What I learned at Web Summit… My Five Tips for Startups
Chris Darby, Venture Architect, at BCG Digital Ventures shares his tips for startups pitching to investors.
Last month, I attended Web Summit and had the mixed fortune of having the word “Venture” on my badge. If you’ve attended before as a startup you may have spent much of your time hanging around the key walkways waiting for investors to go past. If you’ve attended as an investor you may have been ‘pitched’ to by one of these folks. From the countless pitches I heard, here are the five key things I learned from the good and bad pitches from Web Summit.
1. Build a prototype, even if the final product will be nothing like it
Your pitch has two purposes; sell the product and sell the investment opportunity. For me, the first is more important. If you have a great product then the investment thesis should be self evident.
The easiest way to sell a product is to show what it will look like. Showing a great prototype helps convey the story of your product with the added benefit of proving you have the team to build it. You’re saying “Hey look, I have a great idea, it works like this, and I’ve got the team to do it because we’ve built this awesome prototype”. Once you’ve sold the investor on the product, then you can sell them your unfair advantage.
2. Have a business plan
I realise this sounds obvious, but a lot of pitches lacked any kind of business plan. You don’t need to carry around a 20 page document with deep financial analysis and intricate financing model; but you need to at least know who your customers are, how many of them exist, and what share you might hope to access.
Most investors don’t expect you to be able to specify a ROI figure for them, but you have to be able to give them enough to show you’ve done your homework, know your market and you haven’t been put off yet…
If you’re not sure where to start, there are plenty of business plan canvasses out there.
3. Embrace uncertainty and make assumptions
One of the hardest things about putting together a business plan is realising you know nothing, and have no way of getting the data — a feeling which is very familiar to consultants! We make assumptions. Loads of them. When in doubt, guestimate — it’s better to have a number which an investor can react to than to have nothing at all.
Big businesses also make assumptions. Constantly CEOs and CFOs defend their ‘actuals’ versus plan, also known as the variance. Admittedly they tend to be pretty close to plan, as they work in industries which are well known, slow moving, and highly predictable. You do not, so your predictions will often be wrong, but you will learn, improve and slowly get better at forecasting your financials.
4. Make a strategic choice about traction
One of the most interesting pitches I heard was from a company with a working MVP who didn’t need money, they wanted someone to invest at pre-seed to provide their expertise to launch the product. Given my ‘data first’ background, this felt weird. If you have a product, you think it will resonate in the market, and you don’t need money, why wouldn’t you launch?!
I was bamboozled by this and decided it was mad. I was wrong. After I’d heard this pitch I bumped into Ankur Jain of Humin Inc. In his view, investing pre-launch is a mathematical fudge which VCs sometimes apply; if the valuation is 0, the multiple is infinite. I.e. if you have no users, your user growth will be infinite; if you have launched and not had much traction, then your user growth is poor. Sometimes having nothing is better than having a little.
5. Don’t just take my word for it
We all learn in different ways, and we all care about different things. Remember: my views are just one of many. In fact, my views are a combination of the things I’ve learned from the musings of other investors and experience consulting for big corporates making investment decisions.
There are a couple of other places I would recommend to learn about how to succeed as a startup. The first episode of Alex Blumberg’s awesome podcast about building his start up shows you how to turn your random collection of ideas into an awesome pitch with the help of Chris Sacca and Brian Daly, Program Manager, for Techstars Berlin, tells you how to hack Web Summit.