Funder / Founder Translator #1: Is My Idea Big Enough to Attract Investors?
- Landon steele
- Apr 23
- 4 min read
Updated: Apr 25
Are you in pitch deck hell? How many active versions of your pitch do you have at any one time? Do you feel like you are going round and round polishing it, but it still isn’t clear enough? Help is on the way.
Pitches are at the heart of the startup world. They are your chance to either verbally or in writing impress a potential funder, and the time allowed to do so keeps shrinking. Preliminary pitches can be 1-2 min. 5 min is now a luxury. If you send your pitch in writing, stats (1) say that VCs spend 2-4 minutes flipping through it to decide whether to give you that first meeting.
The expectations are that startups may have to pitch over 100 times to find the right funder. That’s a lot of time and effort on both sides. The better your pitch is, the better your chance of beating those odds. Wouldn't you like to get back to building your business?
I talk to a lot of founders and see a lot of pitches. I’ve been a founder, and I’ve pitched myself. I’ve been an angel investor, and I’ve had to decide myself who to back. So, I’ve seen both sides of the table, and I want to help bridge the communication gap between founders and funders. The more founders understand how funders think, the better they can make sure their pitch is built to impress.
In a series of posts, I’m going to answer a few founder FAQs, with the help of some VC friends. I’m aiming these posts at early-stage founders, pre-seed to Series A. Beyond that, there is more data, so emphasis may change.
Founder FAQ #1: Is my idea big enough?
It’s important for founders to understand a bit about VC math, and what they are aiming for. I’ve seen pitches fail simply because they are not VC fundable. This usually means that the idea was not big enough, the business is not scaleable or there are IP issues.
Some simple concepts to keep in mind:
VCs play a very specific game. If you are not interested in that game, you are not "VC Fundable". OpenVC provides a great summary graphic of VC math (2):
Are you building a company that a larger player would pay $1Billion or more for in 7 years? If that is not your vision, that is perfectly fine, but VC funding is not for you, and you can explore all sorts of other funding options.
From a founder's perspective, exiting for 5x or 10x your initial investment may seem like a win, but for a VC that does not meet their threshold.
Therefore, VCs say “No” a LOT. Don’t take it personally, but don’t pitch to them unless this is your aspiration.
Where do you convey in your pitch that your idea is big enough?
The TAM / SAM / SOM slide is often skirted over, but is important to show your ultimate vision. If the Total Addressable Market is too small, you may lose VC interest. VC-funded companies should be aiming for multi-billion-dollar global markets.
Comparison slide. Here’s a chance to not just show how your product stacks up against the competition, but to show the valuations of adjacent companies in their recent funding rounds. Help the VCs see that you are playing in a space with a huge market that supports hefty valuations.
Story slide. One of your “story slides” should convey not just your relentless focus on your narrow initial market, but also your “big vision” about how, once the basics are proven in your current focus area, your product (or even better, your platform) can expand into other markets. VCs love the word platform.
VCs are finance people, so their main question is NOT “How great is this product”? It is: “Will this business help me make my LPs happy? Does it have potential for a 100X return?” Make sure your pitch answers their question.
I’m only pitching to Angels now, not VCs. Do the same rules apply?
- It depends. I spent my career in Silicon Valley, so I have my own opinions that may be different than other angel groups. The angel groups I have worked with function largely like VCs. The only difference is that they write smaller checks earlier on, and that it’s their own money, not that of Limited Partners. They still expect big exits.
- Some angel groups may have a charter to invest in a local area or in a certain industry where these VC-like valuations are not required. There are healthcare angels, social impact angels, female founder angels and all sorts of other niche ones. Some groups may manage their portfolio differently with lower-risk/lower-reward investments. However, that still may mean 20X goals for each investment. You can always ask what their goals are before you pitch.
- The important thing to remember is that Angels are not charities. Their goal is still to make money. They are still investing in very risky startups, so they must be convinced to believe in you and your business model, and that you are ready and eager to ride a rocketship of growth.
- Some founders pitch in a way that seems to assume that Angels are there to donate to them. Some founders may forget that Angels have many, many options for what to do with their money. If they are listening to startup pitches, they are expecting to be Wowed. Don’t set a lower bar when pitching to Angels.
Hope this first post helped bridge that gap between how founders think of pitches and what investors are looking for. I’ll dig into other pitch aspects in future posts.
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Want to talk more about your own pitch? Contact Me today.
Wishing you all success.
Sources and Additional Resources:
(1) Pitch Deck Metrics, frequently updated: https://www.docsend.com/pitch-deck-metrics/
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