A while back, I stumbled across this question by Siqi Chen while doomscrolling through Twitter, and I couldn’t help but do a double take on it. It’s something I often worry that I miss when founders or GPs pitch me, but also when I hostfireside chats. I worry in my myopia with hitting an agenda of questions, I may miss the most important part about the person sitting across from me. In any interview setting, interviewers always have a pre-destination in mind. And often it’s the onus of the interviewee to alter that flow if a dam is restricting the power of the torrent. In other words, your strength. It’s why I ask, “Are there any questions you have yet to be asked, but wish someone were to ask you?” But I like Siqi’s way of asking it a lot more.
After 20 years of interviewing candidates, I've found this to be the single most useful interview question:
"What is your greatest strength … that you are most worried about not coming across in an interview setting?"
Take ambition as a strength, for example. Really hard to tell by just looking at a resume, especially one who says they are and someone who actually is.
At the same time, there’s a beautiful line that the late Ingvar Kamprad, best known for founding IKEA, once wrote. “Making mistakes is the privilege of the active — of those who can correct their mistakes and put them right.” And that’s okay, in fact heavily encouraged for anyone who has ambitions. Because in order to achieve the extraordinary, you cannot pursue the ordinary. You have to tread where no one has treaded before. And a lagging indicator of that is the number of mistakes and scar tissue you’ve collected over the years. So, in an interview, to best illustrate your ambition, you have to talk about the lessons you’ve learned to get here. The greater the mistake, the more risk you took. And often times, the greater the ambition.
Kevin Kellyalso said recently, “I’d like to give a little story of a car, and you need to have brakes on the car to steer the car. But the engine is actually the more important element, and so there are people and there are organizations, and there are methods that are going to be doing the braking, and I think they’re essential. I want brakes in the car, but I just feel that the brake can overwhelm and cause stagnation, and that we also wanted to remember to focus on making the engine even stronger, and so I emphasized the engine.”
In an interview, it’s the difference between promotion and prevention questions. As Dana Kanzeonce shared, ““A promotion focus is concerned with gains and emphasizes hopes, accomplishments, and advancement needs, while a prevention focus is concern with losses and emphasizes safety, responsibility, and security needs.” As such, in an interview, you want to channel your energy to being asked at least one promotion question that highlights your strength.
Conversely, as I’m writing this right after reading Chris Neumann‘s most recent post on fake FOMO, creating a fake sense of urgency is one of the best ways to ensure your greatest strength won’t come out during the interview.
Today’s just a short blogpost. Just to say I’m a fan of Siqi, one of the greatest masters of storytelling, and this question. In case, you’re looking for more Siqi content, check out here and here.
The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
It’s not often I get to work with someone I deeply respect on the content front. In fact, in the history of this blog, I’ve never done so before. But there are a rarified few in the world that if I was ever given the chance to work with them, I’d do so in a heartbeat. Tom White is one of them. As someone who I had the chance to work briefly with when our time at On Deck overlapped, he is someone I’ve been continually enamored with — both in how he commands the English language and in how intentional and thoughtful he is as an investor.
So when Tom reached out to collaborate on a blogpost for the Stonks blog, it was a no-brainer. And, the below is that product on how founders can own their fundraising process.
David’s note: Tom never ceases to amaze me on his ability to meme anything.
It’s a tale as old as time.
After a good meeting and a great pitch, the VC across the table (or on your screen in this day and age) offers a forced smile and utters: “Thanks again for making the time. Let me circle back internally and we’ll get back to you if we’re interested.”
If you have ever fundraised as a founder — hell, if you’ve ever fundraised, period — you have heard those fatal few words many more times than you care to remember. Though frequently said, the pangs of disappointment and frustration that they impart seldom fade away.
Fear not fellow founders!
To ensure you never hear those dreaded words again, we turned to the one and only David Zhou. A “tenaciously and idiosyncratically curious” writer and investor per LinkedIn, David pens the inimitable, brilliantly-named Cup of Zhou, scouts for a number of VCs, and helps run the On Deck Angel Fellowship.
Your ability to raise capital is directly proportional to your ability to inspire confidence in potential investors.
I’ll get into that, however, first a brief aside.
One of my favorite lines in literature comes from the seventh book of the Harry Potter franchise: Harry Potter and the Deathly Hallows. Inscribed on the golden snitch is a simple, but profound phrase: “I open at the close.”
In many ways, that line alone echoes much of the world of entrepreneurship. Whether backcasting from the future as Mike Maples Jr. puts it (i.e. great founders are simply visitors from the future) or breaking down your TAM to your SAM then SOM, the greatest founders — no, storytellers — start from the end. They share the future that they wish to see and distort today’s reality to fit into that predestined mold. Without further ado, my five tips on willing the future you want to see via successful fundraising.
1. Measure Founder-Investor Fit
Before you dive into talking with every investor under the sun, you must first understand there are more investors out there than you possibly have time for. You will never pitch every single one, nor should you. You need to be judicious with your time.
As you raise your first institutional round, you’re seeking out early believers. Julian Weisser — an investor with whom I’m lucky enough to work — calls this belief capital. You’re selling a promise, a vision.
And let’s be honest, at pre-seed there is no amount of traction that will convince any investor with numbers alone.
You see, it’s all about narrative building.
More on that below, but for early investors, it’s about whether they not only believe, but are also willing to fight for the future you collectively desire.
2. Close the First Meeting
I recommend that many founders with whom I work ask a two-part question heavily inspired by my conversation with Hustle Fund’s Eric Bahn for my emerging LP playbook: “Critical feedback is important to me in my journey to grow as a founder and a leader. So I hope you don’t mind if I ask, given what you know about my startup and myself: On a scale of one to ten, how fundable am I?”
To be honest, the number they give is inconsequential. That said, if they give you a ten, get a term sheet on the spot.
The more important question is the following one: “Whether I didn’t share it yet or don’t have it, what would get me to a ten? What would make this startup a no-brainer investment?”
Collect that feedback.
Put it in your FAQs.
Incorporate it into your next pitch.
Test and iterate.
I was listening to Felicis Ventures’ Aydin Senkut on Venture Unlocked recently and he mentioned that he iterated on his fund pitch deck every single time he got a no. And by the time he received his first yes from an investor, he was on the 107th version of the pitch deck.
As such, the answer to the second question should help you preempt and address concerns—explicit or implicit—in future pitches.
I discovered the below courtesy of the amazing Siqi Chen. Per a 2015 Harvard study, most people believe that people make decisions by:
Observing reality
Collecting facts
Forming opinions based on the facts collected
Then, making a rational decision.
But the reality is, people do not. People aren’t rational and investors are no exception.
Like everyone else, investors:
Are presented with facts.
Fit facts into existing opinions.
Make a decision that feels good.
Most of these opinions are not explicit. It’s neither on the website nor laid out in the firm’s thesis.
The good news is that most investors will share the same reservations. If one investor hesitates about something, another will likely do so. The best thing a founder can do is to address it before it comes up.
For example, if an investor tells you that if you have a better pulse on the competitive landscape, you would then be a ten. In the next version of the pitch, you might say “You might be thinking that this space is highly competitive, and you’re right. At a cursory glance, we all look like we tackle the same problem and fight over the same users. But that’s when this space deserves a double take. Company A is best in class for X. Company B is second to none in Y. But we are world-class in Z. And no one is offering a better solution for Z. Not only that, customers are begging for solutions for Z. One in every five posts on Z’s subreddit asks for a solution like ours. But if you look at the responses, no one has a perfect solution for it. In fact, people are duct taping their way across this problem. Not only that, in the past three months, since we shared our product on the subreddit, we’ve had 10k signups to the waitlist with 500 of them paying a deposit to get early access to our product.”
On that note, I don’t think it’s worth trying to change the original investor’s opinion after they share such feedback. Most of the time, you’ve unfortunately lost your window of opportunity. If it takes X amount of information for an investor to form an opinion about you, it takes 2-3X the amount of effort and time — if not more — for him/her to change said opinion and form a new one.
Lastly, per Homebrew’s Hunter Walk: “Never follow your investor’s advice and you might fail. Always follow your investor’s advice and you’ll definitely fail.”
3. Schedule the Second Meeting during the First
Say the vibes are right and you get the impression that the investor really loves your product and/or your problem space and/or you as a person. When you’re raising your first institutional round, it’s either a “Hell yes” or a “No.”
Open up your calendar at the end of the first meeting and schedule your next meeting there and then, but be sure to give the VC enough time to talk with his/her team and also suggest where their firm might want to dive deeper. Give three options for topics to dive into the next meeting. For instance:
The team and future hiring plans
The vision and financial projections
The product, demo, and team’s current focus
From there, have the investor pick one of the above before your next meeting. If they don’t, say something along the lines of: “During this conversation, you seemed to love to hear about the product, so we’d love to dive deeper into the product the next time around unless you prefer one of the other two options.”
Also, start tracking which paths seem to convert investors faster. For example, if 30% of the investors you talk to jump into diligence after hearing the vision, but only 15% convert after the product path, lead with the vision one first next time. “Most of our investors fall in love with us after hearing about the vision, and would love to share more on that at the next meeting.”
The moral of the story is simple: make it easy for your investor to say yes to the next meeting.
4. Realize that ‘No’ is merely a ‘Yes’ in Disguise
If you get the feeling that it may be a no, ask the investor, “What firm/investor do you think I should talk to who might be a better fit for what I’m working on?”
Do not ask for introductions. An introduction will come naturally if an investor is really excited about you. Additionally, even if the investor who passed does introduce you, a natural question will be: “Why didn’t you invest?”
This sets you up for failure because the other investor’s first impression of you will be negative. The only exceptions are if the reason is outside of your control. For instance, they’re raising their next fund since they don’t have any more to deploy out of the current fund, or they’ve recently changed their investment thesis away from what you’re building.
But I digress. What you should do instead is collect a Rolodex of names.
Never ever run out of leads. You never want to be in the position to beg someone who turned you down for money.
When a certain investor gets mentioned more than once — ideally at least three to four times — that’s your cue to reach out to them. “Hey Tom, we haven’t met before, but I’m currently fundraising for David’s Lemonade Stand. And four investors highly recommended I chat with you on the product, given your experience in food-tech and how you helped Sally’s Lemonade Bar grow from 10 to 500 customers.”
5. Use Investor Updates
Send interested investors weekly investor updates during your fundraise and monthly ones after its conclusion. Share important learnings, key metrics, and your fundraise’s progress.
Be sure to induce FOMO in your updates. Not in the sense that your round is closing soon, rather, that you’re at an inflection point right now in both your product and the market. Two example prompts:
Why are you within the next 12-18 months “guaranteed” (I also use this word hesitantly) to 10x against your KPIs?
Is the blocker right now a market risk (which leaves a lot for debate, and most investors will choose to wait for a future round) or an execution risk?
How have you de-risked your biggest risks?
Taking this a step further, you need the courage to “fire” an investor. If an investor doesn’t get back to you after two emails, it could just be that they’re busy. If they don’t get back to you after eight or nine emails, they’re just not interested. My rule of thumb is always three emails each a week apart for each investor. I have seen founders who have done more, but I would not recommend any fewer.
Regardless, whatever number you decide on, the last email ought to try to convert them. For examples:
“Since you haven’t gotten back to me yet about your interest, I assume you’re not interested in investing. As such, this will be our last investor update to you. If we are wrong, please do let us know.”
Interestingly enough I’ve seen more investors start conversations by this last email than by the very first. Remember to treat your fundraise like a sales pipeline; A/B test different copy and see which lands the best.
Concluding Thoughts
Remember, fundraising is a lot like life: it’s simple, but far from easy. It requires grit, determination, and a healthy dose of elbow grease. Despite current market conditions, forge ahead! Follow Jim Valvano’s lead and “Don’t give up. Don’t ever give up!”
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.
These past two years, we’ve seen many investors and founders alike lose their pricing discipline. A number of whom believed anything north of a 10-15x multiple was the new normal. Expectedly, it wasn’t here to last. And I fear there may be an overcorrection to revert back to the mean.
Signal was heavily weighted on the names of other investors, whereas it’s now weighted on strictly traction and revenue. As Samir Kajipublished not too long ago, “The market reset provides a return to a rational environment where underwriting of deals has shifted away from a “growth at all costs” mentality, and inclined toward fundamental metrics such as margins, capital efficiency, and the current public market comps.”
The pandemic years
I’ve written before why it’s better to get 70% conviction, than 50 or 90%. 50% is a gamble. And for the past two years, investors made many more and much larger gambles than would have been kosher. When capital became a commodity and we saw a convergence of value adds in the early-stage investing world, one of the only differentiators between firms became more capital, better terms, or more introductions. Quantity became the selling point rather than quality. Subsequently, that also bolstered many a founder to take bigger risks.
Companies were overcapitalized. Companies then hired more talent than they needed, which meant, on average, each employee needed to do less work than previously required. It wasn’t rare that we saw the best talent out there working more than one job. In fact, in a study by Nielsen, over 50% of talent worked for two companies without either knowing. As such, we’ve the trimming of fat over the past few months with massive company layoffs.
Very few investors were going to spend an extra week or two to dig deeper – do a little more homework to get the extra 20% conviction. Why? Because if they did, they’d miss the funding window. They’d miss the opportunity to invest in the next big thing.
I also saw many founders working on 10% improvements and features, rather than building robust, 10x, non-cyclical products. Founders rushed to product-market fit, followed by massive injections to put fuel on the fire, as opposed to taking time to A/B test for channel-market fit and minimum lovable products. Founders also became less scrappy with the surplus of capital. Growth at all costs was revitalized as the memo of the future. We were left with a world that too quickly forgot the importance of cash in the bank in the few months from March of 2020 till the summer.
Where is money after the market correction?
Today, investors are going for 90%, much of that on fundamentals, rather than a technical analysis on markets. People have become more focused on the beta portfolios than the alpha in portfolios – not saying the latter isn’t important. It still is.
The good news is that there are still many more dollars to deploy. The nine- and ten-figure funds aren’t going anywhere. The bad news is while there’s technically already money allocated to invest in early-stage companies, they’re getting deployed more slowly. But we’ve seen a slowdown in the deployment of capital. And while capital calls are usually leading indicators of capital deployment schedules, they became lagging indicators in March’s slowdown.
What are capital calls? No LP keeps a massive amount of money parked in a checking account with 0% interest, aka a VC fund. So, capital calls are a VC’s legal right to call forth a portion of the money promised to them by LPs. Usually capital calls are made semi-annually.
From 2015 to 2018, this metric hovered in the 20% range, however a step change came into effect in 2019 and we’ve been sitting in the 30% range ever since. pic.twitter.com/fF3kOWMGe9
Last year we saw capital call schedules rise from 20% to 32%. As such, timelines were compressed. Funds were deployed in 1.5-2 years. I even saw one-year deployment periods. Today, I’m anecdotally seeing funds revert to a 3-4 year timeline.
What does that mean for founders?
You should prepare for the worst. Things may turn out differently, and that’ll be great, but don’t expect it will. Over the next two years, there will only be a third to half as much capital to deploy into private companies. That also means your competition has increased two- to three-fold.
Focus on your gross margins, your customer acquisition costs (CAC), and your burn multiples. For software companies, aim for greater than 50% gross margins. Your CAC payback periods should be at most a year. And get your burn multiple to one. In other words, you bring back a $1 for every $1 you’re spending. If you’re south of that, great! Instead of raising venture money, see if you can use non-dilutive capital, aka revenue, to help you grow. For those, that are still growing north of three times per year on ARR after you hit $1M ARR, then venture capital is a very viable option.
If you’re raising a new round, show that you’ve hit your milestones and that you have a road to your next set of milestones to raise your next round in 12-18 months. If you’re raising a bridge (or preemptive) round, you’re on a tighter schedule. You need to show you can hit milestones deserving of a new round within six months or less.
Sometimes even when you have all the above, investors still won’t bat an eye. So, at the end of the day, I always go back to the sage advice my friend shared with me. Teach your investor something new. Mike Maples Jr calls it the earned secret. a16z calls it spending time in the idea maze. I don’t care what you call it. Investors pay their tuition to work alongside the best. If you want investors fighting over you, you need to show them value from Day 1.
One reason investors are more willing to express unconventional opinions than people running other businesses is that they don't mind alienating fools. A cookie company boycotted by fools would lose a lot of money. Whereas a VC boycotted by fools would be better off.
In the past two years, when people became bullish, I became bearish. I didn’t trust myself to find signal in hot markets. For example, while I believe in the amazing potential of blockchain and the future of web3, I intentionally chose to look at consumer solutions that were not tied to the chain, unable to justify for most ideas, why the chain was necessary to solve the problem. I found many founders stumbling on a solution, then finding a problem to fit in the solution. Rather than the other way around.
Today, I’m more bullish than ever (when others are bearish). An investor will generate much more outsized alpha being in the nonobvious and non-consensus than being in the consensus. And we’re swimming in an ocean of non-consensus today. As Keith Raboistalked about earlier this year, don’t focus on just optimizing for the beta where you’ll only be optimizing for incremental returns. Focus on the alpha.
Innovation is secular to the macro-economic trends. It’s exactly in this time that I’m excited to uncover the next world-defining teams. That said, I’m looking for world-defining insights I’ve never heard of or seen before.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.
“Two of our biggest clients pulled the rug on us. They just cut their budgets, and can’t pay us anymore.”
“My co-founder had to leave. His wife just lost her job, and he needs to find a stable job to support the family.”
“I don’t think we’ll make it, David. How do we break it to our team?”
It was June 2020. The above were three of a dozen or so calls I had with founders so far who couldn’t make it through the pandemic. But most of the founders who called me weren’t looking for any solutions. In fact, half of them had already decided on their ultimatum before calling me. I could hear the pain in their voices over the phone. Yes, we called on the phone. Neither them nor I had the luxury of beautifying or blurring our backgrounds on Zoom or to try to look presentable. The only thing we had between us was the raw reality of the world.
Those conversations inspired me to compile a list of hard-won insights and advice from some of the best at their craft. A Rolodex of tactical and contrarian insights that a founder can pull from any time, so that you are well-equipped for times in the startup journey in which you’ll need them. I don’t know when you will, or even if you will, but I know someone will. Even if that someone is just myself.
Below are bits and pieces of insights that I’ve selectively collected over several months that might prove useful for founders. As time went on, I found myself to be more and more selective with the advice I add on to this list, as a function of my own growth as well as the industry’s growth.
I also often find myself wasting many a calorie in starting from a simple idea and extrapolating into something more nuanced. And while many ideas deserve the nuance I give them, if not more, some of the most important lessons in life are simple in nature. The 99 soundbites below cover everything, in no particular order other than categorical resonance, including:
Some might be more contrarian than others. You might not use every single piece of advice now or for your current business or ever. After all, they’re 100% unsolicited. At the end of the day, all advice is autobiographical. Nevertheless, I imagine they’ll be useful tools in your toolkit to help you grow over the course of your career, as they have with mine.
Oh, why 99 tips, and not 100? Things that end in 9 feel like a bargain, whereas things that end in 0 feel like a luxury. We can thank left-digit bias for that. Dammit, if you count this tip, that’s 100!
To preface, none of this is legal investment advice. This content is for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Please consult your own adviser before making any investments.
On fundraising…
1/ Some useful benchmarks and goals for stages of funding:
<$1M: pre-seed
Find what PMF looks like and how to measure it
$1-5M: seed
$2-4M – you found PMF already and you’re gearing up to scale
$5M – you’re ready for the A
$5-20: Series A *timestamped mid-2021, your mileage may vary in different fundraising climates
2/ If you’re a hotly growing startup, time to term sheet is on the magnitude of a couple of weeks. If not, you’re looking at months*. Prepare your fundraising schedule accordingly. *timestamped mid-2021, your mileage may vary in different fundraising climates
3/ On startup accelerators… If you’re a first-time founder, go for the knowledge and peer and tactical mentorship. If you’re a second- or third-time founder, go for the network and distribution.
4/ Legal fees are often borne by founders in the first priced round. And are usually $2-5K at the seed stage. $10-20K at the A. Investor council fee is $25-50K. So by the A, may come out to a $75-100K cost for founders.
5/ If you’re raising from VCs with large funds (i.e. $100M+), don’t have an exit slide. It may seem counterintuitive, but by having one, you’ve capped your exit value. Most early stage investors want to see 50-100x returns, to return the fund. And if their expected upside isn’t big enough, it won’t warrant the amount of risk they’re going to take to make back the fund. With angels or VCs with sub-$20M funds, it doesn’t matter as much.
6/ “Stop taking fundraising advice from VCs*. Would you take dating advice from a super model? In both cases, they’re working with an embarrassment of riches and are poor predictors of their own future behaviors. Advice from VCs is based on what they think they want versus what they want.” – Taylor Margot, founder of Keys *Footnote: Unless they’ve been through the fundraising process – either for their fund or previous startup.
7/ These days, it’s incredibly popular for founders to set up data rooms for their investors. What are data rooms? A central hub of a startup’s critical materials for investors when they do due diligence. Keep it on a Google Drive, Dropbox, Docsend, or Notion. Usually for startups that have some traction and early numbers, but what goes in a pre-seed one, pre-revenue, or even pre-product?
Pitch deck + appendix slides
Current round investment docs
Use of funds
Current and proforma cap table
Pilot usage data, if any
References + links to everyone’s LinkedIn:
Key members of management
1-2 customers, if any
1-2 investors, if any
Financials: annual + YTD P&L + projections
Slightly controversial on projections. Some investors want to see how founders think about the long term, plus runway after capital injection. Some investors don’t care since it’s all guesswork. Rule of thumb at pre-seed is don’t go any further than 2-3 years.
List of all FAQ investor questions throughout the fundraising process
Press, if any
Legal stuff: Patents, trademarks, IP assignments, articles of incorporation
8/ If you’re a pre-seed, pre-revenue, or even pre-product, you don’t need all of the above points in tip #7. Just stick to pitch deck/appendix, investment docs, use of funds, and current/proforma cap table.
9/ Investors invest in lines not dots. Start “fundraising”, aka building relationships, early with investors even before you need to fundraise. Meet 1-2 investors every week. Touch base with who would be the “best dollars on your cap table” every quarter. With their permission, get them on your monthly investor update. So that you can raise capital without having to send that pitch deck.
10/ Don’t take more money than you actually need when fundraising. While it’s sexy to take the $6M round on $30M valuation pre-product and will guarantee you a fresh spot on TechCrunch and Forbes, your future self will thank you for not taking those terms to maintain control and governance and preserve your mental sanity. Too many cooks in the kitchen too early on can be distracting. And taking on higher valuations comes with increased expectations.
11/ If you’re getting inbound financing, aka investor is reaching out to you, decide between two paths: (a) ignore, or (b) engage. If you choose the first path (a), when you ignore one, get comfortable ignoring them all – with very few exceptions i.e. your dream investors, which should be a very short list. Capital is a commodity. Your biggest strength is your focus on actually building your business. For undifferentiated VCs, understand speed is their competitive advantage. Fundraising at that point, for you the founder, is a distraction. If you choose (b) engage, set up the process. As you get inbound, go outbound. Build a market of options to choose from. Inspired by Phin Barnes.
12/ If you haven’t chatted with an investor in a while (>3 months), remind them why they (should) love you. Here’s a framework I like: “Hi, it’s been a minute. The last time we chatted about Y. And you suggested Z. Here’s what I’ve done about Z since the last time we chatted.“
13/ If you have a business everyone agrees on, you don’t have a venture-backable business. Alphas are low in perfect competition and businesses that are common sense. You’re going to generate a low 2-5x return on their capital, depending on how obvious your idea is.
Strive for disagreement. Be contrarian. Don’t be afraid to disagree in your pitch. Trying to be a people pleaser won’t get you far. If your investor disagrees with your insight, either you didn’t explain it well or you just don’t need them on your cap table. If the former, go through the 7 year old test. Are you able to explain your idea to a 7-year old? If that 3rd grader does understand, and you have sound logic to get to the insight, and your investor still disagrees, you need to find someone who agrees with strategic direction forward.
It’s not worth your time trying to convince a now-and-future naysayer on a future they don’t believe in. Myself included. There will be some ideas that just don’t make sense to me. While part of it might be ’cause of poor explanation/communication, the other part is I’m just not your guy. And that’s okay.
14/ If a VC asks your earlier investors to give up their pro-rata, and forces you to pick between your earlier investors and that VC, it’s a telltale sign of an unhealthy relationship. If they’re willing to screw your earlier investors over, they’ll have no problem screwing you over if things go south. To analogize, it’s the same as if the person you’re dating asks you to pick between your parents who raised you and them. If they have to force a choice out of you, you’re heading into a toxic relationship where they think they should be the center of the universe.
15/ You can really turn some heads if your pitch deck doesn’t have the same copy/paste answers as every other founder out there. Seems obvious, but this notion becomes especially tested on two particular slides: the go-to-market (GTM) and the competitorslides.
16/ If you want to be memorable, teach your investor something they didn’t know before. To be memorable means you’re likely to get that second meeting.
17/ Focus on answering just one question in your pitch meeting with an investor. That question is dependent on the plausibility of your idea. If your idea is plausible, meaning most people would agree that this should exist in the market, answer “why this.” If your idea is possible, meaning your idea makes sense but there’s not a clear reason for why the market would want it, answer “why now.” If your idea is preposterous, answer “why you.” Why you is not about your X years of experience. It’s about what unique, contrarian insight you developed that is backed by sound logic. That even if the insight is crazy at first glance, it makes sense if you dive deeper. Inspired by Mike Maples Jr.
18/ Beware of investor veto rights in term sheets. Especially around future financing. The verbage won’t say “veto rights,” but rather “no creation of a new series of stock without our approval” or “no amendments to the certificate of incorporation without our approval.”
19/ 99% of syndicate LPs like to be passive capital, since they’re investing 50 other syndicates at the same time. Don’t expect much help or value add from them. But if they’re also a downstream capital allocator, you can leverage that relationship when you go to them for bigger checks in future rounds.
20/ Don’t count on soft commitments. “We will invest in you if X happens.” Soft commitments are easy to make, and don’t require much conviction. X usually hinges on a lead investor or $Y already invested in the startup. Investors who give soft commits are not looking for signal in your business but signal via action from other investors. Effectively, meaning they don’t believe in you, but they will believe in smart people who believe in you.
21/ Just because they’re an A-lister doesn’t mean they’ll bring their A-game. Really get to know your investor beforehand.
22/ If you’re an outsider of the VC world, first step is to accept you are one and that you will have to work much harder to be recognized. “You will be work for investors. The data doesn’t support investing in you. The game is not fair at all. It will be a struggle.” Inspired by Mat Sherman.
23/ Mixing your advisors and investors in the same slide is a red flag for potential investors, unless your advisors also invested. Why? It gives off the impression that you’re hiding things. If the basis of an investment is a 10-year marriage, doubt is the number one killer of potential investor interest.
24/ Too many advisors is also a red flag. “Official” and “unofficial“. Too many distractions. Advisors almost always invest. If they don’t, that’s signaling to say you need their help, but they don’t believe in you enough to invest.
25/ There are also some investors don’t care about your advisors at all, at least on the pitch deck. The pitch deck should be your opportunity to showcase the team who is bleeding and sweating for you. Most advisors just don’t go that far for you. The addendum would be that technical advisors are worth having on there, if you have a deeply technical product.
26/ “Find an investor’s Calendly URL by trying their Twitter handle, and just book a meeting. With so many investor meetings, it’s easy to forget you never scheduled it. Just happened to me and it was both frightening and hilarious.” – Lenny Rachitsky
27/ If you want money, ask for advice. If you want advice, ask for money.
28/ Don’t waste your energy trying to convince investors who strongly disagree to jump onboard. Your time is better spent finding investors who can already see the viability of your vision.
29/ Higher valuations mean greater expectations. You might want to raise for a longer runway, and I’ve seen pitches as great as 36 months of runway, but most investors are still evaluating you on a 12-month runway upon financing round. Can you reach your next milestones (i.e. 10x your KPIs) in a year from now? Higher valuations mean your investor thinks you are more likely and can more quickly capture your TAM at scale than your peers.
30/ As founder, you only need to be good at 3 things: raise money, make money, and hire people to make money. Every investor, when going back to the fundamentals, will evaluate you on these 3 things.
31/ A good distribution of your company’s early angel investors include:
32/ “All investor questions are bad. They are a tell tale sign of objections politely withheld until you are done talking.” Defuse critical questions by incorporating their respective answers into the pitch. For instance, if the question that’ll come up is “How do you think about your competition?”, include a slide that says “We know this is a competitive space, and here’s why we’re doing what we’re doing.” Inspired by Siqi Chen.
33/ “‘Strategics’ (aka non-VCs) may care less about ROI, and more about staying close for competitive intel and downstream optionality.” – Brian Rumao
On managing team/culture…
34/ Align your vacation with when the core team takes their vacation. (i.e. if you’re a product-led team, take your vacations when your engineers and product teams go on vacation)
35/ Please pay yourself as a founder. Some useful founder salary benchmarks:
Seed stage – lowest paid employee
Series A or when you find product-market fit (PMF) – lowest paid engineer
When you hit scale – mid-level engineer
When you’ve reached market dominance – market rate pay for CEOs
If growth slows or stops or hard times hit – cut back to previous compensation, until you grow again
36/ Measure twice, cut once. If you’re going to lay people off, do it once. Lay more people than you think you need to, so you don’t have to do it again. Keep expectations real and don’t leave unnecessary anxiety on the table for those that still work for you.
One of my favorite examples is that, at the start of the pandemic, Alinea, one of the most recognizable names in the culinary business, furloughed every full-time employee, giving them $1000 and paid for 49% of their benefits and health care, eliminated the salaries of owners completely, and reduced the business team and management’s salary by 35%. Not only that, they emailed all their furloughed employees to level expectations and to understand the why. In normal situations, the law states that furloughed employees shouldn’t have access to their work emails, but Nick said “I will break the law on that because this is the pandemic.” For more context, highly recommend checking out Nick’s Medium post and his Eaterinterview, time-stamped at the start of the pandemic.
37/ Take mental health breaks. I’ve met more venture-backed founders who regretted not taking mental health breaks than those who regretted taking them.
38/ Build honesty into your culture, not transparency. And do not conflate the two. Take, for example, you are going through M&A talks with one of the FAAMGs. If you optimize for transparency, this gets a lot of hype among your team members. But let’s say the deal falls through. Your team will be devastated and potentially lose confidence in the business, which can have second-order consequences, like them finding new opportunities or trying to sell their shares on the secondary market. I’ve quoted mmhmm‘s Phil Libinbefore, when he said, “I think the most important job of a CEO is to isolate the rest of the company from fluctuations of the hype cycle because the hype cycle will destroy a company.” Very similarly, full transparency sounds great in theory but will often distract your team from focusing on their priorities.
39/ When in doubt, default to Bezos’ two-pizza rule. Every project/team should be fed by at most two pizzas. In the words of David Sacks, even “the absolute biggest strategic priority could [only] get 10 engineers for 10 weeks.” Don’t overcomplicate and over-bureaucratize things.
40/ Perfect is the enemy of good. Have a “ship-it” mentality. Give yourself an 10-20% margin of error. Equally so, give your team members that same margin so that they’re not scared of making mistakes. It’s less important that mistakes happen, and they will, but more important how you deal with it.
41/ James Currier has a great list of ways to compensate your team and/or community.
Value of using the product (e.g. utility, status, cheaper prices, fun, etc)
Cash (e.g. USD, EUR)
Equity shares (traditional)
Discounted fees
Premier placement and traffic/attention
Status symbols
Early access
Some voting and/or decision making, ability to edit/change
Premier software features
Membership to a valuable clique of other nodes
Real world perks like dinner/tickets to the ball game
Belief in the mission (right-brain, intrinsic)
Commitment to a set of human relationships (right-brain, intrinsic)
Tokens (fungible)
Non-Fungible Tokens
42/ Have Happy Hour Mondays, not on Thursdays and Fridays. Give your team members something to look forward to on Mondays.
43/ “Outliers create bad mental models for founders.” – Founder Collective
44/ Once you break past product-market fit and hit scale, you have to start thinking about your second act. It’s about resource allocation. The most common playbook for resource allocation is to spend 70% of your resources on your core business, 20% on business expansion, and 10% on venture bets.
45/ The top three loads that a founder needs to double down or back on when hitting scale. “You have to stop being an individual contributor (IC). Stop being a VP. And you gotta hire great [VPs]. The sign of a great VP… is that you look forward to your 1:1 each week. And that plus some informal conversations are enough. Otherwise you’re micromanaging.” – Jason Lemkin.
46/ If you could write a function to mathematically approximate the probability of success of any given person on your team, what would be the coefficients? What are the parameters of that function? Inspired by Dharmesh Shah.
47/ The team you build is the company you build. And not, the plan you build is the company you build. – Vinod Khosla.
48/ “The output of an organization is equal to the vector sum of its individuals. A vector sum has both a magnitude and a direction. You can hire individuals with great magnitude, but unless they were all pointed in the same direction, you’re not going to get the best output of the organization.” – Pat Grady summarizing a lesson he learned from Elon Musk.
49/ “The founder’s job is to make the receptionist rich.” – Doug Leone
50/ “The amount of progress that we make is directly proportional to the number of hard conversations that we’re willing to have.” – Mark Zuckerberg quoting Sheryl Sandberg.
52/ Hire for expertise, not experience. The best candidates talk about what they can do, rather than what they did.
53/ A great early-stage VP Sales focuses on how fast they can close qualified leads, not pipeline. Also, great at hiring SDRs. It’s a headcount business.
54/ A great early-stage VP Marketing focuses on demand gen and not product or corporate marketing.
55/ Kevin Scott, now CTO of Microsoft, would ask in candidate interviews: “What do you want your next job to be after this company?” Most of your team members realistically won’t stick with the same company forever. This is even more true as you scale to 20, then 50, then 100 team members and so on. But the best way to empower them to do good work is to be champions of their career. Help them level up. Help them achieve their dreams, and in turn, they will help you achieve yours.
56/ When you’re looking to hire people who scale, most founders understand that a candidate’s experience is only a proxy for success in the role. Instead, ask: “How many times have you had to change yourself in order to be successful?” Someone who is used to growing and changing according to their aspirations and the JD are more likely to be successful at a startup than their counterparts. Inspired by Pedro Franceschi, founder of Brex.
57/ The best leading indicator of a top performing manager is their ability to attract talent – both externally and internally. “The ability to attract talent, not just externally, but also internally where you’ve created a reputation where product leaders are excited to work not just with you, but under you.” Inspired by Hareem Mannan.
58/ When you’re hiring your first salespeople, hire in pairs. “If you hire just one salesperson and they can’t sell your product, you’re in trouble. Why? You don’t know if the problem is the person or the product. Hire two, and you have a point of comparison.” Inspired by Ryan Breslow.
59/ The longer you have no team members from underestimated and underrepresented backgrounds and demographics, the harder it is to recruit your first.
On governance…
60/ You don’t really need a board until you raise the A. On average, 3 members – 2 common shareholders, 1 preferred. The latter is someone who can represent the investors’ interests. When you get to 5 board seats (around the B or C), on average, 3 common, 1 preferred, and 1 independent.
61/ As you set up your corporate board of directors, set up your personal board of directors as well. People who care about you, just you and your personal growth and mental state. Folks that will be on your speed dial. You’ll thank yourself later.
62/ You can’t fire your investor, but investors can fire you, the founders. That’s why it’s just as important, if not more important, for founders to diligence their investors as investors do to founders. Why for founders? To see if there’s founder-investor fit. The best way is to talk to the VC’s or angel’s portfolio founders – both current and past. Most importantly, to talk to the founders in their past portfolio whose businesses didn’t work out. Many investors will be on your side, until they’re not. Find out early who has a track record for being in for the long haul.
63/ Echoing the previous point, all your enemies should be outside your four walls, and ideally very few resources, if at all, should be spent fighting battles inside your walls.
64/ Standard advisor equity is 0.25-1%. They typically have a 3-month cliff on vesting. Founder Institute has an amazing founder/advisor template that would be useful for bringing on early advisors. You can also calculate advisor equity as a function of:
(their hourly rate*) x (expected hours/wk of commitment) / (40 hours) x (length of advisorship**) / (last company valuation) *based on what you believe their salary would be **typically 1-2 years
65/ Have your asks for your monthly investor updates at the top of each email. Make it easy for them to help you. Investors get hundreds every month – from inside and outside their portfolio. I get ~40-50 every month, and I’m not even a big wig. Make it easy for investors to help you.
66/ Monthly/quarterly investor updates should include, and probably in the below order:
Your ask
Brief summary of what you do
Key metrics, cash flow, revenue
Key hires
New product features/offerings (if applicable)
67/ In his book The Messy Middle, Scott Belsky quotes Hunter Walk of Homebrew saying, “Never follow your investor’s advice and you might fail. Always follow your investor’s advice and you’ll definitely fail.”
68/ While you’re probably not going to bring on an independent board member until at or after your A-round, since they’re typically hard to find, once you do, offer them equity equivalent to a director or VP level, vested over two to three years (rather than four). Independent board members are a great source for diversity, and having shorter schedules, possibly with accelerated vesting schedules on “single trigger”, will keep the board fresh. Inspired by Seth Levine.
69/ “A company’s success makes a VC’s reputation; a VC’s success does not make a company’s reputation. In other words to take a concrete example, Google is a great company. Google is not a great company because Sequoia invested in them. Sequoia is a great venture firm because they invested in Google.” – Ashmeet Sidana. This seems like obvious advice, but you have no idea how many founders I’ve met started off incredible, then relied on their VC’s brand to carry them the rest of the way. Don’t rely solely on your investors for your own success.
70/ “Invest in relationships. Hollywood idolizes board meetings as the place where crucial decisions are made. The truth is the best ideas, collaboration, and feedback happen outside the boardroom in informal 1:1 meetings.” – Reid Hoffman
71/ When your company gets to the pre-IPO stage or late growth stages, if you, as the founding CEO, are fully vested and have less than 10% ownership in your own company, it’s completely fine to re-up and ask your board for another 5% over 5 years. No cliffs, vesting starts from the first month. Inspired by Jason Calacanis.
72/ A great independent board member usually takes about 6-9 months of recruiting and coffee chats. You should start recruiting for one as early as right after A-round closes. In terms of compensation, a great board member should get the same amount of equity as a director of engineering at your current stage of the company, with immediate monthly vesting and no cliff. Inspired by Delian Asparouhov.
73/ If your cap table doesn’t have shareholders with equity that is differentiated (i.e. everyone owns the same size of a slice of the pie), then their value to the company won’t be differentiated. No one will feel responsible for doing more for the business. And everyone does as much as the lowest common denominator. It becomes a “I only have to do as much as [lowest performer] is doing. Or else it won’t be fair.”
74/ “If you ‘protect’ your investor updates with logins or pins, you will also protect them from actually being read.” – Paul Graham
On building communities…
75/ Every great community has value and values. Value, what are members getting out of being a part of the community. Values, a strict code of conduct – explicit and/or implicit, that every member follows to uphold the quality of the community.
76/ Build for good actors, rather than hedge against the bad actors. I love Wikipedia’s Jimmy Wales‘ steak knives analogy. Imagine you’re designing a restaurant that serves steak. Subsequently, you’re going to be giving everyone steak knives. There’s always the possibility that people with knives will stab each other, but you won’t lock everyone in cages to hedge against that possibility at your restaurant. It’s actually rather rare for something like that to happen, and we have various institutions to deal with that problem. It’s not perfect, but most people would agree that they wouldn’t want to live in a cage. As Jimmy shares, “I just think, too often, if you design for the worst people, then you’re failing design for good people.”
77/ If you’re a consumer product, Twitter memes may be the new key to a great GTM (go-to-market) strategy. (e.g. Party Round, gm). As a bonus, a great way to get the attention of VCs. There’s a pretty strong correlation between Twitter memes and getting venture funding. Community, check. Brand, check. Retention and engagement, check.
On pricing…
78/ For B2B SaaS, do annual auto-price increases. Aim for 10% every year. Why?
Customers will try to negotiate for earlier renewal, longer contract periods.
When you waive the price increases, customers feel like they’re winning.
You can upsell them more easily to more features.
79/ If you’re a SaaS product, you shouldn’t charge per seat. Focus on charging based on your outcome-based value metric (# customers, # views per video), rather than your process-based value metric (e.g. per user, per time spent). If you charge per seat, aka a process-based value metric, everything works out if your customer is growing. But incentives are misaligned when your customer isn’t. After all, more users using your product makes you more sticky, so give unlimited seats and upsell based on product upgrades.
80/ Charge consumers and SMBs monthly. And enterprises annually. The former will hesitate on larger bills and on their own long-term commitment. The latter doesn’t want to go back to procurement every month to get an invoice approved. Equally so, the latter likes to negotiate for longer contracts in exchange for discounts. Inspired by Jason Lemkin.
On product/strategy…
81/ Having a launch event, like Twitchcon, Dreamforce, Twilio’s Signal, or even Descript’s seasonal launch events, aligns both your customers and team on the same calendar. Inspired by David Sacks’ Cadence. For customers, this generates hype and expectation for the product. For your team, this also sets:
Product discipline, through priorities, where company leaders have to think months in advance for, and
Expectations and motivates team members to help showcase a new product.
82/ Startups often die by indigestion, not starvation. Exercise extreme focus in your early days, rather than offering different product lines and features.
83/ “Epic startups have magic.” Users intuitively understand what your product does and are begging you to give it to them. If you don’t have magic yet, focus on defining – quantitatively and qualitatively – what your product’s magic is. Ideally, 80% of people who experience the magic take the next step (i.e. signup, free trial, download, etc.). Inspired by John Danner.
84/ To find product-market fit (PMF), ask your customers: “How would you feel if you could no longer use our product?” Users would have three choices: “Very disappointed”, “Somewhat disappointed”, and “Not disappointed”. If 40% or more of the users say “very disappointed”, then you’ve got your PMF. Inspired by Rahul Vohra.
85/ For any venture-backed startup founder, complacency is cancer. As Ben Horowitz would put it, you’re fighting in wartime. You don’t have the luxury to act as if you’re in peacetime. As Reid Hoffman once said, “an entrepreneur is someone who will jump off a cliff and assemble an airplane on the way down.”
86/ Good founders are great product builders. Great founders are great company builders.
87/ To reach true scale as an enterprise, very few companies do so with only one product. Start thinking about your second product early, but will most likely not be executed on until $10-20M ARR. Inspired by Harry Stebbings.
88/ Build an MVT, not MVP. “An MVP is a basic early version of a product that looks and feels like a simplified version of the eventual vision. An MVT, on the other hand, does not attempt to look like the eventual product. It’s rather a specific test of an assumption that must be true for the business to succeed.” – Gagan Biyani
89/ Focus on habit formation. “Habit formation requires recurring organic exposure on other networks. Said another way: after people install your app, they need to see your content elsewhere to remind them that your app exists.” And “If you can’t use your app from the toilet or while distracted—like driving—your users will have few opportunities to form a habit.” Inspired by Nikita Bier.
90/ “Great products take off by targeting a specific life inflection point, when the urgency to solve a problem is most acute.” – Nikita Bier. Inflection points include going to college, getting one’s first job, buying their first car or home, getting married, and so on.
91/ You’re going to pivot. So instead of being married to the solution or product, marry yourself to the problem. As Mike Maples Jr. once said about Floodgates portfolio, “90% of our exit profits have come from pivots.”
92/ Retention falls when expectation don’t meet reality. So, either fix the marketing/positioning of the product or change the product. The former is easier to change than the latter.
93/ To better visualize growth of the business, build a state machine – a graph that captures every living person on Earth and how they interact with your product. The entire world’s population should fall into one of five states: people who never used your product, first time users, inactive users, low value users, and high value users. And every process in your business is governed by the flow from one state to another.
For example, when first time users become inactive users, those are bounce rates, and your goal is to reduce churn before you focus on sales and marketing (when people who never used your product become first time users). When low value users become high value users, those are upgrades, which improve your net retention. Phil Libin took an hour to break down the state machine, which is probably one of the best videos for founders building for product-market fit and how to plan for growth that I’ve ever seen. It’s silly of me to think I can boil it down to a few words.
94/ When a customer cancels their subscription, it’s either your fault or no one’s fault. If they cancel, it is either because of the economy now or you oversold and underdelivered. So, make the cancellation (or downgrading) process easy and as positive as the onboarding. If so, maybe they’ll come back. Maybe they’ll refer a friend. Inspired by Jason Lemkin.
On market insight and competitive analysis…
95/ To find your market, ask potential customers: “How would you feel if you could no longer use [major player]’s product?” Again, with the same three choices: “Very disappointed”, “Somewhat disappointed”, and “Not disappointed”. If 40% or more of your potential customers say “not disappointed”, you might have a space worth doubling down on.
96/ Have a contrarian point of view. Traits of a top-tier contrarian view:
People can disagree with it, like the thesis of a persuasive essay. It’s debatable.
Something you truly believe and can advocate for. Before future investors, customers, and team members do, you have to have personal conviction in it. And you have to believe people will be better off because of it.
It’s unique to you. Something you’ve earned through going through the idea maze. A culmination of your experiences, skills, personality, instincts, intuition, and scar tissue.
Not controversial for the sake of it. Don’t just try to stir the pot for the sake of doing so.
It teaches your audience something – a new perspective. Akin to an “A-ha!” moment for them.
Backed by evidence. Not necessarily a universal truth, but your POV should be defensible.
It’s iterative. Be willing to change your mind when the facts change.
97/ Falling in love with the problem is more powerful than falling in love with the solution.
98/ If you’re in enterprise or SaaS, you can check in on a competitor’s growth plan by searching LinkedIn to see how many sales reps they have + are hiring, multiply by $500K, and that’s how much in bookings they plan to add this year. Multiply by $250K if the target market is SMB. Inspired by Jason Lemkin.
99/ Failures by your perceived competitors may adversely impact your company. Inspired by Opendoor’s 10-K (page 15).
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Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.
After recently tuning into an incredible founder’s most recent investor update, I stumbled across a shoutout once again to Silicon Valley storytelling legend Siqi Chen. It wasn’t the first and surely won’t be the last time I find such kudos from a mutual friend. I’ve been a huge fan since his 2019 presentation on presentations, and there’ve been multiple times his name has surfaced in a conversation with friends. I’ve also publicly written about just how amazing he is. That day, I felt the cosmos telling me today was the day. Something just felt right. A swig of that Felix Felicis, if you know what I mean. In hindsight, I guess I could have asked for a warm intro. But my enthusiasm just couldn’t wait.
My question was simple:
“What do you think sets a top 0.1% story from a top 5%er? What sets a timeless story apart from a box office hit?”
“Hm, it’s a good question. Maybe two things: ‘proof of work’. In other words, founder-market fit. Authenticity can be faked so ‘proof of work’, in terms of background, experience, expertise for your authenticity, is valuable. The second thing is just sheer effort, finesse, and practice.”
“Magic is just spending more time on a trick that anyone would ever expect to be worth it.” – Penn & Teller
And naturally, I had to follow up. “What are the top 1-2 questions you ask yourself to help you stress test if you’re telling epic stories? Or if it’s more applicable, questions you ask others to see if your story resonated with them?”
To which, he left me with a rather curious statement:
“The stress test for me is when, after the story, there are no questions other than ‘How can I invest?’ This is probably the biggest hack I have for a pitch, which is that contrary to popular belief that questions are an expression of interest, all questions are bad.”
I paused. All. Questions. Are. Bad. To a person who makes a living out of asking questions, you can damn well be sure that whatever I was thinking, whatever I was doing, whatever I was going to say disappeared in a moment’s grace, like a midsummer night’s dream. He already had my attention, but now, he had my curiosity.
He goes on: “The correct way to look at questions is that they are akin to a compiler error in your pitch: It is the tell tale sign of objections politely withheld until you were done talking. It should be your goal to adjust your pitch such that those questions never come up in the first place.”
Needless to say, as all contrarian sayings went, I found Siqi’s words quite provocative. I hadn’t yet come to terms with his permutation of punctuated words strung into sentences. His words, while in plain English, arrived at my ears in a manner that was quite foreign. But the more he elaborated, the more sense it made.
“You know how when a salesperson is trying to sell you something, whether it’s a SaaS product or a set of steak knives, and you don’t want to buy it, but you’re listening politely?” explains Siqi. “You already have an objection and you have already decided to not buy it. And that objection you’re just holding in your head until they’re done talking.
“The first question you ask after they’re done talking is basically that objection. Once you’ve thought about that objection as the listener, you’re no longer paying attention. That objection is all you’re thinking about.
“Here’s a concrete example. Let’s say the first question you think of is ‘it’s a competitive space, how do you think about competition?’
“That means they were thinking about competition for some unknown period of time while you were pitching, probably from the minute you started. And they already decided to not buy.”
His next few words are worth underscoring. If words carried weight, shine, and could be worn on your fourth finger after an elaborate ceremony, this was it. “The way you debug it is by preventing that question in the first place, for example, by inserting a slide at the beginning explaining: ‘This is a really competitive space, but here’s why we’re doing what we’re doing’. Then you defuse the question and it doesn’t come up in the first place.
“A good pitch removes those objects in your head so that you end up buying. One way to improve your pitch is to systematically remove questions until you’re left with just one: ‘How can I invest?’”
In the deck he shared back in 2019, on slide 19, he has another two lines that are equally as powerful and read: “We unconsciously try as hard as we can to fit new facts into existing opinions. Based on existing opinions we make decisions that make us feel good, or the least bad.”
Unfortunately, Siqi’s right.
How often have you brought up a new fact that contradicts with what your mom/dad/grandma/grandpa believes and they respond with “Don’t believe everything you read online?” And then, read a “fact” from an unconfirmed source that affirms their beliefs and they respond with “I told you so?”
Investors, like any other human, are no different. Questions, therefore, are implicit personal opinions reworded explicitly, with the expectation that the facts you bring up fit in their existing mental models. And if the facts don’t match up, “You’re too early for us”. Or as they tell themselves, “The founders have not given us the facts we look for to fit in the frameworks we have.”
Then again, as founders, you may not be looking to fall into a pre-ordained mold. In fact, the most world-shattering businesses never fit into the mold. So neither should you. Steve Jobs famously said:
“Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules… You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things… they push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.”
So, if you only have facts, stick with the facts that reaffirm an investor’s opinion of a great startup. Admittedly, that can only be true for the top 0.1% of businesses out there. The vast majority of startups don’t have numbers that fit such a high benchmark honed from years of pattern recognition. A benchmark investors have high conviction in. Certainty, one might say. The great writer Charlie Kaufman once said, “Because when you’re certain, you stop being curious. And here’s the one thing I know about the thing you’re certain about. You’re wrong.”
The best thing about this business – about being an investor – is that it keeps people humble. A fact, unfortunately, many investors forget. So stay curious. And tell us a story so compelling we can imagine no other.
Or as Siqi puts it, “The goal of a great presentation is to create emotions that persuade people to take action.” The founders don’t just share their passion. Their passion is contagious. It spreads like a virus. And whoever is infected shares it with the people around them, which if your story is compelling enough, those people share it with their friends. In a vast game of telephone, the more relatable and inspiring your story is, the longer the game of telephone. Facts become stories. Stories become tales. Tales become legends.
The best stories don’t just share facts. They inspire. They weave facts together in a way so compelling that there are no more questions. The world is filled with limitless amounts of data – most of which are seemingly disparate and meaningless. The best storytellers give the chaos of data meaning. They give data purpose.
In reality, you’re not going to get the pitch down in v1. Practice it, especially with people who have a critical eye with words. They don’t have to be investors. Probably not just with your co-founders and team members because they’re biased. They’ll make lapses in judgment because they already understand the problem space well enough. So well, they won’t have realized you skipped steps in your logic. Practice it with writers, lawyers, speechwriters, marketers, influencers, that Redditor that deconstructs every single presidential speech, and video editors, especially those who edit meme videos. Then when you pitch it to investors, the goal is that they don’t withhold objections because they simply don’t have any.
I can’t help but recall a great line by Robert McKee, “At story climax, you must deliver a scene beyond which the audience can imagine no other.” Equally so, by the end of your pitch, you must deliver a solution beyond which the audience can imagine no other.
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Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.
Not too long ago, in the sunbathed streets outside of Maison Alysée, I was chatting with an incredible serial entrepreneur backed by some of the greatest names in the venture world, who also happened to have spent some time at my favorite VR startup. All in all, he knew what he was talking about. But to respect his privacy, I’ll call him James. And James said something that was quite the head-turner.
“I never got a check for sending the pitch deck before the meeting.”
And so began my deep dive into the contrarian thinking that led to the above statement.
Why the pitch deck might not work
As an armchair expert on films I like, my favorite films have never fit my rubric of the perfect story. Rather, my rubric of the perfect story was shaped by my favorite films.
A pitch deck, like any other rubric, is a pre-ordained set of words and pictures that follow “industry’s best practices”. The problem, solution/product, why now, market size, team, traction, competitors, business model, and financial projections. Most pitch decks don’t deviate too far from the afore-mentioned order. Nevertheless, at the end of the day, rubricsare lagging indicators of what worked. They rarely serve as predictors of what will work, yet we prescribe a disproportionately high amount of trust to their predictive qualities.
“Fundraising is hard”
“You can do everything right – you go through all the steps, do the CRM, get the emails, get the introductions, give the pitches – you do it textbook, and you won’t get a dollar. Fundraising is hard.”
Naturally, I had to ask James what he did to secure funding without sending the pitch deck. James shared, “I never really think about ‘fundraising’, like I mentioned when we chatted I do try to keep track of things but that’s more so that I don’t over-email folks. I never write one email and then send it to a lot of people. Every email I write, I write personally.”
Pitch with emotion
“How do you close somebody? It’s not with spreadsheets and numbers. It’s with emotion. A good pitch gets people over the activation energy [necessary] of actually investing in your business. There are plenty of companies who are making $10 million a month and didn’t raise a dollar. There are plenty of companies who didn’t make a dollar ever and raise a $100 million bucks.”
Every pitch is a story. And often times, the best narrative you can tell isn’t in a 10-megabyte presentation filled with numbers and letters or a Docsend link, based on a rubric that your audience decided. There’s rising and falling action. There’s also you, the underdog, who embarks on a hero’s journey to change the world. What does the world look like today? What will it look like without you tomorrow? Against seemingly impossible odds and guided by the fortune of luck (timing, why now?) and grit, why is the future you envision, with you in it, inevitable?
You can also see it in action in their pitch that got a16z to lead their $68M Series A.
“Always bring the value”
“People are busy, especially the people you’re pitching. Teach them something. They wanna learn. They wanna walk out of that meeting and remember you and make their life a little bit better. And one way to do this is to bring value that they didn’t have before.
“This is also a self-selector. If you don’t do this, they’re not going to call you back. You want to be interesting. You want the other person to walk away thinking that was fun.
“Unfortunately, this is what a lot of founders don’t do. They treat these meetings like work. ‘We’re going to walk in with a strategy. We’re going to stick to the script.’ The other people on the other side never ask any questions. They say ‘see ya later’ and you never hear from them ever again.”
In many ways, this is what many investors call the ‘secret sauce‘. Do you know something that the other person doesn’t? Can you connect the dots in a way that the other person has never thought about? Have you inspired the other person where after the meeting and the ‘A-ha!’ moment they do something about it?
For people who are obsessed and really passionate, their passion is often contagious. One doesn’t have to be an investor or a subject-matter expert to know and feel that. And when inspired, the other person acts as an extension of the energy you brought to the conversation. It could be in the form of work, writing, invites, or intros. These second-order effects might not always come immediately. But rather eventually. This is what James calls “manufacturing serendipity”.
On asking for intros
I asked James, “Did you ever ask for the intros or did they come quite organically?”
And what he shared truly set him apart from 99% of founders I’ve met with. “People always say ‘how can I help?’ Some don’t mean it. And this works for them too because quickly, you figure who’s who. But always have an answer. Not like ‘intro me to some people.’ But ‘hey, I saw you know so and so, and I’d love to chat with them – would you mind introducing me?’ Having one to two things is the sweet spot.
“Do all of the leg work. Help them help you as much as possible. Everyone wants to be the hero that helps someone else, but people have lives – and if you’re the one that is getting the value, bring the value as much as possible.” Provide the person making the introduction with all the context and reasons for the other person to say yes.
It echoes much of my personal template I tell folks if they want an intro to an investor that consists of three parts – no more, no less:
The one metric they’re nailing (ideally so much better than the rest of the industry
Short 1-2 lines on what you’re building and why
What makes that one investor the best dollar on your cap table – why it has to be her or him, and no one else
The metric gives the investor a reason to click open the email. The blurb shares the context. And the last, and, in my opinion, the most important part gives the investor the reason – the story – they need to be a hero. You might notice how much a founder is raising isn’t “required material”. Capital is secondary to the story you pitch. While based on some hard facts, startup investing is often an emotional decision. As James said, “Money doesn’t build products; people do.”
In closing
There’s a lesson I took from my time at SkyDeck, and have continued to preach ever since. “Always be fundraising.” And I don’t mean ask for money in every waking moment. In fact, you shouldn’t. Not only are you at risk in sounding like a broken record, you will end up sacrificing time you could be spending on building your product. But always be pitching. Always be getting other people excited about what you’re working on and why that’s so important. Not why should the world be excited about your product, but why that person in particular should be.
Build relationships. Build a fanbase before you need to fundraise. Add value in every conversation. And the ripple effects would come back tenfold. James went on to say, “I would meet with anyone, [and] still do. If they liked what I was doing, they’d intro me either to an investor that might be into it or another company that had an investor that might be into it.”
James truly has a magnetic energy. Every time we chat I learn something indispensable. After all, one of our conversations inspired this blogpost, which I imagine is the first of many more to come. So, it came as no surprise as he’s getting interest left and right on his new venture.
*Some quotes were edited for clarity and my lack of a photographic memory. Sorry.
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