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.k.a. invention) involved in the solution.
Sometimes pitches start by describing the problem, and the vision for how that problem might be addressed.
This approach became popular some years ago after the original Airbnb pitch deck was shared.1 This simple format they popularised was widely adopted:
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, 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.
While evidence can help us identify problems, to solve problems we need to experiment.
So, I’ve learned, 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.
The most valuable insights combine a lesson learned from experience with a proposed next step.2
If you haven’t completed any experiments yet, and so don’t have any useful insights to share yet, that’s a sign that you’re probably not ready to pitch for investment.
Leading with insights 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, I recommend you always start your pitch with these two words: We realised…
Here is a simple pitch deck template you can use, if you want to try this approach: 3
Use a large font and as few words as possible. Avoid the temptation to fall into a full product demo.
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]
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.
Use a summary slide + extra slides to expand on each point.
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 multi-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.4
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.
Source: Writing a business plan, by Sequoia. ↩︎
See: Kunal Shah’s definition of an insight:
The smallest unit of truth that is actionable.
I 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. ↩︎
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.
Building An Ecosystem
How can we build an ecosystem of innovative technology startups in New Zealand?
Leap of Faith
It’s important that we don’t confuse risk with uncertainty. We need to be clear about what we know is true and what we hope might be true.
Unit of Progress
Be specific about where we are going and what it will take to get there.