Perfecting the Pitch; People, Powerpoint, and Excel

Venture Capitalists invest based on three questions: Why you? Why this? and why now? Entrepreneurs showcase their capabilities and answer these investors’ questions using their People, Powerpoint, and Excel. Assume that the investor pitch is an oral exam and you can tally up to 100 points to achieve an A+, resulting in investment in your company. Entrepreneurs must tell a compelling story, demonstrate market adoption/traction, and convince investors why this team will execute this impactful opportunity. Let’s explore each of the categories further. 

People

The team is likely to be the most important criteria for investors. Ed Catmull said it best, “If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or throw it away and come up with something better.” 

Entrepreneurs must demonstrate that they are Brilliant with the right personal characteristics, motivation, skills, and knowledge to execute their vision. The personal characteristics of the team are prioritized because these behaviors are unlikely to change from what they are today. Smart, hard-working, trustworthy, creative, and high integrity are qualities that are impossible to teach if the team does not possess them already.

Motivation addresses why you are working on this idea amongst all of the other meaningful things you could be doing instead. A good founder story helps to demonstrate the passion for the complex challenge the team is solving.  

Skills are formed by the sum of the prior experience of the team. Investors want to see a proven track record of success and relevant skills with hiring, leading people, and solving big difficult problems. Even better if the entrepreneur and team have previously led companies through an exit. However, if your prior track record does not include successful outcomes, demonstrating what you’ve learned from mistakes is also important. 

Knowledge comes from experience in a relevant domain, working with similar products, and having a deep understanding of the problem you are trying to solve. 

While a combination of all of these elements is important, the personal characteristics are non-negotiable, even if you have an amazing idea.

We were recently looking at a mental health company with a compelling story and great traction despite minimal funding to date. The founder was fresh out of college without experience working in corporate America, let alone leading a startup. His motivation for founding the business was in response to a personal tragedy, having lost a friend in the Bastille Day incident in France. He discovered that there were no easily accessible and affordable quality mental health services for a majority of the population. Despite the fact that the team was young and relatively inexperienced, the personal characteristics and motivation to make a difference, by doing something meaningful, was enough to pique our interest and engage further.  

At the other end of the spectrum a successful, well-respected former colleague was able to raise capital from a who’s who list of investors with just a memo and her previous track record. As a matter of fact, Polaris Partners has invested in 40+ repeat entrepreneurs over the years, based on their previous experience. Not everyone will have the luxury to raise capital solely on their reputation so it is up to you to tell a compelling story of Why You?

Powerpoint

Potential investors are validating whether or not an entrepreneur can clearly communicate a concise and compelling story. The substance and style of pitch can demonstrate the team or product’s prioritization, usability, clarity, sales, marketing, and leadership skills. To show focus, less is more and the right picture to word ratio is important. Remember that retailers do not put everything in the window, just enough to get you into the store. Telling a concise story requires more discipline and skill than a long rambling one does. As Blaise Pascal said, “I would have written a shorter letter but I did not have the time.”

A good story arc is important to get the audience bought into the problem space and to explain why this is the most impactful use of one's time. Investors need to see that a large problem exists, that lots of people have it, and that it is getting bigger every day. Also, existing methods are falling short. By building the suspense up front, investors will be excited to hear about your innovative solution and how it is significantly differentiated, creating defensibility of the business model. 

After demonstrating a compelling solution to the massive problem that is hopefully growing due to macroeconomic trends, it is important to show validation that potential customers are willing to pay for the differentiated solution, that it can be sold cost-effectively, and that it can delight target customers. 

There is a risk of being too narrowly focused, raising objections that the market is too small. Alternatively, showing a solution that is too broad can signal that you are not focused. It is OK to talk about a narrow market in Act I (near term) and then expand into adjacencies whether it be larger customers, incremental functionality, or broader geographies as Act II (future). Remember that Amazon started with books, eBay with collectibles, and Salesforce.com sold to small-medium businesses (SMB's) in the early days. These target markets were big enough hills to conquer with massive growth beyond the initial verticals. 

With Powerpoint as your weapon, you are answering the question Why This?

Excel

A strong team and story are the most important criteria for investment, especially in earlier stage companies, Excel becomes more important as the company matures and is used to show evidence of product-market fit and a viable business model. Excel is a metaphor for the numbers to show where a business is as of today and where it is going in the future.

Entrepreneurs often ask, what numbers should they highlight? The answer is that it depends on the business and regardless, it is best to show metrics that are moving in the right direction. For numbers not trending up and to the right, it is important to highlight valuable lessons learned that won’t be repeated from your experiments.

The more rear-view data the better to strengthen Powerpoint shortcomings. Numbers with favorable trend lines can help to prove customers’ willingness to pay (validating they are in pain), low churn (customers stick), more spend (cross-sell and upsell), and ultimately virality (customers tell others).

Ideally, revenue is growing, however, if the company is pre-revenue, then the number of customers, active users, examples of cross-sell and upsell opportunities, and net-promoter score can all demonstrate customer traction. Any evidence that will strengthen the story and de-risk the investment may help. 

I heard a joke recently, “A VC walks into a bar, almost orders a drink, but then realizes he would like to see two-quarters of data before buying the drink.” (I did not say it was a funny joke.) I use this example to illustrate that investors may want to see evidence that the drink is worth the price they are about to pay. Excel helps to address these concerns and answer the question of Why Now?

Are you telling a compelling story leveraging your people, Powerpoint and Excel? Does your pitch answer the questions of Why you? Why this? And why now? Do your metrics paint a big vision for the future with a believable plan to achieve that vision?

If the answer to these questions is no, you probably want to wait. You only get one chance to make a great first impression so not waste investors' time until you are ready. Practice and continually improve each of the components of the pitch until you are ready to ace the exam. Good luck!