Photo: Giants at Yankee Stadium, by me
We realised that the most effective investment pitches we receive all start with the same two words…
Most pitches start by demonstrating the solution.
Especially for those of us who have an engineering or product mindset it is always tempting to begin with what we’ve built (or hope to build). This is amplified when there is an element of genuine innovation (a la invention) involved in the solution.
Sometimes pitches start by describing the problem, and the vision for how that problem might be addressed.
Problem → Solution → Market Size → Business Model → Competitive Advantages
Occasionally pitches start with numbers.
If you have great metrics that already demonstrate momentum and market validation then it’s very tempting to just share those and let potential investors extrapolate. The great thing about results, even if they are very early or building on a small base, is that they tend to stick in the mind of the person receiving the pitch much more effectively than promises.
(However, remember that facts can easily ruin a great story, so if you're going to do this make sure all of the numbers are good, or at least be prepared to explain those that are not)
But, in our experience, the most compelling pitches take a very different approach:
The best pitches begin with the insights you've gained from the experiments you've completed so far.
(Remember, as I keep saying: we use evidence to identify problems, but we use experiments to solve problems)
This allows you to talk about how your understanding of the problem and the solution you are working on have evolved over time, and can continue to improve, rather than requiring you to pretend that you have all of the answers now. It avoids the common deceit of needing to present a solid and unchanging vision for the future. It’s also a great way to demonstrate your competitive advantage - it’s hard to catch another team who are learning faster than you.
So, always start your pitch with these two words: We realised...
Note: If you haven’t actually completed any experiments yet, and so don’t have any useful insights to share, that’s a sign that you’re probably not ready to pitch for investment.
Here is a simple pitch deck template you can use, if you want to try this approach1:
"We realised ..."
"We are... [description of product/service] for [target customer]"
(Use a large font and as few words as possible. Avoid the temptation to fall into a full product demo. If you need help coming up with these words… read the footnotes!2)
Who wants this?
Customer pitch (i.e. the key benefit + compelling reason to buy)
Price and business model
Competition, if relevant3 (i.e. what customers currently use instead)
Team bios / skills / relevant experience
Founding story (ideally this expands on the "We realised..." above)
Where are we now?
Current metrics / traction
Product evolution to date
(It’s very common to include customer quotes in a pitch, but I’ve never seen one that wasn’t positive, so these tend to be ignored. If you can, tell the story with numbers rather than words - i.e. tell us what people do vs. what they say they will do).
Where are we going?
"We believe ..." (see: Leap of Faith)
How will we get there?
Specifically: How we will overcome our obscurity?4
(Use a summary slide + extra slides to expand on each point)
What we need?
"We are seeking … $x"
Where does this get us? (see: Unit of Progress)
Financial forecast (3 years max, mostly focussed on expenses!5)
Investment history (if this isn't the first funding)
If you’d like more detail on preparing a pitch deck, what to put in and what to leave out, I recommend this AWS x Innovation Bay Masterclass with Sam Wong from Blackbird Ventures, where Sam walks through their pitch deck advice and also uses the 2013 Canva pitch deck to demonstrate some of these ideas:
Over the years I've posted various lists6 of questions for founders to answer about their venture, in lieu of meeting for a coffee.
Let me try and boil them all down to just four:
Who wants this so much right now that they will use it even though it’s only half built?7
How will you overcome your obscurity?
What’s hard? (i.e. what have you realised that will be difficult for others to replicate once you've done it once)
Why do you care that this exists in the world?
Which of these do you find most difficult to answer?
Of course, the ultimate question potential investors have in mind when considering a start-up is always “How will you eventually make money?” but, in my experience, if you have good answers to each of these four questions and you can do what you say you will do, then that will mostly take care of itself.
Top Three is a weekly collection of things I notice in 2021. I’m writing it for myself, and will include a lot of half-formed work-in-progress, but please feel free to follow along and share it if it’s interesting to you.
Internally, we call this the "Melodics Format", because the first time we encountered the important aspects of it was in the initial pitch we got from Sam Gribben, who is the founder at Melodics.
One technique we can use to find words to describe our product/service and target customer is: Ask somebody else who knows about your idea to describe it to a third person. Then listen carefully to the words they use and steal those. This will literally use a different part of your brain.
Remember, if we're hoping to grow via word-of-mouth this is exactly how the idea will spread!
It’s most common to describe the competition using a quadrant diagram. This is not especially useful, most of the time, because you can nearly always choose two dimensions which are flattering. So, extract the key ideas from this and describe succinctly why customers are currently choosing the competing products and why you think they will switch their preferences.
A useful format for this is:
"Unlike [primary competitor] our product [description of key differences]"
What is the sales process? How repeatable is it? What does it cost to get a new customer? Are there network effects? What about the idea is, literally, remarkable?
We need to be careful that we're only estimating as far ahead as we reasonably can, given the stage we are at. It's tempting to pretend this is further than it actually is.
Investors asking for a 5-year forecast from an early-stage venture, before we have enough data to make good assumptions, are asking us to lie to them. Call them on it. Remind them of the Leap of Faith.
Matt Mireles said it best:
One of the red flags I look for is seed investors that want me to make things up and lie to them. This typically manifests itself in the form of long-term financial projections. "What will your sales be 5 years from now?" I have no fucking clue, and if you're asking me that question, neither do you. I am a first-time founder in an immature, rapidly growing market. Pricing, exact business model — these things are all up in the air. My task now is to go out and prove certain assumptions about the product and the market in a way that we matched the two up and achieve the magical paradise that is product-market fit. Before I've done that, don't ask me for financial projections other than my expenses, because what you're really doing is asking me to lie to you, and I hate that.
On the other hand, when we are pitching for larger amounts at a later stage, detailed and considered financial projections are vital for teasing out the assumptions we’re making about the future (and often exposing the holes in that logic!)
Potential investors will reasonably expect to see revenue and expense forecasts that cover the same time period. But even then it’s useful to confirm that everybody involved understands they are estimates rather than promises.
Ideally you want more than “use it” you want “buy it” and then “love it” and “tell their friends about it”, but “use it” is the first step on that continuum and actually much harder to achieve than most founders dreaming at the beginning of a venture realise, so start there!