I vividly remember leading Q&A on the Twilio IPO roadshow at the mutual fund manager where I started my career. The meeting was an hour long, with perhaps half a dozen portfolio managers in the room alongside me, each responsible for funds with billions of AUM. After a great session where we went deep into Twilio's go-to-market and product roadmap, one of the portfolio managers pulled me aside. “What an amazing company,” he said, “but I do have one question for you that was bothering me during the meeting… what is an API?”
This is nothing against the portfolio manager- he was and is an incredibly sharp generalist investor. The truth is a shocking proportion of software pitches end with the investors having very little to no idea what the software actually does or looks like. In many cases, only a cursory attempt is made to convey this information before investors pretend to “get it” so as not to look slow and founders move on to talking about numbers. It sounds crazy, but it’s true. This piece diagnoses the problem and offers some potential solutions.
First off- why does this happen? Five separate reasons converge:
Investing in software involves familiarizing yourself with an incredibly diverse set of industries—on the same day, an investor might meet with a company producing design software for creatives, note-taking software for white-collar workers, a pizza parlor operating system, and a piece of middleware built on top of a sexily named open-source project. It’s a lot for even those who specialize in software investing (which is one of the reasons I love the sector so much).
Investors lack a degree of software empathy because our job is typically done with maybe some data tools (Crunchbase, Pitchbook, Bloomberg), Slack, some note-taking tools, and MS Office. Many investors haven’t done anything else besides invest in their whole career- so those are the only pieces of software they’ve ever routinely used.
Investors are often non-technical (or semi-technical, or “technical but out of the game for a while”), while founders are often highly technical and product-obsessed.
Investors often lack basic end-user empathy because, in many cases, they’ve never spoken to one before. I’ve never invested in Veeva, so I’m less embarrassed than I might otherwise be to admit that all of my experience with what pharmaceutical sales reps do comes from watching a rom-com. Pitching me a solution aimed at pharmaceutical sales reps requires that I be able to put myself in their shoes to some degree- no easy feat!
Finally, founders who haven’t been investors lack investor empathy. They’ve often lived and breathed software tools for their entire careers- perhaps they’ve even built for various industries. Certainly, they’re immersed entirely in whatever they’re pitching, so explaining things from a most basic level, ELI-5 style, seems like a waste of time or, worse, patronizing to the wizened software investors consuming the pitch.
Thus, time and time again, a meeting concludes and investors have a vague idea of what a software product is for (say, email marketing) and who it competes with (Salesforce! Adobe!) but not the foggiest idea of what it actually does, or what the users who work in it every day are up to. Because they’re prideful and keen to maintain a semblance of edge (which is, to be clear, on the investors), they do their best to avoid admitting this fact, often planning to back-fill their knowledge in diligence.
Here's how to fix this:
If it is available, investors should watch a YouTube video showing the product before a pitch meeting. It is inexcusable not to.
Investors should be low-ego and admit openly when they’re confused or lost about a product's look, feel and function. Yes, other investors will pretend to understand, but that’s okay.
Founders should tell a user story that both builds empathy for the user and describes how the product makes the user’s life better in ways that can be visualized without using buzzwords or acronyms. In the words of Dick Tuld: “Speak to me as would to a small child or a golden retriever.” This isn’t because investors are dumb- it’s because visualizing a piece of software you’ve never seen before is challenging for anyone- the human mind isn’t built for it. Here’s an example of what that looks like:
“Leila is a pharmaceutical sales rep. She spends her days driving around, visiting doctors, pitching them the benefits of the latest medications in her company’s roster and encouraging prescriptions. Without modern CRM software from XYZ corp, Leila has to spend thirty minutes in the car after each visit entering in information. Sometimes she’s running late and does it at the end of the day, misremembering details- other times, her leadership has to harangue her for notes. The notes are important because they help guide her monthly “see list,” which dictates which doctors she spends time on- they also feed up to the regional VP’s dashboards, and then the national dashboards. Across her company, the data is frequently spotty and hard to trust… but a proper implementation of XYZ corp will both save Leila time and lead to proper data hygiene/collection… here’s how!”
Founders should prioritize incorporating an actual live demo of the product in the first pitch as if they were in a sales prospecting meeting. Even if the investor has already watched a YouTube video, this is still a beneficial step. If the founder would rather not (and I get it, this is repetitive), they could arrange for a sales rep to give investors a demo a day or two ahead of an intro meeting.
Ultimately, this is an incredibly embarrassing dynamic for investors, and (to be clear) it is on us to fix. If we do, hopefully, that will help to dispel some of the common complaints from founders, which often stem from a lack of basic knowledge of what they’re even building in the first place. We can do better!
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