Seed round founders' mandatory course: it's you who tell the story, not the PPT

Original Author: JOEL JOHN

Original translation: Deep Tide TechFlow

The inspiration for this article came from a conversation I had with Joe Eagan of Anagram about their EIR program, and it's a compilation of notes I shared with a founder of a startup seeking funding.

The Importance of Signals

Before writing this article, I asked two groups of investors the same question: 'How much of your investment decisions in the seed stage are determined by PPT?' The answers were different. Dovey Wan from Primitive Ventures pointed out in our venture capital community that seed-stage investments are like a first date, mainly based on intuition. Kyle Samani from Multicoin believes that most fundraising is about communication, and PPT is the main tool to convey this.

In the seed stage, there is usually very little information about the product. If it is a new market without existing competitors, information about the market size is also very limited.

When investing in Amazon in the late 1990s, did investors consider the market for buying books online? Or did Jeff Bezos leave his position as vice president of D E Shaw? The former, although it seemed to have market potential, the signal was very weak.

However, a Hedging fund manager giving up a comfortable job to analyze the forefront of the Internet to minimize regrets is a very strong signal.

Founders can establish signals in multiple ways. Jessica Livingston of Y Combinator recently pointed out that what interested her in the founders of Airbnb was their resilience. In order to extend their financing runway, they even produced $40 cereal boxes while burdened with credit card debt. These politically themed cereal boxes helped them earn $30,000 in an election year. At the time, they were trying to give up 6% of the company's shares in exchange for a $20,000 check.

Airbnb currently has a valuation of $96 billion.

I'm not saying founders should start selling movie circles. The impressive thing about the Airbnb story is that they didn't shut down their bed rental business to sell politically themed cereals. The 2024 Cryptocurrency equivalent could be the launch pad for founders to introduce a politically themed meme coin.

What I mean is, in the early stages, venture capitalists are looking for signals. And these signals can be generated in many forms. In the seed stage, when you have nothing else to show, PPT is just one way to create this signal.

But what do you do when you don't have PPT? You can spend a hundred hours perfecting your speech, or you can establish this signal in a few ways.

Tell Your Story

Many companies are built on excellent communication skills. One of my favorite examples is Anand Sanwal, the founder of CB Insights, a company that provides market intelligence and data analysis. You may not have heard of him, but most venture capital analysts rely on the market charts and early insights into emerging companies provided by CB Insights, such as AI-driven agriculture or robot delivery.

A good example of showing his storytelling ability is how he deals with challenges in life, as well as comparing his father's business with CB Insights. Or the experience summary he accumulated while operating a SaaS company, or even the interesting story that his startup company was originally called 'Chubby Brains'!

One of the most rewarding things for founders at the seed stage is to spend 8-12 hours compiling everything they know into a GitBook. This book should provide detailed descriptions of the interesting aspects of the emerging industry, such as intentions or Passkeys, market opportunities, and how their product fits into it. You can delve into it here, but you may not need to do so in your PPT.

In emerging industries, well-crafted documents can become the preferred resource for analyst research. In this way, venture capitalists will actively follow you instead of you cold contacting them. More importantly, potential employees, partners, and media will also rely on these documents. Well-written documents are a bridge to invite the public to dream with you, and they become the foundation for forming a community and leveraging network effects.

Of course, not all founders are willing to spend time writing documents. So what can you rely on? Another approach is to tell a compelling story. For example, read this summary of Peter Thiel's course notes:

The PayPal founding team consisted of six individuals, four of whom built a bomb in high school.

This sentence immediately captures the readers' attention and demonstrates how these people came together and realized the Digital Money dream. The story is a starting point, and the narrative can be different. For a long time, I saw the founders playing a role, hoping that investors would not regret missing out on them.

The great founders understand this. Steve Jobs once intentionally hid his Porsche when venture capitalists visited because he didn't want them to think he was already very rich.

Founder stories often stem from their childhood experiences, pain points as consumers, or observations in their work. Jeff Bezos famously left his comfortable hedging fund job because he saw the immense potential of the internet. Vitalik's experience of losing assets in World of Warcraft is also often cited as the reason for his interest in decentralization of asset ownership.

Your story can be presented through any medium you think is appropriate. Whether it's a podcast, a tweet, a short video, or an article, it doesn't matter. The key is to share it and let people know. At the seed round stage, the most touching stories are often the founder's personal experiences, as investors usually bet on the founders. You should share your story because consumers may accept it before venture capitalists. When consumers approve your story, you have market traction. This also leads to my next point.

Not easy to expand things

A better option is to release an imperfect product and look for early adopters. If you release a flawed product, you may hear some painful feedback from customers, which can help you continuously improve the product. These early adopters will be a strong reference when venture capitalists consider supporting you.

The following image is the private message I sent to Nansen's Alex in 2020, when I spent $7 to buy their product. He provided one-on-one customer support personally. In the early days, their product was just a simple SQL dashboard. Now, their valuation has reached $750 million. I am proud to be their investor. But before that, I was a satisfied customer, even though the product had many issues. I stuck with it because when the product had problems, Alex would provide one-on-one support personally, and he still does.

Telling your story and following your customers may be the key to your success, and it doesn't cost anything.

In December of that year, I even wrote an article about Nansen. If you are a user, you can compare the screenshots in the article with the current status of the product today to see the long progress they have made. Be a good person and create interesting things is the most economically effective way to get free publicity.

Many founders often raise millions of dollars, but build something that nobody needs, because their core customer is the venture capitalist who wants to invest in them. They sell equity, not their own product. And because the capital allocators are often incentivized to be 'friendly' for flow, they won't give good feedback. The market usually judges whether your goal is to create a popular product.

Early adopters are not looking for a fully mature product. If you can take care of them or provide meaningful value, early adopters are willing to use a flawed product.

When it's long, consumers choose based on which founder follows them. If you don't have the best product, spending time communicating with potential users can make up for the lack of early experience. People want to be listened to before being served by the product. Paul Graham calls it "doing things that can't be scaled".

Formation of Consensus

The operation of venture capital is mostly based on Consensus. As a venture capitalist, you actually won't focus on the Total Available Market (TAM), revenue, or even the founder. Because if the TAM is large, you are either betting on a mature market with limited rise space, or lack of focus.

On the contrary, early-stage venture capitalists are more focused on what buyers (other venture capital funds) in subsequent rounds will bet on. The follow point is often the narrative or theme.

This is both an advantage and a disadvantage. The advantage is that insightful venture capitalists can guide founders to discover market opportunities they may not have noticed. The disadvantage is that only projects that align with the follow-up investors' areas of interest can obtain funding.

Founders of problem-solving often have difficulty finding supporters because their exit strategies may not be clear to venture capitalists. Mergers and acquisitions are relatively rare in the Cryptocurrency field. Therefore, most Cryptocurrency venture capital funds rely on the Token model. When you know that the market relies on a predetermined narrative, you will optimize in that direction.

In the traditional venture capital field, achieving an 'exit' usually takes about ten years. If you can persist for that long, the chances of success are approximately between 10% and 15%. However, the cycle of Cryptocurrency Tokens is 24 months.

This poses a higher threshold for the founders to solve the "difficult problem". These difficulties typically involve consumer-facing applications, requiring founders to deeply understand the complexity of the market and use technology to solve problems.

As a founder in the seed stage, how do you deal with this situation? The fact is, it's difficult to deal with. Some founders are good storytellers, but most are not. Even if you have some market appeal, the market may not give you a corresponding valuation. Google almost sold itself for $750,000, which is not uncommon.

The valuation of a company is a collective fantasy of the founder and supporters about its future potential. Sometimes, only the founder has this fantasy; sometimes, every fund shares this fantasy (as in the case of FTX). The number of capital holders who share this fantasy determines the valuation at the seed stage.

When an industry has not formed Consensus, success often comes down to perseverance and persistence. The entrepreneurial world is full of stories of founders who persisted until a fund decided to support them. Canva's founders were rejected 100 times. Only in the hyper-capitalist world of Web3 is it natural to exit through Token, and we see rounds filled overnight.

As long as venture capital depends on Consensus, and Cryptocurrency depends on Token Liquidity, founders will continue to face funding difficulties when solving difficult problems. This is the essence of the game. If you are a founder dedicated to solving difficult problems, do not take rejection as a measure of the value of what you are building. Many times, you are conveying a vision that only you can see. If this is a Consensus bet, you will be in a competitive market. But there are also some subtle differences here.

Just because you continue to build in a market doesn't mean you will definitely succeed. Smart founders are often able to judge when to double down and when to shut down a company. Many of the founders we work with have shut down their companies, taken a break, and re-entered the market after learning from past experiences. These founders are often highly regarded for the lessons they have learned from their past experiences and the integrity they have shown in shutting down unsuccessful projects.

Closing a company is as commendable as persisting. Often, the value in the process lies in being able to have honest conversations.

Shuffle

(Source reference. By the way, this may be because he has been doing it for over twenty years.)

I hope I can tell you PPT is not important. But I'm not Masayoshi Son managing SoftBank, I'm just providing assistance at Decentralised.co.

In the end, the role of PPT is very simple. That is to convey the information that the founder needs to share during the process of raising funds. Most founders struggle with storytelling, building communities, or achieving basic profitability. So, PPT has become the lowest entry barrier.

Therefore, assuming you still want to succeed, I suggest you ignore most of the garbage advice from investment bankers. In 2015, the average time a venture capitalist spent on a project was 3 minutes and 44 seconds. By 2024, your time will be reduced to 2 minutes and 30 seconds. In the cryptocurrency field, you may only have one minute of real time, because analysts or partners may be staring at a meme price chart while looking at your proposal.

Here is what you should include in the PPT:

• The essence of opportunities and your unique approach.
• Why the team is the best choice, including experience, stories, and personal factors.
• Signs of Market Attraction: Reasons why your existing customers, registered users, and pre-orders support market demand.
• You need to find ways to improve the unit economic benefits in order to expand the scale of production - that is, what kind of dissemination factors can bring competitive advantages to the product.
• How does this product make money. You don't need a clear answer, but you need a clear direction of insight into what scale it can make money.
• If you already have customers, consider showcasing proof of their love for you, such as tweets, email replies, and chat records. Display user feedback content.

This is what I want a founder fren to know. The perfect PPT is like the perfect coffee I pursue as a writer. You can wait and assume that things will go smoothly. But just like coffee, PPT cannot solve all problems.

PPT can be a great place to procrastinate. One reason accelerators like Y Combinator are effective is that they set deadlines for applications. Founders are forced to submit their half-baked ideas. Yet, when we look at it from a ten-year perspective, the founders of Y Combinator have the most impact on the entire network.

Instead of waiting for the perfect presentation, why not communicate with customers, send private messages to investors, and launch products unexpectedly. Many of these things will fall on deaf ears, and rejection is a common occurrence for early entrepreneurs. However, you cannot rely solely on your vision to rally a team. You need something concrete to motivate them. The best way to achieve these concrete results is through dialogue. Instead of spending weeks preparing PPT, it's better to communicate with others, record feedback, and quickly launch products, which is more likely to lead to success.

Just like coffee and writing, the purpose of PPT is to help you, not to make you wait. If you have a better way to convey credibility, please postpone perfecting the PPT.

Here are some resources for founders preparing to build a PPT.

• This collection contains 1400 long PPT for inspiration.
• Y Combinator's slides are perfect for people who like standardized formats.
• Some additional PPT curation examples.
• This article about storytelling by NFX (my personal favorite).
• OpenDeck classified PPT by business model and stage.
• NYU Professor Ashwath Damodaran's course on numbers and storytelling.
• There's also my article from last year about narrative games.
• If you want to detach yourself from the entrepreneurial world and simply gain inspiration, refer to this book on creativity.

The essence of seed stage investment is essentially an investment in people. Venture capitalists purchase the founder's network and experience at a relatively low valuation. If the founder lacks these resources, documentation can help showcase their professional abilities. Overall, all early-stage investments are betting on the founder and their company's ability to expand.

However, there is a prerequisite that the founder needs to start a business in a field favored by capital. Today, establishing and funding a Non-fungible Token market is more difficult than 36 months ago, because attention and capital have shifted elsewhere.

In a world of attention scarcity, grabbing attention is half the battle. How to do this depends on the founder themselves.

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