The lean-startup methodology has become a core element of the development process for many startups.
As a result, some entrepreneurs have adapted their pitches to investors to include evidence of their customer development process. However, we still see many mediocre presentations. Some entrepreneurs seem to be making a consulting style of formal presentation rather than a pitch to investors. Universities are not helping in this respect. Unfortunately, there is a big difference between the numbers and financial assumptions and predictions requested at business-school presentations, and the metrics that investors want to see.
In terms of structure, 10/20/30 Rule of PowerPoint by Guy Kawasaki is a good starting point to prepare your pitch. Note however that this blog entry by Guy K. was written in 2005 when the lean startup movement was still not as evolved and accepted as it is now. In this blog post we list 5 elements and tools that might help you adapt your deck and make it clear to investors what the opportunity is:
1. Start your pitch with a hook that captures the attention of the investor and makes it clear what your product is about. In this blog entry you can find some examples of hooks used in pitches at YC. In a standard pitch, the hook will define the problem you have identified and the product or service that you will develop to solve that problem. "X for Y" type of hooks (i.e. It is the Airbnb for boats) are frequently used, as they are short and clarifying.
2. Focus on the Customer Development process: show that you have talked with your customers, that you know them well and specifically that you know what they want. Obviously, you want your customers to be paying for your product. You do not need many paying customers, but you need a few to prove that you are solving their real pain.
3. Have a clear strategy: execution is going to be your tool to succeed in front of your competitors. Learn from your competitors' strategies to define the most effective way to acquire customers, to increase traffic and conversion rates, and to have them recommend your product. Borrow from Analogs and Antilogs for defining the strategy.
4. Define your customer segment and the minimum product (features) that you need to develop to serve that customer segment. The wider the customer segment, the more complex your product which will require more resources to develop it. Brant Cooper's Opportunity Matrix might help you analyse the market and to choose the customer segments.
5. Prepare an extra slide including the numbers of your Conversion Metrics Matrix. These numbers show user acquisition, activation, retention, referral and revenue. Investors want to see current numbers rather than future unreliable predictions.
These are just some basic ideas for you to improve the content of your pitch. There are many examples and resources online that entrepreneurs can use to improve their pitch. Certainly, the most important part is to listen carefully to the questions. This is the best feedback you can get to improve your presentation. Good luck!
I nipped up to Edinburgh for a few days to check out what was happening in the Scottish tech scene.
I had a tour of TechCube, Scotland's answer to Techhub. It is an eight storey building where the old vet school used to be which is being currently being renovated and when it is finished I truly think it will be a beacon for startups from all over Scotland and the North of England to take desk space.
I was invited onto the roof and after a perilous journey through the darkened roof space via an almost vertical step ladder I came out in a fantastic space that will be the outdoor break out areas.
On the roof with the TechCube founders
As the density of start ups increases so will the networking opportunities mutliply so that there is a viable alternative to London in the UK.
I was also lucky enough to have a tour of the School of Computing in the Appleton Building across the road, wow those guys have an impressive space to work in with stunning 360 degree views of the landscape. Informatics Ventures are based there with impressive connections into the US markets.
I think I will be making my way back up once TechCube is finished.
EC1 Capital now has its geographic triangle of investment locations consisting of London, Dublin and Edinburgh.
A huge part of any VC financing is simply getting to know you, the entrepreneur and/or your team. Any VC will want to know all about you, your career background, your current personal circumstances, your financial standing and how you came to start your business, what drives you, what makes you happy and why are you doing this venture.
From a VC perspective it is imperative to know this information, it helps build a perspective on the individual and the effect that individual can have on the business.
The VC business is a high risk and potentially high reward business. A key factor for the VC is to de-risk the potential investment as much as possible. Of course this is mainly done through due diligence which is a detailed, time consuming examination of the business correlating what the entrepreneur has stated to be true (known as warrants on a term sheet) but another major contributor to this is the need for trust and familiarity as well as authenticity and honesty.
If you make a 'cold' application then the VC has to build a relationship with you. A 'cold' application can be dramatically enhanced if it comes from a trusted source. If you don't have an intro then you would be advised to reach out and try to illustrate what you are trying to achieve and to come back to the VC when you have achieved it.
There has to be synergy and a total alignment of where the business needs to go, therefore that relationship has to be as strong as possible. If I don't like you, I'm certainly not going to invest in you as we need to work together for a number of years and thorough a lot of ups and downs.
Mark Suster describes this perfectly in his article 'Invest in lines, not dots' that describes a first meeting as a 'dot' and further meetings as more 'dots' but now those 'dots' are joined by lines.
There is never an easy way to say "No".
Most VC's have thousands of applications every year and the percentage that get funding are in the low single figures. All VC's have a screening process which is normally managed by the lower ranked employees in the firm such as Associates and Analysts or even Interns such is the volume, so a "No" answer is all too common.
This can be hard to hear for an entrepreneur who has been building a company around their dreams and we don't take saying "No" lightly but you should have a thick skin and keep going until someone says "Yes".
In any rejection we try to offer some advice but it can take time (of which we all have little enough) to offer an in depth reason of why an application was terminated so the reason may be brief. The other side of this is that the entrepreneur will of course try to argue the points that you have stated of why you will not invest or address those points, but still the answer would likely be 'No'.
For those reasons we are likely to give a neutral response without reference to specifics.
There can be a multitude of reasons why applications are rejected, here is a selection of some and certainly not all the reasons:
1. The fund is committed
2. The fund is almost at the end of its lifecycle
3. Your business may not be in the desired sector or the VC may already have enough exposure in that sector
4. Geography issues. VC's like to be involved in their portfolios and if you are too far away a small firm would have difficulty managing that investment.
5. There may be a 'hung jury' on your application by the voting board.
6. There could be a huge backlog of applications
7. There are key primary reasons wrong with the applicants venture, usually around team, traction, product, growth, revenue model or other.
8. The application is so poor (and has not heeded any application guidelines) it verges on spam and is not even replied to.
8. Your deal can get stuck in the VC's hierarchy between an associate and a partner
In a boutique VC firm like EC1 Capital you are dealing with decision makers directly, so we try to get to a 'No' quickly so you can move on. A lot of VC's will feign interest and keep you holding on in case you manage to raise other funding or some other breakthrough in your venture.
If we want to get back into the deal because of some progress you have made or general interest from the investment community, either we will ask you or you must feel free to reconnect with us letting us know what you have achieved. We think that's a fair deal.