SaaStr 692: How To Perfectly Pitch Your Seed Stage Startup With Y Combinator's Managing Director Michael Seibel

This is Sastr's Founders' Favorite series, where you can hear some of the best of the best from Sastr speakers. This is where the cloud meets. It's official, Sastr Europa will be back in 2024. Meet us in London on the 4th through 5th of June as we bring together 4,000 Sastr CEOs, revenue leaders, and executives. It's the 5th Sastr Europa. Listeners of the Sastr podcast can use code FAVE20, that's F-A-V-E 20, to save $20 on early bird tickets. Visit SastrEuropa.com to get your tickets today. Up today, how to perfectly pitch your seed stage startup with Y Combinators Managing Director, Michael Seibel. I'm here to talk to you about something boring and horrible that every single founder hates, how to pitch your company. We just got through Demo Day and helping over 200 companies pitch investors. And pitching investors is basically the most painful thing that companies do. What I find fun is that any founder you talk to can remember. I can remember every single investor who said no to them. And they hold a special kind of, I don't want to use the word hatred, but they hold a special something for those people. And they desire to prove them wrong. And so what I wanted to do today is give you all the tips that we give YC companies to be much more successful at fundraising when you are pre-product market fit. And that's really important. This is not for raising series A's. I assume most of you here are pre-product market fit. And so what I hope to do is get you to unlearn some of the fundraising advice that you've learned so far, which is probably wrong. That's my goal. So number one, you stand out by being concise and easy to understand. I've done, I think it's over 2,000 YC interviews. And one of the things that founders don't understand is that if I don't know what your company does, I can't fund you. The number one barrier to not knowing what your company does is you. Not me. Not the world that's oppressing you. Not your users. Not your advisors. It's literally you. A lot of people think that they need to break. You don't need to have a bunch of energy and pizazz and sizzle and shark tankiness to a pitch. You don't. You actually stand out by being concise and easy to understand. And so a lot of what I'm going to do today is going to not sound fancy because it isn't. It just works. There's a talk over there that tells you about all the fancy things that don't work. So if you want that talk, you can. I'm just joking. All right. So these are the common elements of a pitch. These are the things that you need to be able to talk about. What do you do? What does your company do? Who's on your team? What's your traction? What do you know that everyone else doesn't or would disagree with you about unique insights? What's your market size? And what are you asking for? This is a pitch. That's it. So let's start with what do you do? You need to be able to say what your company does in two sentences, and you need to be able to give a specific example. Let's use Airbnb as an example, right? So Airbnb lets any home or apartment owner rent out their apartment online. Sentence one. They collect the payment online and take it home. They pay, let's call it, 15% fee for every booking. That's sentence two. That's it. A lot of the magic comes in the example. And I'll give you a real-world example. Imagine that you're a waiter who lives in Washington, D.C., and it's 2009, and the Obama inauguration is happening in town, and every hotel room is booked. You can make $2,000, $3,000, $4,000 by renting your apartment out, and that's the amount of money you need to pay your rent for the next two or three months. All you have to do is take some photos of your place and put a listing on Airbnb, and Airbnb will handle the payments, get you a great guest, you give them a great experience, and you've got your rent paid. What's interesting about that example is it's specific. You can imagine a waiter. You can imagine them being in D.C. I don't know how old you all are, but you probably remember the Obama inauguration or the fact that Obama was president. You can imagine the hotel rooms being sold out. And you can imagine somebody being able to rent their place out for a lot of money and pay their rent for a lot of months. That is a great example. What I didn't do was I didn't give a vague example. So let's talk about where people go. One, they pitch something or they explain what they do in a way a customer would understand, but an investor would not. For most of you, investors are not your users. You use jargon with your users. You assume a lot of common experience with your users. If your investor is not your user, they don't have that experience. You have to use simple language that they will understand, not complicated language that makes you feel like you're a user. You have to use simple language that makes you feel like you're a user. No life stories. And then the one I always love missing specific accomplishments. There's one company in this batch that literally worked on the Mars Rover. The founder was like, worked at JPL and build software to make the Mars Rover project actually happen. Didn't talk about it. I didn't even know when we accepted him. I'm in office hours with him a month, two months into the branch. And I'm like, what was, what'd you do at JPL? And he's like, Oh, have you heard of the Mars Rover? I'm like, yeah, I'm not a fucking idiot. And he's like, yeah, I did that. And I'm like, can we talk about that, please? If you've done something cool, say it without the life story. Just say that you did the software for the Mars Rover. It'll be impressive. Next traction. Everyone's got this traction concept a little mixed up for traction. You do a clear, clear explanation of what you've accomplished since you started working on your company and only use a graph. If the graph is up to the right, what people screw up with traction all the time is that you can have traction. If you're pre-launch, you can have traction. If you don't have a great graph, all traction is communicating is what you've done since you've started and why that's impressive. If you've built an iOS app and it's now in test, flight in the hands of a hundred users in one month, that's impressive. Even if they're not using it a ton, even if you're not launched publicly on the flip side, if you're building an iOS app and it's been two years and it's in test flight with a hundred users, that's not impressive. So taking too much time and not getting anything done is the opposite here. What investors are looking for is momentum. They're looking, do you get, things done quickly? They're not necessarily looking for, do you have a ton of revenue or a ton of users? If they're investing in early stage company, they know that you might not have those things and they'll still invest. If you communicate, you get things done quickly. And the only way you communicate, you get things done quickly is if your traction slide includes how much time you've been spending, right? The biggest mistake YC founders make here is they say this list of things and they didn't tell me, did they do it in a month or? Four months or a year or two years. Without the time, I'm not impressed. Next, they put fake work. Advisors, surveys, like fake work that's not really furthering their company. And then last, and here's a tricky one, you don't need a traction slide if you don't have any traction. Putting a bad traction slide is worse than having no traction slide at all. If you don't have any traction, you don't have any traction. If this is week two of your startup, you probably don't have any fucking traction. Putting a bunch of fake stuff on that slide just makes you look like an idiot. Just don't include it. They're obviously funding the team. Just talk about the team. So fake is worthless. Next, unique insights. What are the non-obvious things you've learned about the problem, the customer, or the potential solution? This, I think, is the most intellectually interesting part of the problem. It's the most interesting part of the problem. It's the most of a pitch. But you only get the right to do this if I know what your company does and if I'm impressed with your team. A lot of founders try to skip to this point. And if I don't know what your company does, I can't tell whether your insight's good or not. So when you think about unique insights, I love using Airbnb as an example, Airbnb had one that was very unique. All of the other products that came before it that let people do timeshare and list their spaces online didn't process payments. And as a result, processing payments in a low-trust environment where you have never met the host and the host has never met you is scary. And it prevents hosts from hosting, and it prevents guests from booking. Whereas if, for example, a third party stands in the middle and processes payments, both parties can trust that third party more than they trust each other. And it facilitates the marketplace working. That's an important, unique insight. But if I had said that shit and not mentioned what Airbnb does, you'd have no idea what I was talking about. Common mistakes. Your insight's not unique. If you were to survey 50% of the people in this room or greater would agree with the thing that you're saying when you say it, that's not unique. Number two, not being specific with your examples. This is another place where vagary comes in. You can tell a story here about your unique insight. You can tell a story about how you learned it. If Brian was up here, he would talk about he learned this insight when he went to South by Southwest on his platform when it didn't do payments and forgot to bring money and had a super awkward experience with his host who thought that he was trying to rip them off. Bam, that's a real good learning. And then last but not least, not using numbers and facts, especially if you're talking about unique insights you've learned from your users. Quote numbers, quote facts. It makes it feel more real. It makes it real. Next up, market size. Everyone screws this up. Everyone thinks that the number is what's important. How big the market is most important. The reality is how you calculate the number is what's important. As an investor, I don't know how many potential users you might be able to get. You have to educate me about that. You should do that research. I don't know how much you're going to charge the users. And I don't know why you're going to charge them that much money. I don't know if there are other products that they're buying that cost this much money. I don't know how much value you're creating for them. Showing me this bottoms up calculation of how many users and how much you can charge them and why teaches me a lot. If you teach me in a pitch, I think of you as an expert and I want to fund experts. How do people screw up? They quote some report. JP Morgan said that the online e-commerce market is 120 trillion and growing 20%. That's who the fuck cares? You're not teaching me anything. Number two, not showing the math. Show the math. There are this number of users. We charge them this much. Show me the math. And then three, not talking about comparable products. So if we're going to replace Figma and you're pricing competitive with Figma, tell me that. Tell me Figma charges this much and we're going to charge this much. Hell, tell me you're going to charge more because you're going to create more value than Figma. But throw in a comparative so I understand why that price is that price. All right. Next up is the ask. This is, I think, the really interesting one. And I can share some personal stories about this. In your pitch, you actually have to ask for money. You would be shocked at how many pitches people do and they don't ask for money. I think that it's on the order of 70% where the pitch is done. The founder asks if there are any questions. Investor says no. The meeting ends. No money was ever asked for. Now, I want to put you into the mindset of an investor for a second. I've been an angel investor for, I don't know, seven years. There are three mindsets I have when I'm listening to a pitch. Mindset one is I will never fund this company. Most common. Will never fund this company. Mindset two is I will definitely fund this company. Least common. Extremely honest. Investors are rich. They don't really understand what you're doing, why your customer needs it. They just met you. Least common. I'm excited to fund this company. Category three that people don't talk about. If they ask me, it will be uncomfortable for me to say no. So I will write them a check. I'll tell you that in my experience, this is up to 10% of the time. I am hoping the founder doesn't ask me for money because I largely suspect that instead of saying no, I'll say yes because the pain of saying no is way worse than writing a $25,000 check. How fucked is that? And the only way you tap into that is you ask. You got to ask. Put them on the fire. And this is especially true for angels. Got to ask. So what are the common errors? This is pretty simple. Not asking. Right? Not talking about social proof. Here are the people who have invested. Here's how much we raised. Talking about who you will hire on the ask slide. Nobody cares who you will hire. They care what you're going to do with the money and more specifically, revenue milestones you're going going to hit or what usage milestones are going to hit with the money. Hiring is a means to an end. The end is revenue and usage of your product. So your ask slide needs to be, we're raising this much money. We want to accomplish this milestone within the next 18 months or 24 months or whatever it is. I think what's interesting is that if you don't have that goal of where you want to be 18, 24 months from now, you're not going to be good at this ask slide. So make the fucking goal and make it something that people would be excited by and then ask for money. All right. So we've gone through the individual elements. Here are the mistakes that people make overall. They don't order their points from most to least impressive. The format that I gave you, you can mess around with. After what do you do, which should be at the beginning, that's pretty fucking clear. And the ask, which should be at the end, that's pretty clear. The elements in the middle need to be ordered by which is most impressive. If you've got a ton of traction, great. Traction should come right after your team slide. I'm sorry, right after your what you do slide. You've got an amazing team. Great. Teams should come right after. I think what a lot of people screw up with these decks is they think there's some super standard format. They can't leave. And they don't realize that there is flexibility to make your most important points early. A lot of people think that an investor is going to sit down for a 30 minute meeting and give them 30 minutes of their time. It's not true. Especially on zoom. It's very not true. You earn every two minutes of that meeting. If the last two minutes sucked that investors check in their email. So don't leave the group. Don't leave the group. Ideally, your pitch should be a way that you can draw them into conversation. Now doing this is hard. This is actually a very hard skill. It's a lot easier just to deliver the pitch and then ask for the grade. But what most people don't realize about investors is that you're not really convincing an investor to invest. They're convincing themselves to invest. The more they can talk, the more they can talk themselves into it. The more they can talk themselves into it. The more they can talk themselves into giving you money. And if any of you have done sales, you know that a common sales coaching technique is to look at a call recording and figure out how much time was the customer talking versus salesperson talking. If the customer is talking 50% or more of the time, it's much more likely that they're going to buy. If the investor is talking 50% more of the time, it's much more likely they're going to buy. So one of the best techniques is any time you see a peak of interest. In any part of your presentation, run with it. Oh, you looked interested in that. Did you have a common experience? Oh, I see you fund that X, Y, and Z. I think they had to deal with something similar. Like, get them talking. If the investor is like, oh, I'm really interested in this thing, and it's the third or fourth slide in your deck, just skip to that fucking slide. Don't say, oh, let's wait. I'm going to get to that. Don't get me out of my order. Fuck you. Get them talking. Because the more that they're contributing ideas, the more that they're making their own connections in their head about why this thing's going to work, the more they're going to convince themselves to give you money. So I can't tell you enough. This isn't a book report. It's not a paper. What's weird is that you don't really have this experience with any teachers in your life. It's not really taught in the educational environment. Get them talking. Next, not paying attention to the investor. A lot of pitches nowadays are on Zoom. You got a close-up of that person's face. And if you actually look at it, you can tell whether they are interested in what you're saying or not. If you look, I'm a really crappy poker player, but I tried this once playing poker, like spending most of the time looking at the faces of the people around the poker table and not looking at the hand that I was about to lose money on. And I learned a lot. Investors have a ton of tells. They're not trained. They're not trained poker players who hide their tells, put sunglasses on and headphones and shit. Their face is an open book. You can tell whether they're interested or not if you're looking. And last but not least is distracting slides. I hope you noticed these slides are the most boring, basic bullshit design slides in the universe. And there's a reason. I want you to look at me and not look at the cool background image on the fucking slide. If your slides are visually interesting, that means I'm not focused on you, the person I want to give money to or not. I'm focused on some designer's work. If you need a designer to build a slide deck, you're doing it wrong. And here's an even deeper, most and more important point. Your designer has no idea what the most interesting and important points of your pitch are. So if you hand them your pitch to design, they will emphasize those points. And if you give them the wrong things and it's not their fault, it's your business. You understand the most important things, not someone else. So designer is going to try to create something visually interesting. Counterintuitively, you want something visually boring. Remember clear and concise, not sexy and sizzle. So no distracting slides. All right. So I'm going to try to do this live. Let me see if I can pitch YC. I'm going to be tricky. All right. So what do we do? We're a startup accelerator. We fund early stage startups with $500,000 standard deal. And we've invested in some of the best technology startups in the last 18 years, including Stripe, Airbnb, Dropbox, Coinbase, Instacart, DoorDash, et cetera. That's two sentences. Example. When I did YC, we started a company called Twitch. It was called Justin TV at the time. We were 23 and 22 years old. We filled out an application online. We got an interview. And after a 10-minute interview, we were funded. We participated in a three-month program with other founders where we encouraged to build and launch our product quickly. At the end of that process, we raised money at Demo Day. And within three months. We had money. We had a new friend group that encouraged us. And we had reached a new top speed of productivity. And those are the things that YC provided us. That's the example. Really simple. Traction. What's a good traction stat for YC? YC has funded somewhere around 75 companies that generate over $100 million in revenue. That's pretty good. Traction slide. Team. Right now, as group partners of YC, our people who have started, funded, hired, fired, and done everything that you are going to do as a startup founder, and they've also participated in YC. So not only the best to give you advice about your startup, they're the best to give you advice on how to get the most out of YC. Most investors have never been in your shoes. Every YC partner has been. Unique insights. There are three unique insights for YC. They're really basic. One, filling out an application and not needing a warm introduction gives us access to better deal flow than any other investor in the world. Two, funding people in a batch means that batch supports one another and helps one another and gives each other advantages that the competition don't have. And three, running a Demo Day means that you're running a fundraising auction. And everyone, who knows, you're trying to get the highest price for any product, good, or service you want to run an auction. So YC companies tend to raise at a higher valuation and dilute less than when people don't do YC. Those are three unique insights. Market size. Since YC started, there are about 40 plus tech IPOs VC backed per year. Generate about $10 billion in returns per year. And ask. Apply. Apply. That's the YC pitch. Not much sizzle. Clear, concise. That's the game. It's official. SASTR Europa will be back in 2024. Meet us in London on the 4th through 5th of June, as we bring together 4,000 SaaS CEOs, revenue leaders, and executives. It's the fifth SASTR Europa. Listeners of the SASTR podcast can use the SASTR Podcast app to learn more about the SASTR Podcast. code F-A-V-E 20, that's F-A-V-E 20, to save $20 on early bird tickets. Visit sastereuropa.com to get your tickets today.