Marcial González Fraga went through something many other startup founders will: he co-founded a software, had a successful pilot, decided that a pre-Seed round was the obvious next step, then…
… the pitch never worked. The fundraising never succeeded. And his startup had to shut down. 😨
But this is not only a story about failure.
It's also a story about learning.
Marcial decided to turn his mistakes into lessons to be shared with other startup founders throughout Latin America. Fast forward two years and he's currently a venture capitalist for the Latitud Fund, with over 1,000 pitches analyzed. (Marcial swore to us he loved every second of it.)
So the VC has seen hundreds of founders fail just like him. But he has also observed a few leaving the room or the call with their expected funding.
Bad or good, they all made Marcial update his list of learnings. Eventually, they became unique insights on overcoming the statistics and winning investors' minds and hearts during the pitch.
Marcial constantly shares this constantly-updated knowledge with the community of Latitud's Explore Fellowship.
What if you could take a peek into some of the treasure in this chest? ✨👀
Well, today's your lucky day! Here are some of the lessons Marcial learned throughout his 1000-pitches journey:
Look to your left. Now look to your right.
All the founders in the house are more likely a zero than a hero.
We're not being mean. We're being real.
Let's get to the facts.
Only 2% of US startups that raise more than US$500k get to put a horn on their faces and call themselves a unicorn (for Latin America, make it 1%). An even more scary stat: The Power Law states less than 0.1% of startups explain 97% of the profits ever created.
VCs know the numbers all too well. "If you put 2 and 2 together, what we know is that we are in the business of outliers, not of following the pack", Marcial says.
They know that some of the startups will fail. Some will just give their investment back. Some will give them a small multiple of return/investment. And then, there's the reason they entered VC in the first place: the few startups that will make it so big that they'll compensate for all the other bad, so-so, and moderate results.
It's the power law: the best investment in a successful fund equals or outperforms the entire rest of the fund combined. Simply put: your startup needs to be a fund returner.
So don't try to deny the risk involved when pitching your startup. They don't want to hear you assuring them your startup isn't even that risky, much less how you're just copying and pasting that business that did oh so well in that other country.
Why? Because that means you won't have the necessary innovative edge to become a part of the 1% and 0.1% clubs. The only ones who score home runs are the ones with the courage to hit an all-or-nothing swing. Do your homework, build confidence in what you bring to the table, and swing hard on your pitch.
When building your pitch deck and speech, you might be thinking to yourself, this might start on a slow note but they'll realize how awesome my startup is by the end of it. That final projection will blow them out of the water!
Guess what? VCs won't wait for the last trick under your sleeve to make their judgment. They are evaluating you and your startup from the very first deck slide and the very first seconds of your speech. And they will keep judging you throughout the pitch.
So you need to take care of your first impression. "It all comes down to how effectively you can communicate before the presentation, in its first 10 seconds, the first minutes, and so on", Marcial says.
Every aspect of your communication matters for that. Find a nice place with good lighting. Also, do not sit down during your pitch. Work on your body expression so make it easier for VCs to pay attention to your story – instead of opening another tab on their device or mentally disconnecting to do something else they find more relevant.
Even with all this hard work to make a good first impression, not every investor is going to love you. But that's actually fine: you don't need everybody to love you.
"You may only need one, and going all-out to conquer that one person is what you have to do", Marcial says. Not that convincing even just a single investor out of a group of VCs is an easy task.
Apart from showing all the big three we went through (the problem; the market; and the signals that you are a fund returner), how you show it matters a lot. Investors need to remember your case when they come to the weekly meeting where decisions are made.
"One of the criteria we use to access an investment is: would I be inclined to work for this founder 24/7?", Marcial says. A good impression will make you be remembered and open the doors for them to hear your message. We'll get to that right now.
The very first message you need to communicate to venture capitalists is how big and serious the problem you're solving is.
VCs will only invest money if they connect with the problem you are trying to solve, and that can only be done if you really show how deep this problem affects certain people. "There is no chance I will invest unless I empathize with the audience, unless I can connect and prioritize it", Marcial says.
Founders usually just wanna get on with it and jump directly to their solution. Your first lesson here is to stress the problem you're solving more and in an empathic way. Make sure that the investor understands before you move forward. Assume nothing.
Another lesson you need to learn when pitching your problem is to never tie it to your solution. "Never do that because you are not solving the problem: you are building solutions within a problem", the VC adds. That will give you the necessary space to eventually pivot our expand your offering. You're focusing on your customer, and not on your ideas.
The value of Nubank is not solving banking issues. It's building solutions to make banking easier for the underbanked or somebody without too much financial knowledge.
Still talking about pitching your problem, do not talk about your specific niche market only. Pitch your whole sector first.
And why is that? "If you pitch yourself and what you are doing only right now, it will seem a niche that's too limited. Be obsessed with the problem and how your solution is an approach to help to smoothen that problem."
As we mentioned, VCs need a sizeable valuation when the startup exits. This will depend on a substantial addressable market, so they will only invest in you if they see a path to that. So, present long-term plans and projections during your pitch.
"You cannot believe the number of founders that are pitching me how they are gonna get to US$50M, but they will only try to figure out how to make more than that later on", says Marcial. "The founder is usually too obsessed with what they've achieved instead of how that impacts the future."
Instead of proving that the company is successful in the present, provide evidence of a clear path to becoming a unicorn. Let's think of neobanks, a segment that is on a clear growth path in Latin America. In South America alone, their penetration rate is expected to grow from 43% in 2022 to 84,7% in 2027. "When you look at the data, so many people are underbanked or unbanked and the market is so big that you can't help but make investors think, 'why wouldn't I invest in that space?'", Marcial says.
That's the narrative you need to create – coupled with you being the right person to attack that relevant problem and market, of course. We'll get to that.
An essential presence in a pitch is the set of signals that make your startup the one that's ready for success – a.k.a. maximize results with the eventual investment received.
The first signal can be the founders and team's background – from a degree from a prestigious school to a personal challenge they overcame.
Connecting the founder's story to his motivation to dedicate his professional life to solving a specific problem is always interesting, and it's something startups at every stage can have.
"When you are in the pre-Seed stage, you will likely not have 30% month-over-month growth. What stands out for me from the 1,000 last pitches is the founder's story. And how that connects and motivates them to tackle the problem they are tackling. Your story will always make you an outlier because it's yours and yours alone", Marcial says.
The investor mentioned how his father was an entrepreneur trying to keep up with both family and professional needs - including a son, himself, who was having a hard time adapting to kindergarten. That motivated him to help entrepreneurs that had busy lives just like his father to achieve success. Now that's a conversation starter!
Other good signals are their skillset and the company's recent quantitative or qualitative achievements (from other investors on their cap table to a sales milestone).
It's very important to find and communicate an area where you are in the top 1%. After the problem and the market, signals are the next piece for a VC to consider whether you can be that fund returner or not.
Even better if you study the VCs you want a check from and identify which signals they value more. If your signals match theirs, you all have something going on… 🔥
Investors will only write a check for your startup if you have plans to expand your audience and change your solution as you progress. Otherwise, there's no massive growth potential.
"Do not minimize the team but minimize what you've been able to accomplish, as only a part of the grand vision. Because that will help you connect to the future", he states.
Marcial's strategy to balance a realist pitch with a big ambition is to focus on a niche related to the problem, but then pitch how you believe the market will shift in a direction that will help your business, and how you'll be able to position outside of that initial customer segment.
This way, you are tackling a big problem many people face first through a segment that will love your product. By being successful in that, there's a market trend that will help you go into new customer segments. You demonstrate how this shift in segment can justify a hundred million in revenue.
Yeah, you just read that.
After all this pitch talk.
Before you drive us out of town, we are not against all pitch decks. We are against redundant pitch decks. The pitch deck serves many purposes, and being the middleman between you and the investor is not one.
Instead of presenting a screen and going slide by slide, tell the investor that you wanna have a chat. The deck can be useful if sent before your chat as an introduction but not as the story you will actually pitch at your meeting. There are styles and styles, and this is an encouragement to prioritize connecting with the person on the other side.
"My strong suggestion is that you just don't use your deck during the chat", says Marcial. From what he has seen, decks leave speeches less natural and engaging. And that doesn't help when you need to impress people (remember that?).
So what are you going to do without your dear slides as backup? Your first job during this chat is to understand how they perceive the problem and the market. If needed, clarify their doubts and educate them.
But also don't make it something unidirectional, because that's just like you giving a class and the VC shutting up and listening. Investors will just disconnect (and so would you, let's be real). Keep them engaged by asking questions and getting them to become a part of your team. Always be conversational.
"Imagine a person in a nightclub going up to other people and saying, 'I have a job, I take care of myself, I go to the gym three times a week, and my hobbies are spending time with dogs and cats. Do you wanna date me?' Well, it's not gonna happen because you need that back and forth to build a relationship."
This might surprise you, but impostor syndrome is not a problem when pitching. You are trying to sell investors something bigger than you, that can impact the lives of many others. Something that doesn’t exist that you will create out of thin air. Why would you not have impostor syndrome?
"If you have impostor syndrome, you are right. You are not good enough. You are trying to build something that, by definition, is larger than yourself. If you are good enough, you are not going big enough. And I have already covered how big you have to go", Marcial says.
So what will drive you forward when the impostor syndrome kicks in right before a call with VCs? Marcial shared a final personal tip.
"The question is not whether you are up for the task, because you are not. The question is, will you do it even if you are scared? Do you know, in your heart that the journey is not over until you win?"