I Couldn’t Raise Venture Capital Until I Learned One Simple Lesson About Pitching Investors

I spent five years trying to close my first round of institutional (i.e. venture capital) financing. Sure, before that I’d successfully raised “friends and family” money and angel money for multiple companies, but VC money was more difficult, and I couldn’t figure out why. Finally, I found the answer during a meeting with a VC who, luckily, was tired of listening to fundraising pitches.

I’d just sat down at the VC’s conference room table, and I was reaching into my bag to get my laptop when he stopped me. “If you don’t mind,” he said, motioning for me to put my laptop away, “I’ve sat through lots of pitches the past few days. Let’s just have a conversation.”

“Sure,” I said, as I continued taking out my laptop. “I’ve also got a few slides I can put up since they help provide context.

“No, no, no,” he said, “really… let’s just talk.”

Just talk? I groaned to myself. How was I going to convince this investor to invest without giving him my full pitch? After all, I’d spent who-knows-how-many hours practicing my pitch. I knew exactly what I wanted to say and the best way to say it. And I had every important detail of my company perfectly organized in a beautiful slide deck. But this investor didn’t want any of that. He just wanted to talk, and I wasn’t prepared for that. Or rather, I thought I wasn’t.

The ensuing discussion turned into one of the best conversations I’ve ever had with a venture capitalist. So good, in fact, that the VC ultimately led my first round of institutional funding.

So what happened? Why, after I’d spent so much time failing to raise money with my pitches, did a simple, straightforward conversation result in my first institutional capital?

Pitches don’t create capital

A disproportionate amount of the entrepreneurship advice I’ve received during my years of building startups has been about pitching investors. To be fair, maybe this is because I’ve mostly built venture-style tech companies and spent lots of time fundraising.

Or maybe it’s because I did three startup accelerators, which, aside from being like repeating the second grade three times, are programs that almost entirely focused on getting founders to raise more capital.

However, I don’t think I’m particularly unique. When I see which of my articles are most popular, and judging by the kinds of questions I get asked most often by entrepreneurs in my office hours, I sense lots of founders spend a significant amount of time learning how to craft perfect fundraising pitches.

And yet, despite the wealth of advice on how to pitch startups, nobody ever seems to mention the most important thing every entrepreneur needs to understand about a great fundraising pitch. So I’m going to share it with you right now. Ready? Here it is:

The purpose of a fundraising pitch isn’t to raise capital.

Sure, you’re probably thinking something like: “That’s crazy!” or “Who is this guy, and why the heck do people listen to what he thinks about entrepreneurship?” After all, as entrepreneurs, we’re taught that pitching is essential to fundraising, and since thousands of entrepreneurs have collectively raised billions of dollars by pitching investors, surely that’s the purpose of a fundraising pitch.

But I stand by my assertion: The purpose of a fundraising pitch isn’t to raise capital. And if you think it is, it’s probably the reason you’re struggling to fundraise.

Conversations create capital

My first successful VC fundraising meeting was a success precisely because it wasn’t a pitch. I wasn’t trying to present my company in the best light possible. I wasn’t giving some highly rehearsed and excessively manicured presentation. Instead, I was having a real conversation about my company. We discussed what was working well and what wasn’t. I was able to demonstrate expertise by showing what I actually knew about my business rather than reciting prepared content. And, perhaps most importantly, I built a genuine connection with the person who was ultimately going to believe in me enough to invest in both me and my company. You can’t do those things in a pitch. You can only do those things in a conversation.

The purpose of a fundraising pitch isn’t to raise capital; the purpose of a fundraising pitch is to start a conversation.

From that moment forward, I knew something about fundraising pitches that I hadn’t previously understood. Too many entrepreneurs — including myself at the time — think investors use fundraising pitches to make their investment decisions. That’s actually not the case. Investors don’t decide to invest based on pitches because pitches are too artificial and rehearsed.

To understand why investors don’t invest based on pitches, think about a pitch from an investor’s perspective. Of course, a good pitch is going to be compelling. Of course, a good pitch is going to position a company in a positive way. Of course, the entrepreneur giving the pitch is going to make the opportunity seem enticing. Why would an investor expect anything different? After all, no entrepreneur is going to spend an entire pitch talking about how terrible their company is.

In other words, from the investor’s perspective, why would they ever decide to invest in a company based on a pitch? Pitches are too biased. Pitches over-emphasize the positive potential of startups and underrepresent the potential risks. As a result, investors are naturally — and rightfully — skeptical of everything they hear in fundraising pitches.