Raising money. Part 3 - Short story about the pitch
Photo: Cornelis de Man, 'An interior with a seller of curiosities'
This is a 5 post series to prepare you to raise venture capital:
- Part 1 - How VCs work
- Part 2 - Reaching out to VCs
- Part 3 (This post) - Short story about the pitch
- Part 4 - Questions to ask VCs
- Part 5 - 50 shades of VC No
Pitch is a short story with the aim to continue the conversation. It is not the full story with all the nitty-gritty details. Your goal is to get listeners - investors, customers, and potential employees - excited and desire to continue the conversation. You are selling curiosity!
I have heard thousands of pitches from a wide range of businesses - startups who want to change the world and lifestyle businesses who want to build local cafes or tourist attractions.
Below is a bulletproof pitch structure. If you can cover these topics, you know your business. If you can cover them with passion and inspiring presentation, you know your business really, really well. Let's jump in.
Understanding context
Before an actual pitch, you have to get an answer to the wiifm question - what's in it for me? This will be different for different audiences. Potential investors have one general question in mind - how big this can be? This one question will develop into more detailed ones depending on your business and story - Is the potential market big enough? Is the team capable to make it big? Does the business model enable high growth? Does go-to-market strategy (GTM) make sense?
Depending on your company and business some of these questions will be the key. Most likely the ones you intentionally or unconsciously avoid speaking about. Developers will be excited about tech but won't talk about marketing, customer, or GTM. They fall into the "We will build it and they will come" bucket. Marketers will talk about customers and how much they need it but would avoid questions about the tech side. They fall in the "sell now, figure out later" bucket. You have to cover the whole story and touch also on things which you don't know.
One liner
One sentence which sets the tone for the conversation. It is the first thing your audience hears and starts to build their understanding of your business. It is the foundation of your story.
One liner should be short and to the point - we solve this problem for these people. No philosophy about "Changing the world" or "Saving the planet". Those are nice but they don't tell what exactly you are doing. Be specific.
Sometimes startups will use the "We are this for that" recipe. "We are Uber for X". This can work if it is an obvious comparison. We are Uber for plumbers. Ooookey, I think I get it. Uber for Schools. Hmm, not sure about this. What exactly is that? Comparisons in general are tricky because you never really know what your audience thinks about a particular comparison item or product. Imagine pitching your product to someone who has had a very bad experience with Uber? Even if your business is great, they will have this bad taste. Better avoid comparisons.
Good one-liners have clue about what kind of problem you are solving and for whom. "We generate an additional revenue stream for teachers", and "Our app saves motorcyclist lives". "We reduce plastic waste in oceans". Short and to the point. One-liners are hard and it will take time to get one that sticks with people and describes what are you doing.
Problem
You have set the tone and now you have to tell the story. Start with the problem you are solving. The key is to get your audience engaged emotionally. How to do that?
Humor. Make people laugh and they will listen to you. Not an easy task to do but if you pull this off, eyes will be on you. One dollar shave club is a perfect example. More suitable for B2C market. Remember, there is a difference between a pitch and a standup comedy. You are here to build a business. You can learn a lot from standup comedians, though!
Drama aka. everything is super bad. "World is dying", "People spend too much time on social media", "Companies are losing X millions of dollars per day because of Y", "X hours of productivity every year are lost because of Y". There is a reason why these kind of theses are in news and advertising. They trigger people's emotions.
B2B tends to be more rational and thus problem statement has to address it. In B2B problems usually fall into one of three buckets - money, time, and insecurity.
Losing money - "There is certain inefficiency and as a result, X amount of money is lost in a year". "Your company might remove manual work and save money", "automate something and save money", and "improve speed and save money". You get the point.
Time is another bucket. Time is money and thus time also can be at the core of the problem. You help save time, reduce time spent on something, etc.
Insecurity is not as direct but very good. Your company provides data, and insights, and monitors something. All these actions allow the company to be up to date and "feel secure". The whole insurance industry is built around this topic.
Personal story works for B2C and B2B. "I experienced this crazy situation myself and so I decided that I will change the world for a better place". Again, emotions. It is not some mystical problem someone, somewhere might have. This is a person over here and right now and this is his story. If a listener can relate to the story, even better. "Have you ever been in situation X?" If there are hands up in the air, you have got an audience. People love stories and they will listen.
Solution
We have got people engaged and now it is time to tell how we are going to solve the problem and change the world - our solution. Focus on telling how your product improves people's lives (quality) and not on technical details (quantity). In your story, you want to show this big difference between now (Problem) and the future (Solution). The bigger the gap, the more compelling your proposition will seem. But don't overpromise and underdeliver. I have heard pitch stories with a huge gap between the problem and the promise of a solution just to find out that an actual solution is very simple and it was just a sales story to lure me in.
"With our product, people save time/money/feel safer/full fill their needs/desires, and get something". Why? "Because we have built this unique platform that enables people to do certain things which were not possible before". "Because our app focuses on improving this one very important aspect of people's lives".
Secret sauce/Our story
Secret sauce or "Why you?" question. The problem is there, you have a compelling solution but why you? And you always have some reason why you are the best to take on this challenge:
- You have spent x years working on this product or been in this industry;
- You have got a team with years of experience working on a similar solution in another or similar industry;
- You have traction, first clients and reviews;
- You have academic research in the field;
- You have had 150 calls with potential customers and gained market insight.
- You have launched an MVP which is used by dozens of people
You have to make a point that you know what you are doing! If there isn't one, you better pick up the phone and start those customer interview calls.
Market/competition
Ok, now we know why you, but what about others? Over here you shape your playground. There is always competition. It might not be direct competition with an identical or very similar solution like yours but people are using some other solution to solve the problem you are solving.
Be specific, explain who are your users, and what products they use now. Start with a specific niche you are after now and tell how this can grow into a bigger market. "Our user can be everyone" is a bad take that will show that you are way too optimistic, don't understand the market, or don't know how business works. Be specific - we are starting with this segment because ..... but we do see opportunities to grow into these segments because...
Business model
How do you make money? Your audience has to have a clear understanding of who is paying for what and get a feel of how big this business can become. Sometimes it is obvious, sometimes it's not. A lot of startups have a similar business model to underpants gnomes "we are building platform", "we are developing AI algorithm", "we are collecting underpants".
You might not have a concrete business model in place but you have to show what are you thinking about. For example, we are testing volume-based subscriptions but also looking into the opportunity to sell insights to third parties.
Ask
The end. You have told the whole story and now it is time to attach a package to it - an ask. You always have an ask because you are looking for something - you are raising money, you are looking for employees, you need customers, you are looking for intros, you want feedback. In the end, you state what you are looking for. If the story has been a blast, people will share it with others and in the end, might spread your ask. For example, "we are looking for 500k euro to expand in the UK market" or "we are looking for early users who could give feedback". Always have an ask.
Additional topics
The above is a framework you can adapt to your needs. You can leave some topics out if it is straightforward. For example, sometimes the business model is obvious and doesn't require additional explanations. Sometimes there are topics you have to tackle specifically. Couple of them:
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Exit strategy. There are times when this is not clear and thus investors might not see an opportunity in this;
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Go-to-market strategy. Often this will be the key question - how do you plan to grow and how you will get to the end customer?
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Timeline. How you have got till this point and what have you done before.
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Unit economics. Some business models require more detailed explanation to give the feel about its dynamics.
But I don't know everything
Of course, you don't. You are building something new, with the potential to change a lot of people's lives. For it to be big, you have to take the less beaten path. Sometimes it means carving a path in the mountain.
As I mentioned before, VCs hear a lot of startup pitches and they will have a general framework of topics you should cover. If you avoid one of them, you either don't know about it (bad) or you are avoiding it (very bad). Be straightforward about topics you don't know and always have an idea, hypothesis, or strategy for how you are going to solve it. By doing this, you will show that you are aware of this and your way of thinking about it.
Conclusion
Pitching is not only about getting on a stage and trying to get money. It is a way to gather feedback, get the word out. It is also a way to learn how people understand your business and what they struggle to catch.
People always have been storytellers. We like tales, movies, videos, and adventure stories. Your pitch is no exception. Good stories spread fast.
Be short, be to the point, and leave out unnecessary information.
Some additional materials: