KMG Fortifying your brand in a downturn: Part 1: Adapting your pitch
By Karen Kamel, Director of Communications
Some principles are timeless.
Some best practices last forever.
And sometimes, there’s no choice but to adapt.
When fundraising today, particularly as an early-stage company, it’s essential to make a positive impression, to communicate with maximum impact, and to adapt your strategy to headwinds.
Getting a sense for it all isn’t easy. Hearsay can pass as wisdom and common sense doesn’t always prevail. To ground ourselves, let’s hear from four wizened investors: Lindsay Aspegren, General Partner at NorthCoast Technology Investors; Jonathan Roosevelt, Managing Director at Industry Ventures; Brian Wilcove, General Partner at America’s Frontier Fund; and a corporate venture capitalist who is contributing anonymously. Together, they have funded hundreds of start-ups and committed hundreds of millions of capital. Their practical insights are drawn from the full spectrum of success and failure. They were kind enough to share their thoughts with candor and the most sincere of intent.
Do Your Homework
Research a firm and its investment strategy. Do your homework to ensure that your sub-segment of the market is in fact within the general domain of the firm. Before you approach, make sure that there is a match. – CVC
Make That Connection
Try somehow, someway to find a connection. Cold emails only work when lots of time is taken to truly research an investor. Why do you want to speak with me specifically? The worst is when a middle person says, "My CEO will be in town and would like to set up a meeting. They're super busy, but can see you.” Annoying! Be a human being. – BW
Get double permission before making an introduction. When someone just introduces me directly without checking in first, I ignore the intro. – JR
Remember Your Manners
Everyone loves to feel appreciated. Simple thank yous are unusual and go a long way. And it’s really nice (and rare) when a quick follow up email is received. I think most CEOs don’t realize just how swamped VCs are with deals. If a CEO can differentiate themself with gratitude, it really helps them to stand out. – JR
You can tell within the first 15 minutes how it’s going. How is the entrepreneur presenting? How poised are they? Is this someone I’d feel comfortable taking the next step with? Rudeness, arrogance and for that matter, huge expectations, are not appreciated. A personality match is important. Who’s in demand? Entrepreneurs who are nice – people actually want to work with them. - CVC
Hone Your Pitch
Tell me quickly, from a psychological standpoint, why your customer cares. Why do they want to use or buy what you are building? Are they lazy? Are they overworked? Do they want a means for bragging? Will it help them to protect their job or to get a promotion? Please explain to me why someone cares fundamentally, psychological underpinnings and all. If a founder doesn’t understand that at an intimate level, they will fail. – BW
I need to get it. If a CEO can’t explain the business to me within the first minute in simple terms, I lose interest. And don’t lead with the product. Start with the problem the product solves. Explain how big that problem is and why others have failed to solve it. I appreciate the origin story. What motivated the CEO and/or team to tackle this problem? Why are they specially suited to solve it? – JR
While technical details are important, don’t be overly technical or drone on. – CVC
Are they the first in their space? Is their space growing? Are their competitors successful? And what is their list of potential customers? This is always interesting, almost like a dance. When founders are too upfront, as in ‘Our customer is Meta’ upfront, I wonder whether they are just trying to impress. Others tap dance around it or offer clues that will allow us to piece the puzzle together. They are trying to feel us out as well. An element of caution, upfront, shows mature thinking. – CVC
Corporate VCs are strategic in terms of investments, but do need to make financial considerations. A new technology or offering must fit within existing operations, yet must make financial sense as well. CVCs will not enter into a strategic partnership with a company possessing a flawed business model. There is a misconception that CVCs think only of strategy. A terrific technology with no chance of being a winner will never be attractive to a corporate investor. – CVC
It’s hard to grab a vine and swing devoid of context. Storytelling is critical. However, it’s difficult for companies to get meaningful feedback, because investors won't give that. So how do you test your story? Be cognizant of what you’re selling, and its differentiation from competitors. It’s a communications task. You cannot be refined or specific enough. The challenge is to be precise but connect to the big picture - and support your narrative with data. It's a necessary high wire act. – LA
Be honest about where you are now and your next steps - intellectual honesty goes a long way. - BW
Present With Cohesion and Patience
When a CEO is very quiet and the founder does most of the talking, it’s concerning. It reflects a CEO who isn't necessarily weak, but isn't totally empowered either. The same can go for investors – when an investor wants to join a CEO on a fundraising pitch, it can lead to the CEO being awkward. It can throw off the pitch. And it can lead to concern regarding that investor too, particularly if they do most of the talking. It signals that the company founder may not be strong. – CVC
Try to be open-minded and listen to investors. And understand that investors are not being rude if they simply want to listen. We all have different patience levels with regard to how quickly we make up our mind. – CVC
Adapt to the Changing Tide
What do I want to see now as opposed to three months ago? Capital efficiency. - BW
Today, I’d like to see different prices. Instead of 20-50x+ multiple of current ARR, we are now seeing 6-15x. This is mostly at Series A and B. - JR
People are more open-minded about scheduling and timing today, and being more proactive to move things forward. They are less suspicious of their venture capitalist because they need capital. There is the perception that things need to get done now. With market uncertainty, there is some truth to that. We’re seeing more openness to valuations coming down a bit, particularly within the high flying markets without revenue. Companies need to maximize their financing rounds for the long term, raising more than is needed today. – CVC
We are now definitely in the “after” time, with a huge shift from an era of high investor engagement to something that is more challenging. Nobody knows the environment to come, but power today is swinging back to investors. A company raising money today needs to understand how the “terms of trade” have shifted. – LA
For the duration of 2022, Series A companies will have the advantage of time and a fresh capital stack. Series B+ companies will need to articulate a clear path to profitable growth to secure financing at any valuation. – LA
There will be a “de-pop” in the venture world. We will likely see crossover investors move on from technology back into more traditional categories. Huge funds like Tiger and Softbank will likely become more focused on supporting existing investments rather than making new ones. This cascading effect will reduce unallocated capital available for new investments. Overall, the number of funds will contract, reducing the number of financing alternatives. Fewer alternatives means less competition. This will place additional downward pressure on valuations, changing the financeability equation for entrepreneurs across the board. – LA
Keep at It
It’s said that the best companies are often created during downturns. Think GE (1893). General Motors (1908). HP (1938). Hyatt Hotels and Trader Joes (1958). FedEx (1971). Then Microsoft (1973) and Electronic Arts (1981). Uber and Airbnb (2008). And a list, that of course, goes on and on.
Sequoia Capital is famous for investing in tremendously successful companies – and for heralding doomsday scenarios, giving notice to entrepreneurs of painful downswings to come. Macro economic factors do indicate challenges ahead and the markets are indeed adjusting. But for the most driven and prudent entrepreneurs, great companies can always be forged. For additional perspective, see Sequoia’s May 2022 memo, “Adapting to Endure” (here).
KMG is at the ready as well. We are available to help with the crafting of your narrative, the sharpening of your pitch and the refinement of your delivery. Let’s connect!