Why the Initial Investor Pitch is Like Asking Someone on a Date
It’s said to “date before you marry” when raising money for your startup.
If you’ve never done it before, it’s scary.
The first time I approached a girl that I liked, I told her she was ugly.
She was the hot 8th grader in our middle school. As the younger 6th grader, I was petrified.
The older kids had talked about this idea of teasing a girl. And for some reason, this newfound tactic finally gave me the confidence to approach her. The purpose of the approach was to get her intrigued.
I said “hi” and we introduced ourselves. She asked what my nationality was because “Amir” was a foreign name. And when she learned I was Persian, she exclaimed “people think I’m Persian all the time!”
My response… “you’re too ugly to be Persian.”
Oh. My. God.
Her face went from shock to complete disinterest, quite the opposite effect I was going for.
I still cringe thinking about that short-lived interaction.
The end of that story doesn’t even matter because the lesson learned was so profound. Real relationships are not built on gimmicks and fake gestures. They’re built on authenticity, which requires trust, honesty, and communication.
But we make assumptions about people and desperately take the advice of those who’ve no right to advise. These types of situations recur in different forms throughout life. For example, I made a similar mistake when I was raising capital for my startup.
People told me to hype my company’s progress, even if it meant disregarding any setbacks we faced; to use buzzwords like “disruption” and “AI” (artificial intelligence) because that was going to make the investors jump.
Although I actually did receive a lot of good advice and had done my own research to learn from other entrepreneurs’ successes and failures in raising their first round of capital, I forgot the wisdom from them all when it mattered most.
I walked on stage. My heart raced with the feeling of impending doom. Was I ready? Am I an imposter trying my hand at something no one else tried?
On stage, “we’re creating a paradigm shift…disrupting the industry…an innovative approach…” became the only words I could conjure.
Seasoned investors will see through that, and only a few of them will call you out on your shit. They certainly did on my presentation. They didn’t invest either. In fact, some wouldn’t even exchange information to follow up.
The reality is that the best way to pitch for early stage capital is to tell an authentic story about who you are, what drives you to create a company that deserves their investment, and, ultimately, how your solution will make a difference and a profit.
Who You Are
This is more than just introducing yourself. The 8th grade girl became interested in me because she could connect with me (i.e. about my ethnicity). That familiarity gave her a sense of safety and assurance. It built trust.
Similarly, an investor finds interest in your startup because he finds interest in you. If he believes in your drive and your ability to execute, then most of the battle is already won.
Do you think this is too simple to be true?
Techstars — one of the world’s largest and most successful startup accelerators — has 6 criteria for picking early stage companies to invest in. The first three are team, team, and team. Investors need to know that you know the space you’re in, that you’re easy to work with, and that you care about transparency.
What Drives You
This is a loaded question. “What drives you” really means “what is the specific problem that you’ve lived through and you know so well?”
I worked for a startup when I was first getting into all this flashy entrepreneurial stuff. The CEO was a practicing dentist who offered teeth whitening in her dental office. She realized how her patients were suffering through long wait times, expensive procedures, and pain both during and after the process. So she sought out to solve this problem by creating a new product and service that was fast, cheap, and pain-free.
The customer pain point was front and center. I could buy into that story.
I can’t buy into the other teeth whitening companies, which launch merely for the sake of creating a lifestyle brand.
The challenge for you is to create the narrative of your business model. A great narrative will build trust and acceptance fast (e.g. the clear problem for a customer segment). And vice versa: a shaky narrative hurts your ability to build trust with your potential investors (e.g. the bespoke lifestyle brand).
Make a Difference and a Profit
Do you believe you can make something that’s good for business and for the community?
You probably think an investor’s interests are only profits, and “oh it’s really nice to have a company in my portfolio that shows my philanthropic side.”
Actually, most investors genuinely care. They were once in your shoes. They’re still as ambitious about improving this world.
I learned this fact when we had our own internal paradigm shift at my drone company. I started Skylift because we had a cool technology — a miniature helicopter that could carry heavy stuff way better than other drones. The only time I turned heads was when investors saw how using our drones saved lives and made money.
For two years, we navigated and paved on the uncharted waters that is the drone industry. In those two years, I found very noble uses for the vehicle, such as reducing fatalities with utility linemen by moving their supplies so they didn’t have to.
But the utility companies weren’t buying.
In contrast, we had a huge package delivery market because of vanguard companies like Amazon. But every drone company wanted to be in that space.
So it was hard to sell to logistics companies.
Combine the two, and we had gold: firefighters. We could help them save lives, no one was in the market, and they were ready to buy yesterday!
Our narrative had to change. We had to show the maximum impact our solution had on the most imminent problem, and that it made money.
Make money. Make a difference. Make a connection.
Unseasoned entrepreneurs just don’t understand investors. In many ways, they feel like the boy who can’t get a read on the girl he likes. She says “no” when she means “try harder.” She gives him the runaround and then talks to her friends behind closed doors. He wonders why she won’t just be straight with him. But when she is, he eagerly and hastily pushes all the wrong buttons again.
It really is the same cat and mouse game between entrepreneurs and investors. Unfortunately, many investors will give you what seems like the runaround, and that can be frustrating. But really, they probably don’t even know what they’re looking for. If they do, then they don’t have a framework to manage expectations with entrepreneurs.
Fortunately, I have more tips on finding, recruiting, and managing your relationship with the right investors.
Follow me. I’ll show you.