Three Reasons We Say “No” to Pitches
At Hyperspace we get pitched several times a week. Giving feedback to make our community more savvy and successful is one of our core values, so we read and write a thoughtful reply to every deck we receive. These are the top reasons we say “no” to investing:
The Numbers Don’t Add Up
Saying “I want to make money” is the same as saying “I want to breath.” It isn’t greedy, it’s necessary. A startup’s business model should include data for costs and profits, and calculations for the profit margin. This data is absolutely essential for making investment decisions, yet most decks we see don’t have it.
There is always some information you don’t want to put in the deck and make public and that’s fine, but when it comes to financials, a fundraising CEO should know their numbers backwards and forwards and be ready to answer questions about them.
A startup we said “no” to very quickly was in the social media sector, looking to raise $1 million. They didn’t have a development plan for how that money would be used so we declined, and the founder promptly came down and told us “I just need $20,000 for marketing for six months. It’s not a lot. It’s really not a lot.” We asked what ROI they expected on that $20k, how long they estimated it would take them to become profitable, and what their margin would be once they were. The founder didn’t have answers. They sincerely wanted to get their MVP live and were working hard to make it happen, but they had no idea what their numbers were, and a business absolutely must know its numbers. As investors, we’d much rather put $2 million into a business with a 150% projected return, than put $20 thousand into a business with no projected return.
The Customers are Imaginary
We have to own up - we’ve made this mistake, too. Often as entrepreneurs we get so excited about what we’re building that we lose sight of who we’re building it for. We know we’re creating a really beautiful product or quality service, and we get so caught up in picking out color schemes and fine tuning features that we don’t make time to talk to potential customers and listen to what they want. It’s all too easy to sink $100,000 into a product or service that in the end people aren’t willing to pay for, because the customers we’ve been thinking of are imaginary.
Having done this ourselves, now as investors looking at decks we can tell you that beta customers, community engagement, and partnership agreements are much more impressive than MVP designs.
The Team Isn’t Committed
We started this article by saying that “I want to make money” is necessary, not greedy, but we need to end by reigning that in a bit. Being an entrepreneur is hard. There are far easier ways we could be making a living. So yes, a plan to make money is necessary. Equally necessary is a deep “why.” If the primary reason a founder is working on a company is to make money, in our experience those people quit. It’s the founders who aren’t starting a company because they want to, but because they have to, that succeed. These are the ones driven by a deeper purpose to be of service and make people's lives better in an important way. They ultimately find a way to build a profitable business and succeed, because they can’t quit. This isn’t a get rich quick scheme to them - it’s an essential part of who they are.
Ready to pitch us? Send your deck to: firstname.lastname@example.org