Pitching: what VCs care most about (hint, it starts with T)

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If there actually was a Startup Nation its national sport would be no doubt VCs pitching. Everybody loves to pitch, in part because it's human and in part because there's a belief that getting to the heart of a VC is the quickest path to startup success.

So how do you do that?

Simple, you get to the heart of what they care about. Here's what that is.

Awesome Ideas

Just kidding.

No seriously, just kidding.

I get it that you think your idea is awesome, I'm sure it is, but VCs won't care. I still get calls every now and then from people asking how to get intros to VCs because they need money to implement this awesome idea they've been thinking about for a while.

I'm sorry, that's never gonna happen. One of the VCs' mantra is:

ideas are a dime a dozen

It should become your mantra too which will also help you to find that product that actually wows the market. Hint, it's never your first idea.

If you don't believe me look at the history of any successful startup, it was likely something completely different when they started.

Team

It starts with T, but it's not it.

Don't get me wrong, the team, especially the founder, is key to any respectable investor. A great team, especially if with a good track record, is the one biggest predictor of success for any venture.

In Jim Collin's best seller From Good to Great one of the key factors in companies that made it is getting the right people on the bus:

First Who, Then What: Get the right people on the bus, then figure out where to go.

Now if you think this is about talent think again. It's not just about getting the best developer or the best designer, no. The quote doesn't say get talented people, it says get the right people.

Yes talent of course has value and will play a role in building a kickass product, but a VC knows that there'll be bumps, a lot of them, and course will need to be adjusted. What matters is hinted to in the quote, then figure out where to go.

Startups that succeeded invariably had founders with grit. That's why at Spikelab we focus on the founder's growth when we mentor startups rather than only focusing on the immediate business needs. The best investment you can make as an entrepreneur is to develop the personal skills of a great founder.

From a VC perspective you have the right people if:

  • they have a track record of working well together, especially if they had some previous successes
  • they show a strong ability to adapt and change course while making decisions quickly

So why isn't it the thing investors care most about in a pitch? Because, if we agree that they are doing it for the money, success in a small pond isn't gonna cut it…

Market

We just talked about the people that build stuff, now it's time to talk about people that want that stuff.

If you put yourself in the shoes of a VC it's all about return on investment so market size is one of the key variables because that's going to be your limiting factor in terms of revenue.

The other thing to bear in mind when you pitch investors and talk about market size is that you will be doing great if you can control 30% of it. Huge products like Android for example get the 81% of mobile market.

Traction

This is the one.

Quoting from Venture Hacks's pitching hacks guide (the folks behind AngelsList):

Whether they’re reading an elevator pitch or listening to a presentation, investors care most about actual traction in a seemingly large market.

This is how the guide defines traction:

Traction is a measure of your product’s engagement with its market, a.k.a. product/market fit. In order of importance, it is demonstrated through profit, revenue, customers, pilot customers, non-paying users, and verified hypotheses about customer problems. And their rates of change.

Note what it says… in a seemingly large market . Like in the case of a great founder, traction in a small market would not make it. However, from a pitching perspective, what's going to convince most investors is still to show the market is buying.

VCs love Lean and charging early

You may not hear a VCs openly saying that they embrace Lean Startup or similar methodologies, but the truth is they implicitly do because an entrepreneur following an iterative build-measure-learn loop is going to take a lot of the risks out of the investment.

Just read again the statement in the previous section. In the guide Nivi specifically talks about verified hypotheses about customer problems. And look at this other paragraph:

A story without traction is a work of fiction. You must start building your product and start testing it with your market before you start raising money. If this seems impossible, reduce scope. Put your idea on a piece of paper and start testing it with customers: “Does this solve your problem? How much would you pay for it?” This is the kind of data that can sway investors, even if your product is only a piece of paper.

It screams testing. Anybody I ever asked about investments talked about it.

I also mentioned charging early because dollars speak louder than signups. First time entrepreneurs are always afraid of charging customers and go for freemium or ads based business models, but those are riskier and potentially take longer to get funding for as you need to build a large community first and possibly show viral growth.

Need a hand to find traction or build a pitch? Let's talk

If you want another pair of eyes looking at your pitch or to bounce off some ideas on building your first one just book a free call. We can also talk about product market fit and getting traction.

It's as easy as picking any time that works for you from the list below.

Hope to chat soon.



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