The Top 16 Rookie Errors Founders Make Pitching VCs

Jason M. Lemkin, everybody. I have been looking at a lot of pitches from founders over the last week or two, and some of them truly are amazing. Some of them just leap off the page and you just want to meet with that founder right then and there. But typically you see a bell-shaped distribution. A handful of pitches really leap off the page, a bunch are terrible, are simply terrible, and most are in the middle. Most are— have something interesting, there's some hint, there's something in the email, in the subject line, in the deck that's interesting. But it's not as interesting as it could be, and I want to talk about that because there's no reason if you're pitching investors that your pitch should be in the middle of the bell curve. It should be as good as it possibly can be, and I wanted to review 16 rookie errors that I see founders make again and again when pitching investors where there's no need, no need to make these mistakes. And if you fix these mistakes, if you don't make them, you're going to go up that distribution. You're going to be in that top 10% of pitches where where folks really want to meet with you. The first one, it's really a combination of two points, which is that cold emails work, but they have to be awesome. And we recently did the New New Venture at SaaStr a little while ago. We had some top VCs, Aileen Lee from Cowboy, Keith Rabois, David Sacks, Christoph Jantz, the Forbes Midas List, three of the top VCs in the world. They all came and shared their learnings, and you can see them on YouTube, on newnewventure.com. And what was interesting is the ones that I interviewed, the top VCs that I talked to, said they all read almost all their inbound emails. And this is contrary to many of the advice you get on the internet where you need a warm intro, you need to know the right people, you need to have gone to Stanford or been in the right accelerator. Those things, there's no question that helps. Fair or not, discriminatory or not, having social proof, having proof that you might be great helps. Going to Stanford and Harvard helps. Graduating from— out of Y Combinator helps. The best VCs read their cold emails. So, so, so you're armed with that. You know that actually you can inbound to a top VC, at least seed VCs, at least early-stage VCs, and they will probably read it. So make it awesome, folks. It's a sales pitch. Folks don't want to hear a one-line email about how you're better than Zoom. No, explain it. Make that subject line pop. Make the— make every part of your pitch amazing. Have the email subject line be so awesome folks would want to invest just off the subject line. Make the body of the email incredible, incredible. Share your best metrics, why you're going to win, why the team is great, why your vision is perfect. Distill it so that someone might invest just based on that email, and then attach a deck and make that deck as awesome as it can be. Don't have a teaser deck, don't throw off some random statistics about the market. Explain why someone should buy stock from you. Fundraising is selling stock. It is a specialized version of sales, but it is sales, no doubt. So make the world's best email possible, and if you look below, I will share a link to two emails that I read, cold emails, and those companies are now worth literally, literally billions of dollars. These were pure cold emails to me that I funded for millions for companies that are now worth billions. It does happen. Does it happen every day? No, but nothing happens every day. Every year unicorns, multiple unicorns in SaaS are founded, and every year there's at least one decacorn, and investors are looking for them. And seed stage investors can't meet everyone. They can't do everything from warm referrals, and they will read the best email possible. So make it awesome. Otherwise you're doing yourself a disservice. Point number 2: Be super straight with answers. Remember, especially early stage investors, especially seed stage investors and angels and the like, they know They know you don't know everything. They know you don't have $10 million in revenue and 10,000 customers. So just answer the question. How much money are you raising? How many customers do you have? What's your churn rate? What's your MPS? What's working well? What isn't? Why do you win deals? That's the most important thing. Founders, just answer why do you win deals? Why are you 10x better? That should also be in your pitch. Why are you 10x better? Don't be cagey. The best founders, I can tell you, are not cagey. And I know it's hard, I know we haven't— many of us haven't done it before, I know it can be intimidating, you can be insecure, but this is your job, you're the CEO, be honest. And if you don't know the answer, just say that, "I don't know the answer." And if you should know the answer and don't know the answer, it's okay to say that too. Listen, you should say, "I should know that answer, I've been in this space for a decade, but I don't, I'll get back to you on it, but it's a great question and I should know the answer." Look, if you say that to every single question, it's a fail. But you can say it once or twice. It's okay to know 8 out of 10 of the answers, even in your industry 7 out of 10 10. Be honest, but if you're cagey, no one will believe that you're going to build a unicorn. Mistake number 3, and this happens more often later in the process and more often in in-person meetings than Zooms these days, but it still happens all the time. Don't bring the wrong people with you and don't put them in your slide deck either. Advisors are great, mentors are great, angels are great, but they're not your team. Do not drag your advisor, someone you're paying shares for to help you raise money, to the investor pitch. A few folks will challenge this, but the reality is investors want to meet the founders, and particularly the CEO, but the founders. That's who they're betting in. It's usually at least 50% of the bet, always, and especially early stage. So don't bring people who aren't part of the long-term team. Don't bring people who aren't writing code, who aren't making decisions, who aren't talking to customers. They're just a flag for someone that is insecure. And again, we're all insecure in this process, but you don't need flags that say you're not going the distance, so don't bring folks with you that aren't founders to meetings. Next point, and I know this sounds simple, and I actually know you'll hear contrary advice from incubators and accelerators, but you'll see most of the best investors that are live on Twitter agree with me, which is send the deck. Send the deck ahead of time, send it quickly, and send all of it. Remember, you're in sales, at least in fundraising someone's on sales. Now later when you build the hottest unicorn, when you build the next Zoom and Slack and Twilio and Datadog, when it's later stage, you will build a data room and you will put all your documents in there and your financial statements, which may even be audited then, and all your cohort data and everything, and you will allow 20 or 30 investors a week, 2 weeks to log into a carefully constructed data room that's password protected, review the data, and make an offer, make a bid. You may be collecting term sheets, 2, 5, 10, or more when you're the hottest late-stage company, but that is rarely— it is rarely the way it works early. In late stage, often investors are in sales, but if you're in sales, if you're the founder, if you're the CEO in sales, make it easy on them. This is true of any sales, so send the deck. Don't send a teaser deck. Don't send a DocSend or a password-protected deck. Look, it's nice to have the DocSend. It's nice to have all the data and see who's looking at what. Of course it's fascinating, but don't do it. Don't do it. If you want to embed a Mixmax link, that's a much better way to do it because it can silently track who's doing what, but don't create gates. Many investors will not read a DocSend, and more importantly, if you don't send the deck— just send the deck— they may not follow up, they may not ask for it, they may move on. Many of the top investors have hundreds of pitches in their inbox and they're looking for the ones that stand out, but if you don't send your best assets, you're just decreasing the odds you get funded. Next point, and this is a rookie error and I see it all the time and it shouldn't happen, but I see it all the time from super smart people. You have to diligence your investors. You have to research them. Yes, deep down you can basically send the same email and the same deck to everybody, but think about reaching out to a top customer. Treat an investor like a $100K or a million-dollar deal. If you want a million dollars from them, treat them like a million-dollar customer. They deserve APM. They deserve a handcrafted email, not a cadence. not an email that doesn't even recognize them. At least go on the website, spend 15 minutes, and look at the deals she or he did. Look at some of their other portfolio. See if there are some sort of ties to what you're doing. They don't need to be the same, but are they— does this other— does this VC do SaaS? Do they do B2B? Do they do marketplaces? Do they do B2D? What type of deals do they do? How is your company at least vaguely similar to an investment they have done? It doesn't have to be the same, and VCs don't want to make competitive investments. But is the deal size similar? Is the type of vertical similar? Is the type of buyer? Is the type of non-obviousness similar? Just make a personal connection, and the best way to do it with VC is with a portfolio company they love, because portfolio companies are like VC's kids, sort of. They love to talk about, especially a successful one. I mean, if a VC has a decacorn in her portfolio, she'll never stop, she or he will never stop talking about it. So compare how your startup was like that Datadog or Twilio or Workday or Zoom or whatever it was in the early days. Show that connection and there's a 10 times higher chance you'll make a connection. And worse when you don't do it. When it's clear that email is just going to 40 people, the best VCs have too many and they just, they don't follow up. So you have to personalize and you have to do your diligence and ABM it and get to know those VCs. Next one. You do need to educate most investors on your space. Most of them will not really understand what you're doing and why you're doing it and how it works, but not too much. Don't waste time, don't waste slides in your deck, don't waste space in your email educating VCs too much on industry. Think about 2 slides and 2 lines and 2 sentences is enough. Okay, if a VC's never done an investment even remotely similar, they probably won't again, but summarize the industry in 2 sentences. Why is the content marketing industry changing? Why is travel changing? Why is application performance management changing? Why are— whatever changing, just summarize it in 2 sentences. Summarize it ideally in 1 slide, but 2 max. We do not need to hear the history of your industry since the 17th century, since the days of mainframes. It's too much, and it is accidentally condescending. VCs at least like to think they understand industries even when they don't. So forget the decades of history, forget the workplace of the future, just summarize quickly what's changed and why you matter. Okay, the next two are a bit of a Goldilocks, but you need to be careful about going in too strong with VCs, but also going in too weak. So let me explain. If you go in super strong, and people get this advice, and act as if you have 10 offers, that you're the hottest startup out there, If it's true and that's your thing and you like to go in a little heavy, do it. By all means, go in strong. If you have 2 term sheets on terms you like, you can be a little aggressive on the third. You can say, "I need an offer by Friday, by tomorrow, by this afternoon." But I see too many founders sort of fake it. And maybe they're nervous and maybe they haven't done it before. Maybe they got bad advice on YouTube or on the internet. But don't go in too strong. Be confident of what you have. Be confident about your future. Be confident about your financial model. Be confident about your pitch, but don't put investors under excessive pressure to write a check, or they may just walk for that reason. By the same token, this is tricky, this is tricky, don't go in too weak. And what do I mean by too weak? Too weak doesn't mean that if I don't get money from you tomorrow, you're out. What too weak means is too weak about your startup. And I'll tell you the number one thing that I hear that to me is always a huge flag, which is, I just need money to blank. I need money to hire a sales team. I need money to grow. The worst one is to grow faster. Like, I'm not growing so great today, but if I had money, I'd hire a magical salesperson off the internet and I would grow faster. No, that makes you sound too weak. Winners always find a way to win. And the truth is, investors really want to put money into startups that don't need it. Now, that rarely becomes true until the very late stage, but think about that idea. Think about presenting truthfully a message where you don't need this money, you just want it to win even bigger. That should be your mantra, not, "I can only win if I have your money." Even if it's true, it's, it's too wishy-washy and too weak. Next point, and we alluded above, don't ask for coffee to share notes. There is some debate on the internet, and maybe it was even more of a valid debate before COVID-19, but should you ask for advice when you want money or ask for money when you want advice? I sort of understand that. I don't know the exact answer, but I think the best thing is being direct. If you want money, tell an investor you want to raise money. You're raising money so they know, folks. Time is limited. Just let them know. Don't ask for coffee to share notes. Don't ask in a one-line email to catch up. Make that email amazing. Say, I'm raising $100,000, $200,000, $1 million, $2 million, $10 million, $100 million, and here's exactly why. Here's exactly why you should fund me. Don't ask for coffee. People that are, that have winners in their portfolio, folks that are already managing 10, 15, 20 investments, they do not have time for coffee, and the folks that have time for coffee probably don't have time to fund you. Not literally true, there are exceptions, and there may be folks that want to help you in particular, but generally no one has time for coffee that has a checkbook. Next one is like too, too much information about founder relationships. It is great to hear that founders have a history together. It is great to hear that you worked at Airbnb together or Salesforce together or wherever together, but hearing that you went to elementary school together, how does that tell me you're going to build a unicorn? It doesn't. Make sure— my point is making sure when you describe the connections to the founders that you do it honestly, you're truthful about it, but you do it in such a way that is compelling, that adds value to the investment. The fact that you two were the best engineers that knew each other at your last startup, or even in grad school, or heck, even in high school, I guess. That's compelling, but don't go far— too far back in time. I don't really care that you guys played soccer together when you were kids, and it undermines some of the maturity in the investment. Next one: answer the questions. Answer the questions. I know a lot of folks like to say, "I'll get there later in the presentation." Or maybe even tell an investor they don't quite understand the industry. Don't do that. Don't do that. VCs, investors are thoughtful why they ask the questions. You may think the question is stupid. It may even be stupid, but there's a reason they ask it. Sometimes it is to hear themselves talk, but sometimes it's that they just met with a startup that was kind of different, maybe not competitive, not in the same space, but roughly different, and something stuck in their head from that meeting and they want to hear what you think about it. and my advice, and some will disagree— don't say you'll get to that later. Don't say— answer the VC's question. Even if they want to jump around the deck, jump around the conversation, even if the conversation is not linear in the way you like, even if your pitch is interrupted, do it. If a VC wants to see a demo up front, do the demo up front. Don't make her or him wait. Let people learn different ways. I've learned this from SaaS or I've learned it from investing. For SaaS, some folks learn from podcasts, some folks learn from events, some folks learn from blog posts, some folks learn from Quora answers, or Twitter, or tweets, or LinkedIn posts. We have so many different types of media, it's faster, and different people learn different ways. It's true of investors too. So when they interrupt, I know it can be annoying, but answer their questions because it's probably the way they learn. Related to this, speak with data if it's there. Know your data, know your metrics, know your churn rate, know your revenue growth rate, know the average of your growth rate the last few months. Know if, even if you're pre-revenue, Know your plan. Linda, Bob, Jay, Jane, what's your revenue going to be at the end of this year? How many customers will you have? You have to know these numbers. You have to know your model cold. It does not have to be perfect or perfectly accurate, but you need to speak with data when you can. Related to that, make sure you know what the data— the stories underneath the data. Okay, great, you have 14 customers. How did you find those 14 customers? How did you close that big customer? I don't know. If you can't answer those questions, it's close to the kiss of death. So speak with data and know the stories behind that data so you are the master of wherever your company is. One customer, 10 customers, 1,000, you should be the master of how you got there and what the underlying both quantitative and qualitative factors are. Next one, claiming things that aren't quite true. What I mean in particular, there's a lot of things. Be scrupulously true. Speak positively, but most importantly, don't claim things like pilots, don't claim things like unpaid users, don't claim things like free users are customers or revenue that aren't. Claim they are what they are. If half your revenue is from pilots, then just say that. Say I have 4 customers that are paying, 4 that are paying but pilots, it's, it's, they're short pilots, and 4 unpaid pilots. Okay, I get it. 4 paying, 4 paid pilots, 4 unpaid pilots, but don't say you have 12 customers. I gotta tell you, most founders do this and it does them a disservice. It instantly undermines your credibility. Okay, you have 12— imagine the narrative. Oh, you have 12 customers. Uh, Jay, that's great. Okay, 12 customers, but how does that roll up into your revenue? Well, actually only 8 are paying. Oh, only 8 of your— so are they customers? Only 8 customers are paying. Oh, but only 4 of them are pilots that don't start till next month. It doesn't add up. Don't exaggerate your revenue. Just, it's early. Just speak The truth, speak the truth, especially about, about everything, but especially about your customer data. Be clear what a user is, what a pilot is, what an unpaid pilot is, a customer. Customer is someone that gives you real money right now for your product, and just be true about the rest of it. You, again, you can stack it. I have these, this many customers, this many pilots, this many unpaid free users. That's fine, they're all good. They have different values. Customers count more than pilots, and pilots count more than free trials. but they all have value, so just share it. And related to that, don't hide anything. It's the flip side. Don't hide anything. Whatever the bad news is in the fundraising, maybe you can get away with hiding some of it, but most of it will come back to bite you. Most of it truly would. So whatever the bad news is, at least bring it out by the second meeting. Okay, last 2 of these 16 mistakes I hear, and this penultimate one I hear it again and again, and I know it's a sign of nervousness sometimes. Um, and that's okay, but oftentimes it's a sign of not a great founder, which is not understanding the competitive landscape. You have to understand the competitive landscape. The best founders are thinking all the time about their market. The, the big competitors— if you compete with Zoom, then they know everything about Zoom. They know every single thing about Zoom. They also know everything about the new Zoom competitor that just launched on Product Hunt that's even smaller than them. They know their landscape cold. It's not necessarily because they obsess about competition. Some of us obsess more, some of us obsess less, but they know that you learn from the competition. It's one of the best ways we learn. Almost no software categories are new. We're iterating on old categories. Zoom is not the first web conferencing. Salesforce is not the first CRM. Again and again and again, very few categories are new, so we have to learn from the competition, and the best founders know their competition cold. And related to that, they don't belittle the competition. You should know what they're good at. Congrat— you know, be flattering for what they're good at and do it truthfully. Don't make it a throwaway line. Say, yeah, you know what? Everything about Zoom is awesome. This is one of the most iconic cloud companies of our lifetimes. Having said that, Zoom's focus is not on healthcare. Okay, I don't even know if that's true, but if you just said that to me, that's a great way to position yourself in the landscape. Zoom's great at everything. but they don't focus on healthcare. Zoom is great on everything, but they don't focus on 1,000+ seat deals. Whatever it is that makes sense, and that shows you know your landscape cold, and it also shows you're respectful. I didn't denigrate Zoom. I didn't say their technology is terrible, the audio is awful. I didn't mock them, and great founders never do it. Great founders respect the ones that came before them, even if they're going to kill them in the marketplace. They know it's not going to happen overnight, and they know that Even if the technology is terrible, which it rarely is, customers may not care. Salesforce is over 20 years old. Salesforce launched in the late '90s. I mean, this is a 20-something-year-old piece of software. I meet with a lot of founders that poke at Salesforce as a piece of software, but they don't get it. Customers love Salesforce. Salesforce just closed its largest 9-figure deal ever. That's because customers love it. So the best founders are very respectful of the competition and they know it cold. and here's my last tip, and it goes back to the first one about making that email perfect, about making the subject line perfect in the email, about making the email body perfect, about making the deck perfect, about making it the best sales pitch possible. Assuming you've gotten anybody's attention, here's my final exercise, and it always works. When you put together a deck, an investor deck for potential investors, make sure the first slide sells the deal. Now you could have a title slide, but I mean the first, the second slide, the first substantive slide, whether you need 5 bullet points or 4, or maybe it's too texty and you need 10, which of course we all hate, but assume that the whole deal, the whole value proposition can be subsumed into one slide. Of course it can. You are just an investment property at the end of the day. Summarize it. Hi, our name is, you know, Goom Doom Vloom, whatever it is, the next Zoom. We have 21 customers, our ACV is $1,100, we're growing 18% a month, we have 4 co-founders, we've raised $500,000 to date, and we want to grow 400% this year. We spent $0 on marketing. That's pretty cool right there, okay. That slide almost literally sells the company. Try it. You're going to say you can't do it, but if you spend an hour and then you put it aside and you come back the next day and you come back later, you're going to find you can distill The entire reason to invest your company in that first slide, and then slides 2 through 20, 2 through 40, hopefully it's, it's not too long. They're really just backup to explain those bullet points and why folks should involve, but sell it all in one slide. Force yourself to do it, not go for coffees, and you're going to push yourself. Instead of being in the middle of that bell curve with a great startup, you're going to be a great startup with a great pitch. That's going to dramatically increase the odds that you get funded, even if it's off a cold email. Oh my God.