Don't Edit Your Deck - Edit Your Investors
How to Edit
Today’s post will help you raise money from non-VCs for your early stage startup. The current approach…
Spend 100 hours on a pitch deck
Send it to lots of people
Hope
…isn’t working. So let’s workshop it.
But first, let’s take a look at you:
You’ve been working hard on a startup idea and you thought The Mandalorian was overrated. You mostly keep both of these things to yourself because you don’t think anyone wants to hear about either, and you’re probably right.
But recently, you’ve realized you’ll need to tell some people about your startup idea, because it’s beginning to look like it might work.
You’ve validated that there’s a problem and a customer who absolutely needs it solved. Your solution is compelling and different - maybe you haven’t built it yet, but you’ve got pre-orders, or sign ups, or something that indicates customers are interested. You’ve found channels to acquire those customers and tested a price for your product that’s roughly 3x higher than you think it’ll cost to acquire them (Startup Commandment: CAC = +1/3CLV).
Or, maybe you haven’t done any of those things but you’re feeling dangerous.
Today isn’t about whether you should raise money or not - that’s another post - today is about how to execute.
But first - why do you need money?
You’ve reached the end of your “validate unscalably” rope.
You’ve hit what we at Tacklebox call a “one-time cost bottleneck” and need a chunk of money to cover a one-time cost like product development (physical or software), product minimums (physical), or a marketing agency for a Kickstarter campaign.
Some founders can bootstrap this next step. But most don’t have access to the $25-200k their idea needs, so they rely on non-professional investors. These can be “friends and family,” angels, or literally anyone who’s livelihood doesn’t rely on the returns they make investing in startups. In 2021, these people are everywhere.
So how do you find them and convince them to invest?
First, you google “pitch deck examples,” find that one Airbnb deck, and spend 100 hours perfecting your version of it.
Then, you circulate it: Angels and anyone who seems to invest in the space, warm contacts that invest / are wealthy, and eventually the guy who works at Van Leuwen and serves you the ice cream you stress eat because you can’t get any commitments.
A process that needed to take five weeks spills into five months and your window has closed. All you’re left with is your ice cold take on The Mandalorian and an interview next week with Deloitte.
Luckily, that’s not actually you. That’s a stick figure I drew in Microsoft Paint.
And a few simple mindset shifts will increase your likelihood of a successful early fundraise by 10x and keep you on the emotional rollercoaster that is entrepreneurship and far, far away from that stable, reliable, career at Deloitte.
Inertia
What’s the most important part of your pitch to early investors?
Early traction? Market? Team?
Nope.
The most important part of your pitch deck is inertia. Not the inertia of your startup… the inertia of the person you’re sending the deck to.
Like most things in the startup world, it comes back to the Harry Potter Problem. Entrepreneurs (and humans in general) assume we’re all Harry Potter. We send a deck and think people will take the time to read it and care solely because we care and we’re important in our own story, so we must be important in theirs, too. But in the investor’s eyes, you’re a random first year in Ravenclaw. You don’t impact their plot.
Which makes the first step to creating a great pitch deck internalizing a tough truth:
Absolutely no one wants to read your pitch deck.
You’re email and your deck and your startup idea in general are all an imposition. This person was doing just fine without you. Maybe they were on their way to grab a bagel. Then, they checked their email and you gave them a chore.
“Here’s a 17 page deck with a couple financial models and an appendix. Read this, digest it, and ideally give me money you’ll probably never see again. But if not, let’s hop on the phone where you’ll have to awkwardly tell me you won’t be helping me achieve my dreams, and I can push you for intros so I can bug your friends, too. Enjoy that bagel!”
There are very few scenarios where an investor’s inertia doesn’t immediately take them to a “no.” A “no” is always going to be so, so much easier than a “yes.”
So… what can you do?
Realize you’re starting from a deep hole. You have a very short amount of time to deliver value to them. Even though we don’t mean it, most first emails are astonishingly selfish.
(We’ve been pitched this <5 times)
Value is hard. Here’s how to do it.
Stack the Deck by Reverse Engineering a Successful Investment
What’s the exact moment someone decides to invest ~$25k in an early stage startup look like?
What’s the last straw that makes them invest?
These aren’t professional investors, so while they’d love to turn that $25k into $200k, they likely don’t need the money.
So… why?
Not knowing the answer to this question is like starting a company that sells baseball bats without knowing why customers would ever want a baseball bat.
If you don’t know what your customer wants from your product (you’re selling “investment in your company,” and you better believe it’s a product), how the heck can you build features (a deck) that optimize for it?
So step one of a good fundraise is figuring out what your customer (investor) wants. As always - talking to them is good.
I was curious about this, too, so I went out and did some legwork. I spoke with some angel investors - people who have written a handful of $10 - $25k checks in pre-product startups - and asked why they did it.
Here’s a representative response from a friend telling the story of her last investment:
“First, I’d been email intro’d by a trusted source who said this entrepreneur was great. They responded with a quick two liner about what they were up to and I immediately pitched it to my husband - I’d had a very similar idea a few years back but didn’t have the time to pursue it. Anyway, over maybe three weeks we chatted on the phone probably twice, and they sent along a weekly status update every other Monday. On the last call, they offered me advisory shares if I invested - I think my experience with the idea was helpful. I pitched the idea to my monthly mastermind group and realized that all the holes they were trying to poke were manageable. I emailed that night to say I was in. I’ve actually brought a few friends into the investment since. We covered the whole round.”
What’s this tell us?
The inflection points that led to her investment:
Intro from trusted source
Prior belief in the idea
Pitch to spouse
Visible progress over a few weeks
Advisory offer
Pitch to unbiased trusted network
Here’s how this looks on a timeline:
This general path showed up remarkably often. In most cases the investor…
Already believed in the premise of the startup before they were pitched
Pitched the startup to a few people they considered smart / influential before investing
Passively received progress updates that showed momentum while the idea of investing “settled”
Recruited other investors or became advisors (actively engaged) after deciding to invest
Conversely, when I asked about startups they didn’t invest in, the “why” was all over the map. Didn’t like the space / founder / progress / price. Wasn’t a good time. Money was tied up. Traction wasn’t fast enough. Didn’t see competitive moat. Lots and lots of jargon.
It became clear there was one pretty well-worn path to a “yes,” and tons of paths to a “no.”
A “yes” for one investor wouldn’t be a “yes” for others. These were hyper specific. Basically, if the investor was immediately motivated by the idea - almost always because they’d had it themselves - they kicked off a sequence that led to action.
I couldn’t find a single example of an investment where the angel was “convinced” over a series of calls. They were either “in” or “out” from the first interaction. The “in” could definitely change to an “out” over time, but the “out” never changed to an “in.”
Now that we know the path, it’s up to us to work backwards to optimize for it.
Working on my Backwards Walk:
Your final interaction where you'll get a check will have a few components: an engaged investor with deep belief in the idea who has already pitched your business to a number of trusted advisors.
Working backwards, you want to set up your interactions with investors to filter for those people.
An investor will likely give you about 15 seconds of attention if you send a cold email. So your job is to edit out the pretend investors - the ones that don't meet the criteria of a potential investor - and amplify your message to the ones that could be a fit.
You've got 15 seconds to turn everyone who reads your message into a "hell yes" or a "no." And 90% of people who read should be an immediate "no," because most people won't have that "product-inertia" fit.
Here are two one-line cold emails for the same startup:
"We're helping people transitioning from college to the real world cope with that massive change through 3-month long therapy protocols. Mental health and depression are growing and skewing younger - we aim to help at the source, starting with ex-college athletes."
vs.
“Ex-college athletes struggle to transition from the competitive, team-oriented world they've been in for the first 21 years of their life to a world without that structure. We're building a 3-month long therapy protocol that’ll help recent college athlete graduates focus on their mental health during this transition, and we're looking for investment and advisory from ex-college athletes."
The first message might get you 40 responses from 100 cold emails. The second might get you 12 responses. But you aren't out to make friends. Those extra 28 calls are likely all "no's" and you cannot waste your time with them.
Specificity builds trust - you'll get 12 responses with a high trust level vs. a bunch of responses who are interested in hearing more. "Hearing more" is a disaster.
Maybe most importantly - the second pitch travels.
The person you pitch might not be an ex-athlete, but you better believe they’ll know an ex-athlete who invests, and this level of specificity kickstarts your game of telephone.
So that second email to 100 investors might return 12 with an 80% chance of investing, and get you 15 more intros with an 80% chance of investing.
The first 15 seconds buys you the next 15 seconds for the right potential investors, and provides an off-ramp for the wrong ones.
You won’t change any investors mind.
They’ll either be capable of the yes “path” before you’ve met them or not. Ruthlessly editing, from the first second of the first interaction, will ensure you jump on the path with inertia towards a yes with promising investors, and off the path with inertia towards a no with the investors that never had a “yes” in them.
This all comes down to your ability to be specific. What are you doing, who is it for, and why is it different. How many inclusive words can you use immediately to turn off 90% of investors and get 10% irrationally excited.
And how can you trust this process and not make the pitch vague because you’re worried you’ll leave someone out.
Edit to amplify.
(says the guy that just wrote a 3,000 word article).