The “Mission-Pitch”

To break through AI noise in the Bay Area right now, figure out your “why should anyone care?” pitch.

Important tip for international founders who have recently relocated to SF and are looking to build their networks here for customers & fundraising:

As you meet new people, it’s important to have an abstracted-out, 10-20 second mission pitch that clearly outlines “why should anyone care?”.

More than market analysis, facts & data, this pitch should have a strong underlying emotion that can immediately connect with someone who might have an overlapping world view.

There is immense noise in the Valley right now, and every space/ vertical has tens of startups going after it. All pitches sound similar, most founders have similar backgrounds, and all content looks the same.

Breaking through this clutter is hard, especially for folks who don’t have a high-signal, prior track record in the Bay Area.

In these cases, dialing up the personal authenticity quotient big time, and having a clear “Mission-Pitch” with a strong emotional pull can be extremely helpful in winning over new relationships.

In an ecosystem where every decent startup is flush with capital and early traction, founders need to 1) go deep, 2) go sharp, and 3) manage the psychology of market participants in order to stand out.

How to Get Warm Intros Right: My Ground Rules as a VC

Learn the ground rules for warm intros—double opt-in, reputation, skin in the game, and more. Avoid common mistakes & get intros right.

As a venture investor, warm intros are my lifeline, both as a receiver (new deals) and a giver (for portfolio founders & co-investors).

Given the sheer volume of the intro pipe I deal with, I also see the goods and the bads of it all. In particular, I see folks making 101 mistakes and breaking what have become fundamental rules of intros that the Valley plays by. Break them, and it screams, “I am not ready to play in the major leagues yet!” to the ecosystem.

For the benefit of everyone out there, sharing some of my ground rules for warm intros:

1/ Double opt-in

Internalize this deeply – double opt-in is the only right way to do intros. Violating this cardinal rule significantly reduces your credibility.

2/ Reputation

Implicitly underlying every warm intro is your personal reputation. In the venture ecosystem, judgment is everything, and who you are vouching for is a major signal for it. Think about that the next time you agree to introduce someone.

3/ Skin-in-the-game

I treat intros without skin in the game or demonstrated conviction as low-signal “favors”. Personally, I don’t do this type of intros at all. But definitely receive a ton of them.

As they say, talk is cheap. Or in the context of this post, “sending an email is cheap”. The signals underlying the email are what matter.

4/ Limited bullets

When I started my career in venture, one of the Partners taught me a valuable lesson that I follow to this day – “you only get 3 bullets with each relationship in a lifetime. So fire each bullet carefully”.

Being indiscriminate with warm intros is the worst thing you can do as a professional. It’s like spamming – your credibility goes down exponentially with each ask that hasn’t been thought through properly.

5/ Acceptance rate

Controlling the acceptance rate is as important as the send rate. As a constructive participant in the flow, you are individually responsible for ensuring no time gets wasted on either side.

So it’s important to control that carnal urge to “network” and vet each inbound request properly to ensure there is a high likelihood of mutual fit before the actual meeting.

It’s exactly like qualifying sales leads. Just because someone is doing a warm intro doesn’t mean it’s a good fit at this point in time.

Hope these rules are helpful. Wishing you a long track record of fostering interesting & useful connections.

How to cold-pitch your startup in 30 seconds to VCs at events

Putting your strongest foot forward quickly, coherently and in an interesting way is the key to getting VCs to lean-in during a cold-pitch at an event.

It’s been a hectic couple of weeks of tech events, with SaaStr, SaaSBoomi, VC mixers, and now Dreamforce. Meeting hundreds of founders cold across these events, I have noticed that most of them struggle to quickly pitch themselves/ their startups to investors.

In fact, in most of these meetings, I was only able to figure out their unique strengths, progress, and fit with the problem statement after 3-5 mins. into the conversation. Unfortunately, most investors have short attention spans and given they meet multiple founders daily, their ability to recall is even worse.

This means as a founder, you have to achieve 2 things while cold-meeting investors at events:

1/ Leave an impression in the first 30 seconds so that the investor starts leaning into the discussion and becomes inclined to spend 3-5 minutes more.

2/ Post this initial buy-in, leave the investor with something of high recall value so you have a higher chance of a post-event follow-up discussion.

A. The 30-sec pitch

For the first 30-sec pitch, I recommend having 3 parts to it:

[The Grandmother’s Explanation]

followed by…

[Social Proof of Team]

followed by…

[Proof of Business]

a) The Grandmother’s Explanation means explaining what your startup does in the way you would explain it to your grandmother. Yes, most investors aren’t domain experts in your field. They are likely investing across sectors, and aren’t living and breathing your specific area/ problem statement. Assume they are as ignorant about your business as your grandmother.

I am literally shocked by how most founders can’t explain their startup in simple tech-layman’s terms. Barring a few, true deep tech startups coming out of research labs and universities, most enterprise software, SaaS, and consumer Internet startups should be able to explain their business in simple words. This is the bare minimum signal of clarity in thinking.

TLDR: if an investor isn’t able to understand what you do in the first 5-7 seconds, there is no way in hell that investor is going to lean in. Even if the person might appear to be listening, in reality, they are actually zoned out/ looking through you.

b) Social Proof of Team means talking about your credentials in a straight-up manner, without beating around the bush. These could be:

Education-related – undergrad and grad schools, unique course work etc.;

Work-related – past employers, roles, needle-moving projects, accelerators like YC or Techstars etc.; and

Execution-related – products shipped, content created, social following, word-of-mouth etc.

Especially for founders in the US-India corridor – we are taught to be overly humble and in most social situations, we tend to talk down our achievements. Unfortunately, you are faced with intense competition in the Bay Area from talent coming in from all over the world. You have no choice but to talk about things that make you stand out from the crowd.

c) Proof of Business means talking about the business progress of your startup in tangible terms. Things like user base, retention, engagement, number of customers, revenue, customer acquisition etc.

It’s important to remember that while providing Proof of Business, both “absolute numbers” and “growth rates” are important. So, frame statements like “we have $Xk ARR, growing y% m-o-m” or “We have Xk users, growing y% week-on-week purely by organic word-of-mouth. People are also now starting to pay”.

Most startups attending these events don’t have enough Proof of Business yet.

For the ones who do, make sure you talk about it as traction trumps everything, and especially at the seed stage, any traction will help you stand out.
For startups who don’t have much Proof of Business, you can still talk about proxies of business progress like the velocity of shipping new features, people on the waitlist, early design partners, and how they are deeply engaging with your product etc.

PS: An important recommendation for the 30-sec pitch format:

If you have compelling traction, pitch [Proof of Business] first and then [Social Proof of Team].

If you are very early and don’t have compelling traction, pitch [Social Proof of Team] first and then [Proof of Business].

The idea is simple – always lead with your strongest suit.

B. The post 30-sec-pitch part

Ok, so you delivered an amazing 30-sec pitch to Investor A. The person is now leaning in and wants to have a longer conversation for the next 5-7 mins.

In this part of the convo, your main job as a founder is to leave a high-recall impression on the investor. The person meets tens of new founders every week. Your job is to ensure that post this interaction, you go into the deal flow software for the VC firm at the minimum, and ideally, the person remembers you for some standout qualities and/or stories.

This is the “art” part of having a good conversation. There are no specific rules for how you build camaraderie and leave an impression. Everyone has their own style, and everything from body language and listening skills to storytelling and tonality has a role to play.

While I can’t offer you any specific hacks for this, here are some things I have seen work well in my experience:

a) Tell an interesting story – people don’t remember facts, but they remember stories. Instead of bombarding an investor with jargon, business numbers and technical info while having a cocktail, focus on telling an interesting story. Could be about your childhood, maybe something from your past life, or even something quirky that has happened while building the startup.

The biggest risk you have in a cold-pitch situation is to make it boring for the other person. A good story is something that brings a smile and/ or a questioning look on someone’s face. Basically, it interests them.

b) Bond on commonalities – the classic sales technique of finding commonalities to break ice always works. Humans are wired to want to belong to certain identities – A New Yorker, A Delhi-wala, A Knicks fan, a worshipper of Sachin Tendulkar, a backpacker, a wine connoisseur, a Japanese food lover etc. The moment they meet someone who belongs to the same identity, there is an instant connection that gets established, which is the first step towards building trust.

As you are chatting with the investor at a mixer, try and probe for some commonalities (where they grew up, went to school, worked, where they are living now). It will give the conversation much more substance and make it enjoyable for both sides.

c) Be genuinely curious…and listen – in my previous posts ‘Curiosity As A Networking Cheat Code‘ and ‘Networking at Events for Introverts‘, I have talked about the power of being genuinely interested in other people. It usually manifests in you asking good questions and listening more than talking.

As much as you are trying to ‘pitch’ in the conversation, don’t make it a one-way street. After the 30-sec pitch, focus on consciously giving talk-time to the investor by asking questions that spark an interesting discussion vs a founder-to-investor monologue.

C. Closing thoughts

I was feeling so frustrated listening to some awesome founders give such broken and unengaging 30-second pitches at recent events that I had to write this post.

Essentially, all the above inputs are based on 2 core ideas:

#1 Put your strongest foot forward as quickly as possible, and in a coherent structure.

#2 Make the conversation interesting. Tell stories. No one likes to be bored.

Happy pitching!

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Messed-up Cap Tables

Even the most well-intentioned founders often end up with a bad cap table. It wreaks havoc on everything from future fundraising to internal team dynamics.

I feel strongly about this topic & have been at its negative receiving end several times. Therefore, consciously dropping some harsh truth bombs in this post.

During my recent India trip, I was introduced to this amazing founding team building in the edtech space. Yes, I know! Byju’s and all. What can I say – I am a true contrarian.

This is a truly gritty team that’s been grinding in the space for several years (starting from their undergrad days at IIT) with minimal capital and seems to have now hit on a game-changing opportunity. They have signed a highly lucrative commercial contract, something that even massively funded companies in their space have been unable to crack.

This team is arguably the perfect example of the founder persona I believe in the most. In fact, these are the kinds of backstories I wait for. Intelligent founders with authentic passion for a large TAM, unique customer insights earned via frugal execution and strong leading signals of perseverance.

As I went through my investing checklist, this deal checked all boxes EXCEPT one. The one whose real importance I have learned only by burning my hands many times. In fact, this item is so important that I ultimately had to pass on investing in this startup because of it.

The deal-breaking reason is a messed-up cap table! Here’s the situation – with product-market-fit still being some distance away even after multiple iterations, the founders have already diluted 30%+ to 3 angel syndicates, even before an institutional round has been raised.

To add further pain, even the current round is being done at a relatively low valuation, mainly because of insufficient traction in the business as well as young founders lacking leverage in fundraising discussions. This round will make founder dilution even worse!

Based on my past experience with other portfolio companies, these highly diluted cap tables lead to 2 types of issues:

1/ External – follow-on VCs hate to see these type of cap tables. While they are themselves looking for 20-40% ownership in an institutional round, VCs also want to ensure founders have enough skin-in-the-game (equity ownership) to be incentivized to build the company for next 7-10 years. In addition to this, a 10-20% ESOP pool is also typically required to attract & retain talent.

Structuring an optimal cap table that balances the ownerships of founders, investors & employees requires having enough “space” in the cap table to begin with. Having a pre-PMF cap table where angels own 30-40% of the company leaves no room for this.

In fact, cap tables are such a big issue that I have seen financing rounds of my portfolio companies get nipped in the bud, even though the business itself was on a strong path.

It’s important to add another nuance here. In teams with multiple co-founders (3+), follow-on investors also care about the individual ownership of each founder. Especially, the ones considered “mission-critical” for the business (eg. the market-facing “CEO”, the one who has built the technology & is managing it “CTO”). Therefore, having large founding teams can add additional structuring risk to the cap table.

2/ Internal – messed-up cap tables don’t piss of just VCs. I have first-hand seen them creating internal issues amongst the founders, around misaligned incentives. A few real-world examples from my experience:

1 of the 3 founders is pulling much more weight compared to the other 2. As they start getting increasingly diluted in situations like above, resentment starts to surface regarding ownership % of specific individuals not accurately reflecting the value they are creating/ not creating. A zero-sum mindset sets in, where the % of the pie starts mattering more than the size of it.
Because angels own a significant portion of the business as a block (often larger than each of the individual founders), they feel they can dictate how the business should be run operationally & start meddling in execution, creating unnecessary overhead for the founders.
Because earlier rounds have been done at low valuations, both founders & existing angels go into a dilution-insensitive mindset. It manifests in many adverse ways including internal bridge rounds being done at relatively high dilutions, taking low prices for small external rounds etc.
1 of the 2 co-founders starts losing interest in the business (happens especially when fundraising has been hard). While this founder is checked-out & is just going through the motions, the person still doesn’t want to let go of any of his equity. This causes resentment in the other founder, who continues to believe in the business & wants to build it over the long term.

The excessive dilution scenario of the edtech startup is just one type of messed-up cap table I have seen in my investing career. Some other real examples include:

Unbalanced ownership between founders – Eg. 2 so-called “co-founders”, one owns 80%, other owns 20%.
The other extreme of unbalanced ownership, where an equal co-founder isn’t creating equal value. Eg. a close friend of the founders being given equal ownership, even though the person has no specific skillset or value-add to offer for the business.
Non-operating co-founders with material ownership – Eg. someone who helped get the company off the ground, perhaps incubated it in some way, but has no operating role in the company. Yet, continues to hold founder-level equity.
Too many non-institutional/ unsophisticated actors on the cap table – Eg. multiple angel networks, AngelList syndicates, individual angels & advisors crowding on the cap table.

I often get push back from founders that they can solve these cap table issues relatively easily. Some statements I hear:

“[FOUNDER] We can find an investor to buy out all the angel networks on our cap table.”
“[FOUNDER] I am already talking to XYZ to relinquish his balance equity”.
“[FOUNDER] Having that non-operating founder on the cap table is not a big deal. He is willing to sell in the next round.”
“[ANGEL NETWORK] If the company gets a term sheet from a VC, we will claw back some equity to the founders.”
[FOUNDER] It doesn’t matter if angels own 40% of the company. Ultimately, the founders are running it.”

Time for some harsh truth bombs here:

Most VCs filter out startups with messed-up cap tables at the initial stage itself. Forget getting a term sheet, you are unlikely to even enter diligence.

Secondary deals are really hard to pull off, unless the fundraising market is red hot and/ or the business is hitting it out of the park.

Once any person or entity has equity in the company, it’s extremely hard to get them to give up even a small portion of it.

History is riddled with countless examples of large public & private companies where a person or entity with even a small % ownership will assert selfish authority during tough times & at key decision points.

To summarize, founders & early-stage investors need to be aware of cap table risks & their downstream impact on the company’s future. During any financing round, while it’s understandable that everyone’s top priority is survival & getting the cash to be able to live & fight another day, it’s also important to be strategic & think through the long-term consequences of the dilution being undertaken, as well as both the type & quantity of new actors entering the cap table.

Closing out with something I frequently tell founders on this topic – “Every time you are considering a new dilution on the cap table, think of it like getting a tattoo on the face. You have to live with its consequences every day going forward.”

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Doing more with less

As an angel, one of the strongest leading signals I look for in a startup is progress per unit of capital – how much forward movement has the team achieved & the resources it has consumed for it.

My thoughts on why a capital-efficient mindset is so important for early-stage tech founders.

Having seen 1000s of deals across a decade of investing my own as well as institutional money, I rarely cringe while evaluating a new company. As an investor, I have often seen the same goods-and-bads in other deals several times before. As an ex-founder, I have walked the path & made the same unforced errors so almost every time, I can empathize & almost pre-empt why a founder is doing things a certain way.

However, there is one specific thing that is guaranteed to make me cringe – a founder attempting to raise an amount that is totally out-of-sync with where the business is. In many cases, this is accompanied by other precursors:

No intent to bootstrap from idea to “some” traction.
Wasteful handling of the last round.
Coding & building product for months at a stretch without putting anything meaningful in front of customers.

Personally, one of the strongest leading signals I look for in a startup is progress per unit of capital – how much forward movement has the team achieved & the resources it has consumed for it, especially when evaluated relative to other comparable startups.

I remember an interesting learning from my time at IDG Ventures (now Chiratae). Sudhir Sethi, the Managing Partner & the lead investor who had backed Myntra (Zappos of India at that time; was eventually acquired by Flipkart for ~$300Mn in 2014), often cited how when he went to meet Mukesh Bansal (the founder) for the first time at the Myntra office, he observed they were working out of a dingy space in a classic Indian neighborhood market with the ground floor occupied by a fruit & vegetable vendor. Sudhir used this as one of the positive signals for the team’s ability to execute in a cut-throat eCommerce vertical like fashion.

Fast forward a few years, and I got a similar insight yet again in the retail context. While working with Alibaba, I saw how frugal the Group was in terms of saving every dollar of operating cost. eCommerce works on wafer-thin margins, especially in highly competitive & price-conscious markets like Asia. And one could see this by comparing the bare minimum facilities & perks we got at the US HQ in San Mateo vs even well-funded growth startups, which were offering everything from catered meals to draft beer stations at that time.

Why is a capital-efficient mindset so important for early-stage tech founders? It’s because they are playing a game where the odds are hugely stacked against them. Where 9 out of 10 new startups fail on average. Where the starting point and end point of companies are vastly different, with each year choked with iterations, a major pivot every few years, and team members jumping on & off the ship.

Setting yourself up to have even a remote chance of winning such a game requires many shots at the goal, many course corrections, and many resets. At the same time, capital is scarce at the pre-PMF stages even for the best teams. Capitalism is brutally efficient, throttling money when relative risk is high, & opening the faucet once success is highly certain (typically post-PMF).

Building even a decently sized company can take anywhere from 6-8 years, & up to 15+ years. In such a long period, both the overall economy as well as your specific market will go through several cycles. The key is surviving long enough, even with limited capital, to be able to walk this arduous path.

This is what the best founders bring to the table – using investor capital like their own, each dollar wisely deployed towards only what’s truly necessary for the stage, raising each round with specific milestones in mind, and realizing that ownership is everything, with each bps of dilution being the costliest trade shareholders can make. To me, this mindset & building approach is perhaps the biggest signal of perseverance in a team.

Come to think of it, in the non-tech world where starting a business isn’t called “doing a startup”, entrepreneurs typically use their savings to get going, & once there is enough business confidence & profitable revenue flowing-in, grow using either internal accruals or debt. Initial bootstrapping creates skin-in-the-game, profitable revenue creates high confidence that customers want what you are making, & debt creates financial discipline around managing cash flows while preserving the founder’s ownership to compensate for all the risk they have taken.

This model has been used by everyone from Sam Walton to Richard Branson, & continues to survive in all parts of the SMB economy. While the venture capital model definitely works for building tech companies, which are asset-light, highly scalable & operate in winner-takes-all dynamics, I believe the founders who are in it for the long run build with a similar philosophy – planning for the next basecamp & raising conservatively, maintaining discipline around cash & giving high importance to ownership.

On a related note, I wanted to share something I recently wrote on Twitter regarding a fundraising pitfall specifically for serial founders:

Often see serial founders who have seen success before (scale and/ or exit), raise large rounds at high valuations at the idea stage!

From what I have seen, even the most successful founders have operated in phases where a lack of capital could have potentially killed their startup. That’s probably why on the 2nd attempt, they try and take that risk out of the equation at the beginning itself.

Oddly enough though, having a capital-rich Plan B to fall back on reduces the scrappy iterativeness, discipline & underdog mindset that startups usually need to succeed. And which probably contributed to their success the 1st time too.

In asymmetric bets like startups, to reference The Dark Knight Rises, “the way to climb out of the pit is without a rope”.

Hopefully, as this cycle resets, all of us founders & investors will go back to the drawing board & start appreciating Benjamin Franklin’s age-old virtue of frugality as a key to success in business & life.

Using the Focus Canvas to Cut Burn

As the fundraising environment continues to get harder in 2023, founders & investors are deep into rationalizing business plans & finding ways to cut burn. The first temptation is to follow what I call an “excel sheet” approach – starting with the largest expense items without enough strategic thinking around the revised set of goals, business constraints in this new environment, what is working well right now, & how capital should be most efficiently allocated going-forward.

As opposed to big companies, startups operate with a finite runway, trying to address significant customer problems that remain unaddressed by large incumbents. This requires constant innovation – essentially doing hard, non-consensus things across the stack, everything from technology & design to customer experience & business model, that incumbents aren’t doing.

While big companies can afford to be relatively unscientific in cutting costs & still tide through tough macros with the help of their existing PMF, startups unfortunately, have no option but to play offense at all times in order to continue innovating & thereby, give themselves a chance to survive & succeed. In financial terms, this implies investing incremental $$ into innovation that drives more revenue (& profit), which is what will ultimately save a startup, not investor cash sitting in the bank.

So how should founders think about playing offense while being capital-constrained? I would like to propose a thinking tool called the “Focus Canvas“:

As a first step, rather than focusing on P&L line items, break down your business into specific buckets. These could include customer segments (eg. Individual, SMB, Enterprise etc.), product lines (eg. shrink-wrapped, custom deployment, pure services etc.), platforms (eg. desktop app, iOS, Android, browser extensions etc.), distribution channels (eg. self-serve, inside sales, direct sales, channel partners etc.), geographies (eg. US, EU, India etc.), teams by function/ type (eg. engg., product, design, sales, marketing, offshore contractors, agencies etc.) & other buckets that are relevant for your business.
Arrange all the relevant buckets & their constituent elements on a single page. This is your “Focus Canvas“.
On the top-left corner, list the most updated business goals for this year that all stakeholders in the company have aligned on. These could be things like “hit $1Mn ARR”, “show x% retention”, “start fundraising in Q4” etc.
On the top-right corner, list all the business constraints you expect to face this year. These could be things like “12 months runway left”, “only 2 backend engineers”, “sales cycle taking 6+ months to close” etc.
Now, as you are looking at this Focus Canvas, try and answer the question “what is working well right now?”*. You need to define “working well” for each bucket as per your specific context, also taking into account the above goals & constraints. It could be driven by one or more of revenue growth, most profitable, highest ROI, generating the most valuable feedback, creating the most differentiation, highest team productivity etc. *Note: this step is well-suited for a team workshop/ brainstorming session.
The most important step – for each bucket, put a ✅ in front of the element(s) you believe is your best bet to achieve this year’s business goals while navigating expected constraints. Then, ❌ out all other elements in the bucket. This is where ruthless focus is extremely important for the Canvas to do its job well – ideally, force yourself to ✅ only your #1 focus element. In the case of most startups, that’s probably all you can afford to execute anyway.
Finally, take the ✅ element from each bucket & weave them into a simple, 1-2 paragraph Focus Narrative. An example to illustrate this – “In 2023, we will focus on the Enterprise customer segment & offer them the standard product suite with a billable custom deployment services wrapper. The product roadmap will focus on the desktop app. We will double down on the internal sales model for distribution, with founders pitching in for strategic logos. To increase our team’s efficiency, we will significantly reduce contractor headcount & re-allocate them to full-time hires in engineering & internal sales.”

This Focus Canvas now provides a clear & strategic view of opportunities to both cut burn & re-allocate resources, while staying on track to achieve business goals & making progress toward PMF. The Focus Narrative can be used to socialize the going-forward strategy across teams in an easy-to-remember way. If used well (read: with ruthless focus), this approach can help startups in playing offense even in a tough economic environment.

PS: sharing a Focus Canvas template that you can use as a starting point. Feel free to download a copy & modify it as per your requirements.