VC Minute – quick advice to help startup founders fundraise better
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Rich Maloy:
Here’s another great piece from Allyson and her writings over at the VC Minute Substack. And of course, you can subscribe to Allyson’s biweekly newsletter at vcminute.substack.com.
Allyson Plosko:
Investors place a high value on founders. Being able to communicate key elements of their business is important because so much of a startup’s success, including hiring early employees and selling, comes down to the founder’s ability to articulate the vision. Simplicity though. It was only part of the equation for a successful pitch. Another key component is specificity. Simplicity without specificity usually leads to broad statements that are, in theory, easy to grasp, but in reality, don’t say anything at all.
The first place a lack of specificity manifests is in the slide and overview that describe the problem the startup is solving. Too often, the problem is framed at such a generally high level that it seems like the company is boiling the ocean. But we all know a startup has to focus. Right? If a founder is lucky, an investor can piece together the more specific problem being solved once the founder gets to the solution part of the pitch. But not always. Plus, this violates the don’t make me think” rule; refer to episode 27 for more on this.
If the problem is teed up, well, an investor should have a sense of the solution and the target customer based on the description of the problem. The framing of the problem is critical because it helps an investor conceptualize how deep the pain is for customers. Understanding the value proposition and why customers will ultimately buy the product is one of the most critical parts of the pitch. The more generic, the problem statement, the harder it is for investors to conceptualize the pain and the potential purchasers’ return on investment aka the ROI.
The ROI is a second critical area requiring specificity rather than overgeneralization. What does the customer get in exchange for using the product? More time? More money? How is this quantified? In the early days, it can be hard to identify a specific amount of money or time being saved. However, investors like to see that founders have a keen understanding of how their product is going to add tangible value to customers.
When pitching for investment, the burden is on the founder to effectively communicate that the problem their company is solving is truly a hair-on-fire problem. Buyers have finite resources and will prioritize spending on only the most urgent and onerous challenges. A founder has to be able to convey the severity of the problem and the specific upside to solving it. Without both, investors know customers just won’t buy.
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