Startup Secrets - Getting Behind the Perfect Investor Pitch
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This document provides an insider's guide to pitching startups for investment. It outlines the typical structure of a pitch, including discussing the problem being solved, market opportunity, value proposition, team, financials, and request for funding. Key aspects to focus on are uniquely differentiating the solution, barriers to entry for competitors, and milestones and metrics that demonstrate how the business will succeed. The overall goal is to convince investors that the team has an unfair competitive advantage to build a disruptive, game-changing business in a large market.
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Startup Secrets - Getting Behind the Perfect Investor Pitch
- 1. Proprietary and Confidential START UP SECRETS An insider’s guide to unfair competitive advantage Getting behind the Perfect Pitch @underscorevc #startupsecrets
- 2. Proprietary and Confidential My Agenda (for this workshop) • Checklist for a pitch • Selective drill down • Get behind the pitch • Q&A • NOT how to give your pitch • … a story
- 4. Proprietary and Confidential Your Agenda What are we going to cover? (Example) • Team • Business Overview • Market Opportunity • Value Proposition • Go to Market plan • Business Model • Financials
- 5. People
- 6. Proprietary and Confidential Team Founders Management Board Advisors startupsecrets.comGetting behind the Perfect Pitch 6
- 7. Proprietary and Confidential Team - Founders What led you to this opportunity? • What was your specific insight? How are you uniquely advantaged to build this business? • Relevant life experiences? • Domain expertise gained? Teaming • How do you know each other? • Results of having worked together? TBH: who else is needed on the team? startupsecrets.comGetting behind the Perfect Pitch 7
- 8. Proprietary and Confidential Note For a more complete discussion of this section, see the presentation at www.startupsecrets.com on “Culture, Mission & Vision ” www.startupsecrets.com/culture-mission-and-vision startupsecrets.comGetting behind the Perfect Pitch 9
- 9. Orientation
- 10. Proprietary and Confidential Business Overview “We do xx for yy by uniquely zz” Keep it short and sweet for context and orientation only (This should be consistent with your value proposition and positioning) startupsecrets.comGetting behind the Perfect Pitch 11
- 11. Problem?
- 12. Proprietary and Confidential Problem Statement What problem are you solving? (uniquely well, for who?) startupsecrets.comGetting behind the Perfect Pitch 13
- 13. Proprietary and Confidential Market opportunity
- 14. Proprietary and Confidential Market opportunity Broadening of problem statement to general market • Business Pain • Technology Need Why NOW ? 1. Market dislocations? 2. Forcing events? 3. Buyer Triggers? startupsecrets.comGetting behind the Perfect Pitch 15
- 15. Proprietary and Confidential Value Proposition
- 16. Proprietary and Confidential How you address the pain / need? Your Product / Service… • What’s unique & defensible about it? • Why is it a breakthrough? • How is it compelling? Value proposition / solution startupsecrets.comGetting behind the Perfect Pitch 17
- 18. Proprietary and Confidential Value Proposition Before After Acute Pain Absolute Joy Vitamin vs. Penicillin startupsecrets.comGetting behind the Perfect Pitch 19
- 19. Proprietary and Confidential “Gain/Pain ratio” The gain delivered to the customer vs. The pain and cost for the customer to adopt Gain Pain startupsecrets.comGetting behind the Perfect Pitch 20
- 20. Proprietary and Confidential “Gain/Pain ratio” > 10 to overcome Inertia, RISK startupsecrets.comGetting behind the Perfect Pitch Gain Pain >10 Inertia, RISK 21
- 21. Proprietary and Confidential Examples, case studies PROOF of what you do uniquely well Articulate from customer viewpoint • Tangible benefits Easily measured ROI? Short Payback period? Articulate from your viewpoint • How repeatable, scalable it is (leads up to how you will make money from it later) startupsecrets.comGetting behind the Perfect Pitch 23
- 22. Proprietary and Confidential Vision & Mission How the market will evolve? How will you will lead it? What is your mission? (Leads from and consistent with Market Opportunity earlier) startupsecrets.comGetting behind the Perfect Pitch 24
- 23. Proprietary and Confidential If you’re not early with a vision, you’re probably too late
- 24. Proprietary and Confidential Where does it all fit? Building an enduring company: Vision (Market) Startup Roadmap Enduring Compan y Value Proposition People Team Execution Cultural Consistency startupsecrets.comGetting behind the Perfect Pitch 26
- 25. Proprietary and Confidential What is the roadmap to achieving your mission? • Market evolution & drivers • Key milestones to address that evolution
- 26. Proprietary and Confidential Market Sizing
- 27. Proprietary and Confidential Top Down
- 29. Proprietary and Confidential Market sizing – top down & bottom up Total available market – top down • Quote sources like IDC, Gartner, Forrester Addressable market – bottom up • Clarify basis Growth • Drivers startupsecrets.comGetting behind the Perfect Pitch 32
- 31. Proprietary and Confidential Competition Unique differentiation • Not just technology Barriers to entry • Rewind, repeat: not necessarily just technology! What is impenetrable, sustainable? • IP, patents, network, data etc startupsecrets.comGetting behind the Perfect Pitch 34
- 32. Proprietary and Confidential Positioning 2x2 Whatever sets you up… for a unique white space High HighLow Low b c d {whitespace} Bubble sizing for relative size of competitors The choice of axes is critical Define real BARRIERS To entry into each segment a startupsecrets.comGetting behind the Perfect Pitch 35
- 33. Proprietary and Confidential Go to Market
- 34. Proprietary and Confidential Go To Market example highlights: Marketing Plan • Segmentation, targeting, personification • Marketing & Sales cycle • Inbound / Outbound Sales Plan • Inside / outside pre-sales and sales • Direct / indirect channels & distribution • Services and or product … in sync with business model startupsecrets.comGetting behind the Perfect Pitch 37
- 35. Proprietary and Confidential Sales Plan Marketing Plan Go To Market startupsecrets.comGetting behind the Perfect Pitch Awareness Interest Understanding Engagement Trial Purchase 38
- 36. Proprietary and Confidential Business Model: How do you make money? What is your model for • Creating • Delivering • Harnessing VALUE? startupsecrets.comGetting behind the Perfect Pitch 40
- 37. Proprietary and Confidential Business Model: Examples: startupsecrets.comGetting behind the Perfect Pitch 41
- 38. Proprietary and Confidential Your Revenue streams… • How do they align with customer’s interests? • Do they encourage partners?
- 39. Proprietary and Confidential Show me the money! startupsecrets.comGetting behind the Perfect Pitch 44
- 40. Proprietary and Confidential Financials • P&L, Cash Flow – One year by quarter minimum – Plus annual up to 5 years thereafter, highlighting – Cash flow positive – Breakeven • Minimum suggested information / detail as needed for the above – Headcount – Bookings – Revenue • May need to break out things like Services depending on your business – Gross Margin – Expenses • Major categories like R&D, Sales, Marketing, G&A shown as needed – Profit/Loss – Cash startupsecrets.comGetting behind the Perfect Pitch 45
- 42. Proprietary and Confidential Assumptions, Milestones & Metrics are more important than the spreadsheet! E.G. • Key hires • Product beta, ship • First customers • Channel partners • Etc…
- 43. Proprietary and Confidential Realistic optimists? startupsecrets.comGetting behind the Perfect Pitch 48
- 46. Proprietary and Confidential Cash raise Use of proceeds falls out of Financials Typically 18 months of runway Highlight key milestones that would set up for next round startupsecrets.comGetting behind the Perfect Pitch 51
- 48. Proprietary and Confidential Summary Why this is a great investment ? Why do you have unfair competitive advantage? Recap on what you said you’d cover in your agenda, making it obvious why this is a great investment and why your are advantaged to succeed… At _Underscore.VC we look to invest in uniquely qualified teams going after large new markets by solving significantly painful problems with disruptive and defensible new ways to build and deliver value. IE “Game-Changers” startupsecrets.comGetting behind the Perfect Pitch 53
- 49. Proprietary and Confidential Video from Great Wall 62
- 51. Proprietary and Confidential Thank you… startupsecrets.com /mjskok linkedin.com/in/mjskok bit.ly/mjskok-google bit.ly/mjskok-youtube michael@underscore.vc startupsecrets.comGetting behind the Perfect Pitch 65
- 52. Proprietary and Confidential T 617.303.0064 @underscorevc 53 State Street, 10th Fl Boston, MA 02109
Notas do Editor
- So with that in mind, the idea here is to give you a simple checklist for your own pitch, And many times these days the pitch to a VC displaces the old business plan, which sadly many of us don’t get anymore, doubtless because people believe, in many case rightly, that we don’t have time to read them. Because this is often a business plan presentation, I will selectively drill down into certain areas of the business, but there isn’t time to cover all the depth behind these slides. I’ve simply picked out some of the areas that I see most lacking in the thousands of pitches I’ve witnessed first hand at North Bridge. Just note that I am continuously speaking on entrepreneurship and working on requests to cover key items in this presentation in classes, tutorials and workshops. So as I get time from my day job to post them, you will find an expanding set of materials to accompany these slides at mjskok.com But most importantly this presentation is designed to get behind the pitch and help you understand first of all what VCs are looking for and secondly to help you check in on your own idea or venture and see if you’ve got what it takes to build a company and get it funded along the way. We’ll leave time for Q&A if questions don’t come up along the way. A couple of caveats. This is not a class on how to present. Presentation skills in of themselves are a full topic area. It’s also biased toward software ventures as that’s my operating experience and my investment focus. In fact I’m really even more focused than that these days on disruptive business models like Open Source, and then SaaS, and the Cloud Computing infrastructure that supports it and key areas within that like Mobile, Social Business and Big Data.
- To entertain you along the way, as this is pretty dry subject, I will tell a story, as that is often a key element of any presentation. Usually it’s a story about you and how you came to decide to devote your working life to this new idea. In my case it is the story of a recent trip I made and you can try to guess where I was and then as you do I’ll tell you my story. It's in italics if you want to skip it during this read and just focus on the main slides So here is my starting point on that journey. It was a hazy morning. I really couldn’t see much except a few glimpses of the fall foliage. But I’ll tell you it wasn’t New England as you can probably tell from the terrain.
- But where should you start in your Pitch? Just like I did here, give an Agenda of what you’re going to cover, mainly to set expectations. What expectations you ask? Well, given my comment earlier that presentations often replace business plans, it’s important to set out your pitch. Is it a comprehensive coverage of your business that will go into detail covering your entire business plan, or is it brief introduction to your business to encourage your audience to learn more in person? Or is it something in between like an update to your current stakeholders on progress in the business with an interim capital raise? Whatever the case, present your agenda and set your audience’s expectations clearly so you can exceed them with that Steve Job’s like zeal for “one more thing” to put your audience over the top.
- I took this picture of a boy we met along the walk I was talking. I always feel the best way to experience a new place is to meet the people. I purposely took along a translator to find a way to do this, and met many interesting locals on my day out. I was particularly enchanted by the way this boy was surveying the landscape around him, framing it with his hands as if to take a photograph in his mind’s eye. It reminded me that everyone sees things from their own perspective and it’s important to try to get aligned with that perspective when reviewing people’s vision. Similarly for us as venture investors, it’s always all about people.
- So first, if you haven’t already had the chance to introduce yourselves on the way into the room or in prior meetings, get the Team slide up as soon as possible. We invest in people first and foremost and we want to know who you are right up front, so we have context for where you are coming from. Founders and Management might be one and the same, but we distinguish between entrepreneurs and functional managers
- What if you haven’t had experience yet? Well as we all know there are many examples of great entrepreneurs that have succeeded despite that, ranging from Gates, to Jobs to Zuckerberg. So what you can talk to in those circumstances is what has led you to this point in your life that makes you convinced you’re uniquely qualified to have this insight to invest the next several years of your life and our fund’s money into. What I’m looking for as an investor here is someone who shows focus on their subject matter and who is showing the passion and persistence to pursue the opportunity they’ve identified. In many instances there is no industry to have experience in - eg social media didn’t exist 10 years ago. Nor did mobile Apps. So no one has a decade of experience when there are new areas opening up! Also of importance to us is to understand where people have worked together before. Great teams are often formed through shared experience. So it’s great to hear if you have worked together or shared some experience that has helped you bond as a team. We recognize how important that can be in navigating the challenges ahead. Equally don’t be afraid to profess where you need help. Self awareness is a great quality and we enjoy helping to build teams and expect to help fill those gaps.
- You’ll see I’ve suggested one of the important things to try to do here is state your experience and if you’re lucky enough to have had enough to have already created value and driven great outcomes, talk to those experiences.
- Next we need to shed some light on what the business is that you're going to build. It should be a gradual reveal - just as here all you can see is the light and none of the view Get your audience intrigued to learn more at each step - just as I was with the shadow being at right angles to what I would have expected from the window I could see…
- This needs to be a simple statement, summarizing what you do uniquely well for whom and how. Keep it short and sweet, to provide context and orientate your audience to what is about to follow. Get your audience wanting to learn more.
- As I looked down the wall, I imagined the immense vision one must’ve had to have even started the wall. As I took this photo, I began thinking about how many bricks must’ve been used to build it. I subsequently learned that in fact before the use of bricks the Great Wall was mainly built from rammed earth stones and wood. It was only during the Ming Dynasty that bricks and other new materials such as bricks and tiles came to be used and helped quicken the pace of construction.
- People often don’t include the 3rd point around customer urgency. You could say it’s optional, but in uncertain economic times, the default option for any customer is to do nothing. It’s incumbent on you to make sure that your solution, is considered at the top of the list of other potential projects or priorities, as many vendors will no doubt be vying for dollars from your potential customer. And remember that as a startup, you will usually be seeking funds from an existing budget, so you’re actually displacing planned spending priorities. Hence understanding customer urgency is very important.
- For Great Wall of China, the value proposition was really quite simple, protect the Chinese from the northern nomadic invaders like the Mongols or risk losing their country. And as I walked along the Jinshangling section, I could not help but be struck by the domineering watchtowers, of which there were no less than 67 on this section alone.
- However you describe your value proposition, ensure your audience really “gets it”, before proceeding. And be careful not to make any assumptions here, that may come out of your familiarity with the opportunity. Instead be explicit about what could simply not be done without the solution you are proposing and why that is so compelling. (One other word of caution here. Many entrepreneurs, particularly technically driven thinkers spend too long on this section of the pitch. Just present it and don't try to describe every detail of the solution, no matter how proud you are of it! Present just enough to be clear as to why it is a breakthrough. And then use outside examples as proof points. See later on for more of this. )
- In this picture I capture a section of the wall where the contrast between the new bricks on the left and the old bricks on the right is clear. Your value proposition should be equally clear.
- Gain / Pain ratio? If like me you believe you can’t manage what you can’t measure, then you might find the following concept useful. It’s a ratio, designed to test the validity of value proposition and ultimately your proof points.
- Gain / Pain ratio? If like me you believe you can’t manage what you can’t measure, then you might find the following concept useful. It’s a ratio, designed to test the validity of value proposition and ultimately your proof points.
- Ultimately no matter what you claim, examples and case studies that proved from your customer’s viewpoint what you can deliver, are more credible than anything else. So if you have that proof try to explain the tangible benefits the customers are enjoying from your solution. And try to explain in terms of ROI and payback period. As investors these mean more to us than random superlatives. But for you as an entrepreneur they should also help you in the pitch to your customers. To state the obvious if you can walk in with a solution that takes just a few days to show results and thereafter provides a clear ROI, it will be much more successful than an offering that takes months to implement years to show a return and is not measurable in dollars and cents For extra credit articulate in these proof points how from your own viewpoint the solution was both easily and repeatedly sold and therefore represents a scalable business for you. This will help you lead up to your business model and how you will make money from it later in the presentation.
- This should lead you up to describing your vision, for how the market will evolve and how you plan to lead it. Vision is very important to us, because you will usually be looking at markets that will emerge over many years. And because it will be important to be early into a market to lead the it, we look for entrepreneurs who have the vision to see how it will unfold into a big opportunity down the road. What are the possibilities opened up by your vision?
- For the wall the real proof was the test of time. Despite Genghis Khan for example penetrating it, the concept of the wall was revived in the Ming Dynasty and reconstructions and extensions succeeded in supporting China’s defenses for hundreds of years thereafter.
- Only when the sun came up could I really begin to see the extent of the wall stretching into the distance.
- For me at this point in my walk the gain/pain was in the balance. I had just climbed up these steps, which the photograph barely shows the true incline of, and turned around to see that I had still a few miles to go before the agreed rendezvous with our driver.
- Market sizing helps quantify the total available market for your project and is best done both top-down and bottom-up. Top-down analyses are usually available from analysts like IDC and Gartner, and while there directionally helpful, they rarely predict the true nature of the market you will specifically be addressing. That’s why bottoms up analyses are often more important. They can be as simple as defining the average deal size for your product and clarifying the target segment and size of that segment, and multiplying the two. But what we’re really looking for as VCs is people who understand their market in a very granular way, right down to the persona of the buyer, and where that is distinct, the user of the product or service. Really good analyses will therefore involve careful segmentation of the true addressable market and thoughtful descriptions of how those customers will pay for the solution over time to build up a picture of a realistic market size.
- The whole point of the Great Wall was as a barrier to entry The amusing thing to me was that looking at the terrain it was built on - that felt like enough of a barrier in itself, but clearly the Chinese didn’t feel that was enough Check on your own barriers. - Are they impenetrable?
- This is always a fun section. Entrepreneurs often claim they have no competition because the idea is so unique. While that may indeed be true, it’s unlikely that you won’t have competition for at least the dollars that the customer has to spend on either existing approaches or alternatives. So what helps here is to describe very clearly what your unique differentiation is Then be clear what barriers there are to others following you. Technology is one obvious differentiator to bring out, but don’t forget others For example your business model, which may include your pricing advantage or your open source development capability or your ability to partner and or open up new channels. Other sustainable advantages may include the network of users you build up or the data being collected. In the end all these may be as compelling as your technology differentiation, and more important as a barrier to entry for competitors.
- There may be many ways to express your unique positioning, but I’m a believer in pictures - in case you hadn’t already figured that out ;) So here’s the kind of simple picture I recommend using to clearly position yourself. The key to this particular diagram is the axes you choose. Suffice it to say you want to end up in the top right, positioned to win in a unique whitespace. Here bubble sizing is for relative size of competitors a,b,c,d. Catch me in person and I'll tell you the real key is to find a way to explain why the competitors just can't cross the barriers in this diagram to even enter the top quadrant. Then you know you're really onto a winner. - examples would be the shift from on premise to in the cloud, or scale up to scale out, or on premise to SaaS/multi tenant etc. It's a subject unto itself for a drill down, but you need to be able to get across the white space you have identified
- A business model describes the rationale of how and organization creates, delivers and harness value Again this is potentially a whole subject unto itself, but you should at least cover the basics of how you create, deliver and harness value. For example in a software company you should cover how you develop your product, sell, install and support it, and how you package and price it, and what channels you may sell it through.
- In the end we need to know as investors that you understand the methods and costs associated with building your product, selling it and supporting customers in a profitable manner.
- The Great Wall is often compared to a huge dragon winding up and down in the mountains, grassland and deserts. So what was the Business model on the Great Wall? Well there were certainly plenty of vendors selling drinks and snacks Some didn’t make the products, they just distributed them, where others were clearly home made. ALL had a markup! It turns out that the wall became a basis for trade So to stretch the point… is the business model simply tourism, what does that bring to China in revenue, goodwill and the like and how does that compare to the costs of supporting rebuilding of the wall?
- That of course ultimately leads to the Financial Model where the numbers should prove your business model out. Here the assumptions are as important as the model. Anyone can use a spreadsheet to make projections but if the Financials hang together with the rest of your pitch, we know you're really modeling the business with the thought it takes to build the a company and that's what we're looking for.
- Financial planning is a specialist skill though, and few entrepreneurs have it. It's an example of where we can often help introduce the right resources to get your plan together. Outer years are directional only – to show how big the business can be, how the model works, how growth and profitability can be thought about
- Number of people on the wall was staggering – but tailed off the further I went !
- Don’t be afraid to get into the details at this point – just as I was focused on the details of colors and contrasts in photo For your model for example it would be the details of ASSUMPTIONS and how they connect Assumptions milestones and metrics are more important than just the numbers your spreadsheet pumps out.
- Show clarity of milestones and thinking around how to achieve what is in your control Recognize the need for humility in regard to what you can’t control = often the market and timing It turns out that most entrepreneurs are over optimistic – thinking along the blue line Of course if you came in and pitched the black, boring line, you will not likely attract funding. And if that’s what you really think your business will do it may not be appropriate for VC funding anyway. Whereas most businesses take longer to take off than people think and if they are successful can exceed expectations. See the red line. In the end no one can really predict all this, but it helps if you can be a “realistic optimist” and plan somewhere in between and adjust along the way – eg the green line.
- It can be a steep slope to climb, building a business…
- If you look closely you can see a guy who got off the wall and decided to walk back down – that’s rarely an option for us ! And we know the really successful entrepreneurs have the passion and persistence it takes to go the distance.
- One of the key things we need from the Financial plan is the cash forecast to determine how much you need to raise. Here the key is to figure out what you need to get the company through some key milestones, and to a place where it makes sense to raise your next round, if necessary. And if you raise that next round you’ll want to do it at a higher valuation based on the milestones you've hit. At North Bridge we typically finance about 18 months at a time, because from experience we’ve learned that’s often a good chunk of time to allow the team to get focused on things like building and validating a product. And beyond that we all find it hard to predict too far out.
- Light at the end of the tunnel = or in this case sun rising out of the clouds
- Summarize with what you’ve covered in your agenda and explain why this a great investment. If you’ve done this right, as VCs we should be thinking how can we invest in this? EG… It’s such a uniquely qualified team going after such a game changing opportunity with such clarity of how to lead with a compelling value proposition. And the business model make such good sense we can’t fail to make money together!
- My video from the walk along the wall.
- My video from the walk along the wall.
- Check in with your audience and see if they got what they needed – and thank them for their time. Then agree next steps.