Transcription
All right, so, um, I'm here to talk to you about something boring and horrible, uh, that every single founder hates. Um, how to pitch your company. Um, we just got through demo day and helping over 200 companies pitch investors. And pitching investors is basically the most painful thing that companies do.
What I find fun is that any founder you talk to can remember every single investor who said no to them, and they hold a special kind of, I don't want to use the word hatred, but they hold a special something for those people. Um, and they desire to prove them wrong. And so, what I wanted to do today is give you all the tips that we give YC companies to be much more successful at fundraising when you are pre-product market fit. And that's really important. This is not for raising Series A's. I assume most of you here are pre-product market fit. And so, what I hope to do is get you to unlearn some of the fundraising advice that you've learned so far, which is probably wrong. That's my goal.
So, number one, you stand out by being concise and easy to understand. Uh, I, I've done, I think it's over 2,000 YC interviews. And one of the things that founders don't understand is that if I don't know what your company does, I can't fund you. The number one barrier to not knowing what your company does is you, not me, not the world that's oppressing you, not your users, not your advisors. It's literally you. A lot of people think that they need to bring a bunch of energy and pizzazz and sizzle and Shark Tankiness to a pitch. You don't. You actually stand out by being concise and easy to understand. And so, a lot of what I'm going to do today is going to not sound fancy because it isn't. It just works. There's a talk over there that tells you about all the fancy things that don't work. So, if you want that talk, you can... I'm just joking.
All right, so these are the common elements of a pitch. These are the things that you need to be able to talk about. What do you do? What does your company do? Who's on your team? What's your traction? What do you know that everyone else doesn't or would disagree with you about? Your unique insights. What's your market size? And what are you asking for? This is a pitch. That's it.
So, let's start with what do you do. You need to be able to say what your company does in two sentences. And you need to be able to give a specific example. So, um, let's use Airbnb as an example, right? So, Airbnb lets any home or apartment owner rent out their apartment online. Sentence one. They collect the payment online and take a, let's call it, 15% fee for every booking. That's sentence two. That's it.
A lot of the magic comes in the example. And I'll give you a real-world example. Imagine that you're a waiter who lives in Washington D.C. and, and it's 2009, and the Obama inauguration is happening in town, and every hotel room is booked. You can make two, three, $4,000 by renting your apartment out. And that's the amount of money you need to pay your rent for the next two or three months. All you have to do is take some photos of your place and put a listing on Airbnb. And Airbnb will handle the payments. We get you a great guest. You give them a great experience, and you got your rent paid. What's interesting about that example is it's specific. You can imagine a waiter. You can imagine them being in D.C. I don't know how old you all are, but you probably remember the Obama inauguration, or the fact that Obama was president. You can imagine the hotel rooms being sold out, and you can imagine somebody being able to rent their place out for a lot of money and pay their rent for a lot of months. That is a great example.
What I didn't do was I didn't give a vague example. So, let's talk about where people go wrong. One, they pitch something or they explain what they do in a way a customer would understand, but an investor would not. For most of you, investors are not your users. You use jargon with your users. You assume a lot of common experience with your users. If your investor is not your user, they don't have that experience. You have to use simple language that they will understand, not complicated language that makes you sound smart. So, one thing we tell YC companies is you need two different answers to "What do you do?" One that you give investors, and another one you give customers. And they're different. The words on the front page of your website are for customers. If you're using that for investors, more often than not, you're doing it wrong.
Number two, they try to be 100% accurate. There were a lot of details I left out of Airbnb in that two-sentence description with the example, but it was clear and easy to understand. Your goals should be 80% accurate, 100% clear, not 100% accurate, 50% clear. I talked about an example that's too general. What I could have said about Airbnb is, for example, if you are in a place that has a big event and you need to pay your rent, you can rent your place out and then you can pay your rent. Same basic story. None of the little facts that make it stick in your memory and make you understand.
Next up, in their example, they don't illustrate the problem and solution. Right? I talked about that waiter. Inherent in that is that waiter doesn't make very much money and they need to pay their rent. And Herb helps them pay their rent. So, instead of having a complicated problem-solution slide, I just told you what the problem and the solution was right up front.
And then last, but not least, and this is one that I think a lot of founders screw up, you do not want to leave the first slide of your presentation without investors knowing what you do. So many founders have the first slide of the presentation with a nice logo on it, and they say, "Like," and then they move on. And investors are sitting there saying, "I have no [ __ ] idea what this company does." And now I'm looking at graphs and charts and [ __ ] and I, I don't have no idea what's going on. Don't do that. One thing you can actually do is just ask, "Hey, so now that I've explained what we do, do you understand? Or would another example be helpful?" You can do that. It's really simple.
Next, your team. Um, people screw up the team slide all the time. The purpose of the team is really just to talk about who's on your team, what do they do, what their impressive accomplishments and credentials are, and if possible, how they've personally experienced the problem. If we go back to Airbnb, they could literally talk about how they were starving startup founders who couldn't pay their rent. And the first time they did this, they set up a website for a design conference, hosted three guests so they could pay their rent. If you can weave how you've experienced the problem into the team slide, suddenly I think of you as an expert.
Now, what do people screw up? No titles. I don't know what the roles are. I don't know who the CEO is. If I'm a real-stage investor, I'm trusting the CEO with money. If I don't know who they are, who am I trusting? Number two, who writes code? Number three, telling, telling long stories. The team slide is not the opportunity to tell your life story. Here's a hint: there is no opportunity in your pitch to tell your life story unless the investor asks explicitly for your life story, and you should double confirm they want to hear your life story. No life stories. And then the one I always love: missing specific accomplishments. There's one company in this batch that literally worked on the Mars rover. Um, the founder was like, "Worked at JPL and like built software to make the Mars rover project actually happen." Didn't talk about it. I didn't even know when we accepted him. I'm in office hours with him a month, two months into the BR, and I'm like, "What was, what did you do at JPL?" And he's like, "Oh, have you heard of the Mars rover?" I'm like, "Yeah, I'm not a [ __ ] idiot." And, and he's like, "Yeah, I, I did, did." And I'm like, "Can we talk about that, please?" If you've done something cool, say it. Without the life story, just say that you did the software for the Mars rover. It'll be impressive.
Next, traction. Everyone's got this traction concept a little mixed up. For traction, you do a clear explanation of what you've accomplished since you started working on your company. And only use a graph if the graph is up to the right. What people screw up with traction all the time is that you can have traction if you're pre-launch. You can have traction if you don't have a great graph. All traction is communicating is what you've done since you've started and why that's impressive. If you've built an iOS app and it's now in TestFlight in the hands of 100 users in one month, that's impressive, even if they're not using it a ton, even if you're not launched publicly. On the flip side, if you're building an iOS app and it's been two years and it's in TestFlight with 100 users, that's not impressive. So, taking too much time and not getting anything done is the opposite here. What investors are looking for is momentum. They're looking, "Do you get things done quickly?" They're not necessarily looking for, "Do you have a ton of revenue or a ton of users?" If they're investing in an early-stage company, they know that you might not have those things, and they'll still invest if you communicate you get things done quickly. And the only way you communicate you get things done quickly is if your traction slide includes how much time you've been spending. Right? The biggest mistake YC founders make here is they say this list of things, and they didn't tell me, "Do they do it in a month or four months or a year or two years?" Without the time, I'm not impressed.
Next, they put fake work, advisor surveys, like fake work, work that's not really furthering their company. And then last, and here's a tricky one, you don't need a traction slide if you don't have any traction. Putting a bad traction slide is worse than having no traction slide at all. If this is week two of your startup, you probably don't have any [ __ ] traction. Putting a bunch of fake stuff on that slide just makes you look like an idiot. Just don't include it. They're obviously funding the team, just talking about the team. So, fake is worthless.
Next, unique insights. What are the non-obvious things you've learned about the problem, the customer, or the potential solution? This, I think, is the most intellectually interesting part of a pitch. But you only get the right to do this if I know what your company does and if I'm impressed with your team. A lot, a lot of founders try to skip to this point. And if I don't know what your company does, I can't tell whether your insight's good or not. So, when you think about unique insights, I love using Airbnb as an example. Airbnb had one that was very unique. All of the other products that came before it that let people do timeshare and list their spaces online didn't process payments. And as a result, processing payments in a low-trust environment where you have never met the host and the host has never met you is scary, and it prevents hosts from hosting and it prevents guests from booking. Whereas if a third party stands in the middle and processes payments, both parties can trust that third party more than they trust each other, and it facilitates the marketplace working. That's an important unique insight. But if, if I had said that [ __ ] and not mentioned what Airbnb does, you'd have no idea what I was talking about.
Common mistakes: Your insight's not unique. If you were to survey 50% of the people in this room or greater would agree with the thing that you're saying when you say it, it's not unique. Number two, not being specific with your examples. This is another place where vaguer comes in. Like, you can tell a story here about your unique insight. You can tell a story about how you learned it. If Brian was up here, he would talk about he learned this insight when he went to South by Southwest on his platform when it didn't do payments and forgot to bring money and had a super awkward experience with his host who thought he was trying to rip them off. Right? Bam. That's a real good learning. And then last, but not least, not using numbers and facts, especially if you're talking about unique insights you've learned from your users. Quote numbers, quote facts. It makes it feel more real. It makes it real.
Next up, market size. Everyone screws this up. Um, everyone thinks that the number is what's important. How big the market is is most important. The reality is how you calculate the number is what's important. As an investor, I don't know how many potential users you might be able to get. You have to educate me about that. You should do that research. I don't know how much you're going to charge the users, and I, I don't know why you're going to charge them that much money. I don't know if there are other products that they're buying that cost this much money. I don't know how much value you're creating for them. Showing me this bottom-up calculation of how many users and how much you can charge them and why teaches me a lot. If you teach me in a pitch, I think of you as an expert, and I want to fund experts.
So, how do people screw up? They quote some report. "JP Morgan said that the online e-commerce market is $120 trillion and growing 20%." It's like, "Who the [ __ ] cares?" You're not teaching me anything. Number two, not showing the math. Show the math. There are this number of users, we charge them this much. Show me the math. And then three, not talking about comparable products. So, if we're going to replace Figma and your pricing is competitive with Figma, tell me that. Tell me Figma charges this much and we're going to charge this much. Hell, tell me you're going to charge more because you're going to create more value than Figma, but throw in a comparative so I understand why that price is that price.
All right, next up is the ask. Um, this is, I think, the really interesting one. Um, and I can kind of share some personal stories about this. In your pitch, you actually have to ask for money. You would be shocked at how many pitches people do and they don't ask for money. Um, I think that it's on the order of 70% where the pitch is done, the founder asks, "Are there any questions?" The investor says, "No." The meeting ends. No money was ever asked for.
Now, I want to put you into the mindset of an investor for a second. I've been an angel investor for, I don't know, seven years. There are three mindsets I have when I'm listening to a pitch. Mindset one is, "I will never fund this company." Most common. "Will never fund this company." Mindset two is, "I will definitely fund this company." Least common. Extremely rare. Most angel investors are rich. Like, they don't really understand what you're doing, why your customer needs it. They just met you. Least common. "I'm excited to fund this company." Category three that people don't talk about: "If they ask me, it will be uncomfortable for me to say no, so I will write them a check." I'll tell you that in my experience, this is up to 10% of the time. I am hoping the founder doesn't ask me for money because I largely suspect that instead of saying no, I'll say yes because the pain of saying no is way worse than writing a $25,000 check. How [ __ ] is that? And the only way you tap into that is you ask. You got to ask. Put them on the fire. And this is especially true for angels. This is especially true for angels. Got to ask.
So, what are the common errors? This is pretty simple. Not asking. Right? Not talking about social proof. Here are the people who've invested. Here's how much we raised. Talking about who you will hire on the ask slide. Nobody cares who you will hire. They care what you're going to do with the money. And more specifically, what revenue milestones you're going to hit or what usage milestones you're going to hit with the money. Hiring is a means to an end. The end is revenue and usage of your product. So, your ask slide needs to be, "We're raising this much money. We want to accomplish this milestone within the next 18 months or 24 months or whatever it is." Um, I think what's interesting is that if you don't have that goal of where you want to be 18, 24 months from now, you're not going to be good at this ask slide. So, make the [ __ ] goal and make it something that people would be excited by. And then ask for money.
All right, so we've gone through the individual elements here, the mistakes that people make. Overall, they don't order their points from most to least impressive. The format that I gave you, you can mess around with after "What do you do?" which should be at the beginning, that's pretty [ __ ] clear. And the ask, which should be at the end, that's pretty clear. The elements in the middle need to be ordered by which is most impressive. If you've got a ton of traction, great traction should come right after your team slide. I'm sorry, right after your "What do you do?" slide. You've got an amazing team, great team should come right after. I think what a lot of people screw up with these decks is they think there's some super standard format they can't leave. And they don't realize that like, there is flexibility to make your most important points early.
A lot of people think that an investor is going to sit down for a 30-minute meeting and give them 30 minutes of their time. It's not true. Especially on Zoom, it's very not true. You earn every two minutes of that meeting. If the last two minutes sucked, that investor is checking their email. So, don't leave the good stuff till late. That's dumb. After I know what you do, put the best stuff you have right afterwards. Earn that next two minutes. Earn that next two minutes. Earn that next two minutes.
Um, next is treating your pitch like you're delivering a book report in front of a class. Your pitch should be nothing like what we're doing here right now. It shouldn't be, "You are delivering and they are waiting and listening." Ideally, your pitch should be a way that you can draw them into conversation. Now, doing this is hard. Like, this is actually a very hard skill. It's a lot easier just to deliver the pitch and then ask for the grade. But what most people don't realize about investors is that you're not really convincing an investor to invest. They're convincing themselves to invest. The more they can talk, the more they can talk themselves into giving you money. And if any of you have done sales, you know that like a common sales coaching technique is to look at a call recording and figure out how much time was the customer talking versus salesperson talking. If the customer is talking 50% or more of the time, it's much more likely that they're going to buy. If the investor is talking 50% more of the or the time, it's much more likely they're going to buy. So, one of the best techniques is anytime you see a peak of interest in any part of your presentation, run with it. "Oh, you looked interested in that? Did you have a common experience? Oh, I see you fund that X, Y, and Z. I think they had to deal with something similar." Like, get them talking. If the investor is like, "Oh, you know, I'm really interested in this D thing," and it's the third or fourth slide in your deck, just skip to that [ __ ] slide. Don't say, "Oh, let's wait. Like, I'm going to get to that. Don't get me out of my order." Like, it's like, [ __ ] you. Like, get them talking because the more that they're contributing ideas, the more that they're making their own connections in their head about why this thing's going to work, the more they're going to convince themselves to give you money. So, I can't tell you enough, this isn't a book report. It's not a paper. Right? What's weird is that you don't really have this experience with any teachers in your life. It's not really taught in an educational environment. Get them talking.
Um, next, not paying attention to the investor. Um, a lot of pitches nowadays are on Zoom. You got a close-up of that person's face, and if you actually look at it, you can tell whether they are interested in what you're saying or not. If you look, I'm a really crappy poker player, but I tried this once playing poker, like spending most of the time looking at the faces of the people around the poker table and not like looking at the hand that I was about to lose money on, and I learned a lot. Investors have a ton of tells. They're not trained. They're not trained poker players who like hide their tells, put sunglasses on and like headphones and [ __ ]. Right? Their face is an open book. You can tell whether they're interested or not if you're looking.
And last, but not least, is distracting slides. I hope you noticed these slides are the most boring, basic [ __ ] design slides in the universe. Right? And there's a reason. I want you to look at me and not look at the cool background image on the [ __ ] slide. If your slides are visually interesting, that means I'm not focused on you, the person I want to give money to or not. I'm focused on some designer's work. If you need a designer to build a slide deck, you're doing it wrong. And here's an even deeper, most more important point: your designer has no idea what the most interesting and important points of your pitch are. So, if you hand them your pitch to design, they will emphasize the wrong things. And it's not their fault. It's your business. You understand the most important things, not someone else. So, a designer is going to try to create something visually interesting. Counterintuitively, you want something visually boring. Visually boring. Remember, clear and concise, not sexy and sizzle. So, no distracting slides.
All right, so I'm going to try to do this live. Let me see if I can pitch YC. I'm going to be tricky. All right, so what do we do? We're a startup accelerator. We fund early-stage startups with $500,000 standard deal. And we've invested in some of the best technology startups in the last 18 years, including Stripe, Airbnb, Dropbox, Coinbase, Instacart, DoorDash, etc. That's two sentences. Example. Um, when I did YC, I started a company called Twitch. It was called Justin.tv at the time. We were 23 and 22 years old. We filled out an application online. We got an interview. And after a 10-minute interview, we were funded. We participated in a three-month program with other founders where we were encouraged to build and launch our product quickly. At the end of that process, we raised money at demo day. And within three months, we had money, we had a new friend group that encouraged us, and we had reached a new top speed of productivity. And those are the things that YC provided us. That's the example. Really simple.
Traction. Uh, what's a good traction stat for YC? YC has funded somewhere around 75 companies that generate over $100 million in revenue. Um, that's pretty good traction slide.
Team. Right now, as group partners of YC, are people who have started, funded, hired, fired, and done everything that you are going to do as a startup founder. And they've also participated in YC. So, not only the best to give you advice about your startup, they're the best to give you advice on how to get the most out of YC. Most investors have never been in your shoes. Every YC partner has been.
Unique insights. There are three unique insights for YC. They're really basic. One, filling that application and not needing warm introductions gives us access to better deal flow than any other investor in the world. Two, funding people in a batch means that batch supports one another and helps one another and gives each other advantages that competition don't have. And three, running a demo day means that you're running a fundraising auction. And everyone knows you're trying to get the highest price for any product, good, or service. You want to run an auction. So, YC companies tend to raise at a higher valuation and dilute less than people who don't do YC. Those are three unique insights.
Market size. Since YC started, they're about 40-plus tech IPOs, VC-backed per year, generate about $10 billion in returns per year. Um, and ask. Apply. That's the YC pitch. Not much sizzle. Clear, concise. That's the game.