Simplicity short of obscurity

I was recently speaking with one of our entrepreneurs. We were reviewing the company’s fundraising efforts so far and discussing our key learnings from the process.

The entrepreneur shared that, if he could go back in time, he would do one thing differently. Specifically, rather than talk about both of the growth initiatives that the company is pursuing, he would focus on just one initiative. The reason is that each new initiative is an opportunity to lose the investor.

From working with the company, I believe that both initiatives will be successful. The preliminary data from both initiatives shows that this is likely to be the case. However, when presenting to an outside investor, sometimes you don’t even get far enough to share the qualitative reasons and preliminary data which support why both of the initiatives will succeed. Investors are overwhelmed with deal flow and this makes us look for reasons to say no wherever we can.

It’s simple math. Even if both initiatives make sense and either initiative on its own would receive a positive reaction from 60% of investors, the chance of an investor accepting both initiatives is 60% * 60% = 36%. And often all it takes to end discussions is one negative reaction. So by presenting both initiatives, you’re increasing your chance of getting at least one negative reaction from 40% to 64%.

If you present 3 growth initiatives your chance of getting at least one negative reaction rises to 100% – 60% * 60% * 60% = 78%. You can see how presenting more initiatives can quickly lower your chance of getting funded.

The flip side of this argument is that not sharing each of your growth initiatives limits the potential upside that you can present to the investor. And if the potential upside isn’t enough, they won’t invest. So you need to make sure that if you choose to present just one initiative, it’s strong enough to provide the investor with the upside necessary to invest.

To generalize, your investor pitch needs to be simple enough to understand and accept, but not so simple that it obscures your company’s potential.