Pitches don’t tell investors what they really want to know
Welcome entrepreneurs, I’m so glad you’re here.
Over the past 18 months I’ve had the privilege of building an equity accelerator in my hometown of Grand Rapids. It continues to be an incredibly challenging, and rewarding, process, and even after 20 years in tech, I feel like I’ve learned a ton.
One of the most surprising things I learned: during an experiential interrogation into the mechanics of investor decisions, I started to see limitations to the pitch process that had been staring me in the face for years. Limitations that caused smart investors to make bad decisions around entrepreneurs. And limitations with some real equity implications.
Let’s dive in.
Once upon a time, I won $500k from a five minute business pitch, but I still think the business pitch as currently constructed is leading investors to fund the wrong entrepreneurs.
I have a friend. Immigrated from Haiti. Served in the military with distinction. Once he became a civilian, he started multiple businesses. The first was a design-focused organization for veterans, supported by the CEO of one of the largest restaurant chains in the world. The second, a coffee shop, for which he raised non-dilutive capital from local municipalities. The third, a media startup. I have some high capacity friends, but this particular friend is a force of nature.
I got to witness him pitch to a couple angels & seed investors the other day. He told his story, explained what he was raising money for, but even as he was pitching I found myself getting confused. The pitch didn’t follow the format I’m used to, and as a result it wasn't as clear as it could have been. I noticed this, so wasn’t surprised when the investors told him he was too early. They described the same thing that I saw and agreed that he needed to tighten up the way he described his business before he was ready for prime time.
These investors, who will tell you until they’re blue in the face that at the seed stage they bet on the jockey and not the horse, unceremoniously turned down a force of nature because his pitch didn’t match the pattern they’re looking for.
The jockey, or the horse?
And it got me wondering: is the investor pitch really the best way to make an investment decision at the seed stage? If it really is about the jockey, and not the horse, shouldn’t our attention be on learning about the jockey, rather than the horse?
Now I get it. A good presentation at the seed stage is indicative of someone who will be able to give a good presentation at later stages. A founder/CEO needs to be able to present their business in a compelling way. But this is a learned skill. There is a “right way” to present your business (or at least close enough), which I or any other experienced fundraiser could teach a young entrepreneur in an afternoon. It’s glorified paint by numbers, even though the specific format that actually compels people to invest can feel like a complex combination lock to those who don’t know it.
At the seed stage, having a great pitch is compelling, no doubt. But however compelling it sounds, the business is wrong. It’ll change a ton of times between then and any sort of exit, so having a good pitch really only proves that you know the combination lock to get investors excited.
If what we’re really looking for as seed investors is resourceful, resilient people who can operate and lead a team to achieve their goals amidst a high degree of uncertainty and volatility, giving a tight pitch says very little about a person’s ability to do that. Instead, we should be looking for someone who can create their own path when there is no clear way forward, or be bold and decisive with limited information.
If what we as seed stage investors are looking for is jockeys worth betting on, isn’t there a better way to determine that than having an entrepreneur walk you through their incorrect assumptions and make believe financials?
They say the past is the best predictor of the future. What if, instead of focusing our diligence on the fundamentals of a business that will change umpteen times over the coming years, we asked entrepreneurs to tell their stories? What if we tailored the process to finding the best jockeys, knowing that we can train them to pitch to later stage investors as we go?
What if we asked them to share what they’ve overcome to get to where they are, to demonstrate their resilience and resourcefulness? What if we asked them to explain how they’ve navigated uncertain environments, and shifted their approach to still accomplish their goals? The best entrepreneurs have stories like this from school, the military, previous companies, etc. Learning about how a person has navigated these environments in their past will tell us way more about their ability to do those same things than asking them to make up pretty-sounding shit.
If that sounds hard, it shouldn’t. As any professional recruiter will tell you, behavioral questions like these are already best practice in interviewing potential employees. In fact, when we hired over 200 salespeople at my last company, VNN, we trained our recruiters to NOT believe their pretty sounding bullshit, because it’s such a bad predictor of their success in a given role. Instead, we asked our recruiters to look backward at what the person had already done, to get a sense of how they’ll perform moving forward.
If what we’re really looking for at the seed stage is good people, instead of asking a bunch of questions around financials and exit strategy, shouldn’t we design our vetting process around figuring out who it is, really, that is pitching us?
Another important angle
I didn’t mention this before, but my friend is also black, and accordingly is statistically nearly 50x less likely to raise VC than his white counterparts.
I wonder if the pitch process as currently constructed plays a role in this? If we award seed funding based on a person’s ability to perform a pitch in a very specific way, I wonder if that, just maybe, might bias funding toward those who have been around that type of pitching for years as a matter of course?
Might this play a role in why underrepresented founders stay underrepresented?
If we as investors really want to find people who will move mountains to make shit happen, wouldn’t it actually be best to bias toward those who have already moved mountains, in whatever format they talk about moving them? And if we’re being honest about the additional challenges minorities face to get to the same place, if we did bias toward those who have already moved mountains, wouldn’t we be funding far more Black and Brown founders?
I know many seed and angel investors, and can say confidently that they really do want to find the best founders. It’s not a matter of desire. It’s simply that asking seed entrepreneurs to pitch their business in detail is a lazy and ineffective way to do that.
Seed investors, there’s a huge opportunity here to find overlooked, amazing founders. Change your pitch process. Stop looking for the founders who can most closely match the best practice pitch patterns like school teachers giving high marks for compliance. Start looking for the people who have already proven their ability to overcome.
It’s not complicated. Just ask them their stories.
Want to dive deeper?
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