Startup Pitching - Mistakes to Avoid

I was reading this book #BadBlood Secrets and Lies in a Silicon Valley Startup by John Carreyrou, The story of #Theranos is the Silicon Valley equivalent of the Enron scandal replete with bold claims, high valuations, defrauding of investors and terrible corporate governance. Theranos promised to revolutionize healthcare by painlessly performing hundreds of tests on a single drop of blood.

In 2015, Theranos was a unicorn valued at $9 billion. By 2018, the company shut down and #Elizabeth faced a ten-year ban from serving as an officer of a public company. Theranos serves as a cautionary tale of what can go wrong with a ‘fake it till you make it’ approach to building a company.

As a #mentor for startups, I come across the aspirations, vision, and the zeal to change the world in many of the would-be Entrepreneurs. However, this so-called Zeal, the vision would take a nasty turn once the valuation bug bits them. After attending many Startup Pitches and seeing how the participants present their story, Idea to the panelist, jury, judges I thought I would summarise and enlist some key mistakes which can be avoided for the benefit of thousands of Startup enthusiast waiting to put their Idea's across.

1. Growth Projections - Which are Unrealistic

Founders and investors know that the financial projections of early-stage companies do not make sense. There are too many variables, unknowns and future events that make the projection inaccurate 99% of the time. That said, a projection helps an investor understand how you think about your business and what are the assumptions that need to hold true for the proposed venture to grow. If you project a revenue growth that is completely out of sync with other startups in the industry, it brings out your lack of understanding of the space.

2. Claiming unrealistic TAM (Total Addressable Market)

It is important to understand the difference between the Market Size and the Total Addressable Market. Investors are reasonably aware of whether a market is large enough or not. If you present a TAM that is unrealistic for the industry, it can go against you and showcase your lack of experience.

3. Approach to Market Sizing - Using Top Down

While creating assumptions basing on a single source, the outcomes would be completely skewed. You should look into various factors and sources while arriving at it. For example ‘delivering breakfast to the office’ has a market size of $100 MN USD. While Nielsen could be correct in their calculation, you cannot use this as the only measure of market size.

Bottoms up is a better approach to paint the picture of a sizable opportunity. “If there are 1 million office-goers in the city and you can attract 5% of them, you will profit $1,000 a month and if you deliver breakfast 20 days a month, that is $20,000.” This bottom-up approach to market sizing is what makes the cut and show the true potential of your market.

4. Too Many Client Logos - No Revenue

Having too many companies listed as customers, make investors assume that the company is generating meaningful revenue. But if the financials are not representative of the claims, it can mean either the company’s definition of ‘customer’ is very loose and includes non-paying ‘customers,’ or the company can’t charge enough for the product. Both options are equally bad.

5. Insane Calculations - Investors Expected Returns

It’s almost impossible for you & investors to calculate the ROI the investor can expect so early in the life of a startup. Quoting a small number would turn off the investors and a huge number will make them ask more questions about your assumptions. This is definitely not where you should be spending your time.

Your job as an entrepreneur is to build a huge company. That is what you should be obsessively focussed on — and that's what you should present.

6. Team Slide - Half Baked Information

This is one of the key slides of your presentation. Investors are bidding for your team and their biggest worry is if you would be able to execute. Make sure you talk about chemistry, domain experience, past achievements. Mention the complementary skills of your cofounders and if you have worked together before. Do not create a sub-standard presentation of your headshots and degrees only. The team slide is one of the most important slides.

7. Showing Immaturity In Calculating - Customer Acquisition Cost and Life Time Value of your Customers

Be ready for questions on your user acquisition costs like what channels will you use to acquire a customer, what costs will you incur, what will be their likely lifetime value. Which areas show most promise with marketing, what is your typical sales cycle duration. Lack of answers to these questions means that you have not thought through your business plan.

8. Not giving due attentions to critical Details

For your legal protection, put a copyright notice at the bottom and add the phrase “Private & Confidential.” Include page numbers on each slide so that the investors can easily reference a specific page. Make sure your presentation is a visual treat, not text-heavy and does not contain typos or inconsistencies.

9. Unable to Articulate the use of Investment Capital and How long it will last

Investors want to know how you will use the raised funds and your burn rate (so that they know when you will need the next round of financing). It will also confirm that you know your costs for hiring, marketing, support & admin, etc, given their experience with other startups.

10. IPR (Intellectual Property Rights) - Unable to Capitalize

Investors put a heavy premium on intellectual property. Be ready for questions on what IP does your company have and how was it developed, whether any previous employer of your cofounders can have a claim on your IP.

11. Stating the Problem Statement - Which May not be the real Problem

Frame your problem statement such that it is clear what is the problem. When you say- "The problem is the same-day delivery market, and we plan to combat the Amazons of the world," it does not mean anything. Do not assume that investors know what you mean.

12. Unnecessary Details

Most investors you are going to pitch to are experienced and know exactly what they are looking for. You need to give them the right information to convince them that your company is the right company for them to invest in.

13. Will get back to you

Now, this is all right if it’s about one or two points, but if there are too many details that you don’t know, on the spot, it shows you are not close enough to the business.

Before your pitch, conduct a role play with a team member or close friend. Ask your “actor” to be a complete jerk – have her poke as many holes in your delivery as possible. Anytime she has any sort of question, concern, inconsistency, etc, have her voice that to you. Record it. Take notes. Go back and fix it.

Do all of this with plenty of time before your actual meeting so you can make tweaks. Chances are that if your friend is asking something, so will the investor.

14. Rushing through the Pitch

Speaking slowly makes you sound more confident and knowledgeable. If you get nervous, try to calm down and have a glass of water. Do not memorize your pitch but speak from the heart.

15. Not having the Team Speak

Investors want to know that you have a good team. They want to get to know your team. If only the CEO speaks, how will they gauge if the other members are any good? Also, don't have the team members contradict each other.

16. Not sparing time for QnA

No matter how organized a pitch is, it may fail to answer certain questions your audience has. Planning for QnA time allows your pitch to be clear to someone unfamiliar with your line of work.

17. Emphasizing more on Features over Benefits

Make sure you appeal to the emotional side as well. Talk about how your product is helping customers, rather than your product's features. Talk in terms of the value your customers can extract from your product, not the features that create that value. Make it easy to understand why customers love your company.

Speaking of derived value is always a good bet. Sell a good night’s sleep rather than just a bed, sell 1,000 songs on your phone rather than 1GB of extra memory.

18. Giving less attention to Key Business Metrics

Investors are concerned with 5 major questions: the market opportunity, your team’s ability to turn the idea into a profitable business, the go-to-market strategy, your current & projected numbers (CAC, LTV, among others), and what you are asking for. Identify what drives each investor. Do they want to be part of a groundbreaking company? Do they want to make money and exit fast? Target what drives them!

Focus on the business opportunity rather than spending too much time on explaining your product. If you focus on the opportunity, you’ll have a better shot at keeping the investors’ interest.

19. Showing the Uncoachability Side

Do not scare away investors by coming across as "uncoachable." Your lack of flexibility, unwillingness to share control or not bringing in new executives at the right time might cost you closing the round. As a #coach I have seen a lot of them missing this piece, due to which missing critical Investor attention.

20. Don't be Desperate while Closing

If you close with "please talk to me and I can show you how to get your money back," it looks like an insult to investors. Aside from the obvious desperate nature of this plea, investors are not worried about getting their money back. They are interested in getting a 10X or 100X return on their investment. Getting their money back is not something that excites them.

I wish you all a Happy Entrepreneurial Journey

"Entrepreneurship is more than mere invention; it is the best practice for creating market value from innovation, with limited resources.”