Your personal goal/vision is not an investable business - stop pitching it!
Welcome Founders and Innovators!
We’ve been busy with our capital raise preparations over the last couple of months, which has both delayed this article and also reinforced the key message:
Your personal goal/vision is not an investable business.
Over the last couple of months we’ve been talking to a variety of investors, founders and innovators. Founders and innovators we’ve talked to have, generally, not understood that pitching their vision/goal is not persuasive to investors. So, much to the frustration of investors, they get a lot of pitches about ideas and visions, not businesses.
In this article, we’re talking about commercially motivated investors. Philanthropic, impact and government investment are all options to get funding for personal goal initiatives - each has a different time scale and a different set of requirements and hurdles.
What’s the difference between your vision/goal and an investable business?
Goals and visions usually come from a deeply personal experience that is driving you to implement a solution. The objective is usually to fix/improve/solve the problem so others don’t have the same experience. Examples of goals include fixing the environment, addressing social injustices/inequality, providing those without a voice ways of being heard, amongst many others.
An investable business has to show it can generate a return, how that return is generated and that the return will compensate investors for the cash they put in, the time they have to wait and the risks they have to take.
We’re going to use an example to clarify this. Experia Growth has three co-founders, but for simplicity we’re going to assume I’m the only one and we’ll use my goal as an example.
My goal is to improve the WA startup ecosystem so that WA capitalises better on the ideas we generate (it is, for example, super frustrating watching WA dual use ideas get bought by overseas entities rather than staying here). Experia Growth is the “idea” that is going to achieve my goal and it will need funding so it has the cash to help improve the startup ecosystem.
The non-investable goal pitch - “Improve the WA Ecosystem”
In this version of the pitch, I’d start by outlining the problems in the ecosystem in WA (focus on junior miners by risk taking investors, lack of capacity, lack of appropriate funding, need for high levels of commercial expertise), then point out the social and economic benefits of a strong ecosystem and how Experia can achieve improvements to that.
Example of what this pitch sounds like: "WA is losing its best ideas overseas because our ecosystem doesn't properly support early-stage founders through development and commercialisation . Experia Growth will change that by expanding educational capacity, connecting innovators/founders to mentors and investors, developing tailored investor pipelines and communicating WA successes better.”
Why it fails: An investor hearing this is thinking: "That's a nice vision, but where's my return? Who's the customer? What am I actually buying into?"
Improving the WA Ecosystem doesn’t have a clear customer or user base. It doesn’t communicate a specific problem and a solution set. It is REALLY hard to show how improving the WA Ecosystem results in a DIRECT return to Experia (and consequently to the investors). Most investors have commercial mandates - they need to see a return because in most cases, it’s not their money, they got it from their investors. Commercial investors are not charities, nor are they governments so providing social/environmental etc benefits for little to no return isn’t in their mandate.
Note, each individual investor is still human though. They may completely agree and even have experienced the circumstances that created your goal. But they still aren’t going to invest - in the case of some funds, they aren’t ALLOWED to invest. It’s easy to get mixed messages.
The investable business pitch - Identify and support WA Unicorn ideas
So, if the goal pitch isn’t likely to succeed, what’s the alternative? The answer is to refine the idea (in this case, Experia Growth) and focus it on a commercial business which IS investable, ie, demonstrates a clear path to a DIRECT return.
Example of what this pitch sounds like: "Experia identifies pre-seed innovators with high-potential ideas in WA and provides hands-on commercial support and genuine seed funding to get them through the Canyon of Death. Our return model is equity upside in a portfolio of supported ventures plus our investors get priority access to the next generation of WA breakout companies.”
Now, we’re focussing on a defined customer, a mechanism to add value while addressing a problem, plus we’re clearly defining how the return is generated and potential upside.
Of course, the problem here is that this business doesn’t actually fully deliver my personal goal, because this is very focussed on a specific customer set (Day Zero innovators) and not the broad WA startup ecosystem.
We’re going to use the term Zig Decision to refer to an investable business case that doesn’t fully achieve the founder goal. Don’t bother googling Zig Decision, I just made it up.
The Zig Decision - stay with personal goal, or switch to investable business?
At some point most founders will be faced with a Zig. How do you choose what to do?
Should I Stay or should I Zig?
For clarity, as we’re now talking about partially achieving a personal goal under a Zig Decision, let’s break my goal down further. In order for me personally to make a difference to the WA Ecosystem, I’m going to need cash resources (to feed myself and my family), cash to fund improvement activities, attend seminars etc, credibility in the ecosystem and a reputation such that people will listen to me. Particularly in WA, I’m also going to need a broad network of contacts.
For me, there are 3 main issues I’d focus on in looking at this decision:
1) Time to completely achieve the personal goal.
This will hugely vary depending on your goal. In my case, attempting to change the WA ecosystem without funding to speed things up is daunting. Similarly, without a credible reputation, the ability to affect change is doubtful. For me, a Zig that successfully provides faster funding and provides the opportunity to develop that credibility and grow a network (even though this will likely be focussed on a small subset of the Ecosystem) is likely to cut years off the time needed. Therefore, while it’s a detour, it’s not an abandonment of the goal.
2) Stress and mental health
Not having funding to put food on the family table, let alone smooth the path for initiatives is highly stressful, even more so than you’d expect for a founder. Also, the sheer number of polite or, worse, non-committal rejections will build up over time. It’s very easy to fall into a mindset that your personal goal is worthless and nobody values it (or you.). Staying with your personal goal does, however, provide the satisfaction that comes with progressing towards the goal.
3) What proportion of the goal is being achieved?
This is related to 1, especially for funding. However, building reputation and credibility is often time consuming anyway, so here I’d be looking at whether this is being built in the right sector and market.
When is a Zig “right”?
There is no “right”. This is your idea/product/startup and one of the benefits of being the innovator/founder is that you get to choose. You do have to live with the consequences of your choice, though, so it’s important to understand what they are.
Yes, there are founders who succeeded by ignoring everything above and betting purely on their vision. You’ve probably heard a story about this founder. What you won't hear about are the hundreds of ideas that died in this trap, because nobody writes articles about the ones that quietly died.
A few key tips/takeaways
Understand exactly what you need to achieve your personal goal (funding, reputation, network, infrastructure etc). Be specific and take the time to critically question what you really want to achieve with your goal. Map a plan to help understand the steps needed to achieve it. For each step, put a milestone or the required dollar amount. If you can’t quantify it, you’re not being specific enough.
Listen. Really Listen. One issue that we’ve seen several times is that innovators and founders don’t listen to the underlying message when talking to customers/investors etc. Many customers/investors don’t like to just come out and say “No”. And many innovators/founders don’t want to hear it. So innovators/founders spend more and more time chasing the ghost of the “Yes”.
When an investor says 'it's interesting, keep us posted,' that's almost always a no. When they say 'have you thought about doing X instead?' they're telling you your current pitch isn't investable, but politely.Don’t pitch goals/visions to commercial investors. Lead with the return mechanism, the customer, and the business model. Then weave your vision/goal in as the 'why' behind your commitment. If 50-60% of your pitch isn’t about the business and how it makes money, you’re probably pitching a goal. Pitching goals/ideas/visions to commercial investors is a waste of your time, and theirs.
Consider alternatives when raised - like spin-out businesses, licensing etc. You may want to stay focussed on achieving your goal. That doesn’t mean you can’t generate funding, credibility and networks from your idea in other spaces - letting someone else use your idea in a different way and taking a clip of their revenue may allow you to accelerate achievement of your goal.
Creating an investable business isn’t about abandoning your goal. It’s about finding a version of your idea that let’s you achieve the goal faster. From that perspective, the smartest path to your goal isn’t always a straight line.
If you’re not sure whether you're pitching a goal or a business, reach out — we'll even buy the coffee and we’ll be honest.