$2.4 Billion VC Fund Lux Capital Shares 3 Maxims to Successfully Raise Startup Capital
The Power of Narrative for Entrepreneurs
“In building technology companies, often the difference between success and failure is the incredible power of a great narrative.”
Zack Schildhorn, Partner at Lux Capital
If it wasn’t enough to hear it from a successful venture fund, let me share with you others who agree. I interviewed investors and entrepreneurs in my professional network and received over 800 responses to my question:
“What challenges do entrepreneurs face raising capital?”
20% said “telling their story.”
The problem many technology entrepreneurs have is getting out of the engineering mindset. They struggle with identifying very narrow problems in the market. They struggle with finding a way to fit their solution in that market. Without a customer or market fit, they don’t have the initial building blocks of a viable business.
And therefore, they lack the building blocks for telling their business story. Zack helps address the challenge of telling your business story by providing three maxims:
- Make someone care
- Make it interesting
- Make it human
Make someone care
You make investors care by telling them how “they’re going to make money” on “something sizable” and have a positive impact on the world.
Zack talks about this approach the way
Simon Sinek does: “start with why.” The example he uses is Matterport, where the founders say the most important financial decisions people make revolve around their homes. The founders demonstrate a multi-trillion dollar potential and emotional decisions affected by their solution.
There’s a completely disconnected challenge to telling a good story, that many entrepreneurs I talk to call “speaking investor.”
Both the entrepreneur and outside investors have a vested interest to build and exit a sustainable growth company in order to see a return on their investment. Once an entrepreneur can walk in an investor’s shoes, he can then value the parts of the business that resonate with investors the most.
Make it interesting
This part is about the structure of a story. The goal is to frame the narrative in a way that engages the listener — usually by challenging the main character.
Zack uses an example of a doctor who realized some of his skills — and the measures of success for those skills — would soon become obsolete due to technology. So, the doctor embraces this fear, leans into it, and creates a startup that produces such technology. The founder’s triumph is his company going through a successful exit.
The structure of the story very much follows Donald Miller’s lessons in How to Tell A Story.
In it, Donald shows how most stories follow the same structure:
- A character
- Has a problem
- Then meets a guide
- Who gives him a plan
- And calls him to action
- That action results in either victory or failure
He demonstrates it with the Star Wars movie:
- Questions if he’s a Jedi in the Evil Empire
- Meets Yoda
- Who tells Luke to trust the force
- And to go defeat the empire
- That can result in destroying the death star and/or crushing the rebellion
Make it human
“Entrepreneurs are like super heroes,” as Zack puts it. They try their hand in the most daunting feats and, just like the heroes in the movies, they fall.
But they get back up.
And that’s what makes them human. Perseverance shows resolve. It shows investors they can trust the entrepreneurs will continue to build in the face of obstacles and uncertainty.
The example Zack uses is a couple co-founders who failed at their last startup, but were able to dust themselves off, adapt to their new environment, and use their learnings to triumph.
I’ve seen bad business ideas get millions in funding. I’ve seen the best ideas sweat to get nothing at all. Although we can attribute the cause of this to various factors, telling a great story is way up there on the list.
Stories are powerful. They’re the source of our dreams.
Hopefully this shows you how important they are to investors too.