How To Pitch VCs and Angels: 10 Tips on Communicating Traction to Investors

Ethan Austin

Ethan Austin is the co-founder of GiveForward.  You can connect with him on Twitter  @ethanaustin or at his personal blog Startups and Burritos.

 

I went to a class last week taught by Brendan Baker of Greylock and Hiten Shah of KissMetrics on how to communicate traction to investors.  I won’t bore you with their backgrounds, but trust me, these guys absolutely know their stuff.

 

Here are ten things I learned about how investors think and what they are looking for in a pitch.

 

(1) Investors respond to a story.

Don’t talk about  how your product works. Tell them how well the business is going.

 

(2)  Ultimately,  traction trumps everything.

What is traction?

It is YOUR story of momentum told though quantified evidence that shows a path to world domination

Good examples of quantified evidence in order from best to worst: profits; revenues; active users; engagement; customers/clients; registered users; downloads; partnerships; traffic.

If you can show that your startup is profitable or cashflow break even, you are golden in the eyes of investors (assuming of course that you didn’t simply achieve profitability by cutting costs so much as to stifle growth).

 

(3)  Just because you got featured on TechCrunch doesn’t mean people are going to invest.

Investors do not view press and testimonials as good examples of traction.  According to Brendan, “every shitty startup can get good press and glowing testimonials.”

 

(4) De-risking is important.

 

The reason investors like to see traction so much is because it mitigates their risk.  I’ve written in the past that  the less likely it appears that your company will go belly up, the more likely investors are to invest.   Taking this a bit further, Brendan and Hiten explained that at each round investors want to know what you are going to de-risk. These steps will vary for each startup but here are some common risks that investors will look at at various stages of funding.

Can they build product? [team risk]

———————————>  Will people use it?

———————————————->Will people pay for it?

——————————————————–> Will people come in mass? [growth]

 

(5)  Be Concrete. Don’t be fluffy.

Baker’s Rule: Actual progress is inversely proportional to the amount of times you use these words in your pitch:  gamechanger, visionary, next-generation, seasoned professional, groundbreaking, innovative, disruptive.

Pitch decks with fluffy language get tossed in the trash.

 

(6)  As an add-on to the above list, don’t tell investors that your product is “inherently viral”.

“When people say their product is inherently viral. I say bullshit” – Brendan Baker

 

(7)  If you have a weakness, address it up front.  Be blunt and get it out of the way.  

For example, investors often don’t like investing in husband and wife teams.  If you are a husband and wife team you might start off your pitch by just laying it out in the open:  ”We’re a husband and wife team.  If this is a problem for you, let us know now.”

 

(8) Don’t put up graphs without annotation.

You need to tell a story.  Graphs without annotations don’t tell a story.

 

(9)  Be clear and concise in communicating your traction.

For example, let’s say you pitched an associate and she liked you.  In order to get the next meeting, she has to be able to clearly communicate your message to the partners at the firm.   You win when you make her job easy. Think about it this way: if she had just one minute to describe your status and progress to a partner, what would you want her to say?

 

(10)  Pitch and iterate.

The more you pitch, the more you get a sense for what parts of your pitch resonate with investors.  Keep the parts that work and ditch the parts that don’t.  Keep iterating until you nail it.

 

Stil interested in learning more?  Check out their entire presentation on Slideshare

 

 

 

Post a comment

or Create an Account to post comments

Comments

Ethan Austin

Jeff - absolutely agree with you about needing to grab investors' attention in first 30 seconds.  Another point you you mention is that early stage investors are really betting on the jockey more than the horse.  That said, do you ever think it's a good idea to start off with a slide about the team?  I don't personally like talking about the team in the first slide but I have had several investors have tell me that if you have an impressive team then you should talk about the team off the bat.  They say it gives you instant credibility and the investor will pay greater attention to the rest of the pitch.  Any thoughts on this?

Ethan Austin

Mike - I just made it into a list because sometimes lists are easier to digest (and also because people LOVE to retweet anything titled: "10 Tips for XYZ"

 

Brendan is awesome though.  He used to work at AngelList and saw about 6000 pitches come through while he was there.  He actually helped us put our pitch together on AngelList last year for GiveForward and we ended up oversubscribed because of his help.  

Here is a longer, more complete version of some of his ideas http://www.quora.com/Brendan-Baker/Startups-How-to-Communicate-Traction-to-Investors

 

Hope this helps!

 

Ethan Austin

Adam - Agree with you.  That was my favorite part of the class.

Adam Calica

Great post. Number five me a laugh a lot.

Mike Fisher

Thanks for sharing this.  I've seen lots of these types of lists for pitching to investors and this one has some really good advice.

Jeff Carter

I think that start ups forget that they are selling themselves.  You have to grab the angel in the first two minutes, if you don't you are probably doomed.  In your presentation, don't build a story.   Identify the problem and show your solution in the first segment-then get into the detail. Angels also bet on teams-a great entrepreneur can do a lot with an average idea.  But a great idea with a crappy jockey is doomed.

Oh no!

You're fresh out of job post credits.

Buy more job post creditsUpgrade to unlimited plan
Where Chicago's Startup Community goes to stay connected.
  • news
  • jobs
  • events
  • networking

Sign Up Today!

Let startups find you

Create a profile and upload your resume today.

Invite Your Contacts to Built In Chicago