Tl;dr: 7 quick tips Reid Hoffman at LinkedIn shares on his learnings from pitching his series-B pitch deck to venture capital investors back in 2004. It’s a quick read
If you’re a fan of the Linkedin Series-B pitch deck, you might like a few more learnings. Here is a quick read on what Reid Hoffman wish that he knew that he shared when he posted LinkedIn’s series-B pitch deck in 2004.
“To help you figure out what aspects of the pitching process you’d like to understand better, I’ve summarized seven prevalent myths”
7 Reid Hoffman Learnings
1/ Pick a VC for fit more than just money
MYTH: The startup financing process is about one thing — money.
TRUTH: A successful financing process results in a partnership that delivers benefits beyond just money.
A successful financing process obviously results in you raising capital for your company. But there are other critical outcomes you should shoot for as well. For example, great investors can significantly boost the strength of your network, which helps in recruiting employees and acquiring customers. Great investors can also be a source of network intelligence, so you can better prepare for likely challenges and opportunities ahead.
Put another way, the ideal financing partner is a financing cofounder. This is why already wealthy entrepreneurs raise money from experienced investors for their next startup: they know partnering with angels and venture capitalists is about more than just the money.
Sadly, many investors actually add negative value, so an investor who adds no value (“dumb money”) but who doesn’t interfere with the operational process can sometimes be a decent outcome. But ideally, you find an investor who can proactively add value (“smart money”).
How do you know if an investor will add value? Pay attention to whether they are being constructive during the pitch and financing process. Do they understand your market? Are their questions the same questions that keep you up at night? Are you learning from their feedback? Are they passionate about the problem you’re trying to solve?
Money matters, but not if it poisons you.
Think about getting married to someone super hot, but is totally off their rocker. Your life will be miserable.
Show me a hot person and I’ll show you someone tired of banging them… The same thing applies to VC, only you can’t stop dating.
My experience is that even alpha-male founders are pussies when it comes to their investors. They’re not even aware that they can push back. So if you get a bored investor with nothing better than to do than micro-manage you, you’ll be their beatch. You say you won’t but 99% will.
Finally, the value add thing is a bit overrated. Sure, intros are great, as is free quality advice, but if you need it to succeed you’re fecked anyway. I’d rather a hillbilly yokel that leaves me alone than some egotistical banker watching over my shoulder expecting McKinsey reports every week.
2/ Start with your investment thesis, not your team
MYTH: If your team is strong, show the team slide early in your pitch.
TRUTH: Open your pitch with the investment thesis.
You have the most attention from investors in the first 60 seconds of your pitch, so how you begin is incredibly important. Most entrepreneurs start with a slide on the team. The team behind your idea is critical, but don’t open with that. Instead, open with what the investors have to believe in order to want to want to be shareholders in your company — the investment thesis.
Your first slide should articulate the investment thesis in generally 3 to 8 bullet points. Then, spend the rest of the pitch backing up those claims and increasing investors’ confidence in your investment thesis — which includes background on the team. Clearly articulate your investment thesis so investors can offer feedback that helps you refine it, eventually getting to a place where you both agree on it.
This advice applies to seed funding rounds, too. Yes, seed investors understand that early-stage companies have many unknowns and the idea will change a lot, so they look carefully at the people to see whether the team will be able to adapt. But even at this stage, lead with your overall investment thesis. Persuade investors your investment thesis is intriguing, then show who can make it happen.
So… I agree in the magical realm of you knowing how to write an investment thesis. Most people not only don’t know how to, but are physically incapable of doing so.
Now you may be rolling your eyes thinking “whatever Alexander, I’m a pro”, and maybe one person a year reading this blog is. You are not. I’ve worked with too many founders in the 30-60 years old realm who are smart but struggle to do a pitch deck properly. Being able to go next level and do an investment thesis is beyond everyone. And seriously, just don’t get me started on a micro-trend of using an “investment memo”. Parker at Rippling did an investment memo, and I found one in the Philippines which did but I haven’t read yet, and they are the exceptions.
The only client I worked with that did a memo did it without asking. It was, eh, good enough. I like the effort though.
So you don’t feel bad, I can tell you that investors struggle with investment thesis’ too, because I get asked for feedback, and I’ve literally had to teach one (and he still couldn’t do them).
3/ If you have traction, show numbers. If you have a story, tell that
MYTH: All investment pitches have the same structure.
TRUTH: Decide whether your pitch is a data pitch or a concept pitch.
Your investment thesis is either concept-driven or data-driven. Which kind you are pitching?
In a data pitch, you lead with the data because you are emphasizing how good the data already is. Investors, therefore, evaluate your company based on the data. When LinkedIn went public, it was a data pitch to public market investors. We showed investors a multi-year track record of data.
If it’s a concept pitch, on the other hand, there may be data, but the data supports a yet undeveloped concept. A concept pitch shows your vision for how the future will be and how you will get to that future, so investors will want to buy a piece of it. Thus, concept pitches depend more on promised future data rather than present data.
Building a narrative is surprisingly incredibly hard. I know because “I’m gifted” and I still have a hard time. I’ve spent weeks trying to turn narrative making into a “paint by numbers” and I can’t do it at a pro-level (I can do it at a dilettante level).
The data (“Feck you, I have traction”) vs concept pitch (AKA story, because there are more hopes and rainbows) is apt though.
To separate the two is incredibly easy:
- Earlier you are you do the Concept
- Later you are you better bloody have the Data
At the end of the day, if you have feck you traction, you can have four slides:
- Big feck you graph
- Bank account details
- Picture of a banana
You can be fairly socially inept and still get funded with data, because results are results.
If you are a huckster, you can possibly get to series-B before the lies hit the fan. But data, data, data, eventually catches up and your stories hit dead ears. In fact, later-stage investors are the nerds who want data and care less about that Leprechaun at the end of the rainbow.
4/ Investors know there are risks. Don’t hide from them
MYTH: Avoid bringing up anything that might paint your business as risky and decrease investors’ confidence.
TRUTH: Identify and steer into your risk factors.
Experienced investors know there are always risks. If they ask you about your risk factors and you can’t answer, you lose credibility because they assume you are either dishonest or dumb. Dishonest because if you’ve thought about the risk factors, but choose not to share them, you’re implying you’re not committed to a partnership.
Dumb because you aren’t smart enough to understand that all projects have risk factors — including yours. Explicitly identify the one to three risks that could thwart your success and how you will mitigate them.
I uploaded a deck the other day which I found interesting because in the narrative the founder provided around the deck, he went into meetings and said “talk me out of why I should do this” (or something).
Experienced VCs are taking a bet that in 50 things work out for you to be the winner, winner, chicken dinner. And yes they are going to think through everything that can go wrong.
If you don’t name the fears as Rumpelstiltskin, investors are going to invent the demons under the bed, and they may be less informed in naming the demons.
5/ You always have competition
MYTH: Arguing that you have no prospective competitors is a strength.
TRUTH: Acknowledge all types of competition and express your competitive advantage.
Entrepreneurs often say they have no competition, assuming that’s an impressive claim. But if you claim that you don’t have competition, you either believe the market is completely inefficient or no one else thinks your space is valuable. Both are folly.
The market is efficient, eventually — if a valuable opportunity emerges, others will discover it. To build credibility with investors, you want to show that you understand the competitive risks and show why you’re going to win.
Express your competitive advantage this way: Why are you going to break out of the pack? What is your advantage? If you aren’t clear and decisive, investors won’t believe you have an edge that can lead to success.
Look, if there is no competition, you are:
- Far too early and screwed
- There is no market
- So smart, you’re not reading this blog
You always have competition. I’ve written a 13k word essay on this, so there is potentially a lot to unpack.
Having done so many pitch decks, I now bake the competition slide into the story to explain why the opportunity you see is not being solved. You explicitly want to explain the competition to explain the opportunity. What the competition does and is focused on helps your opportunity to become more lucid (hopefully).
6/ Pitch by analogy but don’t necessarily reason by analogy
MYTH: Don’t compare yourself to other companies because you think you’re unique.
TRUTH: Pitch by analogy.
Every great consumer internet company grows up to be a unique organization. But in the early days, you want to use analogies to successful outcomes to describe what your company is and what its potential could be. Time is short — it helps to refer to what those investors already understand.
The best pitch I heard of was in Hollywood for a film called Man’s Best Friend. The pitch was “Jaws with Paws.” Investors were told that if the movie Jaws was a huge success, a similar plot but on land with a dog could also be a huge success. The movie turned out to be terrible, but the pitch was excellent.
To be sure, pitch by analogy but don’t necessarily reason by analogy. Reasoning by analogy, when you’re developing your business strategy, is dangerous. In startup land, you’re running across a minefield, so the details matter and you have to be careful with your analogies as you conceive strategy. But for high-level pitches, analogies work great.
Uber for x is cliche. It makes my eyes roll.
Reid is getting to what I believe is causation and correlation territory, and he’s not really that specific, so I’m going to bow out on opining.
But my short version is saying we are “Uber for dog walking” is fine for your “one-liner” opening slide so investors get a 50k view of what the heck it is you do. It is not, however, useful for saying that because Uber was a decacorn, we will be too. That is wholly specious. It’s basic business bitch logic.
7/ The last round you have is before you exit. Plan for that
MYTH: Focus on today’s pitch. The future will take care of itself.
TRUTH: Think also about the round after the one you’re currently raising.
Every time you raise a round, you should be thinking about the subsequent round of financing. Assuming you successfully close the current round, how will you raise money later? Who will be the next investors you pitch? What will their concerns be? Whatt will you need to solve next?
Expect that Series B investors will want to see some slides from your Series A deck. Series C investors will be similarly interested in your Series B deck. Etc. When I created our Series A deck, I presented a growth curve that would be good enough to get an investment, but I also had confidence that I could beat it. I wanted to be able to go into my Series B presentation and say, “Here’s what I said before, and here’s how I did.” Because we beat our Series A expectations for network growth, investors could comfortably trust our promise to build revenue with our Series B financing.
This is 100% true. It’s something I have said 100x when people pay me to have to talk about pitch decks…
Just to amuse me I’m going into rap by analogy. There’s a song I liked from back in the day by TQ. It’s about his friend who got hooked on the VC crack, well, crack.
I used to take her on runs with me
She’d sit in the passenger seat and count the funds for me
It’s my fault, I introduced her to the game
To find out she couldn’t hang, and it’s a shame
That I remember when she started actin’ crazily
Was first day she brought my yay to me
Let’s get some yack because you made me now
The first lick is about to get paid now
But wait up, what’s the deal why ain’t you happy
Something’s wrong and that’s real an open package
That’s when I finally realize
Melinda getting high off of my supply!
So wtf was that. Melinda gets high on the suppl. This is not good.
When you are a founder and you get on the VC merry-go-round, you’re getting your first hit of VC crack and now you’re reliant on it. You’re fecked. This is why I tell founders not to raise if they don’t absolutely have to.
Your plans are no longer based on what you would like to do, but rather what it takes to get the next hit on terms you would like (e.g. no picking up soap in a shower involved).
You need to raise $3.6m at seed because you know SaaS investors are expecting $1.5M ARR at series-A, and that amount is what it takes to buy that ARR.
But look, this is a whole blog or three to explain. Read what he wrote, as it gives you enough to comprehend some of the implications.
What did you disagree with?
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