Why your pitch isn’t working (and what to do about it)
The past few weeks I’ve been back to mentoring startups looking for pre-seed funding. And seeing all the usual problems.
Both of my angel investment groups invest in about 2% of the startups that apply for funding. Half don’t even make it past the initial review. Another 40% get eliminated in pre-screening.
How to make it to the 10% that get to a conversation? You’ll need a better pitch. You’ll need a simpler story that focuses on the investment rather than how wonderful your product is.
Even if you have the greatest invention in history, you have to put it into terms investors understand and get us excited immediately. Too many founders tell me they could win investors over if only they had 15 minutes to explain what they do. Unfortunately, you’ve got 15 seconds. So get us excited quickly.
Here’s the 5 things that nearly every early-stage pitch gets wrong. And what to do so you sound like a pro who knows what you’re doing, ready for serious investment.
#1: Too Much Information
It’s easy to tell the early-stage pitches from more polished later one — the slides are packed with text.
Early-stage pitches have a complicated story of 5 problems that are solved in 7 ways. They have a go-to-market strategy that’s a checklist of all the things they’ll do to hunt for customers, and a traction slide that includes incorporation, granting of trademarks, and everything else that isn’t customer traction.
The pitch answers every objection anyone has ever raised, and yet, it tells me nothing. This pitch screams, “Amateur here! Run away.” There’s nothing to do but hit the snooze button and wake up when the pitch is over.
Let’s back up. What’s the point of a pitch and pitch deck? If you think someone’s going to write a check after being pelted with information for 10 minutes, either your name is Elon Musk, or you’re seriously deluded (or both.)
The point of the pitch is to get investors excited. It’s an introduction, that’s all. You may have 3 minutes or you may have 15, but either way, the pitch is just the start of the conversation, not the end.
What to do: Keep the deck simple and easy to understand. Don’t try to answer every question and parry every objection. Instead, present an outline of why your startup is a great investment. Get us excited about the opportunity.
And get rid of all that text. If we’re reading while you’re speaking we’re not paying attention to you. Fine print — can’t read it, don’t need it. Titles— make them do real work: replace the unnecessary header, “Team” with “100 Years of Industry Experience.”
For presentation decks, limit the number of words to 15 or less per slide, including titles. For sending decks, keep the slides to 30 words at most. Replace sentences and paragraphs with short bullets and graphics. Go through every word on the deck and decide if it’s truly needed. Make each slide easy to get the message at a glance.
2. It’s About the Product Not the Investment
Most early-stage pitches go on and on about the problem, then on and on about their solution, with a couple of template slides at the end about the team and competition.
Throw the whole thing away and start over.
Simple question: how will investors make money by investing in your startup?
If your pitch doesn’t answer that question, you’ve missed the entire point of pitching.
A pitch is not a product sale to customers. It’s not a grant funding application. You’re selling something — stock in your business. Why should we buy it?
The simple answer to the simple question has to be because we’ll make a lot of money. Your pitch has to tell us how.
It’s not because you have a great product. It’s not even because you’ll build a wonderful, profitable business. It’s because your great product is the start to a great business that leads to a high-multiple acquisition by an industry giant desperate to take over that business.
Until the exit — an acquisition or IPO — our investment in your startup is nothing but a line in your cap table. We can’t get the money back; it earns no interest or dividends.
What to do: The problem and solution are just context to understand the business. Give us one simple slide for each, not a TedX lecture. Then tell us how you’ll take this opportunity and grow the business to $100M within 5 years and get acquired by a giant for billions. Don’t try to convince us you could possibly succeed; show us why you can’t possibly fail.
3. Too Small for Venture
A successful investment requires a 100x return for early-stage investors. And the only way to get that kind of return is by an acquisition by an industry giant or an IPO.
An IPO requires revenues heading towards $1B. IPOs make big news, but there’s only a handful each year. For 99% of startups, an exit means acquisition.
An industry giant doesn’t buy up small startups. It’s not worth the time and hassle. And they don’t have the skills and mentality to run an early-stage startup, especially with the founders taking their cash and sailing away on their yachts.
So giants don’t buy up great ideas. They don’t buy technology. They don’t buy great products. They buy businesses. They pay big bucks when you start stealing serious market share from them, or you offer a path into an adjacent market.
The minimum size for an industry giant to be interested in acquiring a startup is considered to be $100M. Below that magic milestone, the startup is too small for the giants to bother doing more than keeping a wary eye on its progress.
This gives the pitch a focus: how will you reach $100M in revenues within 5–7 years? What’s the market size, the competitive moat, the go-to-market strategy that will get you to that key milestone without crashing and burning?
Many startups have great products and profitable business plans. That’s not sufficient to be a viable venture investment. If the business won’t grow exponentially to $100M and be acquired for billions, it won’t get investment from venture funds or angels.
If you’re building a niche business that will be lucky to reach $25M in revenues (about 99.9% of businesses), there’s nothing wrong with that. Niche businesses are more likely to be successful than venture moonshots. They can generate millions in profits and make you rich. But if the plan isn’t to get to $100M and exit quickly, don’t waste your time pitching venture investors.
What to do: Decide from the beginning, honestly, does your business scale exponentially to $100M in only a few years? If yes, then focus the pitch on how. If not, stop wasting your time pitching to venture investors and look at more suitable ways to fund the business.
4. Too Early — No Traction
There’s a prevailing myth that if you have a great idea and put together a pitch deck, venture capitalists and angels are just waiting to write you a check to bring your dream to fruition.
Like most myths and urban legends, there is a kernel of truth that gets expanded to absurdity. Yes, if you are the CTO of OpenAI and have a great new AI technology, you can walk into just about any VC and walk out with a big check. If you were the CEO of a company that made $2 billion for VCs, they’ll happily cut you a check for $2 million for your next venture, whatever you decide to do next.
For the other 99% of founders, investors want to see traction. They want to see product sales. They want to review reports from customer trials. That’s not just VCs but angels, too, at least the ones that are investing for financial returns rather than donating to support a cause.
The vast majority of startups that apply to my angel groups or reach out to me personally are pre-product. They want to raise $2M to finish development. And unfortunately, I’m forced to send a form response that says, “Sorry, try us again when you have initial revenues or are at least in customer trials.”
What to do: Get to customer revenues as quickly as possible. If that requires funding, do it with personal funds, government grants, customer support, accelerators, and industry supporters. Once you have a finished product and initial revenue, that’s the time to polish the pitch deck and reach out to investors.
5. Yet Another ChatGPT Wrapper
I stated at the top of this article that I’m seeing the same old pitch problems. But that’s not quite right. There is a new problem cropping up in many pitches: the ChatGPT wrapper.
We’ve all heard how most venture funding is going into AI startups. That’s caused two separate issues.
First, every founder is scrambling to find any excuse to call their startup “AI Powered!” Some of these excuses have gone off the charts of absurdity. (No, using ChatGPT to write your customer emails does not make you an AI powered startup.) Founders seem to think this will help garner investor attention, but instead it simply causes them to lose credibility.
Second, there’s a million startups offering AI for everything and anything. Most are just wrappers on ChatGPT or other Gen AI tools. Some are probably good businesses. But most have no barriers to entry. I can throw the same data into ChatGPT as you to make a competing Gen AI for mushroom picking app within days. In another year or so, ChatGPT will do it itself without users needing a specialized app. It’s hard to see how the startup will scale to $100M and get acquired for billions.
What to do: For fake AI startups and real ones alike, I don’t care what your tech stack is. You could be using AI, you could be using heuristics, you could be using Crispr-modified hamsters. What matters is the customers. Does this solve a big painful problem for them? Are they willing to pay through the nose for it? If you want the company to look sexy, thrill us with your customer traction instead of how you’re using Gen AI to solve a problem nobody cares about.
For the ChatGPT wrappers, be sure to tell us the deep, wide moat filled with alligators that will protect the business from competitors and the ever-expanding capabilities of the Gen AI models.
Towards a Great Pitch
Investors are looking to make money from investing in startups. Your pitch needs to tell them how. Make it simple, make it sharp, make it easy to understand.
The pitch won’t get you a check. But if you get us excited, it will get you to the next, longer meeting where we discuss everything in detail.
