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