How to Stand Out in a Sea of Startup Pitches

Here’s something that’s often misunderstood about fundraising:

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VCs don't look for reasons to say yes.

They look for reasons to say No. ❌

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Why?

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Because they have lots of pitches to sort through and many opportunities to invest in. So, they must be selective. A typical VC will invest in less than 5% of the opportunities that he/she comes across.

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Let’s use an example just to crystalize this.

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Let’s be generous and say that for every 100 decks received a typical VC will:

• Reject 75 companies upfront (Group 1)
• Meet with 15 companies but then opt-out at some point (Group 2)
• End-up investing in 10 companies (Group 3). Again, a very generous assumption.

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Now, here’s a reality check: any company that passed the initial screening and made it to Group 2, was able to intrigue and meet the basic investment criteria:

1. A painful problem
2. A viable solution
3. A big TAM
4. A solid team

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In other words, 25% of the startups are essentially a good investment opportunity and yet, most of them won’t make the cut.

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Yes, it’s like a college or job application - lots of great candidates, but only a few can get in.  

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This means that you must be unique and stand out. But, how?

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How can you stand out and end up in Group 3?

The answer is that an investor would write a check in two cases:

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1. Low(er) Risk - there is a higher than average probability for success and returns in the long run. It’s still risky (it’s a startup after all) but it’s a much lower risk than the average.
2. High Alpha - the probability for success might be low but returns are going to be very high.

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The key is to stand out by either de-risking the opportunity for the investor or demonstrating massive potential returns. In the professional investing language, we refer to it as high risk-adjusted returns.

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Remember, it’s not enough to show a big opportunity. Every company in group 2 showcases it. The difference is in showing a big opportunity while considering the risk level. That’s the difference between group 2 and group 3.

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Ok, so how can you prove high risk-adjusted returns?

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I’ll leave the case of high alpha (excess returns) to a different post, but here are several strong ways to de-risk things for the investor.

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A common to de-risk is by showing some sort of an edge, something that makes you more likely to succeed in the long run and generate the returns for the fund. Higher probability for success.

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So ask yourself: what makes investing in you less risky?

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Here are a few things to consider that can lower the risk for investors:

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1. Unfair advantage

Can you demonstrate key assets that create an unfair advantage such as:

• Tech expertise
• Unique data
• Any product or tech moat that will be super hard for others to replicate

Alternatively, there could also be non-tech assets such as:

• Industry knowledge and connections
• Captivated audience that can be levaraged (users, followers, etc)
• Unique partnerships
• Any unique know-how or capabilities from GTM standpoint (user and client acquisition, etc.)
• Industry ranking or awareness (e.g. google ranking, github ranking, app store position, etc).

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2. Overcoming entry barriers

Have you overcome any entry barrier that separates you from the rest, such as:

• Certification or any other requirements that may limit market access otherwise
• Regulation requirements

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3. Being ahead of the curve

While reaching milestones is required for most fundraising stages and it’s considered a must-have (rather than an x-factor), reaching the same milestone with less resources (let alone bootstrapping) or less time  will be a key differentiator.

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Basically, there are clear milestones that investors will use as a benchmark. For example, for a Seed round the startup needs to be at $100K-$300K within 18 months from pre-seed round. Now, any time a startup can show that it’s a head of the milestone, it be a major differentiator.

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Consider factors such as:

• Time-to-traction or PMF
• Accelerated MoM growth rate

Then put it in context of how much money (or lack-of) raised to date and how much time it took to get there.

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As to time, it’s obviously great to show an accelerated path to the milestone, but there could be some cases (e.g. bootstrapping) in which showing a long (and winding) road can be a strong signal as well if it proves significant learnings and a type of entry barrier for others.

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I hope that this helps you to put yourself in the VC's shoes and clearly explain why he/she needs to invest in you rather than someone else.