Top 5 things missing from most entrepreneur pitches

While I never did really stop seeing new deals, even when I was out of VC, now that I’m back in, I’ve really ramped up the deal flow engine.  I’ve been enjoying the meetings I’ve had over the last few weeks, but some of them have reminded me what I routinely see missing from most pitches. 

Here are the things that nearly every early stage investor needs to bet on that are too often missing:

1) Strong sense of the key milestones – Entrepreneurs often ask what metrics they need to get to in order to get an investment.  I often turn that question around and get them to tell me what the important milestones are.  Having 100,000 users may not be the right metric for everyone, and it also depends on stage.  A TechForward, a First Round Portfolio company, the team needed to find out whether or not consumers would buy into the idea of paying to protect their electronics purchases from obsolescence—and they needed a very small amount to prove it.  They knew exactly what metrics they were looking for—percent upsell—and how it was going to inform the business strategy—and whether or not there was actually a business to be made. 

Milestones are a waterfall—and having them as goals should inform product, marketing, financing, etc.  If you tell me getting to 25% penetration is critical mass, that’s what I’m going to judge your ability to execute against, and that’s how I’m going to evaluate the appropriateness and risk of the financing.  If you can’t identify a set of metrics that you’re driving at, there’s probably a zero percent chance that you’ll reach them.

2) Implementation of a product strategy – Especially at the stage that First Round is looking at deals (as early as a Powerpoint), we all know that the current product, as designed, is no doubt going to need a lot of work.  The idea will change.  So how is anyone supposed to know whether or not these future changes will not only be for the better, but that they’ll be implemented in a focused way that drive key milestones in the right direction?  You may think that search box needs to move, but how do you know?  More importantly, how do I know that you’re not going to spend the whole financing moving the search box around when it turned out that being on mobile was more critical to your success?  Do you have a roadmap?  How do features make it to the roadmap?  Moreover, how do features get removed from the roadmap, because chances are you’re not going to be able to do all of these things.

More so than any other aspect of the business, the thing I see early entrepreneurs tend to drop the ball on most—myself included—is product strategy.  I’m not saying you have to know all the answers, but you should at least know what your landing pages are trying to accomplish, where they’re going wrong, and what steps you’re taking to identify the solution.  I like to know that, even if you haven’t figured everything out, you have a process around product—so this way I can bet that you have the tools to figure it out.

3)  A theory on customer acquisition – You may not even have your product out yet, but having a reasonable sense on how people are going to discover it—past the buzz around your launch, is necessarily.  Just tell me how the first 10,000 users who aren’t your friends find it—and if it’s viral, tell me why people pass it on other than “because there’s an invite friends link.”  Zoominfo, for example, probably made a bet one day and said, “50% of people on the web do a vanity search at least once a year—and we’ll probably have 25% of those people in the US in our database to start, and 2% of those people, if we rank high enough, will come and claim their profile, which amounts to X number of users.”  

These numbers may always need to be adjusted, but at least you’re starting with someone you can measure against and identify where the issues are.  If your strategy is to reach out to all the bloggers in your industry and get them to write about you, that’s pretty much what every other startup is going to do—and anyone who has done it will tell you the results will likely be underwhelming. 

4) A financing strategy that gets you *somewhere* – For whatever reason, there are psychologically satisfying numbers out there that people seem to latch onto when raising money: $250k, $500k, $750k, $1.5mm, $2mm, etc… Nice round numbers.  Unfortunately, too many people pick one of these numbers based on the confidence they have in their ability to raise and quality of their network, versus picking an amount that actually gets you somewhere.  When I say somewhere, I really mean one of three outcomes:  getting critical mass (whatever that is for you) or at a product milestone that makes you venture fundable, starting to get revenues, or cashflow positive.  When someone asks you, “What does this money get you?” they really want to know that it gets you to some amount of users, coverage of certain platforms, first enterprise customers, whatever it is… just something more mission critical than “18 months”.

5) Specific value creation- The easiest way to show value creation is to say that each customer is worth X dollars in revenue.  Pair that with the cost of customer acquisition, and net net, there’s your business.  I don’t care if these are wild ass guesses—at least make some attempt at showing that at customer N, your business is worth X.  Would it hurt to make an attempt?  Sometimes, the value creation is in the network effects.  That’s fine, too… what do we think that network is worth?  I’m not saying you need an Excel spreadsheet, but very often I talk to entrepreneurs who have never even thought about these numbers and wind up realizing that the market their going after, even if they were a huge success, just isn’t very large.  Back of the napkin is totally fine.  If you’re running a music startup that helps people find experts to help them learn an instrument, saying that, each year, x number of people try to find a music teacher, the avg lesson is $20/hour, they stick with it an avg of 5 hours, then figuring out the price of lead gen for X number of $100 lifetime value customers goes a long way to figuring out how big this market can be.