The Huge Mistake Entrepreneurs Make in Their Fundraising Pitches and How to Avoid It

You’re probably not a teacher, but I am. In fact, I teach entrepreneurship at Duke University. And, as a teacher, one of the more annoying problems I regularly deal with is keeping track of student attendance. However, since most of you reading this aren’t teachers, I’m guessing tracking student attendance isn’t something you regularly worry about. So what would happen if I tried to sell you a product designed to help teachers take attendance?

You wouldn’t care.

But wait! What if my attendance-taking product is revolutionary and industry-changing? What if I spent 30 minutes walking you through the most beautifully crafted slide deck you’ve ever seen? What if it meticulously and thoughtfully explains all of my genuinely incredible features?

The outcome will still be the same. You won’t buy.

In other words, anyone with even an ounce of common sense can recognize?the futility of trying to sell a product — no matter how incredible — to someone who doesn’t have the problem the product solves.?And yet, this is exactly?the trap most entrepreneurs fall into when pitching?investors.?They try selling investors their products instead of their businesses. Because of this, it’s little wonder so many fundraising pitches fail.?Your product doesn’t solve the problem your investors actually have.

Investors aren’t your customers

While we’d never be able to accurately calculate the average length of time entrepreneurs, as a whole, spend talking about various different things during their fundraising pitches, I’ve personally witnessed thousands of pitches, and the patterns are clear.?During fundraising pitches,?most entrepreneurs spend more time describing their solutions — their products and features — than any other single topic?(e.g. team, competition, revenue projections, etc.).

If you’ve watched a halfway decent number of startup pitches,?you’ve surely seen this pattern, too. For example, you’ve likely seen fundraising pitches where the founders give?product demos. Worse yet, and my personal pet peeve, you’ve probably seen pitches where the presenters?play videos showing their products in action. In fact, how many of you are guilty of the same types of mistakes??How many of you spend lots of time in your fundraising pitches describing your product??I know I’ve done it.

I understand why, during our fundraising pitches, us founders are tempted to focus on our products.?From a founder perspective, talking about our products seems like it makes sense. After all, our products are the things we’re selling customers and the things around which we’re building our companies. They’re central to our businesses. Surely, during our fundraising pitches, our products are the things we should be showing investors, too.?Except there’s one big problem with this logic: investors aren’t our customers.

Excluding rare circumstances, the investors we’re fundraising from aren’t also good prospective customers for our startups’ products.?Yes, they might have some overlap as potential users. Or they might know someone who’d be a good customer. They’ll almost certainly be able to imagine what a potential customer would look like.?But rarely will they, themselves, be an example of an ideal customer.

Just as importantly, in their role as investors — which is why we’d be trying to talk with them in the first place — they’re almost certainly not target customers because “startup investors” is a tiny and niche market.?In other words,?if you’re building a company with a product directed primarily at startup investors, your startup’s market probably doesn’t have the scalability to become a venture-style company, and, as a result, you wouldn’t (or, at the very least, shouldn’t) be fundraising.

How to solve an investor’s problem

Because investors almost certainly aren’t good customers for whatever product your startup sells, spending lots of time during your pitch talking about your product doesn’t make sense. To return to my example that began this article, it’d be like me trying to sell you a product that helps teachers record student attendance. No matter how great my attendance taking product is, you just don’t need it, and you won’t buy it.

So what should you be talking about during your pitch? What should you be selling investors? Well,?even though?investors won’t have the problem your product solves,?they still have a problem, and it’s a big one:?investors have large piles of cash sitting in their bank accounts, and they need to turn that money into more money by investing in startups.

In order to raise capital, you just need to show investors your startup is capable of solving their problem. But you don’t do it by pitching your product.?You do it by pitching your business.

Specifically,?investors need to find startups capable of using additional capital to quickly grow large and exit for a price that returns a significant multiple on the amount of money they invested.?You won’t be able to convince investors of your startup’s ability to do this by telling them about your product.?Instead,?you’ll?do it by showing investors?how your business will use their investment capital to rapidly and exponentially scale.?By doing this — by showing investors how your startup solves?their?problem — you’ll be able to raise money.

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Aaron Dinin teaches entrepreneurship at Duke University. A version of this article originally appeared on?Medium, where he frequently posts about startups, sales, and marketing. For more from Aaron, you can also follow him on?Twitter?or subscribe to?Web Masters,?his podcast exploring digital entrepreneurship.