The Anatomy of a Pitch: Stories, Slides, and Data

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I have spent more than a decade coaching thousands of people on how to tell stories. Halfway through the journey, I realized that something was fundamentally off in how founders tell them and how investors receive them. As a result, I began meticulously cataloging the pitch conversations I listened to and ended up with nearly four hundred thousand words in transcript data. The gist of it is that the majority of pitches miss their mark.

I’ll share why this is the case and what you can do about it.

Primary data set of public 3-minute pitches and 2-minute Q&As

The investor

The simplest explanation for what a pitch is, has to do with starting a conversation. In fundraising, this conversation can lead to the next meeting in a venture capitalist’s funnel. The early phase of this funnel is called deal screening. From one to three thousand companies entering it, only 10–20% get past the initial screening. The drop off rate depends on each fund’s specific selection and rejection criteria, brand, team size, deal flow quality, volume, and the stage in a VC fund’s life cycle.

The standard venture funnel. It varies from fund to fund. Some skip due diligence.

By growing and managing their funnel, each partner at a fund aims to attract and add the top 1% of founders into their portfolio. One such portfolio can consist of 20–40 investments. The number and size of investments matters — because eventually the returns on them are known to form a power law distribution. Based on this distribution only a handful of companies raise 80% of total funding, and one or two outliers return 2/3 of the fund’s capital. These outcomes are called ‘unicorns’ for a reason.

They are mythically rare.

The top quartile of VCs invest in outliers, the median doesn’t.

Professional investors you’re pitching go through long periods of boredom punctuated by moments of mild curiosity.

This numerical truth means that professional investors you’re pitching go through long periods of boredom punctuated by moments of mild curiosity. On rare occasions, that curiosity turns to terror when there’s a chance of missing out on a career-defining deal.

Their job is to source the top percentile of companies and build relationships with people who would lead them to exit. In practice, this means building a brand, cultivating networks, and saying a lot of ‘nos’ without losing access to deals. That’s why they go to and sponsor conferences — to gain visibility and build relationships.

The founder

A decade of coaching showed me that founders tend to focus too much on pitch decks. In short, early-stage fundraising is less about the slides. It’s about who you know and, more importantly, who you are⁠ — one of the main questions in storytelling and rhetoric.

Who is the founder? How clear is their thinking? Can I imagine working with them for the next five to ten years? Will they lead the company from founding to exit? What is the probability that the company will be a fund returner? Fundamentally, it’s about⁠ — do they have what it takes.

In this game, success tends to lead to more success. It’s a self-fulfilling prophecy. This pattern is partly why stories from founders with a track record have an unfair advantage. It’s about who you know and your accumulated social capital.

The slides are visual aids and conversation starters. The role of a pitch deck is to help clarify and sharpen the founders’ thinking. Have they gone through the proverbial idea maze, also known as scenario analysis? Have they done the intellectual legwork to understand the problem they’re solving, the market they’re in, and other players? Or are they just going through the motions to please a VC?

Are they making an educated bet or gambling?

A synthesis of the standard 10–15 slide pitch deck.

Solution: develop more accurate mental models of how venture capital works and how humans make decisions under uncertainty. One good way to do it is to write an investment memo from the perspective of the VC you’re pitching. See the public memos by Bessemer Venture Partners.

When a lot of chance is involved, one must separate the decision-making process from the outcome.

These memos often integrate the traditional components of a founder’s pitch, and blend it together with a deal champion’s observations on the opportunity of investing into the company — as well as the risks that come with it. It’s a decent decision-making tool, provided the fund’s partners are disciplined and intellectually honest in its use.

Many first-time founders miss this because, from their perspective, they’re all in. They are taking the financial and reputational risk of building a company for the next ten years. They have skin in the game.

The probability of success barely reaches a percentage point. Frankly, it’s exciting, terrifying, stressful, at times rewarding, and fundamentally uncertain. Each founder, in turn, develops coping mechanisms to gain control over the unknown, however illusory.

The pitch

We realized that only ~20% of on-stage pitches contain personal story elements. In reality, the average word count of a three-minute pitch is 430 words, up to one-fifth of which is noise. Looking at the average, you end up with every 29th word being an ‘uh’ or an ‘uhm,’ a ‘so,’ a ‘th-th-this,’ or one repeated for no reason but to fill the void.

A synthesis of a verbal pitch’s structure based on content analysis of two data sets

Solution:

To help your audience get your message you’d need to write it down first. Pitching or speaking — unless you’ve been doing it for some time — is not improv. It doesn’t mean that you’d need to go all ‘Wolf of Wall Street’ with a polished sales script devoid of all filler words. Keep a conversational pace of 130–140 words per minute, sprinkle it with pauses and at least a few ‘human moments’ to go with it.

Try to go analog; screens tend to distract and prevent us from writing the way we speak. I’d suggest to write down a draft, read it out loud, edit and then test it on a colleague or your Maine Coon before going live. Ask them for feedback to make sure you sound authentic.

We’ve also dissected the patterns in conversations between founders and investors. Unsurprisingly, most pitch interactions are repetitive. We bundled them into seven themes: market, product, people, business model, customers, competitors, and data. Each question-and-answer interaction follows a 1:2 ratio. The question ends up being 30 words long, and the corresponding answer is twice the amount.

Solution: Write down 60-word answers to your most frequently occurring questions in advance and treat them as mini-pitches. You’ll do well to practice them in advance as you won’t have much cognitive resource left on stage. The goal is to be clear, start a conversation, and be remembered.

Think through the common risks, and remove the reasons for investors to say no. This analysis, allows you to preemptively calibrate for hardball questions from VCs or angels, and lower the probability that you’d end up getting defensive or at a loss for words.

The data is for 2015–2017. VR has gone out of fashion.

The story

The hero’s journey is a plot structure used to analyze myths and movies. It’s been used in the Hobbit and Dune.

“…heroic leaders often made mistakes … mistakes that were amplified by the number of followers who were held in thrall by charisma. (Introduction to Dune Messiah)” ― Brian Herbert

Stories are built on cause and effect relationships and our desire for meaning, even where there is none. Simply put, the human mind is a prediction machine constantly building models. It is great at pattern recognition of faces, music, individual words forming the sentence you’re listening to or reading, or the gist of this paragraph.

The challenge is that it’s not good at processing large amounts of scattered, noisy, abstract and complex data sets. This results in false positives, false negatives, optical and auditory illusions, and, at its most extreme, delusions. Apophenia is a term that explains this tendency to see patterns in randomness, across domains of finance, art, science, and games of chance.

Part of the reason the brain does this is survival. Vigilance and control is how we ensure safety. Making sense of chaos is how we stay in control. In its absence, we experience stress. If it becomes chronic, we become short-sighted. We sacrifice our ability to make rational decisions — and with that, the long-term vision for our companies, and the planet.

Investors tend to like stories that mitigate uncertainty (de-risk), have heroes with a halo, are easy to recall and tell after the fact, and have just the right mix of the new and the old. These tendencies have fancy names — ambiguity aversion, confirmation bias, framing bias, availability bias, hindsight bias, overconfidence, halo effect, recency bias, and fluency heuristic. They’re not new and hellishly tricky to spot in yourself, let alone remember.

At its core, a story-driven pitch balances logic, emotion, and credibility. It combines two fundamental questions: what is right now and what could be in the future. If done well, this contrast is seamless.

The story spine is a plot structure created by playwright Kenn Adams. It’s used by Pixar.

“Where is the world whose people don’t prefer a comfortable, warm, and well-worn belief, however illogical, to the chilly winds of uncertainty?” ― Isaac Asimov, Foundation and Eart

Simplicity

Psychologically speaking, it’s comforting to seek certainty and mitigate the ambiguity of our environment. It’s healthy. This is particularly the case when the world is chaotic, and fundamentally unpredictable. We’re wired to make sense of the non-linearity around us. We didn’t need to see all the wavelengths of the electromagnetic spectrum to find ripe fruit. Nor did we need to hear all the frequencies of sound to evade predators. Instead, we eyeballed it and played it by ear — both literally and figuratively. It gave us the clarity we needed to survive.

This craving for certainty is further amplified by our ingrained cognitive frugality and a bias for simplicity. The adaption might have been an evolutionary advantage, dating back millions of years to our hominid ancestors.

Complexity

 “…we can see how the whole becomes not only more than but very different from the sum of its parts” ― Anderson, P.W. (1972), “More is Different” in Science.

The problem is that we’re no longer wandering the savanna. Instead, we’re building and allocating capital in companies that end up on the S&P 500. In the 1970s they remained stable, with one staying on the list for 35 years. In the next five years it’s projected to go down to twelve according to McKinsey. This is happening, in part, due to the rapid technological change that comes with disruptors backed by venture capital. Many of those disruptors highjack the biological processes that helped us survive that very same wilderness.

The point here is that modern day reality is exponentially more complex — and uncertain because of it. More often than not, we simply don’t know for sure why the stock market went up or down, when it’s going to happen again, or why we really founded a company. Especially, when one has the probability of changing whole economies, cities, our environment, or individuals reading these lines — all in a matter of just a few years.

Sensemaking

“Life is infinitely stranger than anything which the mind of man could invent.” ― Sir Arthur Conan Doyle, “A Case of Identity”

Instead, we deal with the inherent uncertainty and complexity in those systems the same way we’ve always done it — by trying to make sense of them. We often do this by telling a simple story to ourselves and others after the fact. This is called post hoc rationalization and we’re fundamentally hardwired for it. It served us well in the past, yet it’s time to adapt and change, or eventually perish — if the rapid degradation of our ecology is of any guidance.

All this is a result of us living in complex systems — while each of us being one ourselves. These systems are defined by the interdependence, diversity, connectedness, and adaptability of all the players in it. One small nudge can disrupt ecosystems, send shocks across supply chains, a sleepless night to stage fright while pitching, or one warm intro to a cascade of competing term sheets. Much like a butterfly flapping its wings.

The coach

Speaking about stories at TechChill 2019.

My story began in a family of a painter and a medical doctor. Our thirty-square-meter apartment was a cornucopia of works on anatomy, science, history, and art. It had scalpels and syringes, oil paints, and charcoal pencils. The living room barely contained an easel surrounded by stacks of canvases, an antique Singer sewing machine, a typewriter — and a full-size skeleton model.

As a five-year-old, I desperately wanted to understand how those things worked. To my parents’ delight and eventual chagrin, my go-to method was deconstruction. I’d reduce an item into separate tiny parts and then try to put it back together again. In the typewriter’s case, the latter part of the process resulted in complications and an eventual scolding.

It didn’t stop me. Instead, it got me to ask more questions. In hindsight, it’s probably why thirty years later, I call my method the Art and Science of Pitching.

 

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