As any founder would attest, pitching to an investor today is a hard ball to play. The days of riding just on a kickass idea are long past. Entrepreneurs need to have answers to questions like team management, daily operations, cash reserves, and their business continuity plans, especially true in these pandemic times.
It would thus be prudent to find out what investors look for in startup founders and their business ideas.
Karan Mohla, Partner Chiratae Ventures (formerly IDG Ventures India), explains the factors that founders need to keep in mind when they are pitching to an investor.
Karan also leads fundraising and partnerships for the firm in the Asia region. At Chiratae, Karan has worked on investments in companies, including Bounce, FirstCry, HealthifyMe, Xpressbees, CropIn, Peel-Works, Oye Rickshaw, Wmall, LittleBlackBook, Tripoto, and Yatra.
“Pitching is more about having a conversation or telling a story, as opposed to going through a deck. It’s more of a discussion in which you get a glimpse of the mindset of the founder and how they approach the problem. These matter as much as the business fundamentals,” he says.
Karan’s top advice to founders is to focus on understanding their audience while relating their story to an investor.
Talking about the mistakes founders make and therefore, should avoid, Karan says he has seen founders make a number of mistakes. Some of these include,
- Going after a small addressable market
- Lack of focus
- Team dynamics
- Underestimating competition or technology disruption
- Not being able to fully understand principal risks to the business
- Not doing enough quick experiments (in the early days) to understand what can and cannot work.
The founder and the team
- Starting up is never a straight line journey. Founders need to be comfortable with volatility and uncertainty. Having grit and resilience is important.
- Mental toughness is one of the most underrated qualities for startup teams. The best founders are able to rightly balance between perseverance and adaptability, this is especially true in a post COVID world.
- Pitching is more about having a conversation or telling a story, as opposed to going through a deck. It’s more of a discussion in which you get a glimpse of the mindset of the founder and how they approach the problem. These matter as much as the business fundamentals.
What is the inflection point?
- Most businesses will have more than one inflection point. At each step of the journey, you will need different resources to be successful.
- Success will also depend on how well you can understand these moving forces ahead of time? How do you measure success through one or two key metrics that show whether or not you are on the right path?
- Never be satisfied. Always push for achieving better and more efficient end results.
Someone who is more nimble, smarter, better capitalised or with better tech will always overtake you. Complacency can bring anyone down at any point in time.
Get deep into the market
- What part of the market is really addressable by your solution? Is your solution a necessity or a nice-to-have?
- How do you quantifiably show the value of your product? Is the value proposition easy to understand? Are the switching costs for consumers or businesses high? Or will there be a lot of friction for users to switch out?
- We have seen the risks of capital intensive models over the past couple of years. Investing on a first principles basis is quite the opposite and technology-enabled models should have inherent advantages of being capital efficient.
- Understanding the market opportunity (not just that it’s a big one) but getting into the details of how it is growing, your specific area of focus, and why you want to focus on that is important.
- What makes your product unique (not just features) and how does it effect change for the end user?
- What will you sell, to whom will you sell and for how much? The ‘why’ of buying your product should be interspersed not just in one place but throughout to reinforce the message. This could vary from company to company but highlight the key metrics and also why you think these metrics are important.
- Have a view on the competitive landscape and share your opinion (ideally with data) on why your company will win against competition.
- All in all, why are you excited about this particular opportunity? Do you realise the risks associated today and those that can come later?
Take feedback openly and don’t be defensive. However, if someone is factually wrong or is going on a tangent, be sure to correct them and state your POV (with facts). There is no point in being on different wavelengths if you have to work together for years potentially.
- Finally, no need to reinvent the wheel. There are many great resources on how to pitch, including sample pitch decks.
Know your investor
- Know who you’re raising from and how much they can actually invest.
- Raising seed capital is different than raising money from a fund.
- Understand the difference well and talk to people in your network to see how they’ve approached either set.
- Have they invested similar amounts in companies at broadly the same stage previously?
- Do they understand your sector (via existing investors) or have an interest in your sector?
If you can get connected to an investor via a mutual contact, use that connection as it will help most times. Keep persevering because you need only one person to say yes. However, do set a time limit for the process and don’t let it drag on.
Push towards technology
- Being tech investors, we have funded companies all the way from consumer tech to deep tech (commerce to robotics) and everything in between.
- What COVID-19 has really shown is that technology (in the way that India has used it) is still so under-indexed. But the upside on it is massive and this will be one of the catalyst events we will look back in the future.
- There are obvious sectors that have experienced tailwinds during the past six months as well as those where there has been a permanent to semi-permanent shift. The examples of edtech, healthtech, gaming, entertainment, and now commerce are often talked about and also true.
- In the post COVID-19 world, due to the lockdown and the impact on supply chains across all industries, the depth of digitisation and adoption of technology has been massive. It has forced behavioural change in a way that discounts, cashbacks, and free trials weren’t able to do.
- Hence going forward, what was possible in theory is being translated into practice. For instance, SMEs from one part of the country ordering or supplying to another via a tech aggregating platform. Or, consumers in small towns and cities paying for access to specialist doctors via telemedicine.
Consumer behaviour patterns are different in different parts of the country but technology allows a digital presence to solve these from anywhere. As the retail market goes beyond $2 trillion in the coming few years, a much larger part of that will be organised and digitised (both for consumers and businesses alike).
- Finally, while technology has been more of an enabler over the past 10-12 years, it will be more disruptive for all these reasons as businesses will have to adopt and adapt. Entire industries will change (either holistically or incrementally), including venture capital and we have to be prepared to evolve.
Karan says that in the 10 years of his venture investing career, the one thing he has learnt is that it is a very humbling business and one needs to adopt a Zen like approach (not get carried away nor get too despondent).
“You are wrong more often that you are right. And the number of companies you missed out on is also longer than the ones that you got right. More than anything else, luck plays the biggest role given the not so precise nature of our work. Given this, one has to have the perseverance to keep going but learning as you move forward,” he adds.