One thing I found interesting was "PR is cheaper than marketing" in the slides she references. I think I lazily assumed PR was the expensive end of marketing that also required luck and special access - I have never really seen the numbers that show it might be be better value.
"Speed as the primary business strategy" Dave McClure:
>I have never really seen the numbers that show it might be be better value.
I think people misunderstand the function of PR vs. Advertising.
PR is a way to build credibility through third party validation.
Advertising is how you convert that credibility into sales.
They both have their time and place and you really need both to build a big brand.
If you run PR as your only marketing, you will be disappointed by the lack of direct sales and quantifiable ROI it drives.
If you run advertising without PR (or other third party validation) you will get frustrated with how expensive your cost per acquisition is from advertising.
The costs of PR vs paid advertising are going to depend on the case and how interesting the story is. As a couple of bits of anecdote, we used to be in the games business and getting a page in a newspaper through PR was like 1/2 to 1/4 as much as paying for the same space as an ad (that was in the old days pre Google).
Also PG in The Submarine implies he got value from PR for Viaweb:
>Our startup spent its entire marketing budget on PR: at a time when we were assembling our own computers to save money, we were paying a PR firm $16,000 a month. And they were worth it. PR is the news equivalent of search engine optimization; instead of buying ads, which readers ignore, you get yourself inserted directly into the stories. [1]
>Our PR firm was one of the best in the business. In 18 months, they got press hits in over 60 different publications.
These are lessons learned by a seed investor with bias and pressures coming from Limited Partnerships, term of fund, liquidity, and portfolio harvesting demands.
These are not necessarily good practices for starting an enduring company.
> At the seed stage, there are companies who have been around for 5 months and others for 5 years.
And what is the reasoning behind considering the former as better than the latter? The latter most likely has a more mature product with less technical debt and has shown that it can shoulder its operational costs for 5 years. The former has "speed" ... great.
> Demonstrate that you can pull the trigger on things quickly — whether it be getting customers, hiring / firing employees, or product development.
Quick turnaround is first and foremost an indicator of something wrong, not something right.
Speed is the denominator that any progress or success is measured against. More progress in less time is a better thing. Another way of thinking about it is: what company would you rather invest in, one that hit $1M in annual revenues in 1 year, or one that hit $1M in annual revenues in 5 years?
The former implies there's a lot more opportunity still to come, the latter suggests a small market, a mediocre product, or a team that isn't good at selling.
Was that first email reply a thinly veiled fart joke? Seems like they don't really take cold pitches seriously (or people for whom English is not their first language).
Some context is needed. That specific email was a scam email sent to the investment team and Sean (partner @ 500) jokingly replied to it playing along with the scammer.
The immediate quote below the email images is:
"(In fact, the vast majority of pitches I’ve seen probably fall under this category and these only take a few seconds to read and archive, so this is how you get to see 20k pitches!)"
So the majority of pitches you see are spam pitches? As a former grad student in chemistry/biophysics, I would see no reason to read that pitch as a spam. In fact, at first I thought it was quite liberating that 500startups would entertain non-traditional startups trying to tackle real-life hard problems in the physical science industries instead of another startup in the food delivery or cleaning services space, and then the response from your partner was, shall we say, discouraging. You might want to edit your post since it doesn't paint 500startups in a good light.
Either it's pitching in person, via e-mail or via your landing page, the most common mistake is: sorry, but I don't get what you do and why it matters or differentiates.
"If you can't explain it simply, you don't understand it well enough." Albert Einstein
This applies to startups just as well as theoretical physics. If you struggle to get your idea across in a pitch then something is fundamentally wrong, and it's quite reasonable for an investor (or a customer) to move on.
Seeing 20k pitches does not mean a lot. How many of the 20k got funding, are still around, have become ramen profitable, and why?
I don't think the author really knows what's important for pitching. That doesn't mean I know, but I'm quite sure it's not "make sure you stand out".
The author got that feeling because if you read 10k pitches a year, it gets boring as hell, and you are happily surprised by anybody and anything that achieves to look different. However there are different ways of being different. For instance, spelling errors stand out to her immediately. But it doesn't make her give you a thumbs-up. Yellow jackets and loud music will probably achieve "standing out", but are not something that brings you a step forward.
To me the blog post reads like her not having figured out the important thing yet, but she certainly wants to make sure that you make her job a little more interesting. Honestly, is it not weird to advice three times to stand out, then name a thing that stands out to the author (spelling), and then saying that people who stand out that way go to the trash bin? (This is not to say she or the post is bad. But it doesn't give the value it's promising.)
Again, I'm no expert either, but usually what stands out positively to investors(!) is traction. Traction is growth of leads -> possible sales. And traction is important because that is what an investor is buying. He buys a ticket at making X-times more than what he gives you. Everything else, like team, color of your jacket, spelling capabilities, features in your prototype, are only important in that regard as that they give a hint to the investor about your traction or lack thereof.
The purpose of standing out is so that you don't get inadvertently ignored. The point of the post wasn't to talk about what I look for in pitches. It's to illustrate what happens when you're an entrepreneur sending a deck to an investor. This is a viewpoint that I didn't have before as an entrepreneur and thought would be useful to other entrepreneurs.
Investors see lots of decks and realistically don't have time to do a deep dive for an hour or more on each one given the volume. This could be a flaw with the industry, but these are the circumstances that entrepreneurs have to work with right now to get noticed to even get that deeper dive meeting.
If you need to meet with 100 investors to raise money you are promoting a shitty deal and you shouldn't be investing your personal time in it.
Conversely, if 500 startups routinely invests in companies where 90+ other investors already said no, you gotta worry about 500 startups.
> So, I made up a rule of thumb: 5-100-500. Over 5 weeks, meet with 100 investors to close $500k in your seed round. If you want to close $1m, double all of these numbers.
> Conversely, if 500 startups routinely invests in companies where 90+ other investors already said no, you gotta worry about 500 startups.
All alpha in financial returns comes from doing things your competitors are not doing. If you do what other investors do, you should expect to get exactly average results. As a commodity product, if you get exactly average results your LPs are going to start wondering what they're paying you for.
500 startups is correct for seeking out startups that the other 90+ investors are ignoring. You may or may not be correct for pitching an idea that 99% of investors will ignore; it's a risk/reward trade-off, where pitching the obvious idea will give the obvious result (getting funded) followed by the other obvious result (landing at a big company in a face-saving aquihire), while pitching the non-obvious idea gives you a 99% chance of ignominious failure and a 1% chance that you're the next Google.
And in fact, it isn't usually the case that 90 people are saying no...more often than not, investors like to wait around and go MIA and not give you a response... Annoying as hell. :)
> If you need to meet with 100 investors to raise money you are promoting a shitty deal and you shouldn't be investing your personal time in it.
Where do you get that from?
Many very successful companies had a very hard time raising money at some point. That certainly didn't make them into a "shitty deal."
In fact, Fred Wilson just wrote an article about how hard it was for them to raise their first fund at USV—and that fund ended up doing spectacularly well. [0]
> we have seen founders and CEOs get rejected by more than fifty investors during that process.
He mentions 50 rejections as an outlier. He's not saying that's the norm, he's saying thats how bad it can get for companies in his portfolio that do raise money. Nor is he saying those are his best performers.
In fact, he's saying they need to change their company to raise money. Which is to say, that they started out pitching a shitty deal and had to improve it:
> As these expansion stage companies struggle to raise capital, they are forced into a cathartic (and at times painful) process of self reflection... And as a result, these companies are coming out of these hard raises with better businesses, better operating models (lower burn rates!!), and bigger visions to go execute against
I think Sanders would have probably had a higher initial success rate if he'd been pitching a business opportunity to people that make a living from investing in multiple high risk ventures, rather than pitching the opportunity of becoming a franchisee to people whose roadside cafe was doing just fine, thank you very much.
The story, though I know only bits and pieces, is fairly interesting. In particular, Kentucky Fried Chicken (it wasn't delettered to "KFC" until 1991), like McDonald's and Burger King, capitalised hugely on the building of the Interstate Highway System (begun in 1958), and a sudden interest in familiar food whilst on the road, an experience far more Americans began sharing in the 1960s and 1970s.
To that extent, his company and legacy are a very fascinating study of complementary developments and capabilities. And sinking money into the Colonel in the early 1950s would have given extremely strong returns.
Related to this point, I think I read that Sanders previously had an inn (small hotel) located on a local road. The new Interstate Highway bypassed his inn, thus causing his business to tank. So, I guess KFC was his pivot in the face of a new disruptive technology (interstates).
I've run across a few histories. Robert J. Gordon spends quite a bit of time on the 1950s (his own teen years, I believe), and the culture surrounding them. Including fast-food, entertainment, cars, and freeway culture.
There's a pretty good general biography of Sanders floating around somewhere online though I can't seem to find it. A long-read type piece that starts with his gas-station shooting incident.
My point was less about the specifics of the fried chicken restaurant industry and KFC corporate mythology and more about the fact professional investors earn a living trying to pick winning startups; small business owners that decline to become a franchisee or reinvent themselves as a joint venture with you don't. As such, reticence on the part of the latter group to get involved says a lot less about potential weaknesses in your business model than reticence on the part of the investors.
(FWIW There are plenty of investors that specialise in investing in restaurant outlets and consumer brand franchises, they just don't tend to be located on Sand Hill Road.)
Cool story, but today all startups have so much material available to teach them how to pitch. Many crappy ideas are professionally pitched all the time, so if you get 1000 rejections and aren't totally ignorant about pitching, your idea has to be terrible.
> How many investors turned down Airbnb, Uber, and DropBox? A lot.
These naysayers may have made great business decisions both for themselves and for these startups companies. Not all investors will make a startup prosperous. Only the right investor will create that spark.
Investors influence on where a start-up will end up is overrated. It's mostly up to the founders, luck and the market with investors somewhere near the back of the list of factors.
> How many investors turned down Airbnb, Uber, and DropBox? A lot.
Airbnb and Uber barely generate profit domestically and operate at a loss internationally. Every investor not betting on inflated share prices has been smart not investing in those.
By your logic you shouldn't invest in a university education because you're not earning a profit while at University. This is what's important to understanding startup economics:
IF: CAC < NPV(LTV)
THEN: reinvest your earnings and generate zero to negative profit.
The section on referrals was very interesting. Effectively, she states that cold emails are fine, since on balance many referrals are low quality.
Investors reading this: do you think cold emails and referrals are equivalent in terms of deal origination, or do you stick to referrals only? Please also mention your geography.
For VC funds almost all deal origination is referral or outbound, virtually none is cold inbound.
For seed accelerators the majority is cold inbound.
500Startups sits in a slightly odd category between those two so it's behaviour is likely to be unusual in any case.
But she makes a good point about the quality of referrer as well, who gives you the referral to a fund makes a huge difference to how much attention you'll get. As a fund if you treat all referrers as equivalent then you're inevitably going to get a lot of junk (anyone who works in VC has a huge network).
Some funds go so far as having formal categorisation of referrers (platinum, gold, etc.) based upon the quality of their dealflow and rewarding them based upon that.
A huge difference between two referrals is whether the person recommending the startup is investing some of their own money or not. Saying "Joe is a great founder, check out his startup" is not as strong as "I'm putting $50K in Joe's startup and you should look into it".
Cool note about speed, but I was hoping to read more about the patterns she sees in the value people are hoping to create. For example, there are a lot of "let's build a marketplace" ideas. There are relatively few "magical technology" ideas. And I bet there are plenty of ideas that are well-meaning but address problems that people don't realize they have yet (like privacy and digital autonomy). Oh well, maybe next post.
I see this notion that ideas are worthless, or that everyone has the same ideas, a lot and I could not disagree with it more. I think this comes from a fundamental misunderstanding about the nature of novel ideas.
For one, novel ideas are often difficult to communicate effectively, and difficult to grasp. Ideas that are notably different and blatantly obviously advantageous are typically few and far between, because such ideas would have already been implemented, being obvious, after all. Most good novel ideas have some degree of subtlety involved in them, or require a paradigm shift to truly understand well. Trying to digest such ideas without having that shifted mental model will often lead to misunderstanding. Additionally, communicating complex ideas can be very difficult. Consider how often book adaptations into movies fail to carry over even the core ideas or zeitgeist of the original material, and in that case you have a richly detailed (multi thousand word) source material as well as the resources of thousands upon thousands of folks who have read it to aid in that translation. In comparison, the idea that a complex idea can be easily and trivially transmitted from one mind to the next without error through a short pitch is ludicrous. And even less likely the more novel and interesting the source idea happens to be.
For another, novel ideas are often quite subtle, and don't look as revolutionary until the revolution has passed. Consider, for example, the transistor, or heavier than air flight. Neither of which received a great deal of press at the time, both of which were, undoubtedly, some of the most transformative inventions in history, based on numerous new ideas. The transistor seems, on the surface, to be little more than a different kind of thing in the same vein as the vacuum tube, and thus to be met with a similar level of success as the vacuum tube. But, of course, it is a different beast entirely. Solid state, miniaturizable, more suitable for mass production, more reliable, etc. It would lead to a revolution immediately in transistorization of electronics such as radio sets, making them smaller, cheaper, and more reliable. But, of course, it would also lead to the advent of the integrated circuit, digital logic, micro-processors and the personal computer revolution.
Yet to someone like this silicon valley marketer if they saw a pitch for the transistor they would almost certainly think it was nothing special, and not a new idea.
There are countless similar examples across the tech industry, and across history. The web, for example, was not all that different, per se, from gopher or FTP or other forms of information exchange from the early years of the public internet. But, of course, it was the specifics of the web that truly made it not just slightly different from other "ideas" for sharing information but transformatively, revolutionarily different.
If you look at cells under a microscope they mostly all look the same. Yeast cells, bacteria, even animal cells, they all just look like little mostly circular blobs. But just looking at a cell tells you almost nothing about it, you can't see the DNA, you can't see the cellular machinery. You can't see the difference between a cell that belongs to a sea sponge and one that belongs to a human being. Ideas are similar. When you view ideas by buzzing over them at the 10,000 ft altitude level of a pitch deck that you stare at for a few minutes they're going to blend together a lot.
For one, novel ideas are often difficult to communicate effectively, and difficult to grasp. Ideas that are notably different and blatantly obviously advantageous are typically few and far between, because such ideas would have already been implemented, being obvious, after all. Most good novel ideas have some degree of subtlety involved in them, or require a paradigm shift to truly understand well. Trying to digest such ideas without having that shifted mental model will often lead to misunderstanding. Additionally, communicating complex ideas can be very difficult.
Yes. High level ideas that people pitch are in themselves are not novel. The idea to come up with a cure to cancer is not novel. The idea to come up with a kickass search engine is also not novel.
It is execution that matters. The details matter. The subtle insights matter. And, I believe that is what you are trying to say here. Google may not have been the first search engine but their technology was faster and the user experience was better than their counterparts. This execution is what I'm saying should be highlighted in pitches as a way to differentiate one's business -- not the high level ideas.
A cure for cancer that actually works is novel. Execution is not all that matters, you need to have both a good idea and execute on it. There are many more good teams that can execute than there are really great ideas.
Novelty is overrated. A novel product; a novel sales channel; a novel subset of customer all contribute to failure. Its not only hard to educate investors about your startup; its hard to educate customers! There is tremendous value in the familiar.
I'd say (and heard others say) every point of IP in a new product is a red flag.
That's the thing, novelty doesn't have to even be perceptible to the end-user.
Consider Google for example. When they came on the scene they introduced roughly 3 different novel things to the familiar search landscape: pagerank (crazy CS PhD level search result optimization crap), map-reduce running on sharded multi-host web-accessed supercomputers, and revolutionary heavily automated data center management.
These things were as different as what had come before to the same degree as if you opened a door in a library and stepped into an alien mothership. But they very much contributed to google's success. They meant that google produced better search results (pagerank) faster (map-reduce + sharding) and cheaper (IT ops) than competitors. And that would lead to their huge advantages in monetizing their search results (better, faster, cheaper means higher profit margin on lower cpms).
But for the end user, they did not have to grapple with any of that novelty. Google users didn't have to understand pagerank or map-reduce. They simply went to google.com and saw a familiar though even simpler search page than they were familiar with from google's many competitors and predecessors, they typed in their search query and pressed the search button. And then they were presented with a list of results, just as all other search engines before. The difference for them was that the results were better, the pages were easier to navigate due to a cleaner design, and the results were produced faster.
This sort of thing is common in technology. The process for riding an airplane is not terribly different from that of riding a bus, you walk through a door, you sit in a seat for some time, and then you get off at your destination. The process of building and flying planes is vastly different, of course, but air travel customers don't typically need to know how to fly or build planes.
Sorry - after reading the comments below, I wanted to clarify what I meant is that investors are currently seeing a lot of companies in cleaning or food delivery. I did not mean to imply / suggest that it's bad to solve problems in these spaces nor did I mean to pass judgement or anything like that. I personally think that competition is good (and proves there is a market), but it's still important to show differentiation.
Care to explain? THese are areas that people (especially those with disposable income) are prepared to spend their money. Find a problem that people WANT fixing. Sure, other ideas might be cooler, or more 'fun' to work on, but you know - someone has to pay.
Those aren't just competitive spaces -- those are almost the paradigmatic examples of concepts that have repeatedly failed over the past two decades to demonstrate business value, but that startups and investors keep returning to like Kipling's burnt fool.
Those are concepts that are highly competitive because they have near-zero barriers to entry, while the underlying markets are themselves highly fragmented (significantly driving up your acquisition costs), highly competitive (meaning that there isn't much revenue to share with your startup), and already using multiple capture channels for their customers (meaning that you are unlikely to provide killer value to them). But for some reason -- I have my own theories there -- there's always some concept in those spaces getting funded, so they seem more greenfield than they are.
I'm picturing ronilan sitting there, despaired, wondering what to do with their startup that delivers food and also cleans your place... having just realized that cleaning and food startups are a dime a dozen.
"Speed as the primary business strategy" Dave McClure:
http://www.slideshare.net/dmc500hats/best-strategy-is-speed-...