What I’ve learned from seeing 20k company pitches
blog.elizabethyin.com
blog.elizabethyin.com
"Speed as the primary business strategy" Dave McClure:
http://www.slideshare.net/dmc500hats/best-strategy-is-speed-...
Also PG in The Submarine implies he got value from PR for Viaweb:
>Our startup spent its entire marketing budget on PR: at a time when we were assembling our own computers to save money, we were paying a PR firm $16,000 a month. And they were worth it. PR is the news equivalent of search engine optimization; instead of buying ads, which readers ignore, you get yourself inserted directly into the stories. [1]
>Our PR firm was one of the best in the business. In 18 months, they got press hits in over 60 different publications.
I think people misunderstand the function of PR vs. Advertising.
PR is a way to build credibility through third party validation. Advertising is how you convert that credibility into sales.
They both have their time and place and you really need both to build a big brand.
If you run PR as your only marketing, you will be disappointed by the lack of direct sales and quantifiable ROI it drives.
If you run advertising without PR (or other third party validation) you will get frustrated with how expensive your cost per acquisition is from advertising.
These are not necessarily good practices for starting an enduring company.
And what is the reasoning behind considering the former as better than the latter? The latter most likely has a more mature product with less technical debt and has shown that it can shoulder its operational costs for 5 years. The former has "speed" ... great.
> Demonstrate that you can pull the trigger on things quickly — whether it be getting customers, hiring / firing employees, or product development.
Quick turnaround is first and foremost an indicator of something wrong, not something right.
The former implies there's a lot more opportunity still to come, the latter suggests a small market, a mediocre product, or a team that isn't good at selling.
So the majority of pitches you see are spam pitches? As a former grad student in chemistry/biophysics, I would see no reason to read that pitch as a spam. In fact, at first I thought it was quite liberating that 500startups would entertain non-traditional startups trying to tackle real-life hard problems in the physical science industries instead of another startup in the food delivery or cleaning services space, and then the response from your partner was, shall we say, discouraging. You might want to edit your post since it doesn't paint 500startups in a good light.
I thought the post was really good otherwise.
This applies to startups just as well as theoretical physics. If you struggle to get your idea across in a pitch then something is fundamentally wrong, and it's quite reasonable for an investor (or a customer) to move on.
I don't think the author really knows what's important for pitching. That doesn't mean I know, but I'm quite sure it's not "make sure you stand out".
The author got that feeling because if you read 10k pitches a year, it gets boring as hell, and you are happily surprised by anybody and anything that achieves to look different. However there are different ways of being different. For instance, spelling errors stand out to her immediately. But it doesn't make her give you a thumbs-up. Yellow jackets and loud music will probably achieve "standing out", but are not something that brings you a step forward.
To me the blog post reads like her not having figured out the important thing yet, but she certainly wants to make sure that you make her job a little more interesting. Honestly, is it not weird to advice three times to stand out, then name a thing that stands out to the author (spelling), and then saying that people who stand out that way go to the trash bin? (This is not to say she or the post is bad. But it doesn't give the value it's promising.)
Again, I'm no expert either, but usually what stands out positively to investors(!) is traction. Traction is growth of leads -> possible sales. And traction is important because that is what an investor is buying. He buys a ticket at making X-times more than what he gives you. Everything else, like team, color of your jacket, spelling capabilities, features in your prototype, are only important in that regard as that they give a hint to the investor about your traction or lack thereof.
Investors see lots of decks and realistically don't have time to do a deep dive for an hour or more on each one given the volume. This could be a flaw with the industry, but these are the circumstances that entrepreneurs have to work with right now to get noticed to even get that deeper dive meeting.
If you need to meet with 100 investors to raise money you are promoting a shitty deal and you shouldn't be investing your personal time in it.
Conversely, if 500 startups routinely invests in companies where 90+ other investors already said no, you gotta worry about 500 startups.
> So, I made up a rule of thumb: 5-100-500. Over 5 weeks, meet with 100 investors to close $500k in your seed round. If you want to close $1m, double all of these numbers.
Airbnb and Uber barely generate profit domestically and operate at a loss internationally. Every investor not betting on inflated share prices has been smart not investing in those.
IF: CAC < NPV(LTV)
THEN: reinvest your earnings and generate zero to negative profit.
Where:
CAC: Customer Acquisition Cost
LTV: Lifetime Value of the Customer
NPV: Net Present Value
These naysayers may have made great business decisions both for themselves and for these startups companies. Not all investors will make a startup prosperous. Only the right investor will create that spark.
All alpha in financial returns comes from doing things your competitors are not doing. If you do what other investors do, you should expect to get exactly average results. As a commodity product, if you get exactly average results your LPs are going to start wondering what they're paying you for.
500 startups is correct for seeking out startups that the other 90+ investors are ignoring. You may or may not be correct for pitching an idea that 99% of investors will ignore; it's a risk/reward trade-off, where pitching the obvious idea will give the obvious result (getting funded) followed by the other obvious result (landing at a big company in a face-saving aquihire), while pitching the non-obvious idea gives you a 99% chance of ignominious failure and a 1% chance that you're the next Google.
Colonel Sauders famously was rejected over 1,000 times with his pitch for Kentucky Fried Chicken.
(FWIW There are plenty of investors that specialise in investing in restaurant outlets and consumer brand franchises, they just don't tend to be located on Sand Hill Road.)
To that extent, his company and legacy are a very fascinating study of complementary developments and capabilities. And sinking money into the Colonel in the early 1950s would have given extremely strong returns.
There's a pretty good general biography of Sanders floating around somewhere online though I can't seem to find it. A long-read type piece that starts with his gas-station shooting incident.
http://www.deseretnews.com/article/700217162/Story-of-first-...
http://blog.elizabethyin.com/post/139303202435/why-fundraisi...
Where do you get that from?
Many very successful companies had a very hard time raising money at some point. That certainly didn't make them into a "shitty deal."
In fact, Fred Wilson just wrote an article about how hard it was for them to raise their first fund at USV—and that fund ended up doing spectacularly well. [0]
> we have seen founders and CEOs get rejected by more than fifty investors during that process.
He mentions 50 rejections as an outlier. He's not saying that's the norm, he's saying thats how bad it can get for companies in his portfolio that do raise money. Nor is he saying those are his best performers.
In fact, he's saying they need to change their company to raise money. Which is to say, that they started out pitching a shitty deal and had to improve it:
> As these expansion stage companies struggle to raise capital, they are forced into a cathartic (and at times painful) process of self reflection... And as a result, these companies are coming out of these hard raises with better businesses, better operating models (lower burn rates!!), and bigger visions to go execute against
Conditions for raising seed are a bit tougher today, but even in 2015 contacting 100 investors not outside of norm.
I've seen more and more professionals not do this so it is good to see it reiterated now
Sometimes I'm not sure how I want to be perceived : as a big firm or as an individual
Sometimes company emails scare people off, other times personal emails do
Investors reading this: do you think cold emails and referrals are equivalent in terms of deal origination, or do you stick to referrals only? Please also mention your geography.
For VC funds almost all deal origination is referral or outbound, virtually none is cold inbound.
For seed accelerators the majority is cold inbound.
500Startups sits in a slightly odd category between those two so it's behaviour is likely to be unusual in any case.
But she makes a good point about the quality of referrer as well, who gives you the referral to a fund makes a huge difference to how much attention you'll get. As a fund if you treat all referrers as equivalent then you're inevitably going to get a lot of junk (anyone who works in VC has a huge network).
Some funds go so far as having formal categorisation of referrers (platinum, gold, etc.) based upon the quality of their dealflow and rewarding them based upon that.
For one, novel ideas are often difficult to communicate effectively, and difficult to grasp. Ideas that are notably different and blatantly obviously advantageous are typically few and far between, because such ideas would have already been implemented, being obvious, after all. Most good novel ideas have some degree of subtlety involved in them, or require a paradigm shift to truly understand well. Trying to digest such ideas without having that shifted mental model will often lead to misunderstanding. Additionally, communicating complex ideas can be very difficult. Consider how often book adaptations into movies fail to carry over even the core ideas or zeitgeist of the original material, and in that case you have a richly detailed (multi thousand word) source material as well as the resources of thousands upon thousands of folks who have read it to aid in that translation. In comparison, the idea that a complex idea can be easily and trivially transmitted from one mind to the next without error through a short pitch is ludicrous. And even less likely the more novel and interesting the source idea happens to be.
For another, novel ideas are often quite subtle, and don't look as revolutionary until the revolution has passed. Consider, for example, the transistor, or heavier than air flight. Neither of which received a great deal of press at the time, both of which were, undoubtedly, some of the most transformative inventions in history, based on numerous new ideas. The transistor seems, on the surface, to be little more than a different kind of thing in the same vein as the vacuum tube, and thus to be met with a similar level of success as the vacuum tube. But, of course, it is a different beast entirely. Solid state, miniaturizable, more suitable for mass production, more reliable, etc. It would lead to a revolution immediately in transistorization of electronics such as radio sets, making them smaller, cheaper, and more reliable. But, of course, it would also lead to the advent of the integrated circuit, digital logic, micro-processors and the personal computer revolution.
Yet to someone like this silicon valley marketer if they saw a pitch for the transistor they would almost certainly think it was nothing special, and not a new idea.
There are countless similar examples across the tech industry, and across history. The web, for example, was not all that different, per se, from gopher or FTP or other forms of information exchange from the early years of the public internet. But, of course, it was the specifics of the web that truly made it not just slightly different from other "ideas" for sharing information but transformatively, revolutionarily different.
If you look at cells under a microscope they mostly all look the same. Yeast cells, bacteria, even animal cells, they all just look like little mostly circular blobs. But just looking at a cell tells you almost nothing about it, you can't see the DNA, you can't see the cellular machinery. You can't see the difference between a cell that belongs to a sea sponge and one that belongs to a human being. Ideas are similar. When you view ideas by buzzing over them at the 10,000 ft altitude level of a pitch deck that you stare at for a few minutes they're going to blend together a lot.
This is an underrated set of points.
I'd say (and heard others say) every point of IP in a new product is a red flag.
Consider Google for example. When they came on the scene they introduced roughly 3 different novel things to the familiar search landscape: pagerank (crazy CS PhD level search result optimization crap), map-reduce running on sharded multi-host web-accessed supercomputers, and revolutionary heavily automated data center management.
These things were as different as what had come before to the same degree as if you opened a door in a library and stepped into an alien mothership. But they very much contributed to google's success. They meant that google produced better search results (pagerank) faster (map-reduce + sharding) and cheaper (IT ops) than competitors. And that would lead to their huge advantages in monetizing their search results (better, faster, cheaper means higher profit margin on lower cpms).
But for the end user, they did not have to grapple with any of that novelty. Google users didn't have to understand pagerank or map-reduce. They simply went to google.com and saw a familiar though even simpler search page than they were familiar with from google's many competitors and predecessors, they typed in their search query and pressed the search button. And then they were presented with a list of results, just as all other search engines before. The difference for them was that the results were better, the pages were easier to navigate due to a cleaner design, and the results were produced faster.
This sort of thing is common in technology. The process for riding an airplane is not terribly different from that of riding a bus, you walk through a door, you sit in a seat for some time, and then you get off at your destination. The process of building and flying planes is vastly different, of course, but air travel customers don't typically need to know how to fly or build planes.
It is execution that matters. The details matter. The subtle insights matter. And, I believe that is what you are trying to say here. Google may not have been the first search engine but their technology was faster and the user experience was better than their counterparts. This execution is what I'm saying should be highlighted in pitches as a way to differentiate one's business -- not the high level ideas.
Sigh.
Those are concepts that are highly competitive because they have near-zero barriers to entry, while the underlying markets are themselves highly fragmented (significantly driving up your acquisition costs), highly competitive (meaning that there isn't much revenue to share with your startup), and already using multiple capture channels for their customers (meaning that you are unlikely to provide killer value to them). But for some reason -- I have my own theories there -- there's always some concept in those spaces getting funded, so they seem more greenfield than they are.