Startup Fundraising — Key Lessons From Leading A 1-Year 45-Project VC Incubator 

The very best pitches are both comprehensive and succinct.

A difficult balance to achieve.

The storyline or narrative of describing the relevance of the project in today’s market opportunity, along with the credibility of the founder and plan to deliver the solution with minimal risk in a profitable way, is… tough. 

It reminds me of a joke about Winston Churchill, who said:

“If I am to speak for just ten minutes, I need a week for preparation; 
if you want me to speak for an hour, I am ready to go right now.”

Unfortunately, VC investors do not want to meet for an hour until you get to the point.

In fact, they’ll switch off within the first few seconds if your opening statements are not compelling. 

Being super organized in how to present an investment pitch along with the necessary supporting details is no small feat.

Principles for Investability

First, technology is not a product. 

A new way of doing something (even with AI or a web3 wallet) does not necessarily mean it's a product that hordes of customers will adopt any time soon… which makes it difficult to plan for a sustainably profitable business. 

Hence, beyond the ‘tech’, a realistic business model (based on a product with reasonable expectation of customer adoption) is crucial for gaining investor confidence. 

Thus: Investment pitches should be achievable and believable. 

Investment pitches typically include 2 key artifacts:

The pitch deck.

And a financial model. 

The deck itself is a simple summary of the business model, supported by a detailed financial model (spreadsheet) that reveals the data-driven projections of costs, sales and growth for the project over the coming few years. 

These artifacts are the tip of the iceberg and signal to the investors that a deep well of data-driven insight exists that the founders have drawn on to represent the investment opportunity and business potential. 

Easier said than done.

It can take many weeks of research, or months, to refine the underlying business model as the basis for a quality investment pitch. 

It is expected that pitch decks will address the following: Project Information, Target Market, Problem & Solution, Market Analysis & Opportunity, Unique Selling Proposition, Sales & Marketing Plan, Business Model, Traction: Customers, Partners & Media, Competitor Analysis, Intellectual Property, Core Technology, Management Team, Risks & Mitigation Procedures, Financials.

Forecasting a billion dollar revenue within 3-years of raising funds, based on limited track-record and an unbuilt, unproven product is not likely to be seen as believably achievable by an investment team. 

So here's what they'll do. 

If you present them with an apparently naive wishful thinking pitch... but they still like you or the concept... they'll squeeze you for as much equity as possibly with as least amount of cash as they think gives you a fighting chance to reach another funding round with other investors. 

Venture Capital firms often confess to investing in ‘less than 1%’ of the pitches they review.

Oftentimes that’s not because the ‘idea’ isn’t good… it’s because the business model behind the idea is not well enough developed. 

Yet most VC’s never reveal how or why they select pitches… leaving founders wondering what went wrong.

In 2022 I joined a VC sponsored by a Billionaire and taught an Incubator program for over 40 startups, revealing over 100 criteria that investors might look for when evaluating a startup for investability (yes, it's a word).

Such things as: 

Program feedback: 

"an incredible Incubator program. It has played a critical role in helping us refine and shape our pitch and message." - Goodblock

“Gavriel provides huge value at Helios Rising with this leading-edge “Incubator Light” program. Massive amount of highly relevant content and resources provided in such a short time. This has helped pivot our Pitch Deck and Business Plan around key investor needs. We now feel more informed, grounded and confident in our pitch.”  - Freeos

“one of the best groups I've ever worked with, and EnergEOS™ is honored to have been selected for candidacy in one of their early investment funds!” - Energeos  

It’s a ton of fun to both share my experience and learn from the experience and initiative of project Founders and their teammates.

Watch some video interviews with participants:

Bottom Line: What Is The Risk/Reward Ratio?

Investors want to fund promising projects with the right amount of capital to help projects achieve significant commercial milestones.

It’s all about risk vs reward. 

A pre-seed project (typically pre-product-development and pre-market-traction) is normally not worth as much to an investor compared to a project that has a live product with paying customers. 

The raise amount needs to reflect the viable business milestones that will convert the current stage of the project into something that makes money (or significantly increases the assurance of making money in the future).

Asking for $5,000,000 because that’s what another project raised is not a good investment pitch. 

Where To Start?

Know Thy Customer

In lean startup literature, one of the most important (and often neglected) pieces of advice is to 'get outside your office and go and talk to actual potential customers about your product'. 

Without knowing thy customer, all the fancy tokenomic models in the world are not enough to convince experienced investors to risk allocating funds into a project. 

One of the best attitudes that a founder can cultivate is to 'fall in love with the customers problem'.

By doing so... by becoming extra curious about the ins-and-outs of a customer's situation... a founder may overcome the hurdles of uncertainty to build a business that gains strong market traction, scales towards the moon, and returns oodles of profit for themselves and investors. 

As of 2022, ~2BN people have joined the Internet since 2015… while 1.7BN are still without access to digital transactions and coming online soon — which global infrastructure needs to accommodate. Web3 is taking root with the megatrend towards distributed data, governance and economic opportunity. Through a broad investment strategy of supporting new ecosystem growth, we can capitalize on the trends and build a shared abundant future.

Today’s investors have almost too many options to choose from — with virtue signaling and buzz marketing creating an environment of hype and hoopla, causing many sophisticated investors to miss the real pockets of innovation that are building strong foundations for investment.

Justifying Your Use of Funds for VC Investment

The amount of investment being sought should be tied as precisely as possible to the ‘use of funds’. 

This means a budget plan with justified expenses with as much confidence as possible of building a significant revenue producing outcome (or at least a very strong pilot study or genuine MVP). 

The most investible pitch decks demonstrate clear ‘use of funds’.

That is, how will the money be spent, more or less exactly, from the capital raise you are asking for. 

A very significant portion of that Use of Funds is likely to be on human resources.

That is, your startup and growth teams.

For pre-seed (before revenue) startups, perhaps you need a couple of core developers. For seed or series-A startups, perhaps you need an expanded development team plus other operational functions such as sales & marketing, customer service, and finance.

Pitch decks that ‘ask’ for $$$,$$$’s without (a) clear financial forecasting, or (b) specific use of funds (usually for recruiting a team with specific skill-sets) is unlikely to be seen positively by an investment analysis team. While the pitch deck might be short (10 slides or so), the documentation that needs to support that pitch may be extensive. 

Having clear Job Descriptions is one way to help develop your business model and financial plan, as well as clearly communicate the Use of Funds in your raise. 

Thinking this through, doing the necessary research to understand the responsibilities and contribution of each role, can significantly help strengthen your business plan and pitch. 

And if you're into web3 crypto: keep in mind that a token sale is not a business model 

Anyone can launch a token today (token publishing platforms are readily available and a token can be spun up in minutes) with a bit of math in a white paper, a snazzy one-page website, and a quick launch campaign on an IDO platform.  

Many token launches are half-baked business ideas (often with limited founder experience for the product category)... while others are simply ‘rug pulls’ (where the founders will sell their tokens to new buyers following the Token Generation Event and thus crash the token price but make out like bandits). 

It’s more common than any of us may like to admit. 

A viable business model needs a well-calculated assumed cost of real customer acquisition (not just a token buyer), including insight on specific and reachable customers with a sensible pricing strategy that attracts sales, covers operating costs and makes a profit to reinvest in growth. 

Setting these expectations up front may even help our industry begin to mature beyond the…

'It's crypto, we don't need a business model' phase, to: 

'It's crypto, we have highly sophisticated business models using web3 governance and incentives including best practice traditional business strategy that will help to quickly replace every aspect of the old centralized economy'. 

A HIGH-QUALITY WEB 3 INVESTMENT PITCH

Crypto has a legacy of bad investment practice. 

Most web3 Founders know the history of 'the 2017 ICO day's' — where 'nothing more than white papers raised millions of dollars'.

Today, the vast majority of those ICOs are dust, which Binance will conveniently convert into BNB for you. Very few ICO's made it big. 

The question today is... has our industry matured much? Does the fact of launching a project today as an IDO make any difference to the commercial viability (and hence investability) of the project? 

If web3 incentivization or governance is a significant part of the plan, how will that help to out-compete existing products available on the market? 

If a web3 startup intends to displace a particular product category... such as AirBNB rentals, or supply chain logistics, or a new social network, or whatever... having a tokenomics model and some marketing hype might possibly garner money via a token launch... but then what? 

During my year with Helios VC, we received dozens of investment requests with very cool 'web 3 business ideas'... some of which have intriguing twists and turns for tokenomics (burn rates, yield curves, minting schedules, and so on)... yet lack insight on traditional business areas such as:

• Product R&D plans
• Real-world competitive landscape
• Customer development (not the same as token sale community development) 
• And more... 

Product. Price. Promotion.

Bringing a profitable service or solution to market involves understanding the needs of one or more customer audiences in order to develop a suitable product (service or solution), at a price that's right, made available in a cost effective way. 

If a startup intends to displace incumbents in a particular product category... such as AirBNB rentals, or supply chain logistics, or a new social network, or whatever... having a tokenomics model and some marketing hype might possibly garner money via a token launch... but then what? 

Whatever product category you as a founder are considering, how do you intend to compete with existing centralized incumbents? 

What is your data-driven plan for monetization, new feature rollout, customer communications, strategic partners, and so on..? 

How long will it take to bring your solution to market? (ball-park figure based on reasonable expectations and credible claims) This may include:

• Developing enough core features of the service that can be monetized to cover the costs of operating the business. 
• Running test marketing campaigns that hones sales messaging, discovers the best marketing channels, and confirms the customer/user acquisition costs.  
• Attracting a buzzing online community that helps introduce the solution via their networks to enough users for sustained month-on-month growth to support sales, token liquidity, governance requirements, and so on. 

Each area a challenge in itself... 

And this is what lies beneath the tip of the ice-berg summed up in a pitch deck presentation. 

An Educated Gamble

Bottom line is that investors are taking an ‘educated gamble.

The more that founders can help educate the investor with facts, insights and evidence, the more likely the investor is to take the gamble of making an investment. 

Good Luck!