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Raising venture capital is a notoriously difficult task. Every year, thousands of startups pitch to VCs, hoping to get funding to make their dreams a reality. Among the top companies, only 0.7% received the funding they requested.
With so many at stake and such long odds of success, founders are always looking for ways to improve their pitch. Unfortunately, this often leads them to learn and follow conventional wisdom that is outdated and ineffective.
This article explores three sources of conventional wisdom that entrepreneurs should approach critically.
Related: 3 ways to raise capital and take your business to the next level
1. Pitch template
Industry giants like YC, Sequoia Capital, and numerous other companies and individuals have shared similar pitch templates since the early 2000s. These pitch templates often follow the same pattern that companies like Dropbox and AirBnb used to present their early ideas before they became multi-billion dollar businesses.
There are various issues with using pitch templates.
The best analogy for pitch templates is riding a bicycle with training wheels. You’re less likely to fall off your bike, but you’re not going to win the Tour de France. The problem with using training wheels when fundraising is that it limits your possibilities. Only 6.7% of inbound decks to major funds are seriously considering investing, so deck standards are bound to fail completely. You need to outperform your competitors.
The power of a pitch template is that it ensures you cover every aspect of your business that a VC needs to understand before agreeing to a meeting. There are no significant gaps in the content of the deck. The trade-off is that you lose the creative freedom you need to create attractive decks. Instead of building a story for your business, placing the most impressive slides first in the deck, and ensuring continuity between slides, you’re forced to present dry information in the order the template recommends.
The proliferation of pitch templates also exacerbates this problem. This limits your ability to tell the story behind your company and requires you to present information in the same way as thousands of other founders. If your goal is to stand out from the crowd and show that you deserve to be in his 0.7% of companies that receive funding, using a pitch template will take you away from that goal. Pitch templates will make you blend in with the crowd. The moment an investor looks at your deck, the familiar look, feel, and story will strongly indicate that you belong to his 99.3% group who will ultimately reject it.
Related: 10 Reasons Why Fundraising Strategies Fail
2. Suggest anything
When Oren Clough published Pitch Anything in 2011, it was revolutionary. The book’s methods have underpinned pitching theory, practice, and research for the past decade. Unfortunately, the market has since adapted. While venture capitalists have seen and adapted the “Pitch Anything” format that has been used for the past 13 years, entrepreneurs have yet to respond.
A typical example I’ve observed is a founder chasing away a VC, ignoring their emails, claiming it’s not a good fit for them, criticizing the VC online, and using similar techniques to establish themselves. It’s about trying to prevent the perception of being in need. These strategies worked well for the founder when he first employed them more than a decade ago.
Ten years ago, the ideas described in this book were known. It was a common practice for entrepreneurs to value VCs’ time more than their own, and to beg VCs for money. This is why founders stand out as confidently meeting their terms, executing deals on schedule, and demanding respect from VCs. Following the advice in this book was a key differentiator that helped founders raise money.
Today, these tactics are well known. Most founders understand the need to create a sense of exclusivity and fear of missing out on business when raising capital. The problem is that the way companies create that kind of monopolistic position today is not the same as it was 10 years ago. In a world where everyone uses the same strategies and tries to pretend they don’t need venture capital, rejecting them will no longer make them want you more. It just costs more to trade.
If you want to succeed in increasing your company’s exclusivity, you need to use new strategies adapted to today’s funding environment. The best application of these tactics I’ve seen recently is in companies that are able to build momentum and use it to raise money quickly. Elon Musk is an expert at implementing this strategy. From Tesla to Hex to SpaceX, his fundraising is often accompanied by a significant launch, positive announcement, or other triggering event. Raising money when your business is truly exciting can help you establish your position and differentiate yourself from other investment opportunities.
Related: How to raise money as a startup
3. Venture Capitalist
Venture capitalists love giving advice to founders on how to improve their pitch. This advice is problematic because it is generally not helpful to entrepreneurs. Instead, advice attempts to persuade entrepreneurs to present information in a manner that is most useful to venture capitalists.
The hard truth is that VCs and entrepreneurs have conflicting interests. In an ideal world, VCs would like to be presented with raw data, pure facts, to help them make the most rational investment decisions. As an entrepreneur, you need to sell your story. Deciding to start a business from scratch and trying to grow it into a billion dollar company is an endeavor that is likely to fail and is inherently irrational. Your objective is to sell yourself, your story, and your opportunity, not a rational investment.
A quick example: The most common advice I hear from VCs is to continually add information to your pitch deck when talking to them. Many of them will have questions. When you ask a question, you need to make sure you have the answer on deck before speaking to the next VC. Why is this their advice? They want as much information as possible as soon as possible. You also don’t want to forget to ask important questions whose answers will deter others from investing.
However, following this advice can significantly reduce your chances of getting funding. A much better solution is to build a database of questions from VCs, prepare answers in advance, and have the perfect answer ready when asked. Now you suddenly have a simple deck with a strong narrative and can easily address any questions you receive after your pitch. This is a much better result than the clunky, data-filled pitches recommended by VCs, followed by unexpected (and perhaps poorly answered) questions.
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