How to pitch your story to an investor

No investor is going to invest in you only because of your story.

But story is still a massive contributor to getting a term sheet — especially if you’re early stage.

As someone who works frequently on messaging for startups, it’s important for me to communicate to Founders why the difference between an okay story and a compelling story could be the difference between raising money at a good valuation and not raising at all.

The question and comment I then get from Founders is: Okay, then how do I tell my story? I know too much!

This answer to this question was beautifully articulated by Accelerated Digital Ventures’ US Managing Partner, Keith Teare. You can find his recent video on startup storytelling and fundraising here.

In his video, Teare walks you through two helpful (open source) documents: (1) Public Copy of Deck Structure and (2) Keith – Portfolio Management – Raise Readiness. These docs demonstrate how to set up your story in such a way that caters to the VC’s best interest.

I recommend watching the video in its entirety and keeping these documents on hand as you craft your story.

Some things that stood out that early-stage Founders gearing up to fundraise should note:

1. Understand the purpose storytelling serves in a pitch.

As Teare put it: “Storytelling is an art combined with science. The artistic part is to understand that a story’s goal is to persuade an investor who most likely starts with the fear of losing their money, and to transition that through your story to a fear of missing out.” With a compelling story, you can help transform an investor’s potentially harmful fear into a better, more useful fear.

2. Pre-product, pre-seed startups need Story as Team

and Traction won’t be enough.

In this deck, Teare beautifully demonstrates how, for an early-stage startup, investors can only allocate a certain percentage of their decision to the following three factors: team, traction and story. At this stage, an investor-only has so much to go off of when it comes to the team because it’s at the beginning stages of developing out the team. So let’s say 10% of the investor’s reason to invest was due to the team. That leaves us with the next factor in their decision: Traction. At such an early stage, traction is barely there — it’s too low at this point to lean on traction as the primary driver to invest. So let’s say that only 1% of their decision to invest was derived from traction. That leaves us with the final factor: Story. If you have just an okay story, you’re leaving a heap of percentage points on the table. Because at such an early stage, an effective story could make or break your ability to raise around.

3. Align your short-term goals to VC’s long-term vision to persuade

them that you’ll do good things with their money.

Another fear investors have is that “when you run out of their money, you won’t be ready for the next money. And if you are, you won’t be ready to do it at an increased valuation from the round they did.” Teare mentions that the goal is to persuade that your short term roadmap (next ~18 months) will set your company up to such that next time it goes to raise money, the valuation pre-money is likely to be 3x the valuation post-money on the round that you’re asking them to invest in.

“See the investor as a unique customer with its own business model and make sure you align your story to their interests and model.” - Keith Teare

To dig deeper into storytelling for investors, I contacted Keith to get some additional pointers for early-stage startups. First, read the documents he shares, and then read on for some Q+A:

Sydney: You mention that in the first section of the Deck Structure that the emotional goal of the section is to make the listener (investor) fall in love with the investment opportunity. How can a Founder increase the probability of this happening at the outset?

Keith: Primarily the founder needs to do research on 2 things.

The trends driving the opportunity she sees. What is it that makes the trends inevitable? Why do the trends imply very large sustainable value creation over time? Why is the founder’s company the most likely beneficiary of the trends?

Model the likely opportunity over time so that the narrative is supporting a version of the vision expressed in numbers. This is not a forecast or an operating plan. It is an attempt to show the opportunity over time.

Sydney: You mention in the third section that the emotional goal is to persuade the listener that you will be a good custodian of their capital. For early-stage founders, what are some tips you have for earning trust during a pitch — thus helping persuade them that you’ll do good with their money?

Keith: The key to section 3 is that in section 2 the founder established their credentials as a good executor. “What we have done so far” leads to section 3 - “The road from here”. In section 3 you are ————— for the first time in the deck - making promises about your FUTURE execution. The key is a lot of clarity on what you believe the key goals and milestones are that will get the company to its end game. This is a long-term roadmap with several “tipping points” like milestones. Confidence in the founder is a direct function of the clarity conveyed. The roadmap is another way of explaining the use of cash - but over several rounds (in this section).

Sydney: What are some common themes among the most memorable pitches leading to high-confidence investments you’ve made over the years? Why was their story so compelling?

Keith: They had a clear and big story that benefitted from secular societal trends and were able to show why they were best positioned.

They had thought through the unit economics and scalability of their idea.

They were honest, nuanced but “leaders” rather than “managers” in personality. Many founders come across shallow and over-confident. A good one comes across as balanced but ambitious and determined.

Sydney: What are some questions Founders can ask themselves to zoom out and think longer-term (7-12 year horizon) — similar to that viewpoint of an investor — instead of getting caught up in their next 12 months of execution?

Keith:

What is your end game?

Why is it worth the effort?

How will you make it happen?

That’s it.

And there you have it. Storytelling to investors. That’s it.