Advice for Entrepreneurs: Simplify your Pitch
This summer I have had the opportunity to observe and listen to many startups as they are raising money for their ventures. Here are my thoughts on a mistake that I have seen entrepreneurs make a few times: founders over complicating their idea.
Every founder must be able to easily explain what their product or service does. For example, Airbnb lets you “book rooms with locals, rather than hotels*” and Mixpanel “built analytics software for product and marketing*”. When asking investors for money simplicity is your friend.
A trend I have noticed from entrepreneurs is that they over-complicate their idea or their business model. Which in turn confuses investors, allows the investors to find more holes in the idea, or causes the investor to lose interesting in the venture.
There are a few reasons why a founder may over-complicate a pitch. The first is exaggeration. Entrepreneurs want spark as much interest as possible by making their idea, business model, or team sound better than it actually is. The result of exaggeration is twofold. First, you can lose the trust of investors. Most investors can see right through the smoke. So why should they trust you with their money, when they can’t trust you to tell the truth about your market size or about the threat of potential competitors? Second, if the exaggeration is accepted as truth, it raises expectations of the investors. But nothing good can come from an entrepreneur promising investors unrealistic returns, when in reality the likely return is considerably lower. An entrepreneur’s inability to meet investor demands can lead to down rounds for the startup or the founder being removed from the venture because they are not progressing as they promised they would.
Another cause for founders over-complicating an idea or business model is that the founder is a domain expert. This can easily occur in pitches about complicated technology or life science companies When founders use technical/medical terminology that is common in their field, but that the investor does not understand. Founders must realize that many investors are generalists. This means they seek investments across many industries rather than focusing on specific verticals. Thus, founders must make an effort to simplify their pitch so that the average investor can understand it. As a founder, if you get through your pitch and the investor still does not know what your product does (which is more common than you think), you need to simplify your pitch.
To cut a long story short, investors can’t invest in concepts they don’t understand. By simplifying their pitches, entrepreneurs increase their chance of raising money.
*Both quotes taken directly from the respective companies early fundraising pitch deck accessible online.