Learn to tell your story; be confident but comfortable; and focus on a problem, not a solution.
These are a few tips for startup founders who want to raise investment dollars from venture capitalists, based on our experience inside the war room with Seven Peaks Ventures.
The Bend, Ore.-based venture firm held a private pitch event in Seattle last month and GeekWire got a behind-the-scenes look at how early-stage tech investors assess founders and their startups.
Founded in 2013, Seven Peaks raised its second fund this past summer with plans to invest in 20-to-25 startups across the West Coast. Its portfolio companies include Portland-based Opal, Bend-based Manzama, Seattle-based Amplero, and several others in places like Utah and Boulder.
The firm, which recently opened a new Seattle office, met with six Seattle-area companies last month: Equinauts, Observa, Magic AI, Riveter, Genneve, and Vendorhawk. Part of the impetus for the event was to help Seven Peaks identify about potential investments, but also to provide feedback to entrepreneurs who are raising capital, whether or not the firm decides to invest in them.
“The problem is that founders get so little feedback and so much negative experience — what are they actually learning?” said Tony Abena, operating partner at Seven Peaks. He added: “We talk about opening up the black box a little more.”
Below are some key takeaways for startup founders who are pitching investors, based on my observations during the pitch sessions and the subsequent discussion between the partners.
Beyond revenue projections or a go-to-market strategy or the value proposition of your startup, founders need to know how to tell their story.
“It’s not a pitch,” said Abena. “It’s a rich story that has many parts to it.”
Abena recommends that founders start the pitch creation process by writing a 2-page story about their company and its future — after doing that, it will help you put together a better slidedeck.
Tom Gonser, partner at Seven Peaks and co-founder of Docusign, said founders should be prepared for when a laptop or projector malfunctions in front of investors and the presentation isn’t usable.
“They’ll say, ‘we only have 15 minutes, just tell us your story,'” Gonser said. “You need to be able to have a conversation about what you’re doing.”
It’s not just investors that want to hear a convincing and passionate story.
“If I can’t tell my story, I can’t find a co-founder,” Parker said. “If I can’t find co-founder, I definitely can’t find investment or customers.”
A storytelling tip: Think about the headline or lede paragraph to your story if it appeared in The New York Times or GeekWire. This “working backward” approach is similar to what Amazon does with its product development process.
Problem > Solution
Founders should fall in love with the problem they are solving — at least more so than the solution they are pitching.
Matt Abrams, investing partner at Seven Peaks, used Steve Jobs introducing the iPhone an example. Jobs didn’t start his pitch by talking about the actual iPhone itself, but rather an existing problem that was easy to understand. He talked about the pain point of carrying around several clunky products like an MP3 player or PDA, and then showed what Apple was doing to fix the problem.
Investors don’t love it when they hear about “technology looking for a solution,” said Dino Vendetti, who founded Seven Peaks more than four years ago.
Abrams added that if founders “can’t define the problem simply to us, then how do they tell it to customers?”
Speaking of, Vendetti said founders should be “maniacally focused on their customers.” He added that customers are often the most valuable source of information for an investor.
“Where we try to improve our odds in a huge way is by investing in companies that have at least some visible evidence of product market fit so we can talk to customers,” Vendetti explained. “Their opinion matters more than anybody.”
Corey Schmid, investing partner at Seven Peaks, thinks about whether she’d like to work for a founder when he or she is pitching.
“Does that person motivate me and drive me?” she noted. “Do I want to hitch my wagon to them?”
Asking these questions help investors determine a CEO’s leadership potential. Beyond the numbers in a spreadsheet, investors are often placing a bet on someone’s intangibles. Vendetti said he likes founders that balance risk-taking with staying the course, while learning and adapting and pivoting as needed.
“Part of this is the drive of founders,” he added. “There will be super lonely days. You just have to be driven and tenacious to make it through that.”
Investors also pay attention to how an entrepreneur listens to feedback.
“I don’t have to like you, but are you willing to listen?” Parker noted.
Founders should also be confident in their idea — but not too confident. Investors appreciate the humility.
“The most credible founders are completely comfortable in admitting what they don’t know,” Vendetti said. “One of our founders, for example, is so secure in himself and confident, yet humble and real. He’s O.K. with saying he doesn’t know something. He talks about how the company will figure it out and what that can open up. That’s a leap of faith that as investors we are willing to take.”