Striking the Balance: Transparency in Presenting Traction
When a startup is pitching, sharing accurate details about traction holds more value than founders often realize. I've encountered numerous instances where founders emphasize cherry-picked traction details, only to find themselves in the defensive mode when the relevant numbers come into play.
Remember, pitching is the inception of a conversation with potential investors, be it for the ongoing round or even future ones. As you prepare your pitch, keep these points in mind:
Focus on What Matters: Investors seek a profound understanding beyond mere numbers. Your conversation should revolve around the startup's core strengths: innovative solutions, a capable team, and unique market positioning. Highlighting misleading or cherry-picked traction can divert the conversation in the wrong direction, potentially leaving a negative or mixed impression on the investor.
Setting Realistic Expectations: Incorporating exaggerated traction figures in pitch decks or marketing materials can distort the startup's perception. When investors initiate conversations or delve into further analysis, these numbers often fall short. Such misalignment not only jeopardizes the immediate investor relationship but also future funding rounds. Losing an investor impacts both the present and future prospects.
Upholding Credibility: Presenting overly optimistic traction figures can unknowingly set unrealistic expectations. While founders might consider this a minor embellishment, it casts doubts on the information's accuracy. Investors value transparency and precision; overstated figures raise questions about the startup's projected trajectory and even the founders' integrity.
Preparing for Reality: Venture capitalists meticulously scrutinize startups before committing funds, and inconsistencies will likely surface. This breach of trust can lead to serious consequences, including withdrawing funding offers. Remember, most of the VCs prefer to co-invest and hence they have a network of other investors and VCs that can be informed or influenced otherwise.
Building Strong Partnerships: Venture capital firms and regarded investors offer more than capital; they evolve into strategic partners with expertise and connections. Initiating the relationship with honesty and transparency establishes a strong foundation. Authenticity in presenting traction figures ensures both parties share a mutual understanding, fostering potential collaborations even if the investment isn't immediate or in terms of cash. I personally know investors who offered to open their network to the founders even after passing on the round.
Offering a comprehensive, balanced view of your startup's traction is advisable. For instance, if your startup operates in e-commerce, presenting both Gross Merchandise Value (GMV) and Net Revenue run rate provides a holistic perspective. While specific traction aspects might initially capture attention, it's crucial to set expectations aligning with the startup's growth trajectory. Honesty, transparency, and accuracy are essential for building trust and cultivating lasting partnerships with all types of investors, including venture capitalists.
In conclusion, investors don't expect an exhaustive financial analysis, but it is advisable to share pertinent numbers that shed light on growth drivers, offer valuable insights, and paint an accurate picture. Presenting relevant metrics contributes to a more insightful evaluation, nurturing genuine conversations that drive progress and may lead to investment.
Thank you for reading!