Elevator Pitch Series Table of Contents:
One of the reasons that so many entrepreneurs give poor elevator pitches is that they don't include the right material. Given the time constraints involved, I believe that it is very important to stick to an introduction, brief description of your product, the hook that makes your startup interesting and a closing call to action. If your product description is very brief you might consider adding one sentence at the end of your pitch on how you intend to use your capital. I've heard other people suggest including biz models, sales figures and secret sauce be included in an elevator pitch. While I agree that these are all very relevant pieces of information, I would only include them in your 60 second elevator pitch if they are your hook. For example, Salesforce.com being one of the first organizations to implement a "software as a service" business model would have been an interesting hook. However, using a SAAS business model today is not
a good enough differentiator to be an effective hook. Lastly, entrepreneurs should be prepared for several standards questions from the investor after they conclude their elevator pitches.Introduction
The first part of your elevator pitch should include your name, your role and your company's name. It is very tempting to give more background personal background but in 60 seconds your focus really needs to be on the product. Frankly, I don't advocate wasting any of your time trying to write a great into either. Try just adapting this simple line to your pitch:
My name is John Smith and I am the CEO of Acme Corporation.Product Description
After introducing yourself and your company you need to tell the investor what you do. This is definitely the most critical and difficult part of the elevator pitch. As entrepreneurs we live and breathe our products 24 hours per day, which can often get our heads so deep into the trees that we can't see the forest. The person you are speaking to doesn't know as much about your product as you do and they may not even know much about the industry you hope to compete in. Thus, you must find a way to describe what you do that is understandable and compelling within the time constraints. Also, avoid using industry or technical jargon because this is a great way to confuse any listener. Unfortunately, there is no magic formula that I can offer on how best to capture the essence of your product in a few sentences. In fact, it is something that I still personally struggle with. The best advice that I can offer is to focus on how your product solves a business problem rather than a technical one. What is the value that your product delivers? How customers will use your product? Also, while I wouldn't advocate using this technique in a sales situation a good way to quickly get an investor to understand your product is to site your established competitors and then explain how and why your product is different. However, I would not suggest this approach if your competitors are not well known. If you can do it quickly using a personal example or metaphor can also be effective.
It is just plain difficult to know whether or not the description you've created is effective with out practicing it. I would try your pitch on at least 5-10 people that are neither technical nor in your industry. If they don't get your product, go back to the drawing board because no investor will interested in learning more about a company with a product that they don't understand.
Many entrepreneurs don't follow this guideline and wrongly believe that their product is so complex, unique or special that the average person, without any industry expertise, could never understand it. This is deadly for any elevator pitch (sales, recruiting, etc.) and especially problematic for entrepreneurs trying to raise capital. Suppose that you have a life sciences company and your ideal venture firm is InterWest. However, InterWest also focuses on IT and making an good impression on one of the IT focused partners is a great way to reach the life sciences team. Furthermore, many of venture partners have finance or consulting backgrounds and they may not be technically savvy. Thus, entrepreneurs who write pitches that are only discernible to industry experts really limit their opportunities. Lastly, in my own personal experience, I have received helpful introductions to investors from many unlikely sources. Creating an easy to understand product description pays many benefits because you never know who your Aunt Ethel dated in college or the person standing in line next to you at Starbucks is married to... especially in Silicon Valley. The Hook
All great elevator pitches have a line that really grabs the attention of the listener. What is it that makes your startup so appealing that the investor would want to spend an hour discussing it with you? I suggest that for nearly all early-stage first-time entrepreneurs the hook should be some form of market validation. The best market validation is clearly booked sales revenue. Investors hear a lot of pitches from early-stage startups but very few of them have significant customer traction, so it is a great way to build credibility and really stand out. For many early-stage startups their products are still in development and revenue is months or years away. However, finding alpha and beta test partners is another great way to show demand for your product. While the test partners won't be paying for your product, there is a cost of their time and a risk associated with using and unfinished product so entering into a beta agreement is valid signal of customer traction. If you don't have a product that is even ready to be tested a letter of interest from a customer can be also form of market validation.
The best hook is definitely having a rock star management team but if you are a first-timer this is very unlikely. However, if you do have people on your team that have lead other startups to liquidity events or are recognized as leading experts in your industry by all means start dropping their names as your hook, but you do need to be sure that your team really is rock star material. Don't fool yourself into thinking that an expert in a tangential industry or a former director level executive constitutes a rock star.
Another interesting hook might be a new business model but careful to explain why your model will work because only a handful of new business models succeed each decade. A credible barrier to entry would also make a great hook.
There are also a few bad hooks that you should avoid. First and foremost don't use any hook that isn't true or even anything that isn't yet guaranteed. Lying really won't get you anywhere because the VC will catch you out during due-diligence. Referring to customers that haven't yet signed is also a really bad idea because it will become a strike against you if they don't sign on the dotted line... and for anyone who has never been in a sales role at least 50% of customers verbal commitments are never followed through on.
Sales projections are also bad hooks because every startup forecast leads to at least $50 million in sales by year five.
Investors care more about your key assumptions than the actual sales projections and there is no way that in 60 seconds you could have explained what your assumptions are to the point that they even care what your projections look like.
Another bad hook is relying on a patent. Patents are granted relatively easily and very hard for startups to defend. In fact, some would say that startup software patents are virtually worthless. There may be some exceptions to this in industries like medical devices that I am less familiar with. Nonetheless, how is any cash-strapped startup going to defend a patent against a goliath like HP, Microsoft, Guidant or GE? Certainly no VCs want any of their capital to go towards patent litigation and patents will rarely make effective hooks.The Close
Much like the introduction, the close is also pretty simple. You only need to state what stage of investment your company is at and how much capital you are seeking. Something simple like:
We are a seed stage company seeking $500K
is definitely sufficient. However, many entrepreneurs lose there audience at this point because their close doesn't match the rest of their pitch and they just don't realize what stage of investment their company is at. I'll try to address what milestones are commonly associated with the early stages of raising capital in a later post. In the meantime use this rule of thumb: if you don't have any sales, you are almost definitely a seed investment. While there may be some exceptions to this in life sciences or with web 2.0 investments where clinical trials or a user base will suffice, asking for $4M as a Series A is a big mistake because investors hate to argue with entrepreneurs about valuation and shifting from $4M down to $500K is a certainly going to be a point of conflict. If you've got a few seconds left you might want to through in a quick line about how you intend to spend the capital.FAQ
After you finish your elevator pitch, interested investors will surely have questions for you. Many questions will be directed towards your product or solution and these will depend on the specifics of your business and the knowledge of the listener. However, I've listed several standard business questions that I believe all entrepreneurs should be prepared to answer after delivering their pitches:
- How do you make money and what is your business model?
- Who is your target customer?
- Why can't your competitors copy you?
- What are the barriers to entry?
- What's your secret sauce?
- How will you spend the money?
- Where is your breakeven point?
- What will your burn rate be?
- How many people will you hire?
- What type of liquidity event do you expect?