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Venture capital funding is a key step for many founders looking to scale their startups. When asked “How do you decide to fund one company and not another?” Our team points to the Six Ts: theme, team, terrain, technology, traction and terms. In the Startup Growth Toolkit series, we explore the six Ts that founders should consider when growing their startup – starting with Theme.
In preparation for and during a fundraising pitch to investors, entrepreneurs should create and articulate a compelling story. The narrative should be structured in a way that addresses the Six Ts in a logical order, while also being comprehensive and memorable. This should generally start with the theme, which is the problem you are setting out to solve. Most often, the problem statement will fall into one of three categories:
Improving on an existing technology or incremental improvement
A general rule of thumb is that a 10x improvement is necessary to displace incumbents, get customers to change vendors, and gain market share. It is a fact that vendor relationships are subject to market factors and inertia, and require an important catalyst to effect change. This catalyst could be significant improvements in efficiency, throughput, quality, service or value.
A proven method for challenger startups to demonstrate credibility when presenting a startup pitch deck to investors is through compelling client testimonials. In this context, the quality of the testimonial is more important than the quantity. Referrals and references from a few well-selected, highly influential customers can lead to a cascade of business development leads.
For portfolio company Theator, they looked at a long-standing industry from a new perspective. Surgery is a historically human industry – no matter how integral technology has become in the OR, humans have always been at the center of the industry. Theator examined how AI and surgical intelligence could help inform surgeons in a better way, resulting in better outcomes and lower readmittance rates.
Solving a new problem or enabling a new functionality
In this context, the market needs to be educated as to the existence of a problem and the effectiveness of your solution. Alternatively, your presentation can show the value of a completely new capability.
For example, when Oren Netzer, the founder of DoubleVerify, presented his venture capital startup pitch, we asked, “does this problem actually exist?” The problem he presented was that brand advertisers had no way of verifying if their media plan was being executed properly. Frequent problems he reported included geographic mistargeting of internet ads, ad fraud by bot clicks, inappropriate content adjacency, among others.
To validate his thesis, Oren showed industry examples of ad placements that violated the advertiser’s media plan. This convinced us to invest and advertisers to utilize the new service, leading to the company becoming an industry pioneer and a 2021 IPO.
Addressing a macro change, or leveraging a regulatory, sociodemographic, technological or other rapid change in status quo that creates market opportunity
A good example of a company that acted on a significant change in market conditions is Hootsuite, which responded to the explosion of new social media tools such as Twitter, Facebook, LinkedIn, etc. by creating a management dashboard and analytics for social media.
We found Hootsuite at the very first Twitter conference in 2007, and quickly decided to become the first institutional investor along with Hearst Media. We particularly liked the fact that Hootsuite had 125,000 users at the time but were not yet monetizing — and that they had a goal of pursuing a ‘freemium’ business model by adding functionality of increasing value for small businesses, agencies and enterprises. They’ve continued to adapt with market needs to serve additional platforms such as Instagram and TikTok.
How to Convey Your Theme When Presenting to Investors
Entrepreneurs should begin their story by articulating the theme in a brief, crisp statement or overview deck. Use examples to show the problem, whether it is an improvement, a novel discovery or a response to a macro change. How well you explain the theme — and if investors align with your overall purpose — will influence initial interest.
This post is the latest in our Startup Growth Toolkit series that explores what founders need to successfully pitch their business to investors to secure venture capital and growth their startup. Stay tuned for the next part in our series, Team.
For more on the role theme plays in venture capital funding, take a look at other News and Insights resources: