Startup founders: ditch the pitch deck & just talk to investors about customers

Along the way in your entrepreneurial endeavours you’ll probably need some external funding to scale, but how do you give yourself the best chance of raising? How do you stand out amidst the crescendo of startups baying for funding, and turn the look-at-me pitch frenzy where you’re head and shoulders above the rest? You’ve got to sit the investors’ side of the table for sure, but it’s time to ditch the pitch and make investor meetings interesting conversations and avoid next-slide-please.

Investors don’t really care about business plans and initial balance sheets. Why? Well, they can learn more from fifteen minutes of talking with the founders than from ten pages of fluff they've written, and you’re 250 yards into a marathon, so numbers are guesses at best. What investors are looking for is founders who understand a group of users and can make what they want - Y-Combinator’s motto is: Make something people want. A startup must sing for its supper, making things that delight customers, otherwise it will never get off the ground.

Which means conversations with investors should focus on your innovation, something new or a new way to satisfy one. ?Investors have to guess both: whether you've discovered a real need, and whether you'll be able to satisfy it. They are professional guessers trying to figure out is whether what you're offering will be something a lot of people want, and you’ve identified the path to a huge market. ?

Usually it's not obvious, as the path to a huge market is by growing a small market, but the crucial feature of the initial market is that it exists. That may seem obvious, but the lack of it is the biggest flaw in most startups. There must be some people who want what you're building now and want it so that they're willing to use it, bugs and all, even though you're a small company they've never heard of. There don't have to be many, but there must be some. This is the crucial thing to focus on with investors: who are your first users, and how do you know they want this? The most convincing answer is that you've built a prototype, and even though it's rough and ready, people are using it and it's spreading by word of mouth. ?That is the gold standard of convincingness.

The best thing you can do in an investor conversation is to teach them about your users, ?so go talk to your users and find out exactly what they're thinking - which is what you should be doing anyway - and make investor meetings conversations with a focus on users and market, and ditch the pitch. Investors want to rely on the founders to tell them about the market, judging the potential market for an idea. They're not ordinarily domain experts, so need to convince themselves that the founder knows what they're talking about. Help them see this is what a good bet looks like at this stage.

Addressable market, business model, building a team, go-to-market plan, we all know what’s in the well-thumbed pitch deck, but position investor meetings as customer-centric conversations and shape using a different structure, thinking and language to make it a stimulating session for investors to hear your story and not just turning the pages on another me-two deck.

So here are ten steps to ditch the pitch and crafting an energised investor conversation.

1. Find founder-investor fit You don’t want your first point of contact with investors to be when you’re looking to raise as a cold intro.? You need to socialise and start to build investor relationships six months in advance of raising, to maximise your chances of getting the ones you want on your cap table. This is a key point: founder-investor fit is important as founder goals and investor business models must be matched or you won't raise.

It's about what growth-investment strategy you’re aiming for. Sounds obvious, but there's an old saying: you inherit the business model of your biggest investors. The more you raise, the more this is true. ?Founder-funder fit is up to the founder. Founders should be asking investors what investment strategy they are playing too, and get to a shared understanding such that there may be founder-investor fit ahead of seeking to raise.

2. Purpose What's the purpose of your venture? Build a story around your purpose, be passionate but not evangelical about your ‘Why?’ Does it satisfy a strong market demand? Is this both sustainable and defensible? ?Outline where the opportunity for growth, differentiation and scalability exists. Purpose-driven companies attract and retain the best talent, build and maintain customer loyalty and can drive future revenue and profits build momentum.

Investors want a sense that you’re living in the future ?in the sense of being at the leading edge of some kind of change, and you’re driven to succeed. Most mega-successful startups are of this type. Steve Wozniak wanted a computer. Mark Zuckerberg wanted to engage online with his college friends. Larry and Sergei wanted to find things on the web. All these founders had a clear purpose at the leading edge of a change.

3. Friction What market friction are you solving? There are three types of frictions that a startup can address:

• Market friction: A social, economic, tech?or regulatory change
• Expected friction: Once you uncover a market, you then need access to it by looking for inefficiencies and pain points
• Latent friction: Once we find a pain point, we then need to make money. We do this by designing experiences people didn't know they wanted until we showed them

Talk about customer friction, not your product at this stage.

4. Existing competition Evidence your market knowledge by outlining the current solutions you’re going to take market share from – or better still, create a new market demand by being different. Don’t simply rubbish the existing players but give a balanced analysis showing the gaps and blind spots you’re shooting for evidenced by customer research. Where are you 10x better than your competition? This is a rule of thumb investors look for. If you can do it better, faster?or in a way that delights customers, you might be onto something.

5. Why now? Timing is everything, so don’t paint a picture of your solution being the best thing since sliced bread but rather be confident you’ve judged your market entry timing right. A beautifully designed product with an incredible user interface?won't cut it if the market isn't ready for it.

6. Outline your solution Paint the picture I’ve outlined above to lead the investors thinking based on customer preferences to your solution, and then unpack the MVP needed to launch. Remember, a?MVP is not a prototype, it's a product customers can?actually?use. Without an MVP, you can't test; without testing, you can't find product-market fit.

7. Defensibility and Roadmap What's your secret sauce? Is there something proprietary that makes you defensible against competitors? This could be technology, methodology, data, IP, partnerships etc. If there's nothing protectable about your startup, then it's a race to the bottom. Investors will back you when you can show why you’re going to be the market leader in a winner-take-most market that generates significant returns. Defensibility via network effects is the biggest factor in value creation.

From idea to scale, do you know where you want to go? You need to showcase what you want the future to look like in the next twelve to twenty-four months - and ultimately three years down the road with what the road map and capital required to get there will be. A good road map is a powerful tool, again based on a vision for customers, building defensibility.

8. Growing traction and trajectory to prove product market fit Investors looking to see if you have traction are looking for that hockey stick curve, they want to see you approaching an inflection point. When they invest, they want to see their investment as rocket fuel. The point from a founder’s perspective is that you should be figuring out how to accelerate your growth engine which means you’ll fall into that 10X growth trajectory. The starting point for this kind of growth is very important. For example, 50% monthly growth on ￡10k monthly revenue is a lot less impressive than 10% monthly growth at ￡50k a month. Traction shows you’re starting to get product-market fit and can evidence data to show the market is starting to adopt your product. That data is important not just to show product-market fit, but also evidencing that you’re a data-driven organisation. ?

Also, when you get product-market fit, it’s like someone yanks your head forward. This means managing and exceeding expectations. A typical mistake I see from founders is that they’ll oversell in the first investor meeting: we’re going to sign huge deal X next month and have revenue Y, etc. More often than not, things don’t go to plan. By contrast, there is nothing more exciting from an investor’s perspective than to hear from a business just keeps getting better and better with every interaction. set expectations with, and then consistently beat those expectations to create a feeling of acceleration.

9. Showing scalability to drive unit economics Again, make this a key stage in your conversation. Investors are looking for a clear path to growth and scale. ?For scale, a minimum scale that investors are looking for is very company specific, for growth, it’s about showing that you have a credible path. Clearly communicating what are the growth levers and how you can profitably scale them is critical.

One of the top things investors look for is proof of latent demand, a demand pipeline that’s just waiting for you to unlock it if you can just scale out your supply or services with more funding. The more you can frame your request for funding in these terms, the more of a sure bet it looks like for the investor and the easier their decision becomes.

10. Create a funding range It’s often a better strategy to undercook your ask, set expectations a bit lower and let investor appetite drive the amount up. Nothing appeals to an investor’s FOMO like an oversubscribed round, and there will be some willing to put more money to work.

Alternatively, evidence a second, alternative ‘go-faster’ investment plan that shows what you could do with a bigger raise. This approach will show to investors you are thoughtful about your growth plan around risks, and again will play into the founder-investor fit play. In either mode, be transparent about your fundraising timeline to help create that feeling of urgency and scarcity. Signal that you’re going to make a decision on a certain time-frame, and put the investor on alert.

Fund raising is a significant overhead for startups in terms of time, cost and distraction, whilst for investors it’s a full-time job and the challenge is spotting the nuggets in the plethora of pitches and decks filling their inbox, zoom and diary. It’s become a formulaic process where I’m raising has become a badge of honour for founders, so take back control.

Do something different at the outset. You can fill in the blanks and gaps in the information investors want as part of building the momentum in the raise, but for making impact and a standout first impression, ditch the pitch, be creative and tell a story around friction, the market, users, traction and growth, and let the rest get lost on page twenty-five of their deck.