how to close checks on stage: stop pitching and start closing sales

By Tanya Soman and Poornima Vijayashanker

 

In our previous post we talked about the 3 elements every demo day pitch must have, and the biggest takeaway was to show traction: lead with real success indicators like monthly revenue and revenue growth. And this doesn’t just pertain to demo day. Many investors will say they want to see more traction before they’re ready to invest. You might be thinking,“Well, they just aren’t the right investor. They’re too risk averse!”

A lot of founders discard this investor feedback and just keep pitching to others, thinking that they’ll eventually find the right set of investors who are willing to take the risk and bet on a company with little revenue. That might be the case, but if you don’t have revenue, you’re negotiating from a position where you don’t have much leverage.

Founders need to face the new reality that they often must show revenue before an investor will write them a check.

Think about it this way: if you can tell every investor that you meet that your revenue is growing 20-40% month-over-month, you’re set to break even in 3 months, and you’ll hit profitability in 6 months, how do you think they’d react?

They’d recognize that you don’t need their investment, but they don’t want to miss out on an opportunity to invest and fuel your growth.

This is exactly what we did with two companies we advise at 500 Startups: Headout and Pop Up Archive.

Headout helps travelers book experiences on demand using their mobile devices, while Pop Up Archive makes sound searchable through cutting-edge speech-to-text technology.

 

How Headout tripled their revenue

When we first met Varun Khona, the CEO and co-founder of Headout, he told us he was having a hard time raising capital. We asked him what the investor feedback had been, and he said that investors were unanimously telling him that he needed to 2X his revenue and grow in excess of 30% month-over-month.

So we recommended that he stop pitching and focus on sales and ramping up on revenue. He was nervous about pausing his fundraising activities, but we reassured him that if he focused on revenue, fundraising would be a cinch come demo day.

Headout, at the time, was operating only in NYC. They needed to think about how they could increase their sales. Here were the methods they used:

  • Added more suppliers to appeal to tourists
  • Increased awareness among tourists with more effective marketing campaigns and doubling down on existing distribution partnerships; counterintuitively, this actually led them to focus on fewer channels instead of more
  • Pushed for repeat sales with a new email marketing campaign, because many people frequent NYC multiple times a year
  • Added one additional city to grow the market: they launched in Vegas, thereby also addressing scalability concerns for the investor community
  • Focused on product-driven innovation to increase conversion rates, including but not limited to intelligent push notifications, relevant pop-ups, and UX-focused revamps


Their focused efforts during a 3-month period in the accelerator led to 3X in revenue. Varun was still pretty nervous about what investors would say, but we reassured him by pointing out that he now had more leverage. With his current run rate he didn’t need investment. He and his team could continue to grow for the next 6-9 months and would hit profitability. But investment could propel him past profitability by helping him open up additional cities and move faster than the competition, and that would be an opportunity no investor would want to miss out on!

Headout ended up closing a $1.8M seed round in February 2015.

 

How Pop Up Archive closed customers within a month

Sometimes you get stuck because prospects are giving you the run around. So while you’re spinning your wheels trying everything to get traction, you’re stuck in the mud because customers are indecisive.

When we met Anne Wootton, the CEO and co-founder of Pop Up Archive, she told us how she had about 10-15 prospects in the pipeline who were all very eager to sign up, but they were all taking their sweet time to get back to her.

Their indecision was holding up sales, and without sales she was concerned that investors wouldn’t take her seriously.

To help Anne out, we started out by asking her what would be a reasonable price point for her service that would also close customers quickly, without the need for them to go through lengthy internal approval processes. She said around $5K-$10K.

So we suggested she create a pilot program with a clear product offering that would be aligned with what they were looking for, at a price point that would make the decision fly through approvals. And to get them to close quickly, she needed to “SUE” them:

 

  • Scarcity: Anne would open just 10 spots for her pilot program.
  • Urgency: If prospects were interested, they would need to reply by May 15, 2014, no extensions. But she’d of course send out reminder emails to reiterate the value proposition of the pilot and nudge them along.
  • Exclusivity: The program would only be available to customers that met a certain set of criteria. This way, they felt like they were getting premium service and working with a company that cared about their specific needs.



Anne set up a 3-part email campaign series, and after just the first email, her phone started to ring with interest! But unlike before, these customers were ready to move forward and make a decision.

Of course, there were people who said no, but creating a forcing function made it clear whether a prospect was actually interested or just shopping around.

Anne closed her pilot and used the resulting sales to show a 6-figure run rate, which appealed to investors and helped her close a round of funding of $1M+ in 2014.

For more techniques on closing customers, check out Poornima’s latest talk: How to Build a Sales Pipeline with Customers You Can Close. You can find the slides here.

Remember, it’s easier to close checks when you offer investors an opportunity to grow a business that’s already thriving with sales!

How to Close Checks on Stage: The 3 Elements Every Demo Day Pitch Must Have

By Tanya Soman and Poornima Vijayashanker

Most startup founders have one thing in common: they want to raise money for their companies. There’s a lot of anxiety about “the pitch”: How can a founder squeeze their current life’s passion into a 3-minute summary? Will it compel an investor to cut a check?

There’s also skepticism: it’s hard to believe that an investor would be willing to write a $50K, $100K, or even $500K check after hearing a 3-minute pitch from a founder.

But suspend your disbelief… it does happen.

And for startups that are at an accelerator, it can happen during Demo Day. Demo Day is a frenzy of pitching and networking, and there’s a lot to learn from watching and comparing the companies that go through it together all at once.

For a little over a year now, the two of us have been working at 500 Startups’ accelerator program and have seen plenty of startups go through Demo Day. Some get fundraising on the spot, some leave empty-handed, and many come away with something in between. These are some 500 Startups companies that have successfully raised money on the big day:


So what’s their secret to closing on stage?

There are lots of pitch tips out there, but we’ve worked with so many companies that we’ve started to see patterns. Tanya, a principal at 500, runs pitch prep and wades through 1500 applications twice a year to recruit companies for the program. Poornima is an entrepreneur-in-residence who advises 90+ companies on all aspects of startup strategy and operations, including, of course, funding. Companies she’s advised have gone on to raise $1.5M+ in seed, including AppZenHeadoutLenda, and Pop Up Archive.

 

Every company we’ve worked with that also closes checks on stage does the following 3 things in their pitch.

1. Lead with traction.

Here’s one big mistake that companies make—and it’s even more of a shame when the company is doing well.

When they describe how their company is performing, they’ll lead with vanity metrics like:“We create 10K widgets.” Or, “We send out 10M+ emails a day.”

So what?

Using vanity metrics doesn’t tell an investor how a company is doing. In fact, they tend to make it seem like the founder is hiding something.

No investor has time to dig in while you’re on stage to realize that the company has $150K in MRR (monthly recurring revenue) and are growing 40% MoM (month-over-month).

But this is exactly the type of data that will make them want to back you!

So, you have to mention revenue and growth (of revenue or userbase) within the first 30 seconds to pique their interest.

Pro tip: When you speak about your traction, you’ve gotta own it. So you have to use declarative language like: “We are on target to hit a $1.8M run rate this year.”

NOT: “It looks like…” “I think we’ll…”

“WE ARE ON TARGET!”

So, why do so many companies present vanity metrics instead of useful revenue and growth numbers?

We’ve found that it’s because they honestly don’t know that they’re supposed to talk about how much money they are making. Some may be ashamed because they think it’s too low, while others aren’t used to sharing such numbers in public. Don’t fall into this trap.

Remember: Revenue is real. And if you’ve got it, flaunt it!

If you don’t got it, we’ll talk about how to get it in a future post.

2. Get to the point quickly.

Often founders tell their life stories during the pitch: how they met their co-founders, lead expeditions through the Amazon, blah blah blah … save it for drinks after Demo Day!

Winning companies get to the point quickly.

You want to start by addressing the problem in the market and explaining why it’s HUGE.  Describe who is experiencing the problem (i.e. the customer persona) and why are you uniquely positioned to solve it. This is where you can highlight your professional background, if it proves your point that you’ve got a competitive edge. Don’t forget to mention important traction metrics like revenue and growth in the first 30 seconds of the pitch, wherever it makes most sense.

You need a crisp narrative to make people understand your value proposition. And it’s just as important to get it clear in your head before you pitch as it is to practise it over and over and over again. Test your pitch on everyone so they can confirm they understand what your company does.

Distill your pitch down to less than 5 sentences, your value prop to 3 advantages, and your solution to 1 line. Remember, you are pitching a business, NOT a product. That business needs to affect a customer or user’s life to mean something.

Then, you can talk about your unique solution, but do NOT go into a product demo. Founders can get really bogged down in details that just don’t make sense to share in 3 minutes. You want to keep things as high level as possible and get to the points that really matter.

Think about it this way: what is going to make someone want to come up and talk to you after your pitch?

3. Leave them with an opportunity.

You just spent 2 minutes talking about how you’re company is amazing, and the last thing you want is a lukewarm ending.

You want to finish strong with recapping the highlights:

  • Problem in the market
  • Why you are uniquely positioned to solve the problem
  • Why it’s is a HUGE opportunity right now and they should come talk to you!
  • Traction metrics showing that you’re already making it happen, so they don’t wanna miss out!



Examples of lukewarm endings

“We hope you enjoyed hearing about our product. If you love what we’re doing as much as we do, let’s talk! The first five people to shoot me an email, after this event, will receive a free t-shirt. I look forward to seeing you at the break.”

Why is this lukewarm? Because it’s got a generic ending. It doesn’t provided a recap, and the CTA (call-to-action) isn’t about the actual product!

“Remember when I said we could create anything you could imagine? I wasn’t kidding, I really meant anything! The first five people to shoot me an email, after this event, will receive our product for free!”

This ending also falls short. It’s too wide open, doesn’t convey the opportunity, and frankly the statement: “I really meant anything!”  seems a little incredulous.

 

Examples of strong endings

Sourceeasy’s demo day pitch ending

“We are building a formidable business and we’ve got the team to do it. We’re at a $2MM run rate with over 100 customers growing 30% MoM. If you feel this is something exciting, please come talk to us backstage. We’ve got great swag for you!”

In this one the founder Pranay Srinivasan recaps his traction and then gives the audience a clear CTA: the swag is actually his product!

Lenda’s demo day pitch ending

“This is the largest financial transaction you will make in your life. In fact, 4.5 million people do it every year. As it stands right now we do our taxes online, pay our credit cards online, bank online, and now you can get a home loan online too! If you want to talk more about the future of lending, please come and find us after the show.”

In this one the founder Jason van den Brand reaffirms the problem in the market, the market opportunity: getting a home loan, and again gives the audience a clear CTA.


Now it’s your turn! Are you working on a pitch?

Summarize it in 5 sentences, and put it in the comments below. We’ll be happy to review it and give you feedback!