At the earliest stages of investing there is often little – or no data – upon which to base an investment decision. And investors know that whatever deck or financial plan is put in front of them during a pitch is unlikely to survive contact with the real world.
This is why investors at seed (and pre-seed) stage put so much emphasis on the founders. It is their ability to take the initial plan, execute it, and continuously adapt and refine it that is the single biggest determinant of success in building a company.
These founders may be described as being ‘world-class’ or similar. What they share is a combination of personality and character traits, experiences, and skills that convince an investor they can ‘do it’ and enable the investor to build conviction in the deal.
There is no blueprint for a founder. There are no metrics. It is a subjective assessment investors have to make and often get wrong (every investor has their anti-portfolio).
Guidance For Founders
For founders, it can be a frustrating experience trying to meet these subjective criteria, especially when investors tend to avoid giving overly personal feedback (normally for good reason that they do not want to offend the founders).
However, despite there being no checklist for the ideal founder, there is a list of behaviors we see frequently that could be tripping you up.
Carrying out a self-evaluation before you engage with investors is as essential as making sure your deck and financial model are in the best shape they can be.
Everybody laughs at the ‘singer’ on America’s Got Talent who sounds like a strangled cat and gets booed off the stage. We wonder why somebody did not tell them they could not sing before they entered the show. Do not be that founder – be open to critical feedback, refine your pitch, and put your best self forward to investors.
Behaviors To Avoid
No big vision. You need a Big, Hairy, Audacious Goal (BHAG) to get an investor excited. Why? First, investors hear many pitches each day and you need to stand out from the crowd. Second, the venture business model requires very large outcomes ($bn+) and these stem from creating new markets or disrupting existing ones, not incremental changes. Third, this is where venture capital is most effective – making big visions achievable more quickly through deploying capital and expertise.
Uninspired storytelling. First impressions count. You need to grab an investor’s attention with your opening. It needs to be short, punchy, and exciting. This is the elevator pitch that you need to practice in front of the mirror – and with colleagues, friends, and family – until it is perfect. Making something complicated and hard seem easy is one of the most challenging things to do as an entrepreneur, but it is essential to clearly communicate your BHAG. Sweat the details – small changes to the words you use or the order of your story can have a big impact on how it is received.
Drowning in detail. When you live and breathe your business 24/7/365 you get very close to it. This creates a tendency to want to tell an investor everything you can during a pitch meeting to make sure you have not missed something important. In this case, less is more. Details can obscure the vision. In the worst case, it can make a founder look either unstructured in their thinking – if they try and cram facts into places they do not belong – or desperate. Relax and stay at a high-level, only going to an appropriate level of detail when the conversation naturally goes there.
Not genuinely passionate. Building a company is so tough that you need to have a genuine passion for what you do to carry you through the inevitable hard times. If an investor senses that you do not have this passion, they are likely to pass. This is why mission-driven founders – versus mercenaries – are strongly favored by investors. Be sure that your passion comes across and explain why you founded the company and what excites you about the journey that you are on. Later stage investors need to care about metrics; early-stage investors should love the back story and getting to know you.
Showing inexperience. Investors look for founders with deep domain expertise since they are best placed to understand the market they are trying to create or disrupt. If you do not have this through a previous role, you need to think creatively about how you evidence it. Generally, the most inexperienced, yet successful, founders over-index on research and preparation to create investor confidence. Being able to answer every investor question convincingly with supporting data makes a strong impression. As does being aware of the gaps that you need to fill in your team and how you will do it.
Lacking confidence. Founders can be nervous pitching to investors. If you are not a naturally confident person, do your best to act like one. As a founder, your job is multi-faceted. When pitching to investors you are a salesperson and you need to get into that frame of mind. Figure out what works for you. Being extremely well prepared can boost confidence. So can reminding yourself that you are a great entrepreneur and deserve to be in the room. Try to cut out hesitations and speak calmly and clearly.
Securing investment for your company is a journey of constant improvement. Ensure that you avoid the common mistakes founders make in first pitch meetings with VCs. And when you do receive rejections, ensure you ask for detailed feedback (bearing in mind that detailed feedback on your own performance is unlikely to be candid), continue to practice and refine your approach, and stay positive for the next pitch.