Mastering Pitching Strategies for Seed-Stage Startup Fundraising

[00:00:03]all right so um I'm here to talk to you about something boring and horrible uh that every single founder hates um how to pitch your company um we just got through demo day and helping over 200 companies pitch investors and pitching investors is basically the most painful thing that companies do what I find fun is that any founder you talk to can remember every single investor who said no to them and they hold a special kind of I don't want to use the word hatred but they hold a special something for those people um and they desire to prove them wrong and so what I wanted to do today is give you all the tips that we give YC companies to be much more successful at fundraising when you are pre-product Market fit and that's really important this is not for raising series A's I assume most of you here pre-product Market fit and so what I hope to do is get you to unlearn some of the fundraising advice that you've learned so far which is probably wrong that's my goal so number one You Stand Out by being concise and easy to understand uh I I've done I think it's over 2,000 YC interviews and one of the things that Founders don't understand is that if I don't know what your company does I can't fund you the number one barrier to not knowing what your company does is you not me not the world that's oppressing you not your users not your advisors it's literally you a lot of people think that they need to bring a bunch of energy and Pizzazz and Sizzle and shark tankiness to a pitch you don't you actually Stand Out by being concise and easy to understand and so a lot of what I'm going to do today is going to not sound fancy because it isn't it just works there's a talk over there that tells you about all the fancy things that don't work so if you want that talk you can I'm just joking all right so these are the common elements of a pitch these are the things that you need to be able to talk about what do you do what does your company do who's on your team what's your traction what do you know that everyone else doesn't or would disagree with you about your unique insights what's your Market size and what are you asking for this is a pitch that's it so let's start with what do you do you need to be able to say what your company does in two sentences and you need to be able to give a specific example so um let's use Airbnb as an example right so Airbnb lets any home or apartment owner rent out their apartment online sentence one they collect the payment online and take a let's call it 15% fee for every booking that's sentence two that's it a lot of the magic comes in the example and I'll give you a real world example imagine that you're a waiter who lives in Washington DC and and it's 2009 and the Obama inauguration is happening in town and every hotel room is booked you can make two three $4,000 by renting your apartment out and that's the amount of money you need to pay your rent for the next two or three months all you have to do is take some photos of your place and put a listing on Airbnb and Airbnb will handle the payments we get you a great guest you give them a great experience and you got your rent paid what's interesting about that example is it's specific you can imagine a waiter you can imagine them being in DC I don't know how old you all are but you probably remember the Obama inauguration or the fact that Obama was President you can imagine the hotel rooms being sold out and you can imagine somebody being able to rent their place out for a lot of money and pay their rent for a lot of months that is a great example what I didn't do was I didn't give a vague example so let's talk about where people go wrong one they pitch something or they explain what they do in a way a customer would understand but an investor would not for most of you investors are not your users you use jargon with your users you assume a lot of common experience with your users if your investor is not your user they don't have that experience you have to use Simple language that they will understand not complicated language that makes you sound smart so one thing we tell YC companies is you need two different answers to what do you do one that you give investors and another one you give customers and they're different the words on the front page of your website are for customers if you're using that for investors more often than not you're doing it wrong number two they try to be 100% accurate there were a lot of details I left out of Airbnb in that two- sentence description with the example but it was clear and easy to understand your goals should be 80% accurate 100% clear not 100% accurate 50% clear I talked about an example that's too general what I could have said about Airbnb is for example if you are in a place that has a big event and you need to pay your rent you can rent your place out and then you can pay your rent same basic story none of the little facts that make it stick in your memory and make you understand next up in their example they don't illustrate the problem and solution right I talked about that waiter inherent in that is that waiter doesn't make very much money and they need to pay their rent and Herb helps them pay their rent so instead of having a complicated problem solution slide I just told you what the problem and the solution was right up front and then last but not least and this is one that I think a lot of Founders screw up you do not want to leave the first slide of your presentation without investors knowing what you do so many Founders have the first SL of the presentation with a nice logo on it and they say like and then they move on and investors are sitting there saying I have no [ __ ] idea what this company does and now I'm looking at graphs and charts and [ __ ] and I I don't have no idea what's going on don't do that one thing you can actually do is just ask hey so now that I've explained what we do do you understand or would another example be helpful you can do that it's really simple next your team um people screw up the team slide all the time the purpose of team is really just to talk about who's on your team what do they do what Their impressive accomplishments and credentials are and if possible how they've personally experienced the problem if we go back to Airbnb they could literally talk about how they were starving startup Founders who couldn't pay their rent and the first time they did this they set up a website for design conference hosted three guests so they could pay their rent if you can weave how you've experienced the problem into the team slide suddenly I think of you as an expert now what do people screw up no titles I don't know what the roles are I don't know who the CEO is if I'm a real stage investor I'm trusting the CEO with money if I don't know who they are who am I trusting number two who writes code number three telling telling long Stories the team side is not the opportunity to tell your life story here's a hint there is no opportunity in your pitch to tell your life story unless the investor asks explicitly for your life story and you should double confirm they want to hear your life story no life stories and then the one I always love missing specific accomplishments there's one company in this badge that literally worked on the Mars rover um the founder was like worked at JPL and like build software to make the Mars rover project actually happen didn't talk about it I didn't even know when we accepted him I'm in office hours with him a month two months into the BR and I'm like what was what' you do at GPL and he's like oh have you heard of the Mars rover I'm like yeah I'm not a [ __ ] idiot and and he's like yeah I I did did and I'm like can we talk about that please if you've done something cool say it without the Li story just say that you did the software for the Mars rover it'll be impressive next traction everyone's got this traction concept a little mixed up for traction you do a clear explanation of what you've accomplished since you started working on your company and only use a graph if the graph is up to the right what people screw up with traction all the time is that you can have traction if you're pre-launch you can have traction if you don't have a great graph all traction is communicating is what you've done since you've started and why that's impressive if you've built an IOS app and it's now in test flight in the hands of 100 users in one month that's impressive even if they're not using it a ton even if you're not launched publicly on the flip side if you're building an IOS app and it's been 2 years and it's in test flight with 100 users that's not impressive so taking too much time and not getting anything done is the opposite here what investors are looking for is momentum they're looking do you get things done quickly they're not necessarily looking for do you have a ton of Revenue or a ton of users if they're investing in an early stage company they know that you might not have those things and they'll still invest if you communicate you get things done quickly and the only way you communicate you get things done quickly is if your traction slide includes how much time you've been spending right the biggest mistake YC Founders make here is they say this list of things and they didn't tell me do they do it in a month or four months or a year or two years without the time I'm not impressed next they put fake work advisor surveys like fake work work that's not really furthering their company and then last and here's a tricky one you don't need a traction slide if you don't have any traction putting a bad traction slide is worse than having no traction slide at all if this is weak two of your startup you probably don't have any [ __ ] traction putting a bunch of fake stuff on that slide just makes you look like an idiot just don't include it they're obviously funding the team just talking about the team so fake is worthless next unique insights what are the non-obvious things you've learned about the problem the customer or the potential solution this I think is the most intellectually interesting part of a pitch but you only get the right to do this if I know what your company does and if I'm impressed with your team a lot a lot of Founders try to skip to this point and if I don't know what your company does I can't tell whether your insight's good or not so when you think about unique insights I love using Airbnb as an example Airbnb had one that was very unique all of the other products that came before it that let people do time share and list their spaces online didn't process payments and as a result processing payments in a low trust environment where you have never met the host and the host has never met you is scary and it prevents hosts from hosting and it prevents guests from booking whereas if a third party stands in the middle and processes payments both parties can trust that third party more than they trust each other and it facilitates the marketplace working that's an important unique Insight but if if I had said that [ __ ] and not mentioned what Airbnb does you'd have no idea what I was talking about common mistakes your insight's not unique if you were to survey 50% of the people in this room or greater would agree with the thing that you're saying when you say it it's not unique number two not being specific with your examples this is another place where vager comes in like you can tell a story here about your unique Insight you can tell a story about how you learned it if Brian was up here he would talk about he learned this Insight when he went to South by Southwest on his platform when it didn't do payments and forgot to bring money and had a super awkward experience with his host who thought he was trying to rip them off right bam that's a real good learning and then last but not least not using numbers and facts especially if you're talking about unique insights you've learned from your users quote numbers quote facts it makes it feel more real it makes it real next up Market size everyone screws this up um everyone thinks that the number is what's important how big the market is is most important the reality is how you calculate the number is what's important as an investor I don't know how many potential users you might be able to get you have to educate me about that you should do that research I don't know how much you're going to charge the users and I I don't know why you're going to charge them that much money I don't know if there are other products that they're buying that cost this much money I don't know how much value you're creating for them showing me this Bottoms Up calculation of how many users and how much you can charge them and why teaches me a lot if you teach me in a pitch I think of you as an expert and I want to fund experts so how do people screw up they quote some report JP Morgan said that the online e-commerce Market is 120 trillion and growing 20% it's like who the [ __ ] cares you're not teaching me anything number two not showing the math show the math there are this number of users we charge them this much show me the math and then three not talking about comparable products so if we're going to replace figma and your pricing competitive with figma tell me that tell me figma charges this much and we're going to charge this much hell tell me you're going to charge more because you're going to create more value than figma but throw in a comparative so I understand why that price is that price all right next up is the ask um this is I think the really interesting one um and I can kind of share some personal stories about this in your pitch you actually have to ask for money you would be be shocked at how many pitches people do and they don't ask for money um I think that it's on the order of 70% where the pitch is done the founder asks if there are any questions the investor says no the meeting ends no money was ever asked for now I want to put you into the mindset of an investor for a second I've been an angel investor for I don't know seven years um there are three mindsets I have when I'm listening to a pitch mindset one is I will never fund this company most common will never fund this company mindset two is I will definitely fund this company least common extremely rare most Angel Investors are rich like they don't really understand what you're doing why your customer needs it they just met you least common I'm excited to find this company category three that people don't talk about if they ask me it will be uncomfortable for me to say no so I will write them a check I'll tell you that in my experience this is up to 10% of the time I am hoping the founder doesn't ask me for money because I largely suspect that instead of saying no I'll say yes because the pain of saying no is way worse than writing a $25,000 check how [ __ ] is that and the only way you tap into that is you ask you got to ask put them on the fire and this is especially true for Angels this is especially true for Angels got to ask so what are the common errors this is pretty simple not asking right not talking about social proof here are the people who've invested here's how much we raised talking about who you will hire on the ask slide nobody cares who you will hire they care what you're going to do with the money and more specifically what Revenue Milestones you're going to hit or what usage Milestones you're going to hit with the money hiring is a means to an end the end is revenue and usage of your product so your ass slide needs to be we're raising this much money we want to accomplish this Milestone within the next 18 months or 24 months or whatever it is um I think what's interesting is that if you don't have that goal of where you want to be 18 24 months from now you're not going to be good at this ask slide so make the [ __ ] goal and make it something that people would be excited by and then ask for money all right so we've gone through the individual elements here the mistakes that people make overall they don't order their points from most to least impressive the format that I gave you you can mess around with after what do you do which should be at the beginning that's pretty [ __ ] clear and the ask which should be at the end that's pretty clear the elements in the middle need to be ordered by which is most impressive if you've got a ton of traction great traction should come right after your team slide I'm sorry right after your what you do slide you've got an amazing team great team should come right after I think what a lot of people screw up with these decks is they think there's some super standard format they can't leave and they don't realize that like there is flexibility to make your most important points early a lot of people think that an investor is going to sit down for a 30-minute meeting and give them 30 minutes of their time it's not true especially on Zoom it's very not true you earn every two minutes of that meeting if the last two minutes sucked that investor is checking their email so don't leave the good stuff till late that's dumb after I know what you do put the best stuff you have right afterwards earn that next two minutes earn that next two minutes earn that next two minutes um next is treating your pitch like you're delivering a book report in front of a class your pitch should be nothing like what we're doing here right now it shouldn't be you are delivering and they are waiting and listening ideally your pitch should be a way that you can draw them into conversation now doing this is hard like this is actually a very hard skill it's a lot easier just to deliver the pitch and then ask for the grade but what most people don't realize about Investors is that you're not really convincing an investor to invest they're convincing themselves to invest the more they can talk the more they can talk themselves into giving you money and if any of you have done sales you know that like a common sales coaching technique is to look at a call recording and figure out how much time was the customer talking versus salesperson talking if the customer is talking 50% or more of the time it's much more likely that they're going to buy if the investor is talking 50% more of the or the time it's much more likely they're going to buy so one of the best techniques is anytime you see a peak of interest in any part of your presentation run with it oh you looked interested in that did you have a common experience oh I see you fund that X Y and Z I think they had to deal with something similar like get them talking if the investors is like oh you know I'm really interested in this D thing and it's the third or fourth slide in your deck just skip to that [ __ ] slide don't say oh let's wait like I'm going to get to that don't get me out of my order like it's like [ __ ] you like get them talking because the more that they're contributing ideas the more that they're making their own Connections in their head about why this thing's going to work the more they're going to convince themselves to give you money so I can't tell you enough this isn't a book report it's not a paper right what's weird is that you don't really have this experience with any teachers in your life it's not really taught in educational environment get them talking um next not paying attention to the investor um a lot of pitches nowadays are on Zoom you got a closeup of that person's face and if you actually look at it you can tell whether they are interested in what you're saying or not if you look I'm a really crappy poker player but I tried this once playing poker like spending most of the time looking at the faces of the people around the poker table and not like looking at the hand that I was about to lose money on and I learned a lot investors have a ton of tells they're not trained they're not trained poker players who like hide their TOS put sunglasses on and like headphones and [ __ ] right their face is an open book you can tell whether they're interested or not if you're looking and last but not least is distracting slides I hope you noticed these slides are the most boring basic [ __ ] design slides in the universe right and there's a reason I want you to look at me and not look at the cool background image on the [ __ ] slide if your slides are visually interesting that means I'm not focused on you the person I want to give money to or not I'm focused on some designer's work if you need a designer to build a slide deck you're doing it wrong and here's an even deeper most more important Point your designer has no idea what the most interesting and important points of your pitch are so if you hand them your pitch to design they will emphasize the wrong things and it's not their fault it's your business you understand the most important things not someone else so a designer is going to try to create something visually interesting counterintuitively you want something visually boring visually boring remember clear and concise not sexy and Sizzle so no distracting slides all right so I'm GNA try to do this live let me see if I can pitch YC I'm G be tricky all right so what do we do we're a startup accelerator we fund early stage startups with $500,000 standard deal and we've invested in some of the best technology startups in the last 18 years including stripe Airbnb Dropbox coinbase instacart door Dash Etc that's two sentences example um when I did YC I started a company called twitch it was called Justin TV at the time we were 23 and 22 years old we filled out an application online we got an interview and after a 10-minute interview we were funded we participated in a 3-month program with other Founders where we we encouraged to build and launch our product quickly at the end of that process we raised money at demo day and within 3 months we had money we had a new friend group that encouraged us and we had reached a new top speed of productivity and those are the things that YC provided us that's the example really simple traction uh what's a good traction staff for YC YC has funded somewhere around 75 companies that generate over $100 million in Revenue um that's pretty good TR slide uh team right now as group partners of YC are people who have started funded hired fired and done everything that you are going to do as a startup founder and they've also participated in YC so not only the best to give you advice about your startup they're the best to give you advice on how to get the most out of YC most investors have never been in your shoes every YC partner has been unique insights there are three unique insights for YC they're really basic one filling that application and not needing warm introduction gives us access to better deal flow than any other investor in the world two funding people in a batch means that batch supports one another and helps one another and gives each other advantages that competition don't have and three running a demo Day means that you're running a fundraising auction and everyone knows you're trying to get the highest price for any product good or service you want to run an auction so YC companies tend to raise at a higher valuation and dilute less than people don't do YC those are three unique insights Market size since YC started they're about 40 plus Tech IPOs VC backed per year generate about $10 billion in returns per year uh and ask apply that's the YC pitch not much Sizzle clear concise that's the game