If you’re in the US, we hope you’re staying warm and/or managing the weather whiplash!
💭 Thought Bubble: Simplicity Is Genius
From investors to customers to early employees, a startup CEO is responsible for selling the vision of the company to a variety of stakeholders. In the early days, the CEO is THE company spokesperson and responsible for telling the story of the business. This is why investors view communication as a highly valued trait in startup CEOs.
Episode 27 of the VC Minute discusses the need for pitch decks to be straightforward and easy to understand. The title of the episode “Don’t Make Me Think” is exactly what you should be aiming for when you create a pitch. An investor will likely lose interest if the pitch is hard to follow or unnecessarily complex.
While it’s easy to assume this is a selfish move by investors who don’t want to spend the time to understand the business, that’s missing the point. Investors use the pitch as a litmus test for how a founder communicates. Out of all the stakeholders a founder interacts with, an early-stage investor typically has the most experience listening to vastly different pitches and handling the context switching that comes with this. Plus, they love founder enthusiasm and are more optimistic than most about new technology.
When an investor can’t grasp the concept or get excited about it, it raises a red flag. The immediate thought running through the investor’s head is the following: If I am having a hard time understanding this, how effective will the founder be at convincing early employees to join or getting customers to buy the product?
Startup founders are experts in the areas where they’re building; they have to be. Most folks they interact with, though, aren’t. Founders have to be able to explain the problem they’re solving and the solution in a way that non-experts can grasp. All people—not just investors 🙃—are generally lazy and protective of their time, meaning they aren’t going to sit through a 45-minute presentation that sort of explains the concept. A founder has to be able to hit the high points in just a few minutes.
When you’re deep into building a business, it can be hard to pull up and see things as an outsider. Everything feels consequential, but to someone not in the day-to-day, most things aren’t. The best way to ensure you’re communicating the most important details is to practice! Get outside of your echo chamber and practice with friends and family who have various levels of understanding of tech and your target industry. Identifying which parts they get stuck on, can help you discover opportunities to be clearer and more concise in your storytelling, allowing you to have more productive conversations and convert early champions quicker.
✨ Seed: The Bright Spot in Venture
Yes, funding levels are down across stages, but Seed-stage funding has remained relatively strong. In a recent article, Crunchbase notes that “Seed funding in 2023 was still $2 billion to $3 billion higher in the U.S. than in the pre-pandemic years of 2019 and 2020”. That said, Seed deals are taking longer to get done and investors are becoming more selective as they know the bar for raising a Series A has significantly increased.
STV Take: One interesting data point from the article is that it is taking companies longer to move from a Seed round of $1M+ to a Series A. In 2023, the average time it took companies to move from a Seed financing to Series A was 28 months, an increase of six months from 2021. If you look at the top quartile of companies, that time decreases to 12 months in 2023, which is still four months longer than what it was taking the top quartile in 2021. This increase in time between rounds is one of the reasons why Seed investors are moving slower, and in some cases, looking for more traction.
📘 Guide on Fundraising for First-time Founders
Hustle Fund released an ebook, “Raise Millions: The Ultimate Guide to Fundraising for First-time Founders”. It is an in-depth guide to navigating the fundraising process and covers a host of topics from whether taking VC is right for you & your business to what to do after an investor verbally commits.
STV Take: For readers and listeners of the VC Minute, none of the topics will be too surprising, but it never hurts to read a different perspective, given the nuances each firm has. Additionally, there are some great resources and templates included in the book, including a Google Sheet template for an investor CRM.
🎧 How YC’s Gary Tan Evaluates Startups
Sterling Snow and Tyler Hogge interview Gary Tan, CEO of YC, on episode three of The Investor + Operator podcast. Throughout the conversation, Gary provides advice to founders on the importance of focusing on creating products people want, the significance of clear communication (this was actually part of the inspiration for this week’s thought bubble), and the importance of quick, intentional decision making in startup growth and culture development. The conversation also touches on broader topics, including the future of venture capital, the evolving startup landscape, and Gary's personal motivations and approach to investing and supporting founders.
STV Take: I was really struck by Gary’s humility on this podcast and appreciated the insights he gave on his personal journey. In particular, he shares aspects of his childhood that impacted his mental health later in life. He is an avid supporter of therapy and encourages founders, especially those with unresolved childhood issues, to take care of themselves and seek therapy. He credits it to making him a better leader. At SpringTime, we wholeheartedly believe this and encourage founders to take care of both their physical and mental health (see VC Minute episode 58).
😴 Decompression Zone
I am probably late to the game on this, but I recently learned about the concept of the “Midwit”. The linked article has a good overview, but the gist is that people with either a really high IQ or a low IQ act and talk very similarly. From an outsider’s perspective, it’s hard to tell who is the genius. It’s the middle of the bell curve you have to watch out for.
As the article points out, we are all prone to overthinking and overcomplicating certain things. I will admit that I’m absolutely guilty of this and it was refreshing (liberating, honestly) to read that in many situations the simple, obvious explanation or solution is often the smartest.