The Art of Pitching

You know, David, I like, I think I mentioned it at the beginning of the last episode, but I like the foam padding room you're in. This room is such a mess. This is the, we're coming at you live on the Acquired LP show from our very much work-in-progress recording studio, Acquired recording studio in the Wave office in San Francisco. It may be a mess, but it's a mess with sound absorbing, you know, you got like some kind of cushion there and some apparel, you know. It's, yeah, some Acquired t-shirts are absorbing sound here in the booth. I'm in a conference room at PSL and I need to, I need to get some, I mean, we got what it's like a wooden table and concrete and, yeah, it's time to pad the walls. Seriously, you guys need to upgrade. I know, we need to make, you know. Talk to your partner. This is like high school band rooms that like have all the stuff all over the, we need to get some of those tiles. Or Geekwire has a great studio, but when I was doing the Geekwire podcast, they, it's like just John's office, but he has a like velvet track curtain that he like, like stage curtain that he like brings around. And then you're enclosed in like this, you know, you talk and you can't hear your voice bounce off anything. It's very strange. It's really nice though. Yeah. Is it, is it purple velvet? I don't know. I don't, I don't remember. It's actually... All right. LPs. What's going on? Thank you for joining us today. We have a topic that David and I have been kicking around doing in some capacity for a long time. And like many other things on the LP show, now we finally have an outlet to do it. And it's a thing that David and I think about all the time, both on how to, how to perform one and then how, how also to sort of sit back and smile and, and know that you are being pitched in an amazing way, but as the art of the pitch and how to tell an amazing story for your startup. Yeah. And specifically, I think we wanted to dig into a seed stage pitch, which, you know, there's certainly common elements to pitching your, your startup for, for really for pitching for anything fundraising, potential hires, you know, partners, what have you. But there are common elements at all stages, but seed is our, both of our specific area of expertise and probably of interest to many, many of you all as well. So... And a lot of this is transferable, but, you know, we'll be anchored in the seed pitch. And to further illustrate how it's transferable. We had an awesome talk by Chris Coppicella last night, who's the CMO of Microsoft. He came to the PSL office and was chatting with us. And he was talking, I mean, he talked a little bit about the stock price, though he was very reticent to do so because in his words, in the minute that I've talked to you about this, I've already discussed it more with you guys than, than we pay attention to it as a senior leadership team. It is the least important metric on our, that we track. I just thought, you know, that's, you know, that's, that's good discipline right there. But he was talking a lot about how as a marketing organization over the last five years, they've really been telling the story both to the market and to customers about sort of the cloud transition to the future. And it's fascinating to see like the public markets are valuing Microsoft differently because of the story they're telling. If they're doing that for Microsoft, a 40, whatever 45 year old company, like then the storytelling never ends. Like your positioning is always, always, always important. Yep. It's funny that I hadn't even thought about that as we were thinking about this episode, but that just jogged my mind of what might be, I think, the most important advice for fundraising at any stage of your company, even a public company like Microsoft, which goes back to our Amazon IPO episode. And I think, you know, Jeff Bezos delivered through Tom Alberg's advice is the best. You get the investors you ask for. And like that is so, so, so true. And it's worth at the start of any fundraising journey, thinking about who, thinking hard about who the investors are that you want, and then asking for those investors and tailoring what you do, you know, around them. Because if you don't do that, you end up with whatever you can get. And that's not a good situation to be in. Nope, you're absolutely right. We certainly learned that at Wave. I'm sure you guys did at PSL too. Yeah. Completely agree. Okay, so to frame this conversation, I think everybody out there has sort of seen a lot of pitch decks or given a lot of pitches, be it at your company or for startups. But in sort of thinking about, hey, what's what sections should even be in this pitch deck? And it's sort of a clinical rundown before we start talking about each one and why. And David, you found this really great Sequoia, how to write a business plan post, and it sort of has the canonical slides that you would want to see on a pitch deck. And I'll just run through them real quick, but link in the show notes to click through to this. The company purpose really opening here, stating your problem, what are you trying to solve, your solution? What is your way of going after it? Why is it good? Why now? Why hasn't this been done before? Because as I think the longer you're in the business, the longer you realize this, no idea is novel. And so many people before you have had this idea and why is now the time where the world has been situated in such a place where you can solve it. Talk about the market and we'll talk a little bit. It's fun. I don't want to... We'll probably come back to this throughout the episode. Sure. I want to emphasize the why now again for a minute. I think from talking to folks over the years, either Atsikoy or who've been there, I think they would say, and I tend to agree with them, this is the most important question in the deck. And answering this really compellingly about why now is so important because, again, like Bensad, basically everything has already been tried. And so things that are going to work need a very compelling reason why they're going to work now and why they didn't work in the future, or in the past, and why two years in the future will be too late and it'll already have inevitably happened. So being sure you're really crisp on your thesis about this and communicating it is important. Yeah. That's a great... Well put. Well put. That's potential. So this is total addressable market and sort of ideal customer profile that you're going after. And there probably needs to be a B on the slide, but we will come back to that and have a discussion of why that is true or not true. The competition or alternatives, we discussed credibility a few episodes back, but if you don't have this, you are not credible. This model, so it's funny, I recently received a deck that extolled a fascinating view of the future and some beautiful technology that was built. And even in two hours of talking to the founders, kind of amazing that this team had been sort of so brilliant in coming up with the technology that they were working on as a super academic team that really like zero thought ever went into how will we charge money? Honestly, it was just staggering because I think we come from a world where like people are thinking about business model first all the time, but sort of just the importance of how do you intend to make money? The team, David, I'll argue this might be the other most important slide and we'll talk more about this later. Professionals either past or forward looking, the past looking should probably be accurate, the forward looking certainly won't be, but there's definitely credibility in how you think about the future. And then vision, like if all goes well, what will you have built in five years? And I think that Sequoia says it well here in stating that as vision, you also sort of hear that as like at the beginning talking about what your product is now and then at the end you can have kind of a big reveal on and then we will end up in a place where we can do blah and really have kind of a almost mic drop moment around that where your mission takes you far beyond what you were able to achieve so far and sort of your view of the future because really that's what you're selling. You're selling an ability to see the future and getting people to come onto your side and say, "Hey, I think your future is the one that I want to believe in." Yeah. Although it's interesting that I'd say we'd come back to this, but I don't know that we'll actually come back to this part, so let's discuss it a little. This is something that is often a landmine for entrepreneurs. Not so much at the seed stage because then it's all vision, but I'm thinking more between Series A and Series C or D. When I was in business school, I interned at Meritech Capital Partners which is really great, one of the best growth stage VCs out there based in Palo Alto. We always used to talk about this because they specialized in Series C, Series D right around then and we would meet companies all the time that had these great stories and great visions about like, "This is our business. We've gotten this foothold, this wedge with this thus far and now we're going to use that to get into this other adjacent business and that is going to take us to the promised land." It's always an immediate pass. Yeah. Especially if you have too many of those hops, I think I've even tried to tell a story at one point that's like, "Okay, Stage 1 is this and then Stage 2 is that and Stage 3 will be strategically positioned and structurally have our foot in the market in this way to be able to..." And it's like, "God, you have to believe too many things." There should sort of be one thing that's difficult to believe that it will come true, but if you believe that will come true, then you're fully on board. A great example. It's funny. In the fullness of Netflix, we just finished our two-part special there. They actually had a, "We did this and then we did that," but let's take the DVD business for a minute. Their vision, what they would have put here in the initial pitch way back in the day was like, "In five years, the DVD market will be enormous," because remember it was nascent when they started and we will have the lion's share of the rental part of that market. What do you want to say? "This market is going to grow. We are going to get into it." Not like if their initial series A pitch had been, "We are going to build a DVD business and then we are going to leverage that to get into a adjacent streaming business." Nobody would have wanted to hear that at that point in time. Right. Yeah. So I think this is an overarching theme in this, but even though, and I know this very well from working on Kimberlite here at PSL, you get so freaking mired in the details where you've thought about the entire state of the market today, all the states of the market that could exist in the future, every single one of your competitors, who's trying what, who's doing well, who's not, that it's sometimes difficult to tie a bow on the story you want to tell because you're bursting with information. Sometimes you want to show that you would know all that. Sometimes you just can't help yourself because you do know so much. And part of giving a really great pitch is simplifying that great, great deal of information that you know into something that's pretty easy to follow and compelling and fun, like you're trying to get someone to want to go spend five to 10 years with you in a business relationship and so I think it really is about sort of having all that information in your head, telling a clean story, but then being able to answer any sort of specific questions in a way that is congruent with the story, but sort of additive at any time that anybody wants to go deep in those specific holes. This is a funny idea. We're not taking our own advice here unacquired by jumping around so much, or at least on the LP show, but I also want to underscore this, two of my absolute most favorite YouTube videos of all time, we'll link to in the show notes, these here as well, also come from Sequoia and our one is Don Valentine, who was the founder of Sequoia, now retired. And the second is Jim Getz, longtime legendary partner there, both giving talks at the GSB at Stanford about Don's is about lots of things related to Sequoia. Jim's is specifically about this, about writing a business plan. In those days, it was, you know, you wrote a business plan, but really a pitch deck, what we're talking about here. And both of them emphasize exactly your point, Ben, that like, you need to communicate a crystal clear, simple, compelling vision. And Don Valentine is a hilarious guy, he tells this anecdote about he's in a pitch meeting, and like, he has no idea the entrepreneur is all over the place, and so he stands up, he gives him his business card, slides it across the table, he says, I'm gonna leave the room for five minutes. I want you to write your business plan on the back of this business card. Don't use super small font. And if you can't do that when I come back in five minutes, like, you're out of here, he's a hilarious dude, but simple, simple, yeah. And clear. Yeah. Yeah. All right, listeners. Now is a great time to thank a new friend of the show, Coyfin. And it's funny, they're new, but actually I've been using their product for years. My research project for every single new acquired episode involves Coyfin. So when they reached out to sponsor the show, I thought, well, this is convenient. Indeed. So Coyfin is a financial research tool loved by both individual investors and financial advisors. Individuals use it for stock research, graphing financials and portfolio tracking, and financial advisors use it to build model portfolios and create client proposals. They have live market data and powerful analytics tools. So it's kind of like a Bloomberg terminal, except without the huge price tag, right? Yes, essentially. It's a web app and it's totally self-serve. I've actually not talked to anyone at the company for the first few years that I used it. So Coyfin is a product that the broader market, like all acquired listeners, would use, not just Wall Street investment bankers. It's where I pull things like growth rate or gross margins or the P/E ratio or revenue multiples for every company we study. And you can compare these things over time with historical graphs or against other companies. It's often what I use when we're studying private companies too, like Rolex or Mars or IKEA, to look at the comparables to estimate what these companies would be worth if they were public. They also have a screener that lets you filter across thousands of stocks so you can quickly surface investment ideas. Yep. So the general idea is if you're someone who's used to living in data, you should have that at your fingertips as you think about investing. Exactly. It's got these great graphs for data visualization wrapped around institutional grade data. So if you want to understand what assumptions are baked into the stock price today, Coyfin is for you. It's about to say that acquired listeners have a great offer, but Coyfin's free product is actually already really robust. Which is what I was using for years. I know. I know. But indeed, for acquired listeners and also for you, Ben, if you go to Coyfin.com/acquired and you end up upgrading to paid, you'll get 20% off your first year. Our thanks to Coyfin. That's K-O-Y-F-I-N.com/acquired or click the link in the show notes. Okay. Well, the next bullet point I have on here is why it works so well to have a personal story. There is a lot of different ways that you could weave your narrative. There's sort of the narrative of, well, actually, we'll save that for a little bit. But one narrative that I really like that works really well is, "Hey, here's who I am. That's how you start. This thing happened to me in my life. It motivated me. And I'm here to do something about it." David, we've in the past talked about sort of founder market fit. This instantly establishes credibility in that area. It's, "Oh, I see. That's why you're here." And it might be a previous job. So like an example is Ad Lightning. It's a PSL company where they stop bad ads from displaying. So they're the advocate for publishers against malware and ads. Scott comes in and his opening message is, "Hey, I ran Cheeseburger. We had one of the highest trafficked websites in the U.S. with wallcats and failblog. And our business got destroyed by serving ads that were just programmatic ads that just got worse and worse and worse over time until people finally just installed ad blockers. And I'm ridiculously passionate about solving the problem of making that better and making the internet a better place to run a website. And instant credibility. It could also be something personal in your life, like Jet Closing, for example. We actually had the HUD, which is a closing document with an absurdly high price tag, and scanned the document and put it as the first slide in a deck of, "Hey, guys, don't you agree this is ridiculous? Like, this happened to me." And it's just such a good, like... If you're wondering what format to put together your story, I think it's hard to go wrong with, "Hey, this thing happened to me, and that's why I'm here." Yeah. And I think two things to pick up on there that I would pick up on. One, especially at the seed stage, Ben and I, we talk about this often, and we're talking about it over the last couple of days preparing for this episode, the two most important things are the team and the market. There is no product yet, the idea is you're going to build the product. And most people, I think, would say, and I certainly feel as well, of the two of those, if you had to pick which was more important, I think the team is more important at the seed stage, and this is how you communicate that. And there are multiple elements to what is important to the team that we'll get into throughout the episode, but one is, I think, what this is addressing is intimate familiarity with the problem you are solving and the market and the customer, ideally through having experienced it yourself. The other aspect here that you really want to communicate and communicate up front is why you are either uniquely or, if not uniquely, incredibly well positioned to execute on solving it. So my favorite example here is our second portfolio company, Second Investment at Wave, was founded by a guy named Henrik Bergen, who was a product manager at Dropbox, a group product manager at Dropbox, so building productivity software and also a type one diabetic, insulin dependent diabetic, and his whole life he had been going to an endocrinologist and having these appointments and it was a super inefficient process, and in the last couple of years, to the why now thing, there have been continuous glucose monitors, which are devices you can wear, patches you wear on your arm that continuously monitor your glucose, give off all this data, and he says, "I'm really good at building software tools around productivity and data. I have this incredibly broken experience with my endocrinologist. I am going to go build essentially an online tech-enabled endocrinologist that is going to make my suffering from my disease way better." This is instant familiarity with the problem, credibility of ability to solve it, and it was like, "Great. Where do we write the track?" Yeah, and it's so interesting. Like anything that we assert with absolution on this episode and ever, I think there are many ways to skin a cat and it is possible to put on a great seed pitch and tell your story in an amazing way without obsession. There are lots of different ways to do it, so we're definitely sort of extolling the virtue right now of a person who's personally obsessed with solving this problem. I think you could also show up. It's almost like you don't need to have every box checked, but you need to have a sufficient number of boxes checked. A person could show up, let's say it's, I don't know, let's just say it's Mark Zuckerberg. He quits Facebook and he's like, "Hey, I'm going to start a startup." He picks something that he doesn't demonstrate any passion for, probably still going to write a check. There are cheat codes to not need to do any of this stuff. Past success is generally a big one. Unique insight is a big one where I think if you're the only person in the world that is able to realize something and also the only person in the world who's able to sort of, through whatever marshalling of resources, team or partnerships or contracts or something able to actually get it done, it makes it hard not to invest. I think that's important to consider as we move through this, is you kind of don't need to do everything, but it's almost like you need a score. Someone should make a matrix for this. You don't need to have the right, it's not that there's a number of boxes, it's that each box has a score and your score needs to be over something at the end. That's another thing I was keeping in mind when I'm pitching is if I feel like, "Oh crap, I really didn't tell the story well of what I think this will actually look like in five years." It's like, "Yeah, but maybe I did enough other stuff where they're fine to be like, 'Eh, nobody ever knows.' That's fine." Yep. Yes. Totally. It is a blend of a lot of things. I saw your face do some kind of grimace in there. Is there something where you want to push back? No, no, no. Not push back. I'm just mentally replaying all of the many successful and unsuccessful pitches I've listened to and given over the years. Putting myself in your shoes. The grimace was when you were talking about how examples where you've given a pitch, it didn't go as well, and then you're like armchair quarterbacking yourself afterwards. I'm like, "Oh man, brings back so many feelings. We have anyone who has pitched has been there." Yeah. That's so true. Here's something I wanted to talk about because it's something that I think it took me a long time to get right, and I'm still trying to get better at, is reading a circumstance and knowing when it's appropriate to do what type of pitch. Whether it's the right moment to have a PowerPoint deck that you're going to walk through, or whether you're going to sit down and have a conversation with someone. Not give it in a pitch style way, but give it in a conversational style way. You probably at the end of your half hour or hour will have hit all the points, but you'll have hit them in a more organic and meandering way. There's a few levers here. I think that one big one is what's your relationship with the person that you're pitching. How did you tee up what the meeting was going to be about? Because I'd say you and I probably both get a lot of emails that are like, "Hey, we should chat. I'm thinking about something." Rather than, "Dear sir, I have a business plan that I'd like to present to you." Another big one is understanding how that person likes to be presented to. I think there's a lot of people that feel they need to check all the boxes and have the same process for everyone and have rigidity around that. There's other people that they're less likely to invest if that is the scenario, and they're more likely to invest if they feel like, "Hey, this person and I just had a relationship that got to the point of me really being in on their business." There's that, and then I'd say the last variable is stage of what meeting number is this and what are the expectations of formality based on how many times have you met and who else is involved in the conversation. Those are the two main forms of conversations, as you said, either walking through a deck or just having a free form conversation. There's also a third option, which is rarely used and can go terribly, but in the best cases can be most amazing. That is from our Rec Room episode of, "Do the pitch in the product or do the pitch via the product." If you have a product built and if it's working and if you are incredibly proud of it, let that do the talking, especially at the seed stage. If you have something built and it's incredible, there is no greater proof of your understanding of the market, ability to execute, indication that people will like this than letting the product do the talking. Some products even lend themselves well to storytelling. A different formula than the one we talked about a few minutes ago with your personal story first is demo first, where you just say, "I want to show you guys something that I think really speaks for itself." Then, in the course of demoing, you can set up the scenario of who is the ideal customer profile, who's likely to be experiencing this, but what were they doing before, gosh, why is this so much better, and have a wow moment in there where people are like, "Wow, I feel so empathetic for your customer that I feel like I just experienced the 'aha' moment." I think it's rare. I think usually you need to tee up mission and why you're here and who you are before you go into a demo, but I've totally seen that work, too. You need to have high degree of confidence in your product, but it can be amazing when done well. You should think about all these things. It's like Sun Tzu in the Art of War, a lot is like Sun Tzu in the Art of War, but pitching especially, know yourself, know your enemy, know the situation, and decide your strategy accordingly. Yeah. David, you can push back on this if you think differently, but to answer some of my questions from earlier of when is the right bill of law, you're probably going to have three meetings. If your company is going to get funded, you're going to have an informal meeting with someone. With that same person, you're going to have a more formal meeting that may or may not have one other person involved, and then you're going to have a partner meeting. The mission should always be to get the next meeting rather than to get the investment at whatever stage you're at. It seems like that first meeting is really an informal conversation about why you're really excited about what you're doing, and you should get to a place where that person says, "Look, I want to spend another hour, and I want to involve another person from my team to get a sanity check." It's funny how it goes both ways. If it's a junior person you're pitching, they probably are like, "Ooh, I'm feeling good enough about my reputation to show this to someone senior. I want them to do this with me," but it could go the other way too, where it could be a senior person that's like, "I want my very analytical and brilliant junior person to come and be my check and balance on this." That one is usually the one where you transition from conversation to deck, and then you're going to end up presenting a similar deck to the entire partnership of a venture firm, but the tricky part to manage in that is understanding what level of understanding they have about your business. How much education did the person who was excited enough to bring everyone else into the room give them? Should you give the same pitch again and assume everyone knows nothing, or should you give a more sophisticated version that's, "Hey, thanks. I understand as part of your process you've all sort of read a memo or something about why this is so interesting. Why don't we dive into some of the more nuanced stuff?" Or demo or whatever. Right. So, I think as a general rule, it's like start low fidelity, move to higher fidelity, but there's definitely a need for a give and take in there on, "Hey, what should I talk about here? Can you help me out a little bit on what you've done in the background?" Mm-hmm. Yeah. I think that's totally right. There are a couple points of nuance that I'm not going to push back at all, but a couple points of nuance to draw out. One, I think your cadence is right. Generally, if things are going well, you should expect roughly a three-meeting give or take, one-meeting cadence with a venture firm before getting into nuts and bolts of, "Hey, we want to write you a term sheet," or moving into a negotiation, and we want to do this phase. This is just to get to the yes/no decision. But then I would say who is in those meetings depends a lot on the nature of the firm and the composition of the firm. So, at a traditional venture firm that's a large multi-person partnership, maybe with a few different levels, absolutely it's going to go exactly like you said, Ben. This is how things worked at Madrona, this is how they work at Meritech, lots of big traditional firms. There are also, especially at the seed stage, there are plenty of seed firms that are just one person, one solo GP, so you're just going to meet with that person a few times and then she or he is going to decide a debate with themselves, what they think. There are firms like Wave, we have three of us, so our process, one of us will meet an entrepreneur or company, we're excited, we'll say, "Great, come back, meet with all three of us." The next meeting will be with all three of us, and then we'll probably do another meeting or two with the three of us where we're like sussing out a few different things. And then the last thing I would say, maybe worth a minute of discussion now, we could probably do a whole episode about this, is you brought up "junior people" versus "senior people" in a venture firm. I would imagine as an entrepreneur, navigating these dynamics are so opaque and difficult to think about. Well, it used to be relatively easy. There was four levels, and those were analyst, associate, principal, partner, slash manager, director, slash general partner. And then the one caveat of either strategic director or venture partner kind of don't actually fit into that hierarchy at all and is a weird dotted line thing. But then we're in this world now where everyone's a partner, or it is, I don't know how you're supposed to tell. Yeah. I think we should probably do a whole episode on multiple episodes on venture firm dynamics where we'll cover this in more detail. But I think the-- Wait, listeners, can you let us know if that's interesting or not? I have this dramatic fear that that is so inside baseball and terrible that we should stop talking about this. That you guys don't care. Or we'd love to receive feedback either way, because I'm curious if going down that path is interesting or not. Yeah. Please, please let us know. But I say the quick-- in the context of this conversation, the quick thing I would say is do not discount junior people, period. And I don't say this just having been a junior person myself. I say this even as a founder and general partner of a firm now. There is a reason that they are there at the firm. I only want to talk to managing directors, general partners, senior partners, whatever. I don't want to waste my time with junior people. In most cases, they are there because they are the people who the general partners of the firm are thinking are going to be their next general partners at the firm. It's also an insanely-- And so they have incredible respect-- --impossibly hard within the firm. Yeah. Yeah. It's an impossible job to get. They probably went-- they're probably very good at some things. And yeah, great point, David, on people who are-- You want them to be your allies, not your-- if you make them your enemies, that is-- you are not going to win. Yeah. It's also a long game and they're probably going to be GPs the next time you're starting a company. Yes, exactly. I want to move on to this bullet point that I have that I don't particularly have a good example for, but I've seen it work so many times and it's worked for me so many times where if you have something that is non-obvious or maybe it's like pretty unbelievable but then with evidence, you can get someone to a place of believing it, I really like the pitch structure of asserting that early and then say, and I'm going to tell you how we got there. I don't know why I have conviction that this thing is true. And this is sort of getting back to that, here's my view of the future comment. But I think what you're really trying to do here is create enough distance between you and the person you're pitching by asserting something that they probably don't agree with because generally investors are smart people but feel like they're very smart people in addition to also being smart and so it's like my parents were our lawyers and they used to talk growing up about black robe disease where lawyers who became judges get black robe disease where all of a sudden they think they're like the smartest people on earth because they wear a black robe. That applies in spades to VCs very, very much so. So because it's Patagonia Vesta disease, oh God. I mean, yeah. I'm not going to comment. So the only... In thinking about this, I'm trying to tee it up so I don't just ramble randomly, the person across the table from you wants to walk out of that meeting feeling like they learned something. And a great framework for that is to use this, hey, this thing is true or you should believe this thing's true and here's why. And so not only then will they leave feeling smarter than when they walked in but they'll also leave feeling like you are compelling because you did the amazing thing of being compelling to a very smart person. And I say this a little bit sort of like off the cuff but seriously what you're there to do is if you walk in and say something sort of obvious and lay out an obvious plan of how to get there, I think oftentimes the investor's like, yeah, probably, I don't know, there's nothing crazy there and probably a bunch of other people are doing that and why aren't any of the big guys doing that. And the edge that you have as a startup and particularly a startup with a person at the helm who is extremely deep in a domain area is that you can do something contrarian. Big companies tend not to do contrarian things and that's the advantage that you have against them. And so what the investor then is trying to decide is are you contrarian and right and not just contrarian to go back to David, your framework from several episodes ago. Which I think is actually. I love how you're crediting me as a man. You brought it into my life. It's a benchmark thing, right? It's an anti-wrack-lift thing as are many great things in life. You make money by being contrarian and correct. Yes. You don't make money by being correct in consensus. You don't lose money but you don't make money either. Yeah. So I guess I always try and think in my pitch like what's sort of my thing where you have to take a little bit of a leap. For example, I mean, I'll just give, I'll just use Kimberlite as an example. And a very large market of the way that people pay for podcasts five years from now, pay for on-demand audio is going to be direct supported by listeners, not just ad supported. This is different than other mediums. And now I'm going to take you on a journey of why that's true. Yeah. And to the demo, demo with the acquired LP program, which I think we've talked about but like this is a big reason why we're doing this, we're dog-fooding the product. Yeah. Yeah. So you can bolster my pitch by sending us feedback. That would be great. I'm like, "Hey, here's, I agree or I disagree. I'm here begrudgingly or I'm, yeah." We're doing this real time. We are. We are. All right, David. What else on this list? We are a long fricking list here. What else is interesting to you to cover? I think it will be fun now. It's funny. I just got off the phone with one of my business school classmates walking through this. Let's talk about who to talk to and who to target when you are fundraising. And first, let's talk about what most entrepreneurs do, which I think is the not super optimal thing, which is they make a big long list, anybody who does seed financing or series A financing or whatever, and then they just start reaching out and talking to lots of them or getting people to introduce them if they're more savvy or whatever. I think a better way to go about this is to think about who is looking for somebody like you and you don't necessarily want to go talk to them first. It's the old adage of, "Don't warm up on Broadway." Sorry, Ben, but you know, "Warm up in Cleveland," but I think nothing against Cleveland. You definitely want to warm up with a friendly audience and work the kinks out of your pitch, before you go talk to them, but especially in this day and age, in the posts, Fred Wilson and Brad Feldair of VCs talking openly about what they're looking to invest in, lots of people put out there what they're looking for, and it's relatively easy to survey the landscape and say, "Okay, within the seed-staged VCs who broadly focus on my sector, who really gets and is writing about and thinking about what I want to do." Who's written a blog post that basically describes your mission, and then you're like, "Cool, hey man, I got you the same wavelength." Yep, totally. Now, we learned this when we were fundraising for Wave. We're a new seed-stage venture firm. Lots of people have lots of LPs out there, fun venture firms, and we talked to lots of them that we weren't a fit for, and then we realized this, like, "Oh, there is a group of people who are already looking for something like what Wave does." And then we found them. And then I think the next step after that is you can't give up after just one conversation. Like, hopefully you have that first conversation, it goes well, you start the three-meaning process, it goes great, but I think, again, especially at the seed-stage, you have to demonstrate some grit because a lot of VCs are getting pitched by lots and lots of folks and it's easy to lose track of things, and you have to be like, "No, I'm actually like a really good fit for you," and there's a very delicate line to walk in. So I should just keep emailing you over and over and over again, and just destroying your inbox if you don't answer me? No, no, that is not the right thing to do. But what does work really well is to say, "Okay, if somebody's not moving forward, I get that." Come back to them with having proved something. We did this when we were fundraising for Wave. We met with somebody, Foundry is a great example. We met with Foundry, they were super busy, they'd already done all of their new fund investment allocations for the year, we were like, "Okay, gotcha." But we know we're a really good fit for you guys. Let us go off and prove a couple of things. We went, we proved a couple of things, a couple of months later we came back to them, like, "Okay, great, we've proved a couple of things, we've made a lot of progress, like, "Oh, great, great update, great to meet with you guys, we're still overallocated for the year." "Okay, we go prove another couple of things," so we come back and save a story. Then after two or three of these, it starts to become like, "Man, these guys are really making progress." How do you say no to that voice? How do you say no to that? And I think I just want to highlight that, you know, again, don't do email 100 times and be annoying and be that person, but do demonstrate some grit and ability to make progress. Yeah. And so, David, now, one thing I want to cover before moving on is, so, I'm pitching you a startup and I have my TAM slide and it has, I mean, it's got a bunch of information on there because these things always have too much information, but ultimately there's one number that you're going to anchor on. Where am I in the green zone where you're saying, "Cool," where am I in the yellow zone where you're saying, "It's a check minus, but it's not X," and where am I in the red? In terms of size of TAM? Yes. What number should, what number ranges could be on there? Unsurprisingly knowing me, I have a nuance to answer. Oh, shocker. Be careful what you ask for, man. You know, I think the standard advice, which, you know, it gets you 90% of the way there is like it should have a B and one to two Bs is like yellow range, you know, three five ten Bs is green range, below one to two, you know, Bs is red range, but I think that's actually, there are two other levels. The much more important thing than TAM today is TAM five years from now, again, take Netflix and the DVD rental market and why you believe that five years from now the TAM is going to be, you know, five plus Bs regardless of what it is today. And then two is another thing that Sequoia talks about a lot and Jim Getz talks about in his business plan talk at GSB is the SAM. So the TAM is the total addressable market, but the SAM is the serviceable addressable market, like what of this total, you know, DVD rental market, what part do you reasonably think that your product could service because 100% of that market is not going to rent online. Like not even everybody was online back in the days of Netflix. Yep. Yeah, it's a great point. I mean, it's really, it's sort of a, it's important to know whether you're a startup that's entering an existing market or whether you're creating a market and then sort of structuring your TAM the way that you think about TAM based on that. Because you know, like when we were pitching TAM for eSports, I mean, there's like, there's in the hundreds of millions of money of dollars spent in eSports broadly, like there's no, there's no way to squint at eSports right now and say, wow, that's a venture scale opportunity. It's about what it's going to become. And we knew that we were a business that was in the, in the, we were in the business of market creation. And so that involves some wave riding. It also involves education capital. So you're teaching the world, you know, you need to raise a lot of money probably in order to teach the world about what you're doing and why it's interesting. And so, yeah, I think I didn't really think about this before we started, but before talk, figuring out your narrative at all around your company, you should figure out whether you are entering or creating a market and then everything else should sort of be tuned accordingly. Cool. Okay, there's a thing I want to do here. And I want you to actually, we'll just, we'll cut it if it's, if it's not good, or if it's not good and you're hearing this, then we decided to leave it even though it wasn't good. But I want to see if I can pitch you something, David, without, and it'd be the least bit compelling without actually pitching you anything. You're going to, you're going to pitch me air. Yeah. All right. Okay, so two and a half years ago, I was, I was working for this big company and we, we had this problem that, you know, it was, we could have solved it internally, but we sort of realized that we were just going to have to cannibalize our existing flagship product by doing it. And I just couldn't get the organizational momentum to actually do this thing, even though we had so many customers and so much market power and so many resources, like it was just something that if it succeeded, it was going to be for probably a newer, different customer base. And we were just going to destroy our revenue line on a publicly traded company. So we, I mean, I just couldn't, the organization knew this was a thing and they weren't going to do it until it was too late. So I left and I took two best people with me and, you know, we've been like really, really working on it. We bootstrapped it for the first year and a half. We did a little friends and family round after that. We've only raised a few hundred K. And honestly, I think it's kind of finally ready for prime time. And so we started getting friends and family sort of involved in trying it about six months ago. And, you know, the results have been like absolutely fantastic. Like our NPS is 83. I think that, you know, I, well, actually I just want to show you because I think that like this is really something that is going to, yeah, this is so important to me because I had spent, you know, a decade at this company and I just couldn't get anyone to do it. But I really do believe this is a future. This is a disruptive innovation. This is a thing for, you know, the next generation of people that are interested in being productive at all on any device. And yeah, I just want to show it to you. Okay. I'm expecting you to tell me about your time working on Office for iPad. It's like I wanted to keep going on that. I have like a bunch more things I want to hit, but like I have, how do you do demo error? You know, no, great. Like I'm interested. I want to learn more. All right. So that was our first meeting. Great. First meeting in the books. Moving on to meeting number two. We won't make you actually do meeting number two here. All right. Should we move on to listener Q&A? Yeah. Let's do it. All right. So you found something from a listener who tweeted at us. So listeners, if you're interested in being part of Q&A as the LP show, you can email us [email protected] or you can tweet at us @acquiredfm. Or if you'd like, you can actually send us a voice recording and we will splice that in and play it on the air if you want your dulcet tones to be heard by the masses. Yeah. So question today comes from Jose Luis Ramos who tweeted at us. How should a company deal with having had initial product market fit and then seeing a market shift that sets you off course? This was after listening to our previous LP episode on product market fit. Great question. I'll throw a couple things out first and then Ben can jump in. Cool. One, this is in some ways a high class problem to have. Like a big problem, but high class problem to have that like most companies don't find product market fit to start with. So like, I'd say the percentage of founders and companies that face this issue is far lower than like the 100% of founders that face the just finding product market fit in the first place. So like, Kudos for doing it once. It doesn't change the fact that there's an existential threat to your business now. Now let's just say you found perfect product market fit creating a subscription service of mailing DVDs and you know that in the future people will stop having DVD players. Where did you find that example? Yeah. Yeah. So I totally agree. High class high class problem. What do you do? Yeah. Well, I think I would say informed by Netflix and and you know, our work on acquired here and Apple. I think the best thing to do is to kind of embrace Clay Christensen and say like, you know, we if this shift is truly going to in the long term invalidate your current product, you know, you can't you can't force your will upon the market. You have to see that you have to ride the wave that the market is going on. And you know, I think you have to go really, really hard into what that shift necessitates in Netflix is case it was streaming. You know, in Apple's case, it was so many things over the years, you know, removing the headphone jack. Courage. Courage. Yeah. But I would say there there are a few there are a few this is a much more difficult thing to do, I think, even than finding product market fit the first time because the problem is you have your whole organization set up for organization, your culture, your customer expectations. Exactly. Exactly. And, you know, even if you want to do the boldest, bravest thing possible, which is what Netflix did and say, the old world, we're completely cutting it off, spinning it out into quick stare. You know, that might be too drastic. Like, so you really have it takes a ton of art and, you know, nuance and leadership skill to navigate through this. You have to do the right thing at exactly the right timing. Yeah. I also think we often sort of like remember the stories of when this goes well and don't remember the stories of when it doesn't go well sort of quick stare as an example that's recent in our minds. But like, David, you the dongle or I'm sorry, the headphone jack thing came to mind so quickly because like, ultimately, like we're not that mad about it. Like it went well and it was executed well. And I think that, you know, history just doesn't really remember the ones that actually there was a great Paul Graham tweet in the today, saying how come people talk about how great it was that Apple dropped the headphone jack, but nobody ever talks about what a poor decision was for dig 3.0 to have the redesign. And that was a really astute point that like that those sort of get lost to history, like history is told by the victors. So there's some what do they call that to bias, not confirmation bias, survivorship, availability by survivorship bias, yeah, of, you know, the people on stage are the people that ended up succeeding. So their success, even to themselves is often not truly understood. And sort of, they don't necessarily know what made them successful. So they choose to attribute it to something and then have the stage to say that thing. Anyway, go for it. I think the two things I would offer here is sort of like general principles in this case, certainly and really in any case in startups are, you know, just try and think as much as possible from a, you know, to use a buzzword first principles perspective, you know, about your customers, like what is going on with your customers? What users customers, you know, whatever the relevant group is, what do they want? What is the shift that's happening and what is going to meet their needs the best and just do everything you can to orient your company around that, meet their new needs the best? Yeah, this is super dependent. I mean, it's obviously case by case on a variety of vectors, but a good way to think about it, I think is like, how successful was your initial product market fit? You know, if you have 100 million users and they rely on your thing deeply, then you probably aren't going to pivot dramatically. Like, even though maybe the world is changing in a way where you don't have product market fit, like you're probably going to end up riding out that business. And then there's like sort of true innovators dilemma that sets in. Now, if your initial product market fit was like traction with 20 people, I mean, and I'm using extreme examples to be illustrative here, but like, then you can, I mean, you can and need to be aggressive in abandoning it in sort of a re-hasting style, aggressive manner. It obviously gets blurry when it's like, hey, we were, we have a million user, a million monthly actives, and they're showing signs of monetization. We were able to parlay that into just raising a $5 million series A. But, you know, this competitor came out or like Instagram came out with the feature. And so like, it's probably unlikely that we're going to end up being able to scale because they kind of stole our hook and have the network effect. So what do we do? Fred Wilson, who's wiser than I, has a great blog post last week, kind of exploring, I think it's called Pivot or Fail. And it's what, when do you sort of owe it to, you know, the, the idea and the opportunity to sort of stay the course and make a minor pivot. But if you need to like, completely change and go abandoned and try something new, like why bring all the baggage of that previous company with you? If it's truly going to be completely new and leverage nothing from your existing customer base or product, you know, there, there, there's, you have one life. And so do all your plays. I think that's a, that's almost, that's a, I would say almost a different situation. Like that's where you're like, you know, making dog food and then you're pivoting to like making, so it's like a completely different, I think the question here, these are the hardest ones is like the market that you're in is still attractive, but something about your product no longer works. It's interesting when you were talking about the like, the, the one extreme end of the example of you have hundreds of millions of users, but it did like, it made me think of Twitter where this question came from, right? Like Twitter has hundreds of millions of active users. Growth has slowed, like there's something wrong with the product, but if they wrong with the product that is not attracting the, you know, billions of users that Facebook and Instagram have, um, but, uh, change, making drastic changes to the product would very much anger the existing power, you know, hundreds of millions of power users, right? And Twitter didn't necessarily market shift other than they were just going after a smaller market than Facebook was the, like the market for, um, I want to see other people who are interested in the same stuff as me turned out to be smaller than I want to see what's going on with other people I know. And it's just kind of like, how the heck are you ever supposed to know that until you run both experiments to fruition? Yeah, interesting. Maybe another way to think about this is, um, through market segments, like if you take the broader market of like social networking, quote unquote, like exactly what you said, like there are two different segments here. Um, and, uh, and then think about like, okay, if you're still serving your segment well, and it just turns out that that segment is smaller than expected, you know, um, or smaller than hoped for, then I think it's, you know, it's a conversation with you as a founding team, with your investors, you know, with your board, with your shareholder base about like, what's the right thing to do? Yeah, to show you try and sell the company, you know, what, there are a lot of available paths to you there. You just happen to be in a smaller market than you thought. Um, but yeah, I think that the real heart of the question is this really tricky one, which is, uh, you have product market fit and then the market shifted. It's like, imagine Twitter when they had 10 million users and then, um, something happened where text was no longer interesting. Like, like people were only consuming through images or something and images was, I know it's sort of part of the platform now, but was like so contrary to what they were doing. It's like, um, I mean, we've, we've spent a lot of words on it already and it really comes down to it's tough and circumstantial. Yeah. Yeah. I mean, you got to just stay close to your customers. That's it. All right, David, any other, uh, anything else you wanted to talk about today? Man, I think we've covered a lot. Yeah. Thank you all for being on this journey with us. Yeah. Listeners, we'll, um, we'll do, uh, our last episode of season three is going to be 10 cent, uh, which you'll hear a week, uh, within the week of listening to this. Um, if any of you have, uh, good insight, uh, uh, our insight on 10 cent, um, um, you know, email us, we'd love to chat beforehand to make sure that we, uh, uh, we nail the story. Um, it'll conclude season three with our China mini series. Um, and we're super excited for actually David and I just had a big long planning call yesterday to plan season four. So we're, we're getting pretty stoked for that. Yeah. Season four crazy. Especially given season one was like two years long, 50 episodes or something. Yeah. Uh, acquired. All right. See you, David. Listeners. Thanks a bunch. We'll talk to you next time.