If you had
Or one opportunity
To seize everything you ever wanted
In one moment
Would you capture it
Or just let it slip?
In the final rap battle of the movie 8 Mile, Eminem crushes his opponent by doing the opposite of what’s expected of him. He leaves his adversary speechless by employing a simple yet effective tactic. Remember what he did?
Start-up founders are an optimistic bunch. I certainly was when I ran my company before I transitioned to investing. So I understand when founders pitch me their company and focus on the “good stuff.” The business model is the best, the team the greatest, the market the biggest, and so on.
If start-up pitching were a rap battle, most founders would focus on why the future is bright, on why and nothing can stop them.
As a “founder turned investor,” it still leaves me wondering.
I dislike investing in deals that sound too good to be true. My own entrepreneurial journey often felt like sailing a small floating vessel on the edge of a waterfall. The ups and downs taught me that usually, not all things are as good (or not as true…). Investors often think the same way.
As such, guess what happens after your pitch meeting ends? Behind closed doors, investors will think about reasons to pass. It’s only natural. VCs invest in merely 1–3% of the deals that they see. All boxes need to be ticked to sign a check. It’s a matter of efficiency to sort out the “bad deals” first.
“Let’s stay in touch, and please let me know if I can be helpful.”. Kthxbye.
The clock’s run out, time’s up, over — blaow!
Snap back to reality, ope there goes gravity, ope
There goes Rabbit, he choked, he’s so mad but he won’t
Give up that easy, no, he won’t have it, he knows
His whole back’s to these ropes, it don’t matter, he’s dope
If you pitch to win, make sure first not to lose
Before you convince an investor to say yes, persuade them not to say no. Make sure they don’t leave the show early.
Some smart investors know that great deals might look quirky in the early days (e.g., “Really — let strangers sleep on my couch?! No thanks.”). But that doesn’t help you when the “rejection-pattern-matching” makes them skip anyway. The investor you just talked to might have said no to twenty deals that sounded similar to yours last month alone. Small market? Pass. Founding-team incomplete? No-go. Low customer retention? See you. Highly funded competition? You get the point.
And that brings us back to Eminem:
His palms are sweaty, knees weak, arms are heavy
There’s vomit on his sweater already, mom’s spaghetti
He’s nervous, but on the surface he looks calm and ready
What his strategy?
He knows he’s not the hottest deal in town. He knows the rumors around him. Everyone thinks that the character he plays is a loser. He’s an underdog.
That’s why he raps about his many weaknesses.
He lives in a trailer with his mom.
People call him “white trash.”
His friend shot himself in the leg.
His girlfriend slept with another guy.
Eminem puts out in the open every possible thing his opponent has against him. He dismantles it point-by-point until there is nothing left.
His rival — knowing he has nothing to use against Eminem — drops his mic and walks offstage in defeat.
I know everything he’s ‘bout to say against me
I am white, I am a fucking bum
I do live in a trailer with my mom
My boy Future is an Uncle Tom
I do got a dumb friend named Cheddar Bob
Who shoots himself in his leg with his own gun
I did get jumped by all six of you chumps
And Wink did fuck my girl
I’m still standing here screaming, “Fuck the Free World!”
Find your deal’s flaws like a hired hacker
Snap back to start-up reality. Cybersecurity firms hire hackers to find holes in their systems. Negotiation experts conduct “Accusation Audits” to prepare. Founders should do the same: find a friendly investor to identify the flaws in your deal.
My first company was a technology-enabled marketing provider for small businesses. We would basically use technology to manage digital advertising like Google Ads for dentists, plumbers, car dealerships, and so on. Eventually, the start-up would become the market leader in Germany with tens of thousands of clients and hundreds of employees. But things didn’t always look so rosy.
When I was first pitching my own business to VCs, the deal had major flaws. For once, I was an inexperienced first-time solo-founder. That alone could have raised three separate red flags. So I made sure to demonstrate my ability to recruit talent and advisors. I actually brought them to pitches because I didn’t want to appear as though I was making this journey alone.
Another flaw in my business model was the margins. They were lower than those of pure software providers. From early pitches, I knew that investors tended to worry about that behind closed doors. Because of this, I made sure to discuss it and highlight a concrete plan to improve margins over time through automation.
Point by point, I was taking away reasons to pass on the deal. I believe that created more trust than merely focusing on the “good stuff.”
I’m a piece of fucking white trash, I say it proudly
And fuck this battle, I don’t wanna win, I’m outtie
Here, tell these people something they don’t know about me
Turn around your weaknesses like Karate Kid
If you want to convince investors not to pass, know your “deal weaknesses” and expose them. Then turn them around like Karate Kid and use the force against you in your favor.
Bill Trenchard and Brett Berson, who run the Pitch Assist program at First Round Capital, have helped founders raise more than 18bn USD in over 1.000 rounds. They recommend to “anticipate and address any objections”:
“If you’re Instacart, you need to bring up the Webvan disaster, for instance. Most investors come into a pitch with one or two big things that they think makes this business uninteresting. Know the objections and counter them early so you’ve got the most engaged audience possible.
Below are three examples:
“Correct, our target group of small businesses is known for their ‘high maintenance’ and has lower retention than enterprise customers. However, we’ve cracked the formula to service them profitably through technology and reach them at scale. Now, just think about how many small businesses there are compared to big enterprises? We’re going after a huge market!”
“Yes, our six competitors have each raised more than 30m USD. But based on our unique insight XYZ, we have proven that we can poach their clients and have a higher net promoter score. We will catch up on fundraising with our Series B in 2–3 quarters.”
“You are aware that we are twenty-something first-time founders with no track record. That means that we will work harder than anyone else, hire the best coaches in the world, recruit triple-A talent, and make up everything that lacks us in experience through willpower, coachability, and work ethic.”
“The moment I used my adversity to my advantage, my career exploded”
Please don't overdo it (as I did with my chocolate)
The other day, I was at this chocolate-making class in Bali and put in way too much salt. My chocolate tasted terrible. Remember to not over-emphasize the weaknesses in your pitch. A tad of salt highlights the sweetness of the rest. Too much of it will make your pitch taste as if a Snickers had a baby with a sardine (no matter how many sugary M&Ms you put in — as I learned the hard way!).
I remember a board meeting where one investor pulled me aside afterward:
“Feliks, yes, you burned more money than expected, but the business is growing nicely, and overall things are going well, aren’t they? Don’t focus too much on the negatives in your presentation next time. We want to walk out of here with a good feeling!”
Ooops. It seemed that my critical part overdid it on the salt. Thank God they had already invested.
So remember to go easy when you sprinkle the “bad stuff” on your pitch. Your goal is to make the whole thing taste better and not to make you sound desperate.
Success is my only motherfuckin’ option — failure’s not
Mom, I love you, but this trailer’s got
To go; I cannot grow old in Salem’s Lot
So here I go, it’s my shot: feet, fail me not
This may be the only opportunity that I got
You better lose yourself in the music, the moment
You own it, you better never let it go
You only get one shot, do not miss your chance to blow