The Algorithm Rule

Most founders aren’t out to con investors. However, occasionally they start to sound that way when asked about the state of their technology. Something I’ve noticed over the past few years: the more times a founder repeats the word “algorithm” in a pitch the less novel tech they’ve actually developed.

If you’re technology isn’t fully developed when you are pitching an early investor that’s fine (in fact, IMO it shouldn’t be fully developed or you waited too long). Every investor expects you to make quick progress on the technical and business fronts. But if you try to sell your technology as something that it’s not, that’s where you run into trouble.

Be Genuine

Most early stage investors aren’t technical experts. In fact, they rarely are — minus the small cohort of technical founders who have exited their businesses and are now Angels or early-stage VCs. Even technical investors, though, can’t be an expert in every piece of technology.

What investors are experts in, however, is bullshit-detection. The best investors have a finely trained sense of smell when it comes to founder pitches, and what they are looking for more than anything else in your pitch is how genuine you are — i.e. do you believe everything you’re saying.

Remember, investors are constantly bombarded with people trying to convince them to depart with their money. If you sound like you’re BSing (even a little bit) they will drop you immediately. And just because they don’t call you on it doesn’t mean they’re fooled.

(for more on this I highly recommend reading the “truth” section of this PG essay)

Framing

There are a lot of workshops, blog articles, self-help manuals, etc. on presentation skills and the art of the pitch. New founders generally get too caught up in this and end up overthinking their presentations.

I’ve found the presentation style of a pitch is pretty irrelevant, provided you have the right content. A Wharton MBA and a MIT PhD will likely have very different deliveries. What’s more important is that they express their ideas in a simple, clear story that paints the picture of the future, and gives potential investors confidence that they will get there.

Investors, especially early-stage investors, invest in people. Not companies. It’s a relationship built on mutual trust, and any signal of evasion, diversion, or hesitation is an immediate turn off.

If an investor questions you on the state of your tech, be honest, but frame it in a way that showcases your potential success.

e.g. “Currently we’re at 30% efficiency and by Q2 of next year we expect to be at 60%”

(But remember to undersell and overdeliver. If you think you can get to 90%, say 60%).

Early stage investors care less about where you’re at, and more about sizing you up to see if you’re the type of team that will be able to weather all the uncertainty ahead. Everyone knows you’re guessing and have no idea what’s going to happen in the future. Your projection of a 30% increase in efficiency is less important than the credibility you’ve established by being open about your current state, and the high expectations you’ve set for yourself down the road.

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Thanks to Jim Ruiz, Chris Maury, and Nathan Speller for reading drafts of this post.