How to pitch for capital.

The global entrepreneurial ecosystem has also never been richer  in capital, on-demand resources, open source code, mentors and in talent willing to take risks. explains it well:

What do I look for in a pitch?

Founders will often ask me, “Do you want to go through our deck?”

It’s not about the slide deck. We have made the decision to invest in entrepreneurs without slides, whose ambition, passion, depth of understanding of a opportunity and compelling vision come through crystal-clear in conversation.

But…that’s a high bar for communication. Most of the time, putting a business plan on paper helps you structure a conversation and spread knowledge without having the same conversation repeatedly. Most importantly, it clarifies your own thinking as a leader, and is a great way to get your team on the same page — with a singular vision for your company and a shared plan for execution.

After giving this talk to several groups in our network, I’m sharing the slides here in an attempt to demystify one of the most common questions founders have and spread some tribal knowledge — what do I look for in a pitch?

Each stage of company building carries different risks, from a maniacal focus on defining an initial product and just shipping it, to the iteration of finding product-market fit. Next comes figuring out how to grow the user or customer base efficiently and consistently — and then when you have that growth formula, pushing as fast (often much faster) than you can manage — in order to achieve market leadership and establish your defensible moats. If the customer base grows, then you suddenly need to build a company that can support that growth — an executive team of leaders and an organization that can operate and adapt effectively without the founder driving every decision. Finally, if you’re right, lucky and have executed exceptionally well, you prepare to face the public markets, navigating the IPO process and becoming an enduring, public company.

The company-building path rarely looks as up-and-to-the-right as this chart above. I think of it more like climbing mythical Space Mountain — one with constant landslides, at log-scale, in 4-dimensional space.

We have enormous respect for the founders who attempt this climb. Few other jobs require you to scale like a startup does — growing and remaking yourself as a leader and your organization 2x, 5x, 10x per year, for multiple years on end. Without breaking it completely. We don’t expect people to have all the answers. But in this post, I’m going to focus on what I look for, especially in Series A companies.

What’s the difference between a great idea, and a early-stage VC-fundable business?

Before you try to raise venture funding — confirm that option makes sense for you. Success in partnership with investors is about aligned incentives, vision, and personal chemistry. More on that here.

This chart from a CBInsights analysis of startup post-mortems is a good reminder of user and customer demand as a north star.

Ok, so let’s say you think you have a venture-backable idea. One of the first things I will try to do is understand if there a market need for the product you are building.

Some entrepreneurs validate customer need through years of having lived the problem. Others go native with users — survey and interview them, show mocks and prototypes, do demand testing by “selling” or advertising a product they haven’t built yet, even get customers to partner and co-develop with them. There’s no replacement for shipping a product and getting adoption, engagement and revenue data. But that is often expensive (especially for an enterprise-quality product), and getting feedback and direction along the way is incredibly valuable. What’s your feedback cycle? How will you convince yourself, and a VC, that the opportunity is real? You don’t need that much money to get useful feedback.

I don’t expect founders to go through each bullet in the above chart at the Series A, but they should have a point of view on how they’ll reach and convince customers to use and buy what they’re offering. “Winning on product” alone is a rare, minority case. At Greylock, obsess about distribution as much as product.

The transformative technologies of the past two decades — the internet and mobile — are new forms of distribution for technology, and huge companies have risen with them. Many of the internet and enterprise giants today are hard to attack because of their distribution and reach to the customer, not because no engineering team can build something better. If you are thoughtful about distribution, you’ll immediately gain my confidence.

There’s a lot of information out there about how to get a meeting with a VC, so I won’t focus on that here — suffice it to say, cold pitches are viable. At Greylock I read cold emails, and take referrals, and meet founders serendipitously. Meeting entrepreneurs is a core part of my job, and if opportunities happen to arrive in my inbox without any work on my part — all the better.

Unfortunately, most cold emails aren’t very compelling. I’m much more likely to read through a 20-slide deck a founder emails me than a 200-page document. Invest in telling a clear story at different lengths. Your intro should either be a short deck, or 2 paragraphs that introduce the team, the idea, and why it’s special.

How do you introduce your company once you get a first meeting? I hesitate to show an outline, because investing isn’t a checklist decision, but I often get asked for one. The most important takeaway from this slide was that there are only a few key questions that make or break an investment. Some of the best pitches I’ve experienced have only lasted 20–30 minutes.

Do you deeply understand the user problem you’re solving? Who are you and why do you care? Can you explain your unique and compelling value proposition? Do you understand the landscape of what’s out there? Do you have some way of distributing that solution, positioning to that customer why they should care, and why it’s better and worth adopting vs. the competition? If and when others come after you, what are your moats?

If you can answer those 6 questions succinctly, ignore my outline and structure your slides however makes sense. Move everything else to backup material.

I say “narrative” is important here — but another way to think of this is clarity of purpose. If you can tell your story in an emotionally compelling and authentic way — that itself is a huge advantage. Invest the time in articulating a tight narrative. Use concrete examples that people can relate to, and tie them to your larger ambition. It will pay dividends, and not just with investors.

“Market” is often hugely misunderstood by entrepreneurs.

It is often impossible to answer some of these questions (will it be winner-take-all? how much will customers pay for a new product? how many $ billions will the market be worth?) if you are trying to create a new market category, or trying to significantly reshape an existing category. The answers are unknowable at the beginning. You can have only hypotheses.

Other questions (who are you targeting? how does this problem/product fit into your target customer’s life? is it #2 or #40 in terms of their priorities? how many of those customers are there?) you should be able to answer before you build anything.

Great entrepreneurs can change and expand markets, even consumer attitudes. Total focus on solving a problem for a customer you understand helps you dominate a “small market,” and dominance of a tactical, small market gives an agile and ambitious team a wedge to grow from. Many great companies start from a tactical feature in a space full of problems. Initially, they must fight to keep maintain focus and simplicity, and solve a single problem well. That is often their competitive advantage vs. large incumbents. The deepening of product value and expansion of surface area and customer base that happens once you have that foothold is a far more linear task than the black magic of solving that initial problem.

The difference then between the companies that get trapped in niches, and those that become strategic, are the teams that have the ambition to keep growing the problem, and the agility and talent to keep attacking it. At the Series A, initial market size is often irrelevant, and eventual market size is hard to see.

It would have been easy to write off Airbnb as attacking a niche: creatives who were willing to rent out air mattresses for a few extra bucks. The number of people with underutilized real estate and are interested in sharing their homes and making extra income is larger than anyone could have anticipated. Now it’s one of the biggest hospitality businesses in the world.

For anyone who hasn’t seen Geoffrey Moore’s classic template, it’s a great place to start in terms of describe your market and your positioning. Try to write this, then test it with your target customer, and other people who know that customer well (advisors, the channel, salespeople).

A common red flag is teams choosing too broad an initial target customer. The “global 20,000 largest companies” or “consumers and enterprises” may be in your grand plan, but who will care most? First? How will you find your first 100,000 users or your first 100 business customers in the first year? What defines that group?

Because many founders are engineers from Silicon Valley, they often rely on fast-growing Silicon Valley tech companies and other engineers to be their first customers. This is sometimes good, sometimes not. It’s a customer base of early technology adopters they understand — so it’s easier and more authentic. At the same time, most b2b companies aren’t technology companies, and most consumers aren’t engineers.

I ask three questions when I see this. How far can that initial tech customer get you? Do you plan to continue to serve this customer — and if so, can you be essential to them? If you plan to expand your customer base beyond that — how will you understand your other customers, and how can you leverage initial adoption into broader adoption?

We love to talk about “network effects” in Silicon Valley, but many believe that starts and end with the social, viral growth of Facebook. But network effects can build many kinds of moats that defend them against copycats and price erosion.

I don’t describe every kind of moat here (e.g., regulatory) and many great companies will have new types of moats — ones yet to be invented. No moat is absolute or permanent or I’d be out of a job! Still, having a thesis on your defensibility is essential, even at the Series A.

  • Tech. We continue to believe in new and better fundamental technology as a moat — not so much patents or legal protection, but products that are hard to build well or take advantage of a fundamentally new approach. In extreme cases, a technology advantage that translates into a customer benefit can turn into a standard — an effective monopoly — as in the case of Intel. In most cases, even a great technology moat only gets you far enough to become a market leader, buying you the right to work closely with customers and enabling you to define the market.
  • Ecosystem moats come in many flavors — from becoming the default hosting site for user-generated video content (YouTube), to the rapid, developer-driven free adoption of container technologies and growth of associated tooling (Docker), to the developers that now make >$20B a year through the Apple app store.
  • Networks. Social networks are now pretty well-understood. Marketplaces and on-demand businesses reach a liquidity point (even a local one) and build mindshare with consumers that becomes hard to displace. Often, marketplaces have some advantaged acquisition strategy for at least one side (demand or supply) — they’ve built a community, offered a compelling new service, have organic or viral spread.
  • Product leaders. In the enterprise, cloud pioneers like Salesforce, Workday and ServiceNow built complete, core workflow solutions with a new architecture. Their faster-innovating products, (at that time novel) SaaS consumption model, and dominant go-to-market machines have made them category leaders. Each is now expanding their initial moats to become platforms for other applications and workflows.
  • Distribution represents a new generation of user-adopted SaaS products. End-user engagement within organizations is often a weak spot for enterprise software incumbents. Deploying software is a challenge for most organizations, and consumers who are using more software in their own lives expect better choice and usability. Simplicity and quality of design has become a moat, especially when coupled with product features that encourage adoption within an organization, or new layers of value for incremental users within an organization. Is it better for me if my team also uses a tool? What about my manager?

Capturing a unique dataset is also emerging as a moat in the age of AI-powered products. If your workflow product or MVP is useful on its own, and you can use it to collect unique data, you can then learn from that data to build a better and smarter product, improving the user experience — driving a new virtuous cycle.

Amazon is a great example of building many moats over time — a habitual and high-trust relationship with the consumer, economies of scale, systems and culture that allow management of an operationally complex business, pricing power with vendors, a marketplace of sellers, and the bundling of multiple services into a subscription business.

While you may not address this directly in your slides, it’s worth thinking about whether you are a category creator or disruptor. If you are creating a category, focus on market risk — do users really feel the pain and want this? Is there budget out there? If you are trying to take over a category, then what are the dynamics, the changes in technology or environment, the 10x better that will allow you to enter that market?

At the Series A, I’m betting on the early team more than anything else. What’s your story? What do you believe and understand that others don’t? Is there a reason you should win? We are looking for authenticity and attributes — passion, focus, vision, urgency — rather than a specific pedigree.

I also seek to invest in founders that are magnets for talent. Do customers want them to win? Will people take risks for them? No company is built by a single individual, so the ability to attract and retain a great team is key.

Product-oriented founders are often at a loss for why they need to get into a financial forecast for a Series A investment, when they often haven’t sold a single customer yet or acquired their first 100,000 users.

A financial plan tells us a lot about how you think about the business. What do you think the key drivers of your revenues and costs are? How fast is it possible for you to grow? Do you understand how other companies in your industry operate? How ambitious (and how realistic) are you? How far will you get before you need to raise more capital?

How do you know what assumptions to make at the Series A? If you don’t know, it’s ok to say so — and you’re just trying to get in the right zone, no need for false precision. A great way to jumpstart your understanding of existing benchmarks for performance is to read the S-1’s of relevant companies — and if you’re going to operate very differently, point out those differences. If I don’t understand some of your plan, I may ask what tests you have done (or will do) to validate your assumptions.

When you bring on a venture investor, you’ll use the financial plan and other operational metrics as the shared understanding of your company’s targets — and measure of its performance.

Intellectual honesty is key — both within your team, and with your investors and partners. If you have that honesty, many of these mistakes you can look out for early and iterate to a solution. Here are some of the ones we’ve learned to look out for.

I encourage you to use these slides to frame your thinking when you’re drafting an investor pitch, and hope it demystifies the process. But, I would hate for the patterns of the past to cause me to miss the outlier company that matters — so please, give feedback and push my thinking.

One last thought…

A lot of smart investors have been talking about how we’re at the tail end of a secular technology cycle. They complain that we can no longer rely on smartphone growth to drive mobile app adoption, Web 3.0 has matured, new consumer social products can’t break out against seemingly unassailable incumbents, the enterprise shift to SaaS is mostly done, all of commerce belongs to Amazon, and being caught between cloud and open source means few new great infrastructure businesses will get built.

I think this is at odds with the accelerating pace of technology-enabled disruption. The average lifespan of a company in the S&P 500 has shrunk from 67 years in the 1920s to 15 years today.

Founders with great ideas will continue to make novel use of our existing key technology platforms. Founders are just beginning to connect capabilities in AI research to real product uses, experiment with emergent interaction modes like AR, and harness consumer electronics supply chains to get to outer space. Entrepreneurs are growing meat in labs, collecting new data in every industry, designing new therapies. They are serving huge communities that think and interact totally differently — gamers and post-Millenials who are growing up internet-native. We see this every day.

The entrepreneurial ecosystem has also never been richer — of capital, of on-demand infrastructure resources, of open source code and APIs, of founders and investors offering help and advice, of once-tribal startup knowledge on the web, and most importantly — of talent willing to take risks. I think underdog founders have never had a better shot, and I look forward to hearing great ideas from some of you.