Why This? Why Now? Why You?

Once your startup has some traction, fundraising becomes more straightforward. Investors still care about your vision and your team, but much of their focus shifts toward analyzing and interpreting your numbers: how fast is revenue growing? How many users are logging in monthly? How about daily? What fraction of users are retained for at least 3 months? 12 months? Strong numbers reduce the perceived riskiness of your company even if other parts of your pitch are weak. After all, if your company is making $2m/year and growing 20% monthly, then you must be on to something, right?

Raising before you have significant traction is a different story. Instead of data, all you have are hypotheses, anecdotes, assumptions, and beliefs. The best way to win over investors at this stage is to pursue a large market and to have strong answers to three questions: 1) why this? 2) why now? and 3) why you? Compelling answers to these questions can reduce perceived riskiness in the same way that traction does. If you can convince an investor that your solution to a problem is the right solution, that your go-to-market timing is good, and that you’re the right team for the job, then that person is likely to invest. (What’s even more important is that having those three elements in place will help you build a great company.)

Let’s analyze these questions one by one..

Why this?

Most problems can be addressed in many, many ways. Your company is a bet in on a specific solution, and you should be able to explain why your chosen solution is better than all other possibilities.

For example, let’s say you want to build the smartest ecommerce product recommendation engine on the planet. There are many approaches you could take:

There might be 3 or 30 or even 300 viable approaches to the problem you’re solving. You have to make a compelling case for why your approach is the optimal approach. You should also anticipate that companies which are taking other approaches will also believe they’re behaving optimally, so you’ll need convincing insights or data that support your viewpoint. If you decided to build a Chrome extension, how do you know that you’re not wasting your time? How do you know that you shouldn’t be building a Gmail or Magento plugin instead? If you can’t convince an investor that a Chrome extension is better than a Gmail plugin, then they’ll either invest in the company building a Gmail plugin, or they won’t invest in anything and will wait until there’s more clarity about the market.

Why now?

Once you convince an investor that your solution is the right one, they’ll naturally ask why no one has built it before, or why a better version couldn’t be built by a company that starts twelve months from now. You have to show that now is the best time to do what you’re doing.

You might be tempted to explain that no one has tried your approach because you’re particularly smart and insightful, but that’s not a very satisfying direction because most founders are smart and insightful. A better answer usually involves factors such as changing regulations, recent technological advances, increasing penetration of some technology, or a new market that just emerged. For example, Uber’s launch in 2010 was well-timed because smartphone penetration was starting to becoming significant. A few years earlier would’ve been too early because too few people had smartphones at the time.

Drone defense is a more recent example of a timely opportunity. Drone sales have grown >10x over the last few years, and it’s estimated that 2 million drones will be sold this year. The proliferation of drones has led to a growing number of scary drone-related incidents (like this one). In response to those incidents, several companies are now offering defenses against drones and funding in the space is heating up. It was probably too early to start companies like these a few years ago because drone accidents didn’t get enough attention. On the other hand, it will (probably) be too hard to start a successful drone defense company in a few years because the problem will (probably) be mostly solved by then.

Why you?

After you establish that you’re building the right product at the right time, you need to make a strong case that you’ve assembled the best possible team for the job. This is sometimes called founder/market fit. For example, if your product requires machine learning, enterprise sales skills, and a knowledge of the ecommerce industry, then your team should be very strong in those three areas.

If you don’t have founder/market fit then you’re more likely to struggle. It’s very hard to build a machine learning product if none of the founders understand machine learning, or to build an enterprise product if the founders’ sole experience is building consumer apps. It’s not impossible, but it’s very hard. If you have a great idea and great timing but an ill-suited team, most investors will pass with the hope of eventually encountering the same idea with a better-suited team.

A strong answer to this question either demonstrates that you’re uniquely suited to the task at hand, or you’re better-suited than any current or would-be competitors. Sample reasons for good founder/market fit include deep R&D experience in a relevant area (e.g. the team at Viv previously built Siri), a rich personal network in a hard-to-penetrate industry, or a unique combination of skills within the founding team that would be hard to reproduce.

Why bother?

The point of thinking about these questions is not to figure out how to impress investors. The point is to give your team and your company a real gut check and to use your time effectively. If you can’t make a strong case for why your approach is the right one, or why your timing is ideal, or why you’re best team for the job, then maybe you should be doing something else. That might mean keeping the same approach but replacing an existing cofounder or finding an additional one. Or it might mean spending more time investigating alternative solutions to the problem you’re trying to solve.

Optimizing your investor pitch is a short-term fundraising hack, but maximizing your likelihood of successfully solving a problem for a large market is both a superior fundraising strategy and a superior company-building strategy. While having the right team building the right thing at the right time isn’t necessary or sufficient for a successful fundraise or a successful company, it really, really helps.

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