Tackling the Big "Why Not" in Investor Pitches

When founders pitch to investors, they strive to present themselves in the best possible light, and rightly so. The goal is to make investors just as excited about the opportunity as the founder, both in terms of a successful investment and a productive working relationship. While there are numerous resources available on creating an impressive pitch deck, they often overlook the internal dialogue that investors have regarding why they shouldn't invest.

You see, most investors review dozens of pitch decks and listen to numerous pitches every week. As a result, it's highly likely that the investors you meet already have preconceived notions or concerns related to the market, business case, technology, and so on. As soon as you start describing your company, investors instinctively evaluate it based on five key factors and naturally count the reasons why they shouldn't invest. Our strong recommendation to founders is to be aware of this internal dialogue and proactively address and alleviate those potential concerns. By doing so, you demonstrate your maturity as an entrepreneur and your multi-faceted thinking.

The evaluation of an investment opportunity typically revolves around five pillars:

1 >> Market/Use Case/Target Audience

From the moment you begin pitching, investors start calculating the potential path to generating $100 million in Annual Recurring Revenue (ARR) within 4-6 years, especially for early-stage investments. Your chosen market, combined with the use case, must represent a rapidly growing market. Additionally, the target customer persona should demonstrate both the willingness and ability to pay for your product. It's generally not advisable to target customers who lack the financial means to invest in your product or who are not accustomed to paying for similar products or services.

2>> Solution

Investors assess your hypothetical or existing solution to the problem you've identified. They consider the "cost" in terms of time and money required to implement your solution. Solutions that are prohibitively expensive to manufacture, engineer, or distribute are the primary reasons why investors may hesitate to invest in your startup. Apart from the monetary cost, the time it takes to develop or onboard clients is also a factor. If each new client onboarding process takes several months and significant resources, it negatively impacts the Return on Investment (ROI) of your unit economics.

3>> Competition

When the first two pillars align favorably—meaning the target market and use case show promise, and existing solutions are relatively easy to deploy—there is often intense competition in the market. In your pitch, it's crucial to provide a thorough analysis of the competitive landscape. Simply displaying a few logos on a two-axis diagram, where your logo is at the top right, indicates a lack of seriousness in addressing the competition. It's essential to put in the work to showcase the existing competition and articulate your solution's competitive advantage and unique value proposition.

4>> Founding Team

This pillar is particularly challenging to address because it's subjective and external to your control. You are who you are, and you can't fabricate experience that you don't possess. The most successful founding teams have both relevant experience and a unique fit to solve the identified problem or address the use case. If you're a first-time founder, it's ideal to have specific experience in the industry you plan to operate in. Conversely, if you lack vertical experience, it's beneficial to demonstrate a successful track record as an entrepreneur or a senior employee in a successful startup. In any case, it's imperative to recruit team members who complement your skills and compensate for any blind spots.

5>> Deal Terms

While some opportunities may check off all the boxes and appear amazing, it's essential to ensure that the requested deal terms align with market standards and dynamics. Before proceeding with a SAFE or a priced round, take the time to research publicly available resources and seek advice from experienced investors and founders regarding comparable deals and their terms. It can be incredibly disheartening to invest hours in discussions with an investor only to have the deal fall through due to unfavorable terms.

In an ideal scenario, your startup, founding team, and deal terms will align perfectly with the criteria mentioned above. However, it's highly likely that not everything will be smooth sailing, and you may face risks in at least one of the five pillars we discussed. Our strong recommendation is to address any risk factors at around three-quarters of your pitch. This approach helps mitigate the chances of receiving an ambiguous "no" that is difficult to recover from. By proactively addressing these risk factors, you can openly discuss and alleviate concerns, presenting yourself as an intelligent and mature entrepreneur.