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How to Think About Your Business Model and Pitch It to Investors

Greylock Partners Blog | Sarah Guo | Aug 15, 2017

Why startups fail - How to Think About Your Business Model and Pitch It to Investors

What do Investors 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.

See:  The Michael Hyatt Method for Growing and Selling 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.

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.

understanding the market - How to Think About Your Business Model and Pitch It to Investors

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.

See:  Canadians need to come together to take our startup community forward

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?

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