Selling a Vision or Blowing Smoke?

The other day, I sat in on a pitch practice with a company who, by all accounts, is the leader in its category.  They are doing things no other company like it has been able to do, on relatively little capital compared to their peers.  When they focus on sales, they crush it.  When they focus on making product improvements, they make great strides.  Consumer buzz in their market has been off the charts.

However, their story wasn't all quite wrapped up in a neat little box with a bow.  Because they have such a small team, these things didn't all quite happen in order--they've happened one thing at a time.  Sales have been a bit lumpy, for example, because there's no real marketing person driving it.  There's no sales team or channel relationships to get that flywheel turning in a predictable manner--yet.

Now, they're out fundraising.  The question they face is how do you tell an imperfect story about a company where you're sure all the pieces are there, but they're not quite working together in a train that is leaving the station yet.

You can go either two ways with this:

You can go out confidently, because you believe there's a big opportunity, point to all the great pieces that are there, and say "I'm raising this round to put them all together and take over the world." 

Or, you can go out with something smaller, theoretically easier to ask for--a turning over of the next card if you will, to fix all those little problems and show better the next time around.

The second option sure feels like the safer bet.  

Swinging for the fences with anything less than a perfect story feels like a huge risk, right?  What if you miss?

Here's my worry: If you go out swinging for anything less than the fences at any time, you're going to signal that this is a small opportunity, or something slightly strained or broken.  No one gets excited about "extensions".  Why pitch an "almost" versus a "sure bet"?

Entrepreneurs, especially in a questionable fundraising environment, might be asking for less, being less aggressive about projections, and generally self-conscious about the parts of the story that aren't perfect.  I saw this in their pitch.

But who's story is perfect?

If anything, in a bad environment, I suspect that only the screaming buys from entrepreneurs who come in guns blazing are going to get noticed.  To me, VCs have two reactions to things: excited and not excited.  

The not exciting reactions turn into passes and the exciting ones get worked on.  Your job in a pitch is to excite your audience for all the same reasons you're excited.  Then you can let VCs talk you off the ledge in terms of price, round size, etc.  However, if they don't sense that initial excitement coming from the founder, the sharks are going to smell blood in the water and you'll be toast.

Rounds are getting done--big ones, too.  They might take longer and not be priced as high as founders would have liked, but fundraising is like a game of enthusiasm telephone.  I tell one person and they tell one person and then so on and so forth.  If the entrepreneur doesn't exude a ton of confidence, it's only going to get more and more muted as the pitch gets passed around the partners of a firm.  

You have to be extra careful about trying to explain away your weaknesses before anyone's even asked about them.  Go over your deck and remove anything that detracts from your amazing story.  Eliminate it from your thoughts and your language.  

That doesn't mean you won't have well considered answers--but they need to be positive, confident ones that return the story to your vision.

The same goes with pitches that talk about how you're getting to break even.  That's nice if you're raising a later stage round, but when you're a seed funded company, you should have lots and lots of growth ahead of you.  You shouldn't want to get to break even as a strategy.  We're not building a mom and pop business, we're aiming for companies who can exit for hundreds of millions of dollars.  

Venture cycles can feel like a bank run sometimes.  The media says venture is slowing down, so VCs are more cautious, so entrepreneurs pitch differently, make different asks, perpetuating the downward cycle.  

Be careful not to let the cycle shake your confidence.