What do Do Investors want to Know About Your Startup?
Too often have I seen unprepared pitches from startup founders or fundraisers.
VCs, see a lot of startups, every day. They get pitched and every single startup thinks her business is gold.
Of course, they do! If they didn’t, entrepreneurs shouldn’t be pitching anyways. So there’s nothing wrong with that.
But let’s not forget that having a great idea and a few successful experiments are not enough to make you stand out and raise funds.
Too often, startups forget that there is a lot of competition when it comes to getting money from VCs.
Your attitude, your speech and your way of presenting things matter too.
Additionally, to have a strong case you will:
- Need to convey your passion and conviction.
- Need to demonstrate structure and honesty.
- Need to be clear and concise.
Overall, what investors look for are:
- A great team
- An awesome project
- Outstanding execution
There you go, 3 essential checkpoints. Now, how will you build a case to demonstrate you have all three pre-requisites? Just make sure your pitch is well structured and easy to remember.
The process you will go through
Usually, you will have the main entry point to pitch a VC firm. Very often it will be an analyst, who’s in charge of screening and preselecting the first batch of startups to present to the partners.
Sometimes, the point of entry can also be a partner, who will also have to pitch your startup to his/her board.
That means, once you’ve pitched, you are passing on elements that will have to be pitched by someone else to one or more additional decision makers.
To increase your chances to make it to the investment committee, you need to make sure you’ve passed on all of the relevant elements to your point of entry. You don’t want to leave room for uncertainty and misunderstandings.
The elements we are going to go through in this article are going to be needed at some point in the process.
You don’t want to make your entry point’s life difficult. Otherwise, he will just put his/her energy pitching another startup instead of yours.
Let’s dive in the content you need to prepare
Whether you have one hour to pitch or 3 minutes only, you have to cover all the elements investors want to hear about, with more or less depth.
If it’s a really short pitch, make your point in one or two lean sentences per elements to tease investors. If you do a great job at it, you will be called back to have another meeting and provide more details.
Your investment pitch deck
This deck is your point of reference. It will help you relax and remember what to talk about. Think of it as your cheat sheet.
Now bear with me as I walk you through the elements that you’d be very likely to be asked about.
Start from an established fact about your market. It’s the initial scope. You will then narrow down that scope to lead the investor towards where you are standing now. Draw that funnel in your counterpart’s mind. Make it easy to grasp and straightforward.
Then within that market, what problem(s) are you willing to solve?
Fictional example: We are addressing the car owner’s market. Study XYZ shows that only ¼ car owners really need to own a car and that switching to car renting could save them up to 200$/month.
Some startups aren’t clear about the market they are addressing. It gives an impression of a lack of focus, which most of the time appears to be the case.
The Total Addressable Market is the amount of money you could make by solving that problem.
First, get an estimation of the size of the market you are addressing. Then, identify how much of that market you can capture and calculate that number. Don’t forget to be specific about the units and scope: for example, the TAM we are addressing represents 2.8b$/year in the US.
That means that in a perfect world and considering that you are realistic enough to know you will never get 100% market share, that’s the amount of money that’s available on your plate and that you can capture.
This will allow you to cap your objectives and set yourself realistic milestones.
What bugs you in your industry?
What’s wrong about how things are being done currently?
Why do you do what you do?
This is also where you speak about barriers to entry, potential market fragmentation or existing monopolies.
This is where you speak about the problem you are willing to solve. You’d be surprised to know how many startups forget to mention anything about an existing need/problem that needs to be addressed. Yet, the equation is rather simple!
No need/problem to address = no business.
Fictional example: Currently, small towns are underserved by private mobility companies because it would not be economically sustainable for them to operate in these areas. We envision a world where it would be as convenient to move around in small towns than in the city. We’ve cracked a way of doing that.
Define precisely what you do and how you do it. You have no idea how many startups speak so much about their market that they forget to mention what they actually do…
It may sound counter-intuitive but start with saying why you do what you do before telling us what you do and how you do it.
Emphasize on clarity.
Caution: because you breathe what you do, you might forget to mention important information because it’s so obvious to you. I advise you pitch your startup to someone who’s not in your industry and see how much they understand what you do. If they can’t articulate what you do, it means your message is not clear enough. That tends to happen a lot in industries where you need to truly know how it works to understand the underlying value of what you are offering.
How do you differentiate from your competitors or from alternatives to your service/product?
What makes you stand out in the eyes of your customers?
Is it a premium service?
Do you offer better value at the same price?
How do you manage to do so?
Don’t forget to talk about your positioning.
A startup that is clear about its positioning is one that has analyzed the market and the competition.
That’s also where you can tell about your secret sauce.
It’s okay to have competitors that are more established than you are. What’s important is to address the market with an angle that you believe will make you stand out.
Talk about your competitors, how they operate and who they target.
Who is going to be your customer?
Are you targeting B2B, B2C, B2G or P2P?
Who exactly is your target?
What demographic characteristics do they represent?
What type of sales cycles does that correspond to?
Being specific about your target emphasizes your clarity of vision.
The more you know about your potential customers, the better off you will be.
Show you understand your market by identifying the segments that can be addressed. Tell us about the underlying dynamics.
You could even dive into an overview of the personas you have identified. Giving a specific example makes the pitch more compelling.
The better you will know your personas, the more efficient your marketing will be.
Tell us about the challenges that your personas are facing. Tell us what incentive these segments have to use your product/service.
Which ROI will they get and what will be the impact on their life?
The go-to-market strategy is when things get real. It’s the starting point of your execution.
If you know the customers you are addressing, you know their behavior, their needs, envies, motivations, and frustrations. In other words, you know how to sell to them.
You know how to get your customer’s attention and which acquisition channels to try out.
How do you address your market?
Do you have a stronger branding?
Have you identified a loophole in your competitors’ acquisition strategy?
Link the answers to your personas. You know where your customers are, how they think and how to attract them. There stems the core of your marketing strategy.
A go-to-market strategy has to be wired to your vision.
Think of it like a funnel where you start from your long-term goal and break it into smaller milestones. Your go-to-market strategy coherently retraces your journey from creation to your long-term objective.
Of course, you will pivot and make adjustments. The go-to-market strategy is not written in stone and can be adjusted based on iterations and feedback from customers.
From the market need to the product roadmap:
- Starting from the market needs to be addressed and the identification of your customer segments. You need to connect your go-to-market strategy with a product roadmap that highlights the product evolutions and its market penetration.
- For each milestone, make sure you have metrics and an estimation of the resources you will need to get there.
While you could have a lot to say about your go-to-market, make sure you are able to summarize the big ideas/provide a big picture and be concise.
When you speak about that section, it’s pretty easy to see how much crafting and work you’ve put into your startup.
It’s also a great moment for investors to assess your ability to focus on the right priorities. It’s an opportunity to look like you know what you are doing.
You SHOULD check out what Steve Jobs has to say about go-to-market strategy:
Your Business Model
There’s a very widespread tool that allows outlining your Business Model easily:
While you will not necessarily go through every building block of your BM canvas when pitching, make sure you’ve done your homework. You will be asked questions about it at some point.
When pitching investors, it’s good to emphasize on the revenue model, margins, pricing, and overall cost structure.
Let the investors know where you are at with establishing your distribution strategy.
It’s good to demonstrate that you are conscious of where you stand in terms of execution and that you have identified your current strength and weaknesses.
Presentation of your team
Some storytelling about the genesis of the project is welcome here.
Make sure you answer these questions:
Who are you and why did you start the project?
How many people and advisors are on the team?
Which key positions are you going to fill next?
How is your team relevant to the project?
Make sure every role is clearly defined, especially when there are several co-founders. Investors want to see if the team is complete. If not, they like to see that you have identified the soft and hard skills that you need to become a complete team of A players.
It’s common knowledge to say that early stage investment is more a matter of team than current business model and operations.
Startups pivot, iterate and grow: one constant in the equation (ideally) is the core team.
By the way, never underestimate the weight of cultural and human fit when looking for investors. It can be problematic to marry your startup with someone you don’t trust or like much. This works both ways.
It’s also a good time to highlight your strength and weaknesses.
Everyone has weaknesses. Show that you are conscious of your weaknesses and how you are addressing them by building a complete team.
KPI, metrics & Milestones
KPIs and metrics
When you pitch your startup, investors use KPIs and milestones to get a sense of where you currently stand. That’s how we assess whether there is traction or not.
Needless to say how much investors love traction.
I often get the question “what are the KPIs we need to reach to demonstrate traction?”
I’d say there’s no one size fits all answer to that question. It depends on your startup stage, industry, specific activity, your customer segments, and competition.
Ideally, if we want to generalize, anything that looks like an exponential function on the positive KPIs is highly appealing.
Choose your KPIs wisely: it reflects how much you understand the challenges that you have to address in your industry.
You can break down your metrics per category if that helps: business metrics, support metrics, and product usage metrics.
Some examples of metrics:
Revenues, cash burn, cost of acquisition (for B2C mainly), conversion rate, LTV, churn rate, NPS, cost per lead,…
For information, Typeform has a great article on this: https://www.typeform.com/blog/guides/customer-success/track-9-customer-success-metrics/
The Milestones you’ve reached
The milestones are important accomplishments you’ve achieved so far. For example, specific partnerships, patents approved, tenders won, contract signed,… POC, pilots,…
Keep in mind that investors are aware that especially for B2B and B2G, there can be a long way between signing POC/pilots and actual sales contracts. They are very different levels of commitment. Hence, it demonstrates different levels of traction and product market fit.
Don’t try to disguise POCs into actual sales contracts. Instead, speak of the sales process involved in going from a POC to actual sales.
Your Funding needs
After presenting the preceding elements, tell us about what you are looking for. Beware, I’ve come across foreign investors that prefer getting that information at the very beginning of the talk.
Describe your funding needs and how much you’ve raised so far. Give the split between debt and equity. Explain how you will spend the money, over which time period and the milestones you’ll reach by then.
You need to be able to explain why you are raising that specific amount. It needs to make sense.
A lot of entrepreneurs struggle with determining the right amount to raise.
Don’t benchmark on how much your worldwide competitors raised. Money raised doesn’t equal past or future success and every startup has different needs.
There’s a lot to discuss on that specific topic.
A typical waste of time is, for example, to raise funds in France for operations in France while benchmarking on US referential and valuations. It just won’t work.
Nothing’s like the fundraises and valuations for tech companies in Silicon Valley.
Although newspaper over the world mostly speaks of these transactions, they are not the norm. They only work over there. Europe is a different mindset, South East Asia is yet another one for instance.
What you have to keep in mind is that the higher the amount you raise, the higher the valuation of your company will go. Let’s say you raise a 3m$ series A and assume that you are willing to give up 20% of equity. It means that you value your company at 12m$ pre-money i.e. 15m$ post-money.
You’d better have strong traction, assets and current metrics to support such valuation in France for example.
Plus, bear in mind that the valuation will have to go up for the next round.
The higher the fundraise at a very early stage, the higher the pressure will be for you to execute.
If you don’t execute, the value of your company might go down for the next fundraiser. It’s called a down round. It sends bad signals to the market and means you will have less power to negotiate with potential new investors.
On the other hand, if you don’t raise enough because you are too scared of dilution, for example, you might run out of cash before you achieve your milestones. In that case, you might need a “bridge” to survive at some point. In general, the more urgent it is for you to get that money, the less room you will have to negotiate accommodating terms.
Another drawback of raising too little money is that you will need to raise again earlier.
Raising funds is tiring, time-consuming and keeps you away from operations. Trust me, you don’t want to be doing that every 6 months.
Therefore, it is important to think carefully about the amount you need to raise. Don’t fall into the “fundraise for ego” trap.
Be ready for pitching and train before going in front of investors that really interest you. Start with pitching around your business and idea, and learn from the feedback you get.
If you are the right mindset and work efficiently, you will make it one way or another.
Now good luck to you and thank you for reading! Let me know how that worked out for you or if you see something else :)
I hope this article will help you or someone you know. Feel free to give me 50 claps and follow me if you enjoyed it, thank you!