THE STARTUP CHAT

Steli Efti: Hey everyone this is Steli Efti.

 

Hiten Shah : And this is Hiten Shah.

 

Steli Efti: And in today’s episode of The Startup Chat we’re gonna talk about the top 5 fundraising mistakes. It might turn out to become top 10 fundraising mistakes depending on how many we can uncover, but we’ll talk about things that founders … the mistakes founders make when raising money that we’ve seen over and over and over again. And hopefully if we can just make one of you people out there avoid some of these mistakes, then this was really, really valuable. So that’s going to be the aim for the episode.

 

Hiten Shah : Awesome, yeah, and you know context from my end is like I’m actually building a software product around solving this problem around helping companies fundraise, mostly are associated around a pitch deck. I’ve been doing a bunch of research on this, so one of the inspirations of this podcast is the idea that … I’ve written a blog post on this last year and it just keeps coming back over and over again. And I keep sending people this blog post too, sorry for the noise, we’ve got a vacuum cleaner running. But … so, I’m going to start with like, just the five, and then Steli I think there’s probably one or two of these worth digging into or you probably have more. Everything that I discovered is research backed, so these are all mistakes that we’ve heard from founders … my partner and I have heard probably from five, six different founders now, maybe more, around some of these problems. So, number one: pitch deck templates won’t get you funding. This is probably the most important mistake. I don’t know what you feel about it Steli but maybe it’s actually worth pausing and discussing this one. The reason is, there is a ton of conflicting advice on this. One of the reasons is when you’re … when you’ve never raised money before, the first thing you do is you look for a template on how to raise money and the pitch deck that you need to create or the business plan, you know, because a lot of people still use business plans even though I say that pitch decks are the new business plan. So you’ll go find famous pitch decks out there. And many of them are from years ago, like Air BnB or you know, even we work and a bunch of other ones. And what you’ll see is that people are basically copying and pasting a lot of those kind of slides and templates. But what happens is when you do that, you end up basically looking like some other company or looking like a boiler plate templated business, which is really not what you really want to do.

 

Steli Efti: Yeah this was actually really surprising to me to see, but it makes total sense. It kind of highlights how far away, or how disconnected I am from raising money, because it’s been a while. But we did a prior episode just on pitch deck, how to create a killer pitch deck. So you can go just a few episodes prior to this one and check that out. But when I saw that in the article, when I was reading the article and I saw the pitch deck one, I was like “Really? Is that one of the main mistakes people make?”. And then I realized that you’re right. When you’re doing this for the very first time, and you’re super early in the process, that’s what founders do, they go online, they research the presentation, pitch deck, business plan to raise money or seed ground. They see some of the top popular articles, some are really, really outdated. They look at those presentation templates. They get really excited, they launch PowerPoint or whatever, Keynote, and they start kind of slide by slide just copying what they see plus adding their own name in there, trying to change a few numbers. And they’re like “All right, shit we got something now, we have a pitch deck we can go out and raise money”. And obviously, you said it so eloquently in the last episode, ‘the pitch deck is the new business plan’, which I love. And I’m in all favor of, to have something shorter than a whole fledged sixty-paged business plan, when you don’t need something up and running. But obviously that is not going to get you the money. And the other thing … this is a mistake that I’ve seen in sales as well so much is, when you read some of these articles and you copy word for word a template that you see, just ask yourself. How many other people are copying word for word the same template? ‘Cause this is a very popular article, so if I’m copying it, thousands of others do, and in the world of raising money and fundraising, it’s actually a really bad thing, because there’s not that many VCs and investors out there. And if you use a pitch deck template that has been around for 5 years and that you just found out of a google search, it means this, these investors that you’re sending these pitch decks to have seen this thousands of times. You need to stand out, you need to be authentic, you need to find your own voice. More importantly you need, your business needs to be compelling and not the deck. And I think that people confuse that in the early days and kind of step into that trap.

 

Hiten Shah : Yeah. I’m glad you agree. It’s definitely counter-intuitive for many of us that have raised money before, because I used a template too. Meaning it felt like a template, but it worked back then because investors hadn’t been seeing so many pitches. Now they’re seeing a barrage of pitches. I talked to an investor in one industry and she told me she’s seeing 10 pitches a day right now. And she said that most of them are pretty atrocious, which actually relates to my next point, which is the second point in the article … which I don’t think we need to go over a lot ’cause it’s pretty obvious, but people don’t realize this is: Don’t send your pitch deck to investors before it’s ready. And the reason for that is like, the second they see it they start forming an opinion about you and your business. And so you want to make sure you actually have advice and make sure that you actually spend the time to make it great. And that doesn’t mean it’s designed great or not, but it tells your story, is the number 1 most important thing. And I know in our last episode that we talked about this, with the fundraising pitch deck stuff, we went over that in depth. And, so-

 

Steli Efti: Let me quickly ask you-

 

Hiten Shah : Please.

 

Steli Efti: I have a quick question on this because, I think that some people might think you’re … “Wait a second Hiten, what about all this like, ‘done is better than perfect’, and ‘move fast and break things’ and how about the whole like having different versions and ending piece. Why isn’t it a good idea to send an early version of a pitch deck to somebody to start the relationship and tell them “Hey, here, this is version 1, do you have feedback, what would you like to see more, what don’t you like”, and kind of collaboratively, based on the feedback that I get from investors, improve my deck, versus trying to get it right before I send it. That’s something to play the devil’s advocate, that’s something that I could imagine some founders thinking.

 

Hiten Shah : I love that. Thank you for mentioning that. That is so good, probably the best question I’ve ever heard about this stuff, the way you framed it. Honestly in this case, number 1, first impressions matter more than anything else.

 

Steli Efti: Mmm.

 

Hiten Shah : And the reason is, investors are seeing so many pitches. Look this lady sees 10 pitches a day. On top of helping her companies, on top of raising her money, money for fund, and on top of just being an investor and doing whatever she has to do every day, from networking to whatever. But she sees 10 pitches a day. So like, if you’re sitting there like “Hey help me with my deck, help me make it better”, but it’s really bad in the beginning, she’s going to turn off and she’s like “I don’t have the time to do that”. It’s literally a time management thing. And I don’t know how many of you, I’m going to blow up all my VC friends right now, but like, how many of you have ever tried to get a meeting with a VC, even friends, like my friends, and how many times they’ve canceled. Right?

 

Steli Efti: Yeah.

 

Hiten Shah : If you’re listening and you’ve ever had this, like, you know what I’m talking about. They have one of the busiest schedules, and I’m sure everyone by now knows I hate that word. But my friends that are investors have canceled on me, have flaked on me, and they’re good friends of mine. And that’s just simply because their job is that hectic. Right? Or they believe it is, which is a whole different story. So, my point is don’t waste your shot with an investor that could put money in by showing them something that’s not ready for them to see. That being said, the number one thing, and this is what our software is actually designed to do because this is what we’ve heard. Is that every founder gets feedback from people that are trusted. Whether they’re like an angel investor friend, a founder friend, or just some kind of advisor or business person that can give them feedback on their deck and their story before they ever show it to like investors that are going to put in money. So everyone does that and a core part of our product has to do with that process, not just sharing your pitch deck.

 

Steli Efti: I love it. That also actually plays right into the next point, which is the … talking about the investor outreach strategy or lack there of that many founders have, right?

 

Hiten Shah : Yeah. Yeah, this looks great, and this is like just this spray and pray. And I know that there are some investors who will tell you, “Oh”, some investors will tell you “We’ll take a cold pitch, so we’ll take someone who emails us and take it seriously”. I will tell you, 99% of investors will not take you seriously if you cold email them, unfortunately.

 

Steli Efti: Yeah.

 

Hiten Shah : I wish this was different. I wish that advice that some of them give you is true, but in 99% of cases, unless the investor has explicitly said they want that and they’re willing to do it, they don’t want that. And the reason is, they’re just looking for signal. They’re looking for a reason to trust you and believe in you even before they meet you. And the best way is when you get a warm introduction from somebody who knows them already.

 

Steli Efti: Yeah, that’s such a killer advice because, you know it’s very easy to get the email addresses of most of these investors. So you know you put together a rudimentary pitch deck and you have a list of email addresses. It’s very compelling to just send it and be like “Hey we’d love to meet with you!” But again, those people’s inboxes are so overfilled with stuff. The problem is that even if you’ve done a great … let’s say your email is really, really stellar. The problem is that it lives in the greater context of the entire inbox. It’s not … every email doesn’t stand on its own ground of quality or lack there of. Or rather it’s your lack there of. You are playing in the context of the overall state of their inbox. And if thousands of founders send shitty cold emails, you might just drown in that sea although what you’ve sent might’ve been really, really compelling or good. So, getting introductions, getting … sometimes taking the indirect route to your goal, it is such a more successful strategy. I’ve never, I personally haven’t heard anybody that sent a bunch of cold emails and then successfully raised money that way. I’m sure there’s somebody out there, right? Just like there’s somebody out there who won the lottery and got rich that way, but that’s not the advice that we would give to people that want to get wealthy. “Just play the lottery” doesn’t seem like a great strategy for that.

 

Hiten Shah : Yeah, not at all, right? And like, you know, I mean this is just a pattern that’s continuous. People will, people think they should do these cold emails and stuff like that when like they just don’t work, and they’re a numbers game. And this is not like outbound sales. This is not like outbound sales. So, number 4 is: the fundraising advice you’re getting isn’t helping you. And this is very simple. Basically what it is is: one of the most common problems with fundraising and making your pitch deck, even getting advice on the process, is that you’re going to get a lot of conflicting advice. Even like often times what you say and what I say to one founder about fundraising might not 100% aligned. In our case, we’ve talked enough together, we have shared context, it’s probably 80-90% aligned. But I’ve seen cases where like a founder will come to me like “I’m doing this and I’m doing that and I’m doing that”. I’m like “Holy crap!”. That goes against every single thing I would ever tell anybody, but that being said, it’s your pitch deck, your fundraising process, do what you think is right. But don’t do it because somebody said it, do it because you actually think it’s right. And so founders have a hard time thinking for themselves when they’re fundraising, especially because they get in this mentality of ‘I’ve never done it before, but Hiten’s done it a lot’. Or ‘I’ve never done it before, but that angel investor, my company said I should do it this way’. Here’s the truth, very few people see the process of fundraising in current times from the back side of it, from the back end of it. Meaning like, helping founders go through it right now. And every 3 – 6 months the fundraising climate changes in many different ways. And so what happens is most people’s data on how to do fundraising, how to make the pitch deck, what the process feels like, is actually kind of stale even if it’s just 6 months old, and you’re talking to some founder that raised 6 months ago. And so that’s one big reason. The other reason is you’re just going to get a lot of differing opinions, ’cause most founders have like maybe less than 5 experiences fundraising. Even some of the best founders.

 

Steli Efti: Yeah, you just, you know … you’re just not raising money that often. That’s just the gist of it. Even if you’re a very successful founder, how many companies can you raise money for conceivably in a decade, right? Unless you’re flipping companies every year, raising money for them. But there’s almost no case that I can think of that would fit for that. So that’s a really good point. Conflicting advice is really a tough one. And to me this plays into one of things that I think is one of the biggest mistakes that founders make when it comes to fundraising, which is that we’re so incredibly insecure wen it comes to fundraising. Like, we’re these risk takers that didn’t listen to their parents, didn’t listen to their bosses, went out to start a company and change the world. But then when it comes to raising money we’re so needy and we’re looking for confirmation. And we want our little baby to be loved by everybody and we want these VCs to think we’re beautiful and pretty and what we do is exciting. And when we get rejected it breaks our heart. That level of insecurity is really counter productive. It makes your life so much more difficult but it actually also makes fundraising much, much harder. So I think it’s important to ask for advice and get advice, but as you said, too many times people just take what we told them. And because a lot of times the people you are getting advice from are somewhat successful, they give you that advice in a fairly convincing and confident way. So then people just submit to that advice without asking the important questions which are: “Okay, Hiten or Steli said I should do it this way. Do I understand why? What’s the basic foundational principles behind taking this tactic or strategy or not, and does this fit into the company culture that I’m building. Does it fit into my personality?”. You know, if Steli says ‘Go in negotiating incredibly aggressively and take all these risks’, is that something that’s not just exciting or cool but something that fits my personality or not? Or … you know what it is is just filtering that advice and making sure it works for you and you understand not just the words to say or the email to send, but why. What’s the reason. What’s the strategy, the larger strategy behind these tactics. I think that that’s oftentimes missing and then founders zigzag from one strategy … they switch from one strategy to another without even knowing that they do that all day, ’cause they just take these, you know, pieces and bits of advice from conflicting people and they just, they never get to any kind of cohesive strategy themselves.

 

Hiten Shah : Yeah, it’s like this age old “Think for yourself”, and not like someone else.

 

Steli Efti: Yeah.

 

Hiten Shah : So we have the last one, and then I think we’re going to call it. So, let me look, which one is that…

 

Steli Efti: Making things up.

 

Hiten Shah : Oh yeah. Oh yeah, oh. So Steli, I’m going to start asking you a question. Have you ever met a founder that’s made something up in their pitch deck that wasn’t true?

 

Steli Efti: Yes!

 

Hiten Shah : <laughter> How often?

 

Steli Efti: Very often. Probably more often than I know, because almost … like I would say that 90% of the time, when I have the appetite to push and to dig, I’ll find something that’s not right. But I don’t always do it, so I’m sure it’s even more often the case than I’m aware of.

 

Hiten Shah : That’s awesome, yeah, I totally agree. And the number of times I can catch a founder in that is basically countless at this point. Ant the reason is, they’re just … you know, one of my favorites is like right now, is like, “Oh we’re using AI for our software”.

 

Steli Efti: Oh god yes.

 

Hiten Shah : It’s like, wait wait wait, hold on. Then I ask them, ’cause you know, I happen to know a lot about a lot but I really know a lot about AI. It’s like “Wait hold on, hey, uh, what is AI?” And they’re like “Oh yeah you know we’re using some algorithms and this and that”, and I’m like “How much data do you have?” And they’re like “Oh, we only have like 10 customers”, and they don’t have very much data. I’m like “Wait what! What AI are you using? I want to know what AI that is, that’s no AI that I ever heard of!” And so they’re just like … if you dig in, it’s like they added AI because somebody gave them advice or they really felt like they added AI because it’s hyped right now, that some investors going to get excited. In fact what’s going to happen is, the investors see AI in decks so much now, that like they’re actually … it’s a negative signal for them if you have AI in your deck.

 

Steli Efti: Mmm.

 

Hiten Shah : It’s that simple.

 

Steli Efti: Interesting.

 

Hiten Shah : It’s like if you put AI in there and you can’t really back it up, like you have experts in your team, or more importantly and better would be it’s actually beneficial to your customer or it’s beneficial to your product or your business, then like don’t put it in there. Even if you’re using little algorithms or little bit of machine learning, that’s not AI, right? Like I’ve seen simulations of brains with AI. That’s fairly AI but it’s AI.

 

Steli Efti: Most startups have A, they have zero I.

 

Hiten Shah : <laughter> Nice.

 

Steli Efti: There’s just like, there’s no intelligence in any of what was described to me right now. It’s just, you know, twenty scripts that are running, there’s no intelligence here, there’s no, nothing that is learning or getting better over time. It’s just hype right? And as you said, I think that a lot of founders think that they are pressured by the market to be fashionable and to be on the hype train to appeal to investors. “Oh shit, investors want AI, so everything needs to be AI”. I had one of my salespeople yesterday, he went to a conference that shall remain unnamed, recently, and he at lunch yesterday he’s like, “Steli I swear, everybody at that conference was talking about account-based marketing, and account-based sales”.

 

Hiten Shah : Uh-oh!

 

Steli Efti: What is …yea exactly, uh-oh! What is that?

 

Hiten Shah : Have we done an episode on that yet?

 

Steli Efti: No we haven’t, we should.

 

Hiten Shah : Oh shit, okay. All right. Excuse my language.

 

Steli Efti: So we’ll leave that for later, but it’s like this … people don’t know … like they start using these things because they seem popular but when you … the slightest push back when you really ask them what does this really mean, and can you explain this to me, they have no fucking idea what they’re talking about. And that makes a really bad impression. It will hurt you later. It won’t hurt you in the first impression. But with investors, you’re setting yourself up for catastrophe if you start lying or bullshitting your way in the presentation.

 

Hiten Shah : All right. Well.

 

Steli Efti: Well wait! Before we wrap it up though!

 

Hiten Shah : Yeah.

 

Steli Efti: Now we’ve told people all these mistakes. But let’s give them something to help make their pitch decks better and their fundraising better. I know that you’ve been doing a ton of research, a ton of work, first mainly for years how many founders have you helped with your pitch deck? Have you helped with your rate with raising money and millions? Countless people. You’re not for nothing called the most generous founder in Silicon Valley. But you’ve now actually funneled all this experience and research and dedication into software. Where can people go to learn more about that and maybe start using some of the things that you’ve built to succeed with their fundraising.

 

Hiten Shah : Yeah! Yeah it’s just starting to get out and we’re sending invites and stuff, and it’s called Do-go. IT’s Get Do-go. Get D O G O. So g-e-t, g-o, d-o, dot com. And you can either sign up for early access or we might be open by then, or by now. And yeah, check it out, it’s a tool to help you with your pitch deck, help you get feedback on them, and help you actually share them with investors.

 

Steli Efti: Awesome. Alright that’s it for us for this episode.

 

Hiten Shah : Bye.