We hear you founders - lists are your friend. And, even though this was written for a Covid-19 world, these should carry into “normal” face to face meetings nicely.
Note - These are the softballs. If you can’t have a nice, consistent conversation about your business that includes these topics then you’ll almost guarantee that the investor says “it’s a little early for me, but keep me updated.” Make sure to read all the way to the bottom for example responses and logic for any early stage founder.
Also, we think that if you run your first investor meeting like this, your “pitch” will feel really organic and natural. Fundraising is a different kind of sales process where the person on the other side of the table is also running a sales process. Stay in control, but be flexible enough to improvise your way around this list.
Remember - The goal of the first meeting is to be impressive and immediately plan a second meeting usually with some deliverables or including a second investor.
Now, let’s dive into the examples. Nothing here is a boilerplate response, so please use your own EQ, but it can help you get in the mind of an investor.
Don’t skip over the introduction and the prequel to the business. Investors can learn a lot about your motivations and founder relationship from the early days. You already know how important team is to the investor equation, so don’t skip the team part of the conversation.
Don’t be afraid to share a personal anecdote about pain, failure, or aha moments that triggered the idea. Make it personal and share your perspectives of the early insights and then expand on how they’ve continued to develop as you’ve dug deeper.
Many times we start something because we haven’t looked hard enough to find the solution out there. This is a great place to talk about how some competitors didn’t serve you and how new technologies or market conditions can empower a better solution.
Uber was timed perfectly because GPS in iPhone was finally good enough that I could see how far away my car was before I called it, and target customers had one.
This is something that should already start to be apparent based on 1-3, but you can really emphasize your past work here. You helped startup XYZ unlock Metric ZYX or built Wow feature in cool new programming language that was used by 10,000 globally in the first 3 months.
Investors want to know that you have sales chops. They’re going to want to dig deeper to see if this is a new relationship with customers or if you guys go wayyy back. The stronger that customer connection is the better you’ll be able to provide them future value, and the more leeway they’ll give you when your version 1.0 doesn’t live up to the hype.
This piggy-backs nicely on #5. If you really know the customers then you know where the hang out. Not just the obvious places but the after-after parties too. Maybe you know how to even host that party.
TIP - Don’t overplay the $Trillion market card. You probably have a barely functional product.
It’s way better to say our MVP serves an addressable market of 100,000 well defined businesses. As we serve their needs, we’ll be able to expand our offering to these 3 other areas which will allow us to expand to 1,000,000 businesses which is how we will become a thought leader serving a $Trillion industry with leading technologies.
This is where a customer story can seal the deal. Walking investors through an easily digestible use case of Vern from Marketing who was spending $infinity and only getting this result switched to your service and WOAH, now he is killing it. He got promoted and is a super evangelist talking about your product on Twitter.
Then, and this is important, tell the investor how you knew that you’d be able to help Vern. Share insights into the trends that you felt were easy to spot then tell that investor about the future. Paint the picture of what is about to happen in the next 18 months in your industry and how you are positioning the business to be in the center of that trend. Investors love logic, but they love a good fortune teller story even more. Be their jenie.
Manage your optimism here. Obviously you are excited about the future, but let the data tell the story here. “We launched on July 1 and are pretty stoked as to how fast we reached 100 subscribers...without any ads.” Then speak to the truth about what a subscriber means to you. “35% of those are paying right out of the gate, and the rest are on 60 day trials, so October will be an exciting month!”
Remember the investor across the table (or zoom depending on timing) meets with dozens, if not hundreds of teams at your stage. They are familiar with early, and honesty plus transparency will do more for your trust building than 100 customers over 35.
This is where the conversation starts leaning more into opportunity and answers will start getting longer. The investor likely understands the offering and the pain, now you’ll want to focus on sharing the financial levers of the business. AKA How are you getting rich in a way that benefits your customers, and how sustainable are these numbers.
Investors love SaaS right here because the recurring nature makes it wayyy easier to predict the future revenues compared to pay as you go or one time purchases. Data is your friend and there are a million follow up questions to the business model. It’s okay if you’re early, just be clear to share the Key Performance Indicators (KPIs) that you are using, and the formulas behind those numbers to test the model.
Pricing at the early stages is always a challenge. It’s okay to iterate rapidly and adjust the prices until you find market value. This phase of the conversation is all about sharing insights and the process of testing the different pricing to the different customer segments. Could be a great opportunity to pull some knowledge out of the investor as well with a question - “What would you expect our pricing to be given what you’ve seen in the market?” Never hurts to let an investor be an expert for a few minutes and feel like they are helping the business beyond their check book.
North Star Metric is something that is the metric that you tie most directly to the valuation of your business. A SaaS business might be Subscribers. A Social Network might be Daily Active Users (DAU). This is the thing that drives all the other decisions in the business. Next are your supporting KPIs - these are the metrics that are the levers that impact that north star metric. By sharing insights into how you think about your business and by knowing your numbers, it’s a great place to earn trust as a competent visionary.
Be cautious not to over dump on KPIs though, especially if it’s vanity metrics. These are the metrics that can sound impressive by offering little impact to that north star metric. A prime example in a SaaS B2B venture, the vanity metric could be the number of Twitter followers. It’s great that you have built an audience, but unless you are acquiring new customers AND have the data to support that claim, that metric is just a fun fact.
This is where scrappy founders can shine. Investors at the earliest stages are generally looking for founders to return $3-$5 for every $1 invested almost immediately. If you have bloated spending it indicates that you have a longer path to self-sustainability aka profitability. The use of your current cash and how you plan to use your cash after a raise are two important spreadsheets that should exist in your data room for later due diligence. Living lean even after you’ve raised is also a great sign of maturity and a way to extend the burn rate in case your incoming revenue is lighter than projected.
This question is a part of every investor conversation and is sometimes a challenging one. I generally recommend asking for enough money to hit the required milestones to double the valuation in the next round, ideally in the next 6-12 months. Obviously, if we could raise $50M for our pre-product startups the world would be merry, but that is unrealistic unless you have a Unicorn exit as a founding CEO. Otherwise, that quest isn’t a good use of anyone's time.
A great way to carry this part of the conversation is “with $250K we can hire 3 more devs and a head of marketing to finish these specific parts of the product and launch an ad campaign that can help me with sales efforts to hit our first $100K in revenue by Q3.” It shows that you have a needs list and not a want list - a huge differentiator and the indicators that you won’t waste a bunch of investor money in the early days. Milestones are a great way to track progress and show planned success over accidental success.
These questions are really only relevant to a post-revenue product that has a few months of data under their belt. But, it can be great to start thinking about them early. If you are going to launch with a recurring business model then how are you thinking about Lifetime customer value (LTV)? Do you have sales channels and relationships established or will you need paid ads to get initial reach? This is where your team should be showcasing the ability to wear multiple hats or where that new Head of Marketing hire can be highlighted as an expert. This is the self-accountability portion of the interview. Investors love to push back on assumptions, so be open with the logic, as that’s more important than the numbers themselves.
Competition probably came up earlier than this point in the conversation, but I think worrying about the competition is only of medium importance. What’s really important is to understand how your competition operates and more importantly, how they strategize. By understanding their positioning, and the things they are doing really well (with success) you can clone a lot of those practices to avoid head to head combat early on. Instead, you can show strategies highlighting the opportunity zones of the market that they haven’t reached yet or just spent a ton of money educating your mutual customer audience.
Example - If you are doing anything in Logistics, don’t simply say that Amazon is not a threat. You sound silly, and the investor could write you off here. But, saying “We aren’t too worried about Amazon because they need third party partners to help with their supply chain, because it costs them $XX Million to serve this niche customer base” can be really reassuring. Not only did you earn trust as an expert on the industry leader, but also you phrased it in a way that shows how you can scale really quickly serving a gap in the market as a place to start your market grab.
Example - If your competition is another startup that raised $8M from Silicon Valley, then share insights into why you think they were able to raise so much, and be familiar with how they are spending. “Yeah, I am keeping an eye on [Insert CEO]. She is doing a really good job at fundraising, but they aren’t in touch with the average customer in their target market yet. The product still has holes (list them), and our product serves this target persona much better already (makes sure to tell how, succinctly). We feel that with the $2M we are raising, we’ll be able to surpass what they’ve accomplished, and our vision outruns theirs because of…” This way you aren’t putting them down, but you are confident in your own vision and not a windsock CEO that is reacting to tiny shifts in the market.
If you can nail these questions you’ll effectively be at the same place as most accelerated companies. Be sure to keep working on these responses and they’ll constantly be evolving as you mature as a Startup CEO. The conversation will become more natural, and you’ll find your own groove as the best way to pitch without having to follow a structured pitch.
If you want brownie points - You could keep a list of common questions and put it in your data room. This way investors can share the answers with other angels or investors you may need to help finish off the round once you pass the 50% soft-circled phase or have a nice guide to look back to. Fundraising is all about momentum and the more pre-work you do, the more leverage you’ll have to push back on early investors who ask for all kinds of deliverables that could be a time sync.
Best of luck with your fundraising and let me know what I missed! Always willing to share more of our learnings with fellow founders and help keep you organized at Knightley.co.
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