Secrets from the Boardroom 2 – The Investors Keep Talking
When I wrote the previous “Secrets from the Boardroom” piece, I wasn’t sure if I’d be able to gather more powerful insights from investors than I had. But having another opportunity to be the fly on the wall and listen to 10 growth phase founders pitch 8 top tier Silicon Valley investors, I realized that the insights are endless.
Again I bring you 7 actionable insights straight from those that see pitches day in and day out. These are not the tips you will likely be told directly from an investor that you pitch, so this is your opportunity!
Just to set the stage – each company had 5 minutes to pitch and then to be asked questions and receive feedback from the investor group. In a traditional investor meeting, it would be longer than a 5 minute pitch and the investor probably would stop to ask questions throughout, so this is not the common scenario. But the advice is extremely relevant to all forms of pitching.
1. Don’t Belabour the Problem:
It’s very important to know the problem you’re solving or the opportunity that you’re grabbing, but don’t spend too long motivating the problem. As soon as you see that they get it, go straight to the point of why you’re solving it better, how much traction you have, etc. Present the case for “why” it’s needed and spend more time on the product and how it works.
If you are speaking to tech savvy investors (and in Silicon Valley you likely are) you must elevate how you talk about the problem – they still want to “get” it, they just want you to convey it in a sophisticated manner.
One More Thing – Use real world use cases to set the problem up, preferably from your own clients. What was the problem in their lives before they met you? It gives the problem more veracity, it’s more relatable and it is a great segue for later when you show us how your solution works because you can continue on the same narrative and do a “before” and “after” case which can be very compelling.
2. If You’ve Got it – Flaunt it
One of the investors in the panel said: “As investors we look for exceptional strength in a company – your traction is just that – PUT IT AT THE BEGINNING – we built it – it’s working – here’s how. In VC land we say that the best companies will lead with an MRR slide.”
If there’s one thing they know, it’s how difficult it is to close funding, land clients or forge partnerships. This shows momentum on your part and will completely change the way they listen to the rest of your pitch. It’s not empty words or arrogance if it’s the truth! So if you have significant accomplishments, start with a summary up front. Bring in the big numbers sooner, move logos of paying customers to the front of the presentation, if you have revenue – LEAD WITH IT!!! Even if it’s small – it can convert to much bigger numbers. Ultimately you worked so hard to get this – bring it front and center.
One More Thing – Traction can make them a believer. If they don’t resonate with your market but you show them traction to prove it’s strength – the numbers are a potent persuader. If your solution resonates with lots of different clients many different industries – that’s even better.
3. Prove it!!
They say the proof is in the pudding – you’ve got one heck of a pudding to cook here. You must be more convincing on the “What makes you better?” question. Everyone today is saying that AI or Machine Learning is making them better – but that is not an answer, you need to show clear differentiation and have the proof to back it up.
What type of proof? Both technical and customer evidence:
- Clear numbers showing you warrant a high investment and higher valuation
- What is the key business driver motivating your customers? Do they really consider this a problem that must be solved?
- In Enterprise the ARR has a higher bar – revenue is not the best metric, so show concrete, specific examples from partners or paying customers on how it works for them. Gather testimonials saying how they can’t imagine their lives without your solution.
- Validate the claims about your science or technology – offer evidence that it really works the way you say it does with data from clients and quantitative, measurable numbers
- Establish the relevance of your background
A quote from one of the investors: “When raising a Series A and trying to prove product market fit – showing big or small repeating customers that rely on your product is even more important than revenue!”
One More Thing – Be cautious with big, blanket claims and definitive statements. When you do, you automatically raise their objections, their shields go up and they spend their time arguing with you in their mind rather than listening.
4. It’s All About Your Customers
Take them through the average customer journey – who is the target customer base? What are your current customers telling you – where are they hurting and why are they using you? Give specific examples of how they use it. You don’t need a live demo – talk through the customer experience. Define the inflection point that people are reaching showing that this is the right time for your product.
One More Thing – Pilots and Design Partners are not clients unless they are paying you, and they should be paying you. Ask them to pay – if they say no – ask them why, and that’s super important information for you to consider and make changes.
5. Which Round? How Much?
There’s a lot of confusion between Seed and A today in terms of size and phase. But the math is simple for where you should be at after a sizable raise. If you’ve raised around $3M in your seed round, getting to $1M ARR is good. If you’ve raised more than that – you have to show WAY more traction – closer to $5M ARR
One More Thing – Don’t raise 2X of your total revenue!!! If somehow you’ve raised a lot of money without a lot of commercial validation and there’s a huge onus on you to prove that you can stand the course and if you don’t, you will have a lot of trouble raising your next round!
6. Think like a Businessperson
When you’re at the stage of speaking to a VC, you need to show that you have business acumen and that you can demonstrate that you have the detailed command of your numbers. You will be handling (a lot of) their money and they want to know it’s in good hands.
Know the milestones you will deliver with the funds you raise – Look ahead 18 months – where will you be with pilots, MRR, ARR forecast, customers, employees, users, expenses? Then work backwards, map it and build the onramp it takes you there – even if you have to massage your KPIs or burn, at least you’ll know, even if it’s only based on assumptions, and even if they change- it will be clear to you what you are expected to achieve by the time you’re raising your next round.
One More Thing – Treat yourself as a financial product, or in the words of one of the investors: “Think about the operating model that you will/should have – you are a financial product. What that means is – the market only cares about 2 things – slope of growth and EBIDTA – can you create profit? Have a clear financial model that you can track. What will your P&L look like – even though you’re years away from it – you went through the mental exercise and you understand where you’re heading.”
7. Competition Done Right
No market worth having won’t have competition – you just have to explain how you will do it differently, what sets you apart? You have to be 10X better or 10X cheaper to displace a current solution. What’s your brilliance? What’s so much better about you that leaves historical solutions in the dust? Not just the big players, but the funded startups. Build into it from right after the problem statement so they know you will address it. Feed in from your customers and what wasn’t be solved for them with other solutions and how it is now. They want to hear you explain the competition and market to see that YOU understand it
One More Thing – Once again, the discussion about how to show your competitive landscape ensued. There were varying opinions – one thing all the investors agreed upon, DON’T do a feature check box or a Harvey Balls chart – nobody likes these, especially when you’re comparing yourself to an industry giant. If you are showing a 2X2 competitive matrix , make sure there are meaningful X/Y axes. They want to know that you have a deep understanding of the landscape and the vectors are meaningful of the competition. In the end, as long as you know this, it doesn’t matter how you show it!
In conclusion, one of the most powerful quotes of the day was: “People are someone we want to be in business with, the market must excite us, what have you accomplished and how well do we think you’re executing? Technology does play a role fast, but I have to believe that the team can take me to a $400M outcome.”