. It’s often the case that you don’t even need an MVP to get financial backing if you’ve correctly identified a burning need. I’ve seen a team in the B2B SME space that cold called 200 potential customers with just a basic website and no code to their solution written that validated the need and got enough feedback to fill out their expected funnel conversions and buyer characteristics. When it’s clear that the problem is common enough and serious enough, the funding to sooth that burning sensation is much easier to get and creates a kind of alternate path to the one that other conversations will follow. In fact, in many cases of really burning needs, pre-launch clients will even be willing to sign contracts to incentivize you to build your solution even faster. I’ve seen post-launch sales cycles cut from a 9-month average to 3 weeks. What better sign that you’re making something that people need?
Let me share a common analogy from the VC world that illustrates this idea of the importance of understanding how — and if — your idea or product or technology can be commercialized. It’s a clever way of showing the important difference between something you really need now versus something that’s nice to have in the future and how the concept applies to investing. Read it and remember which kind of pill you need to promote at your next pitch.
6. Let the clients speak for you.
As an investor, I learn more about your product from your potential or current clients than from anything you can tell me. If possible, include in your pitch deck a review or comment from your client / expert / product tester / anybody who is willing to use your product and (most importantly) pay for it.
This might include any of the following:
a) How big of a pain point are we talking about? — examples:
- “This area generates 70% of the cost in my department”;
- “I spend 150 hours each month on that issue”, etc.
b) How does this problem address this pain point? What’s the value proposition? — example:
- “This product reduces X by 80%”, etc.
c) Why is this solution better than the current status quo? — example:
- “This product is better than XYZ because it provides ABC functionality that I need and no other product has”, etc.
d) If people praise your product publicly and organically (twitter, reddit, slack), show it.
7. Craft your own positioning statement.
After answering all the questions above you should be able to build your own positioning statement in the form of a short paragraph. Here is a template taught at Harvard Business School:
For [target customer segments] who must [problem to be solved], our product is a new [category name] that provides [solution to the problem/value]. Unlike [current solutions/alternatives], we offer [key differentiating factor].
This is how important clear positioning actually is…
An additional useful resource in figuring out what the best way to speak about your product is and the value it brings are the vertical maps created by VCs (eg. Inovo’s devops, Matt’s ML&data), tech organizations (CNCF’s landscape), and data providers (CB Insights’s Poop Tech ;). They usually do a decent job in classifying various parts of the available tech stack and give you some wider context to tell a story about your product and its place in the market.
As mentioned before, for your convenience I decided to present all of the points explained above in the form of an easy to use checklist that you can download.
The “7 things that will make your pitch deck stand out if you’re a tech founder” downloadable checklist is here.
I hope that helps.
Thanks to Zuzanna Kosowska-Stamirowska, Matt Ciolek, as well as Michael Mazur, Karol Lasota, Krzysztof Przybylak, Oliwia Dusińska for reading drafts of this.
Inovo Venture Partners is a first-choice VC for ambitious founders from Poland and the CEE region. We back early-stage, post-traction startups with up to €3M of initial investment, and help them build global brands while driving growth of the local startup ecosystem. We take great pride in being close to top founders who think big. We’re investors in: Booksy, Infermedica, Spacelift, Tidio, AI Clearing, Zowie, Jutro Medical, Intiaro, Packhelp, Preply, Eyerim, Allset, SunRoof, Archbee, AhoyConnect, and uPacjenta. Our second fund reached a total of €54M.
For more information visit: inovo.vc
