How to tell a good story when raising capital
How your narrative and tone can dictate the success of a fundraise
What do investors look for? Depends on the stage, but usually, it’s around team, market, product, and traction.
Shape the story to the investor. Every investor has their own preferences in what they want to see to invest. Tell the story they want to hear.
Energy is infectious. Getting people excited about your product, company, and vision will make the pitch easier to believe.
Control the narrative. Even when things aren’t as pretty as they could be, you have the power to shape an investor’s perspective of the situation.
Iterate: Practice, iterate, practice, pitch, iterate, pitch.
What are investors looking for in your story?
Think about what part of your company is the most exciting to investors. For early-stage companies (pre-product to early revenue), you could either talk about the team, market, product, or fast-growing user/revenue base. For growing companies that are generating substantial revenue, it might be more on metrics like net dollar retention (NDR) or market penetration/opportunities.
Not every company is going to have all of those boxes checked off, so you’re going to need to figure out what to anchor the story off of. Usually, the most important factor in early-stage companies is the team. The next thing is the market, in which most investors are looking for $1B+ opportunities with great dynamics. And lastly, it’s usually the product because that’s going to change drastically for an early-stage company.
Shape the story depending on the investor.
Every investor and fund has its own preferences and weightings on which categories they care about. For example, you could run into these two types of funds for the same financing round:
Type 1: Cares mostly about team and market, doesn’t care so much about traction.
Type 2: Cares mostly about traction, doesn’t care if the team is less experienced in a smaller market.
Shape your story and know which parts to highlight depending on the investor. That’s why it’s always important to ask at the beginning of each call what their funds look for, and what they get excited about. That way, you can shape the story to what they would find appealing as an investment opportunity and you’ll have a higher chance of success moving forward with them. Know what parts of the business to focus on and sell that hard.
Energy is infectious.
Good storytellers just have this energy to them. You know it when you see it in a pitch. From my experience, it’s when you just want to listen to the founder and you get more excited about the vision of the business the more they talk. It’s when you just shut up because you’re speechless in how passionate and knowledgeable about the problem they’re solving.
I’m not saying that you should go in with a very fast-paced pitch or an abundance of excitement in your voice when you’re speaking. It’s really the natural energy and charisma that I’m referring to. A few examples I can think of are when a founder’s eyes light up sharing customer feedback or feeling the adrenaline rush from sharing a core new hire on the team.
When energy is tied to tangible outcomes and data, that’s when it’s infectious. When there’s energy around empty visions, unexecuted business plans, and lacking metrics, that’s when it’s not infectious. Getting investors to emotionally buy into the company through anecdotes and potential ways to partner together can go a long way.
Control the narrative.
Every business is going to have some “hair”, gap, or flaw. Like how no person is perfect, no business is perfect either. That’s why I believe one of the most important skills a founder can have is controlling the narrative in the story.
Map out all of the exciting and not-so-exciting parts of the company. Maybe you’re first-time founders, but you’ve got great revenue traction to make up for that. Maybe sales aren’t growing that quickly in aggregate, but there’s a business line or product that’s been growing 300% annually. Being honest with yourself and knowing where your weaknesses are will help you pick out areas where you can shine.
If sales aren’t growing that quickly, make sure there’s a way you can turn the negative into a positive. In a pitch, you could easily go either way when an investor asks why sales haven’t grown that fast:
Option 1: Accept that sales aren’t growing quickly, lose confidence in the pitch, and try to move on.
Option 2: Talk about the amazing user growth and usage that you’ve seen in the product, the new pricing strategy that will monetize this, and how the funding round will help unlock this traction. This round will seem cheap to the investor because they are locking in a great price based on the forward revenue multiple of the company once the pricing model changes.
Not every investor is going to buy this story. But it’s a lot better of a story in Option 2 than in Option 1. Even when things aren’t as pretty as they could be, always remember that you have the power to shape an investor’s perspective of any situation.
Practice doesn’t make perfect, but I promise it’ll help you at least get better.
I’d suggest you iterate in this process:
Practice with your co-founders, iterate
Practice with other founders, existing investors, or friend investors, iterate
Start pitching the non-target list of investors to get a sense of whether the story is selling, iterate to get a good baseline story
Start pitching your target list of investors, iterate every call depending on what they look for
A CEO’s job is to be a great storyteller. To sell customers on why they should use your product, to sell prospective employees why your company is so exciting to work for and to convince investors why you’re building the next big thing.
The difference between a good and bad storyteller can make or break a company’s ability to fundraise.
Best of luck fundraising and reach out if you have any thoughts, questions, or stories you’d like to share with the readers. My email is firstname.lastname@example.org