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Welcome to part one of our series on handling first meetings with VCs. Over the next few posts I'm going to guide you through:
We're starting off with the core - what to expect from VC meetings and getting investors to believe the first of the four narratives (“our customers get a ton of value for our product”). Let's begin.
First meetings with investors typically fall into two categories: presentational and conversational. Presentational meetings are the predominant type (maybe 80% of pitches). In these meetings, the investor initially listens to you presenting your business, and then it transitions into a more open dialogue with questions.
Despite the presentation label, leaving time for conversations is important. All pitches naturally generate questions in listeners’ minds. Talking without leaving time to answer these is a bad idea.
Conversational meetings differ significantly - they lack a predetermined structure. However, because they are less common than their presentational cousins, we’re not going to cover them in this series. That being said, you’ll still find the advice here useful for conversational meetings, because 1) the best pitches end in questions and 2) VCs’ goals don't change because of the meeting style.
An important thing to note before we move on, is that if the VC you’re pitching explicitly asks to have a discussion rather than be pitched to - you should respect this. Ignoring this type of request and going into presentation mode is a recipe for rejection.
Investors will typically schedule 30 minutes for your first interaction with them. However, this doesn’t mean you have 30 minutes to talk. VCs are in the habit of wasting five minutes talking about themselves at the beginning of every call (“selling their fund”). So immediately you’re down to 25.
But remember what I just said about leaving time for open conversation. In a good call, open conversation should make up around half the time. This means that the core of your pitch - i.e. the bit you prepare - should only be 10 to 15 mins.
The last and most important thing to be aware of about first meetings is what your audience’s goals for the meeting are. If you know their goals, you can get them to give you money.
In a first meeting, VC’s are looking to qualify whether you are worth spending more time on. They are not trying to make the investment decision then and there. 30 minutes is just not enough time to get the information to do so.
VCs are looking at 20 startups simultaneously and getting spammed with more. So they lack the time to deep dive into every single one of them. As a result they try to reject everything they deem irrelevant as soon as they possibly can. This means your first meeting is not the place for a comprehensive overview of every aspect of your business. Your goal is to get investors excited enough to dive deeper.
The consequence of this is that you need to use your 10 - 15 mins really wisely. To do this, you need to know what VCs want. Only then can you design your pitch to make them excited.
VCs want 2 things. Billion dollar outcomes and as little risk as possible. Knowing this, however, isn’t that helpful on its own. You need to know how they judge whether or not you meet these two criteria to design your pitch around them.
Whether you can get a billion dollar outcome is judged using 2 factors:
While how risky your business looks is judged using:
The best pitches tell VCs what they want to hear around these four areas. And they do it in 10 - 15 minutes! So we’re going to look at the ideal message in each of them, before getting into the nitty gritty of how to get investors to believe these messages about your startup.
Here are the stories for each them:
When I create pitches with founders I take these four narratives and think deeply about how to evidence them. Before opening Powerpoint or Slides, we open a Word document and make a plain text storyboard covering each of these areas complete with the strongest evidence we have to back them up.
As you prepare to pitch VCs, I advise you put down those God forsaken templates and do so too.
There are three reasons for this:
As you create your storyboard the order of these four narratives doesn’t matter much apart from one exception. Your value proposition needs to go first or second. If VCs don’t know what you do within the first 5 minutes of a meeting - you run the risk of losing their attention.
In the rest of this series I’m going to walk through each of these four “narratives” and show you how you get VCs to believe them. The remainder of this post will cover the first one - “Customers get a ton of value from our product”.
Showing VCs that customers get a ton of value is easier said than done. A common approach startups take to doing this is to use the Problem-Solution method. You start by setting out a problem that customers face and then show how your company solves it.
While this isn’t the only approach, it is very effective. Setting out the problem makes the value provided by your startup seem more striking. If the problem feels painful enough it will seem like a no-brainer that people will be motivated to buy or use it.
It is a very powerful tool, and is relevant for most startups. But it only works when done well - so in the rest of this section we'll unpack how to make it ‘good’.
The most important part of the Problem-Solution approach is making sure the problems you describe sound painful enough. VCs believe that pain equals customer motivation. If they don’t buy the pain, they won’t see why anyone should buy your product.
A lot of founders struggle with this, because the problems their users have seem obvious to them. As a result they undersell their problems, derailing their entire pitch. Because of this I’ve developed a checklist to run through when describing the pain your potential users face.
Here are the key things you need to remember.
Let's break down each part of this checklist.
The problems you describe should be in plain english. By this I mean they should be free of two of the most common evils I see in pitches - jargon and marketing speak
A jargon filled problem sounds something like this:
“Our customers can’t solve the Travelling salesman problem without zero knowledge proofs”
Nobody outside your industry understands what on earth that means. I don’t even understand it - and I wrote it. You cannot expect investors to know the technical terms that your industry has.
Meanwhile marketing speak sounds like this:
“No customer platform in the industry lets people put AI to work”
I find marketing speak even more infuriating. There are a lot of words but it doesn’t mean anything. It is the type of crap you find on enterprise software websites. What is the pain they’re facing? What are they trying to achieve that is difficult or impossible? How does that correspond with their goals?
So many questions..
If you fail to describe the problem you solve for users clearly. The person you want money from will leave the meeting with zero idea of what the problem is. And therefore zero idea why anyone would be motivated to solve it. And even worse for you, zero interest in giving you money.
Set out your problem in plain english.
The whole point of talking about problems is to convince investors that customers want to buy your product. Therefore you need to make sure that the problems you describe are actually focused on the buyers.
Here’s a problem statement that is surprisingly common. Can you spot what's wrong with it?
“Climate change is really bad”
Sure, 99% of VCs will agree with you. But it’s not a problem that will convince them to invest in your thing. The statement contains no information about what’s motivating anybody to buy or use your product. Something like the following is far more convincing.
“Fortune 500 companies get fined if they don't report the carbon footprint of their supply chain and they have no tools to help them do it”
Why is it so much better? Because it is specific to your customers. It identifies who the entities or people buying your product are, and it shows how they suffer without it. This makes it easy for investors to see how the pain described might motivate them to buy something.
It’s a very good idea to use numbers so people can get a sense for how much your customers suffer without your product. It’s not enough to say that something is inefficient. How much time and money do the people facing that inefficiency lose as a result of it?
Founders often struggle when it comes to selecting what numbers to use because not all statistics are created equally. The simplest advice I can give is to prioritize the following types of numbers when picking statistics:
On this second point I mean that it is often more compelling to say “forty thousand dollars are wasted by the average firm each year” than it is to say that “2% of the budget is wasted”. In practice I would advise founders to do both. $40k provides a sense of the magnitude of the waste, while 2% gives a sense of the significance to the customer.
While numbers are great, problems can often feel abstract - especially to industry outsiders. It’s possible for investors to understand intellectually that the status quo you are describing is broken and that the numbers are large but still not ‘feel’ it.
Stories and examples help dial up the feeling of pain and make it easier for other people to empathize with those facing it.
The trick to doing this is to take a potential user and explain what doing their job without your product looks like. As you explain the status quo, your aim is to emphasize the laborious, boring, repetitive, wasteful, absurd and expensive nature of the problem you're fixing.
You are trying to create a picture where the VC thinks to themselves - “I would hate to do that”. It works even better if you are a domain expert and the example user is you in your former role.
To see this in action let’s compare the following problem descriptions. Which one feels more painful?
This one
“The admin and data entry around clinical trials is extremely manual - this leads to delays and failure - which causes $5m in unnecessary costs per trial.”
Or this one
“The admin and data entry around clinical trials is extremely manual. In one clinical trial I worked on, we had a PhD researcher spend an entire month manually transposing data from pen and paper into a system of record. This type of manual work delayed our research by three months. The costs of these types of delays and failure on the whole industry is around $5m per trial.”
Counterintuitively if you claim there are 20 problems it is generally far less compelling than talking about the two or three worst ones. With two or three problems it’s typically possible to make them feel really painful. With 20 problems, people’s eyes start to glaze over.
Given that feeling the pain is what makes investors believe that people will buy your stuff. It's in your best interests to be ruthless when picking what to talk about. Limit yourself to a maximum of three fleshed out problems.
Now we know how to talk about problems, let's look at how we make your solution sound like something people will actually buy. At the core of convincing VCs that people will buy your product is showing them that it benefits users. It is not enough to just describe your apps’ features - you need to show that your product does something valuable for somebody.
Like I just did with problems I’m going to set out some core principles to keep front of mind when doing this.
When it comes to your solution the first and most important thing to do is to explain what your product does succinctly. In general there are two ways of doing this. You can either do it by analogy - i.e. “We are Uber for helicopters” or by what I call an “X for Y description”
Analogy works well but comes with two risks. Firstly there’s a risk that an imperfect analogy confuses investors about what you do. The second risk is that you might be associating yourself with a company that the investors are not excited about. Investors might simply not know the company you’re comparing yourself to or they might actively think that it’s a bad business. So be careful.
X for Y descriptions on the other hand are the safest way to explain what your product does. X represents what your company makes while Y represents who you make it for - I wrote a guide to creating them in this post. The end result is something that looks like this.
“Pitchdoctor provides an AI tool that analyzes founders’ call with investors and gives those founders instant feedback on how it went”
When doing an X for Y description the points mentioned about avoiding marketing speak and jargon remain extremely important. Clarity is king
Once you’ve explained what you do, explain how it fixes the problems you just set out. Your solution should mirror the problems you just spent time making seem really painful. That was the entire point of describing these problems in the first place.
If you spent time establishing that paperwork is making doctors unbelievably unhappy and costing their employers $40k per year. Then now is the time to show that your solution eliminates all paperwork. The benefit or ‘value proposition’ that you are selling to your customers is the amelioration of their problems.
When talking about benefits, make sure to quantify them. In the same way that framing things in terms of time and money helps to make problems sound painful. Talking in terms of time and money makes the benefits of your solution sound compelling. “We save the average user $50k a week” is so much more tangible that “we save the average user a lot of money”.
The bigger the benefit seems, the more investors will be prepared to believe that customers will pay for it. The same pointers about using numbers that aren’t abstract apply here also.
Lastly, use stories to make your solution sound more compelling. Like with problems, stories help make benefits feel more concrete. So, tell a story of how users' lives change once they have your product to make sure the benefits hit home properly. When done correctly it should feel as though any person with the problem your product solves would instantly switch if they are at all rational.
Thanks for reading. The next post in this series will cover how to tell the Traction and Market Size narratives compellingly. Subscribe so you don’t miss it.
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