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How To Start Being Good at Pitching Investors (Part. 3)


“A person who wishes to influence the decisions of governments, organizations, and companies must learn to speak in numbers. Experts do their best to translate ideas into numbers.”


-Yuval Harari, Sapiens.


One of the reasons VCs are trusted with capital to invest in companies is due to their strong decision-making engine. In this regard, the book by Yuval plays a crucial role, as it offers valuable insights that form the foundation of their decision-making process.


This book also holds a significant place in the hilarious VC starter kit, an offer to help people breaking into VC, along with a Patagonia vest and Allbirds shoes. Those guys are marketing genius!


Anyway, VCs’ decision-making engine is designed to identify promising startups that not primarily have the potential to change/save the world but rather the potential to become category leaders.


Changing/saving the world is more of a collateral benefit.


As I’ve written before, pitching always comes as a promise: if you invest in my company, you’ll generate unlimited returns.



I’ll give you time to check How To Start Being Good At Pitching Investors Part 1 & Part 2. I’m not going anywhere.


[…]


Now you’re ready for the final part! So the challenge here is to translate into numbers the fact that:

  • you have built a promising startup

  • you have the potential to become a category leader.


Investors tend to make the most money when they invest early in a company that becomes a leader in a new category. This is particularly true in the Tech industry, where markets often consolidate around a single company holding the majority of market share.


Once an investor understands that a new category leader in a large market will emerge, the challenge is to invest in the company that is the best positioned to win this large market. In other words, the most promising startup.


I’ve written before that “Startup” is one of these words that is the most open to interpretation, carrying different meanings for different people. Ask 10 people about their definition of a startup, and you will likely get 10 different responses.

While fundraising, your personal definition of a startup becomes irrelevant, only the investors’ viewpoint matters.

For investors, a startup is a company designed to grow fast thanks to:

  • a differentiated product that is meaningful to a critical mass of customers,

  • an innovative way to address and serve every single person among this critical mass of customers.


In assessing the most promising startups, their compass for decision-making is based on tangible growth.


A differentiated product that is meaningful to a critical mass of customers


By setting the context in Part 2, you have already demonstrated that you are positioned to win a market composed of a critical mass of customers.


However, most founders need to pay more attention to basic marketing principles when communicating the value of their startups to investors.


When investors evaluate startups, they consider more than just a product with superior features.

They look for distinct features that hold value for a substantial customer base.

That’s why I’m not a fan of these types of slides because they position your startup based on similarities rather than differences.


The kind of startup positioning I use to make


When you compare yourself based on similarities, it inadvertently conveys that you’re building an undifferentiated commodity business.


The kind of startup positioning I am now making


This slide type is significantly more effective in communicating how you stand out.

Furthermore, the evidence that these distinct features matters to customers can be seen in your tangible and actual growth.

Investors call it product-market fit (PMF). While having a PMF is beneficial, it is insufficient, as a significant portion of the PMF is a fit with the early adopters, as stated by Marc Andreessen.


The issue with early adopters’ product-market fit is that early adopters constitute only a tiny percentage of the entire market.

If you stays with early adopters, you will capture only 5% of the market, leaving the remaining 95% to someone else.

From an investor’s perspective, moving beyond the initial product-market fit is becoming increasingly challenging for startups with the breakthrough of GenAI.


An innovative way to address and serve every single person among this critical mass of customers.


To highlight this escalating challenge faced by startups, let me tell you how investors are evaluating a business using three fundamental elements:

  • Creating a product

  • Acquiring customers to buy this product

  • Distribution that product


Before the Internet, companies distinguished themselves by efficiently distributing products through physical stores or agencies. However, the advent of the Internet disrupted this paradigm by reducing the cost of distributing digital products to zero.


Before the breakthrough of GenAI, companies distinguished themselves based on the quality and/or quantity of the digital products they produced, such as software code and content.


However, with the advent of GenAI tools, a new era of automated content creation has emerged, effectively reducing the cost of developing digital products to zero.


Transitioning to the investor’s perspective, this breakthrough signifies a significant acceleration in the commoditization of products.


In the world of venture capital, it’s well-known that if a particular product proves successful, you can expect to encounter numerous VC-backed competitors replicating the same approach.

So the only room left for companies to truly set themselves apart is customer acquisition.

For instance, let’s consider ChatGPT. What truly amazes Tech investors is not merely the technological breakthrough; instead, it stands out as one of the absolute best customer acquisition growth hacks they’ve witnessed in a long time.


ChatGPT is estimated to have reached 100 million monthly active users just two months after launch, making it the fastest-growing consumer application in history. To give you perspectives, it took TikTok about 9 months after its global launch to reach 100 million users and Instagram 2–1/2 years!


When determining which startups are best positioned to become new category leaders, customer acquisition will serve as a distinct and impactful arena for evaluation. This means the journey from startup to category leader will rely on a robust and distinct marketing growth engine.


A marketing growth engine is a highly effective, reliable, and scalable system designed to generate significant and sustainable sales growth.


Simply put, a marketing growth engine aims to develop a repeatable strategy where a company can invest $X’s into marketing and confidently expect a return in sales of $Y’s. A robust marketing growth engine usually follows this logic:

“if we can spend $X to acquire a customer that will spend $Y then its worth it as long as $X < $Y.”

Sustaining a low $X requires implementing cutting-edge customer acquisition strategies. Simply relying on digital marketing with an archaic growth-at-all-cost mentality falls short in the GenAI era, where competitors can easily replicate your product.


Maintaining a high $Y relies on creating stickiness. Stickiness can be achieved through structural advantages, such as long-term contracts or optimizing the customer experience. Customers remain loyal when you offer the best products that consistently improve rapidly. That’s where investing in R&D and product development makes sense for an investor.

The make-or-break moment lies in investors’ conviction whether customers will stick around long enough for $Y to exceed $X.

This is the most sensible breaking point as it requires meticulous attention to detail. A misstep in calculating CAC, LTV, Payback, or failing to align customer cohorts with LTV and Payback will breach trust irreparably, leading to an irrecoverable situation.


So be prepared!


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