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- Focus Your Pitch on Either Story or Metrics (+3 fundraising tactics), How to Find Superlinear Opportunity - Tactician: #0094
Focus Your Pitch on Either Story or Metrics (+3 fundraising tactics), How to Find Superlinear Opportunity - Tactician: #0094
"You're pitching, right? And they say focus on the story or the metrics.
It's like being a superhero and choosing your power: 'Do I want the power of captivating narrative or the laser beam of analytical precision?'
Focus on one of the two. Mixing them up is like being a superhero who saves the day but then explains the science behind the rescue for three hours."
08/04/24
Focus Your Pitch on Either Story or Metrics (+3 fundraising tactics)
Why Read:
Insightful tips on crafting an effective fundraising pitch, building relationships with investors, running an efficient fundraising process, and optimizing for the right investment partners over valuation alone.
Featuring:
Mario Gabriele, Founder at The Generalist
Link:
Key Concepts and Tactics:
Focusing Your Pitch on Either Story or Metrics:
Point: Base your fundraising pitch on either a compelling narrative or strong metrics, depending on the state of your business, but avoid trying to do both simultaneously.
"You can raise on numbers or you can raise on story, but you shouldn't raise on both. You should always be clear with yourself about which one you're raising on, and your pitch should make it clear, too. It's hard to do both well: the vision obscures the numbers, and the numbers detract from the vision. The same company can raise on either vision or numbers at different times. At Vanta, we raised on our numbers in the early days because people didn't buy into the market or its potential. As we matured, so did our ability to bring investors along on that vision." - Christina Cacioppo, CEO and Co-founder at Vanta
Building Investor Relationships Outside of Fundraising:
Point: Carve out time to talk to investors even when not actively fundraising to hone storytelling skills, identify weaknesses, and gauge interest.
"You should carve out a small percentage of your weekly time, even when you're not actively fundraising, to build relationships with investors. If you invest a couple of hours a week, you'll have a much easier time bringing people up to speed on your business when it comes time to fundraise, and you're more likely to have a successful round." - Trae Stephens, Executive Chairman and Co-founder at Anduril
"When I am not fundraising, I will take casual 30 - 45 minute calls with 10 or so investors every six months." - Immad Akhund, CEO and Co-founder at Mercury
Running an Efficient and Focused Fundraising Process:
Point: When ready to raise a round, do it with conviction and drive investors towards a close, but avoid creating artificial urgency.
"When I am fundraising, I focus on trying to do it in a short time period – typically less than four weeks – from start to term sheet. If you already have investor relationships and are very "fundable," this is often easy to do. I generally avoid preemption – while it's nice when it works, it doesn't necessarily optimize the terms or investors you get, and it will often waste time when it doesn't work out." - Immad Akhund, CEO and Co-founder at Mercury
"Scarcity and demand are important to driving an oversubscribed process to completion, but those rounds don't become high demand because the founder has created the illusion of high demand. They become high demand because they are companies that people are excited to invest in. It's obvious to investors when a founder is playing a game (though it's often not obvious to the founder how transparent they're being). It's incredibly off-putting to investors when they realize you've inserted artificial scarcity into a process." - Trae Stephens, Executive Chairman and Co-founder at Anduril
Optimizing for the Right Investment Partners:
Point: Prioritize finding investors that can add the most value to your business over the coming years rather than optimizing solely for valuation.
"At Anduril, every round has been treated as an opportunity for us to advance the company and not screw the company up. Often, people don't think about long-term implications; they just look at maximizing valuation and minimizing dilution at every round. You can set yourself up for a world of hurt if you end up being too far out over your skis when it comes to valuation. At Anduril, we try to find the right price, not the highest price. I've never regretted taking the valuations we have, even when we could've gotten higher prices, because the valuations we've taken have enabled us to hit consistent growth from round to round. Investors recognize that and go into the next round seeing us as a mature counterparty who isn't playing games with them." - Trae Stephens, Executive Chairman and Co-founder at Anduril
How to Find Superlinear Opportunity
Why Read:
Understand the critical concept of superlinear returns driven by exponential growth and thresholds, which is key for ambitious endeavors.
Featuring:
Paul Graham, Y-Combinator Founder
Link:
Key Concepts and Tactics:
Understanding superlinear returns:
"One of the most important things I didn't understand about the world when I was a child is the degree to which the returns for performance are superlinear. Teachers and coaches implicitly told us the returns were linear. "You get out," I heard a thousand times, "what you put in." They meant well, but this is rarely true. If your product is only half as good as your competitor's, you don't get half as many customers. You get no customers, and you go out of business."
“You can't understand the world without understanding the concept of superlinear returns. And if you're ambitious you definitely should, because this will be the wave you surf on.”
Sources of superlinear returns: exponential growth and thresholds
"As far as I can tell they reduce to two fundamental causes: exponential growth and thresholds.
The most obvious case of superlinear returns is when you're working on something that grows exponentially... Startups can also grow exponentially[...]. Some manage to achieve high growth rates. Most don't. And as a result you get qualitatively different outcomes: the companies with high growth rates tend to become immensely valuable, while the ones with lower growth rates may not even survive.
Y Combinator encourages founders to focus on growth rate rather than absolute numbers. It prevents them from being discouraged early on, when the absolute numbers are still low. It also helps them decide what to focus on: you can use growth rate as a compass to tell you how to evolve the company. But the main advantage is that by focusing on growth rate you tend to get something that grows exponentially.”
"The other source of superlinear returns is embodied in the expression "winner take all." In a sports match the relationship between performance and return is a step function: the winning team gets one win whether they do much better or just slightly better. The source of the step function is not competition per se, however. It's that there are thresholds in the outcome. You don't need competition to get those. There can be thresholds in situations where you're the only participant, like proving a theorem or hitting a target."
“The most important case combining both sources of superlinear returns may be learning. Knowledge grows exponentially, but there are also thresholds in it. [...] Some of these thresholds are akin to machine tools: once you learn to read, you're able to learn anything else much faster. But the most important thresholds of all are those representing new discoveries. Knowledge seems to be fractal in the sense that if you push hard at the boundary of one area of knowledge, you sometimes discover a whole new field. And if you do, you get first crack at all the new discoveries to be made in it.”
Seeking work that compounds for superlinear returns
“Are there general rules for finding situations with superlinear returns? The most obvious one is to seek work that compounds.”
“There are two ways work can compound.
It can compound directly, in the sense that doing well in one cycle causes you to do better in the next. That happens for example when you're building infrastructure, or growing an audience or brand.
Or work can compound by teaching you, since learning compounds. This second case is an interesting one because you may feel you're doing badly as it's happening. You may be failing to achieve your immediate goal. But if you're learning a lot, then you're getting exponential growth nonetheless.”
“Choose work you have a natural aptitude for and a deep interest in. Develop a habit of working on your own projects; it doesn't matter what they are so long as you find them excitingly ambitious. Work as hard as you can without burning out, and this will eventually bring you to one of the frontiers of knowledge.”
Take extraordinary measures to get there
"Sports, politics, art, music, acting, directing, writing, math, science, starting companies, and investing...In all of them you have to put in the initial effort. Superlinear returns seem small at first. At this rate, you find yourself thinking, I'll never get anywhere. But because the reward curve rises so steeply at the far end, it's worth taking extraordinary measures to get there."
“In the startup world, the name for this principle is "do things that don't scale." If you pay a ridiculous amount of attention to your tiny initial set of customers, ideally you'll kick off exponential growth by word of mouth.”
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