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How To Start Being Good At Pitching Investors (Part 2.)

Over time, I’ve come to see fundraising like the Football World Cup. Pitching to investors is like the group stage; only a handful of startups make it to the final stage, and the winner gets investment dollars.

Photo de Matthieu Joannon sur Unsplash

As a startup coach, I help entrepreneurs win the competition by making them play the game of conviction.

In the end, an investment comes down to building up positive conviction that you will become a category-leader in a large and fast-growing market.

I’ve learned the hard way (by failing as a coach) that it goes beyond getting as many warm introductions as possible, presenting a well-designed pitch deck, or having a good business plan.

There is often a huge gap between how an entrepreneur and an investor think about whether or not:

  • the market is big enough

  • the startup has the potential to become a category leader.

The more you reduce the asymmetry of thinking with investors, the better your odds of getting funded.

Pitching to investors always comes as a promise: If you invest in my company, you’ll generate unlimited returns.

The pitch is the narrative making this promise credible.

There are three things (in that order) that determine whether or not a promise looks credible:

  • the person making the promise

  • the context surrounding the promise

  • the actual promise itself.

Part 1. was about leveraging the three things in your control to be perceived as someone who keeps their promises.

Part 2. will give you three types of contexts that will make your startup perceived as an obviously successful investment.

Disclaimer: Choosing the right context must come from your internal company data and not guesswork or your feeling. If not, you will definitely activate the investor bullsh*t detector™ (yeah, I coined it), and be disqualified.

You are disqualified when the investor becomes analytical about your context by asking questions about data accuracy, challenging you about market size and your competitors, etc.

In short, the investor will start to doubt, and creating doubt is like scoring against your team — it makes you lose.

The art of getting investors to come to the aha moment! lies in effective positioning.

Positioning is the act of deliberately defining how you are the best at something that a defined market cares about.

You can choose to position yourself as:

  • the winner of a market you create.

  • the winner of an emerging, existing market

  • the winner of a subsegment of an existing market

Let’s dive!

Positioning to win a market you create

New markets often emerge when three elements converge: enabling technologies, customer preferences, and a supporting ecosystem.

This style of context is the most famous because it has produced outstanding returns for investors, but it’s extremely difficult to make investors believe it.

An investor will achieve legendary status if he is right about this context. If not, fear of looking stupid may keep him from making a move. And the fear of looking stupid is often stronger than the potential to make money.

When faced with such a context, an investor’s first instinct will be to ask himself these questions:

  • Why does this new market deserve to exist?

  • Why now?

  • Is it the right moment to invest?

  • What will prevent larger competitors or well-funded fast followers from entering if a market opportunity exists?

If you can’t address all of these objections upfront, you’ll be disqualified.

This context style works best if you are a serial entrepreneur and have a growth rate that will speak for you. These two things can be a powerful halo to make this context credible.

The two other context styles are easier to pitch because they involve a well-defined market. The advantage of positioning in an existing market category is that you don’t have to convince people that the category needs to exist.

Positioning to win an emerging, existing market

A breakthrough capability, a change in government regulations, or a shift in economic factors might make relevant positioning a new product in a known category as a strong leader has yet to be identified.

This context is effective if you are the first mover. The first-mover advantage is a very good reason for funding a company in a winner-takes-all market.

The main objections to this style of positioning are :

  • the size of the market

  • the ability to become the leader of this market.

Without data telling unequivocally that:

  • the market already exists in the minds of a critical mass of customers,

  • and you have a growth engine with repeatable, scalable, and profitable acquisition channels,

You’ll likely be disqualified.

It’s best to use this type of context when other venture-backed companies are emerging in different geographies, but your domestic market has substantial barriers to entry.

Entrepreneurs who misunderstand how market dynamics work often overlook the last context.

Many startups compete in established market categories and successfully break the market into smaller pieces and focus on one piece they can win.

Positioning to win a subsegment of an existing market

Startups often succeed in markets with established leaders by breaking the market into smaller pieces and focusing on the one piece they can win.

Entrepreneurs often shy away from this approach because they worry that focusing on a small portion of the market will mean less opportunity. But the opposite is usually true.

You are simply unselecting the part of the market that would never buy your product anyway to focus only on customers with whom you have a distinct advantage.

Furthermore, this context is effective because large category leaders often perform acquisitions to block a fast-growing competitor from gaining on them in a particular subsegment.

The main objections to this style of context are :

  • the size of the market

  • the perception of the unmet need

Without proof points showing a clear value between the general-purpose solution and your difficult-to-replicate more-purpose-built solution that a critical mass of buyers care about, you’ll likely be disqualified.

This context style works best if you are a well-informed industry expert with inside knowledge that can’t be found on Gantner.

When pitching professional investors, don’t rely on your common sense but on data. Not data from market intelligence companies like Gantner or Statista but customer data to back the fact that you have a billion-dollar outcome opportunity.

Your internal data combined with these three types of context will help you make a data-driven equity story that makes sense for investors.

If you have found this story helpful, please share it with other entrepreneurs who might also benefit!

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