The folks who attended this year’s Wisconsin Early Stage Symposium in Madison, Wisconsin this week had an opportunity to see several dozen early stage entrepreneurs pitch their ideas to a nice mix of investors, fellow entrepreneurs and service providers. Adding the pitches this week to those I have seen in the past (probably a thousand or more), I have reached some conclusions about what distinguishes pitches that work (i.e. ultimately lead to capital investment) from those that don’t.
Basically, early stage angel/venture capital pitches fall into four general categories, set forth below in ascending order of likelihood of attracting funding.
- Poorly pitched, implausible ideas (1 in 10,000 get funded)
- Poorly pitched, plausible ideas (1 in 1,000 get funded)
- Well-pitched, implausible ideas (1 in 100 get funded)
- Well-pitched, plausible ideas (1 in 10 get funded)
As you can see from the above, it pays to have a plausible idea. But it pays even more to pitch the idea well. In my experience, a well-pitched implausible idea is roughly an order of magnitude more likely to get funded than a poorly pitched plausible idea (usually much to the eventual regret of both the entrepreneur and the investor). So, however convinced you are about the quality of your idea, you are making a big mistake if you think your idea will get funded on its own merits, regardless of how well you present it.
Ok, so what makes for a good pitch? Two things: Substance and Presentation.
Let’s start with the easy one, substance. Your pitch needs to focus on a couple of key points. First, what real world problem are you going to solve? Investors are rightfully wary of “solutions in search of problems.” Second, how are you going to solve it in a way better than existing and future competitors? Investors want to understand what your secret sauce is, whether it is compelling and the basis for a sustainable competitive edge. Third, what is your business model? Investors want to understand how your solution gets from you to the customer, how, when, and how much value you can extract from that model. Finally, and most importantly, are you and your team the folks to make it happen? Investors want to know, above every other consideration, whether the jockey, so to speak, can ride the horse.
In my quick review of the four key elements that make up the substance of a good pitch, I left the most important, the quality of the team, last for two reasons. First, as noted, most investors consider it the most important part of the pitch (indeed, the high quality of the team accounts for most of the funded implausible deals). During the pitch, there are two ways to convince investors that the jockey is capable of riding the horse: track record and communications skills. My take, based on 25 years of observation in and around the venture capital business, is that unless your track record includes multiple examples of making big money for venture capital investors, you are going to have to score pretty well on the communications criteria. If you are a rookie, you are going to have to ace it.
How, as a pitching entrepreneur, do you ace the communications portion of the pitch exercise? Basically, you have to show that you are passionate about your idea and that you can communicate that passion to the world, which is to say to potential investors, employees, customers and partners. As a “new guy” in your business, short on money, talent and reputation; passion, along with the ability to make decisions and pivot fast with limited information, is one of the very few advantages you have.
Now, I am not suggesting that sizzle is what good pitching is about. Although, if you want to get funded, sizzle is very helpful. Being able to memorize the script is necessary if you want to play the leading role in Hamlet to rave reviews. Between you and me, I could do that, but I doubt anyone in the audience would regret my passing from this troubled world at the end of the play.