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Strategy — 08.12.2021

What Startups Seeking Early Stage Investment Need to Know About Product – Pt. I

Christian Beck, Executive Partner, Growth Strategy & Design

It was a record year for VC in 2020, despite the pandemic and the economic downturn, according to the National Venture Capital Association. That doesn’t mean VC funding is easy to come by. The bar investors have is rising as more startups are being developed daily. While some early tech successes pitched investors by simply sharing the ideas they had in their head or presenting prototypes that didn’t work, that approach doesn’t work anymore.

There are two optimal scenarios for digital product startups seeking pre-seed and early seed funding. I’ll provide insight on how to intrigue and impress potential investors at the seed stage.

You Have a Product

Having an MVP prior to pitching for capital is the best-case scenario, as a product demo is an impactful part of the path to landing funding. Not only do investors want to know you have a winning idea, but they also want to see it. Some investors even deem it unacceptable to come to a pitch with no product to demo.

That said, there’s also little room for forgiveness when it comes to poorly-crafted, slow-moving and non-intuitive digital products. When I started collaborating with investors in 2017, one of the most common pains I heard was about increasing deal flow. In 2021, it’s the opposite. An increasing number of startups, a remote-friendly investing environment, and a proliferation of cheaper technology have all led to more deal flow that investors can ideally handle. As a reaction, many investors will set stricter requirements for investing: $1M in ARR, LTV:CAC of 4:1, as examples. But I often find many investors have exceptions to these metrics. And these are reserved for products that look “special.”

When I look at the startups that investors give a pass on difficult-to-obtain metrics, I find their products are simply amazing. Startup founders need to come to the table looking more polished than ever. At Innovatemap, we often work with founders who have built a digital product together on their own, but it’s not performing well. In these cases, we can either enhance the product’s look and feel, or completely revamp it. As product and investing has matured, UX and product issues are now more important earlier on. Either way, the goal is to ensure the digital product is impressive enough in the pitch deck to land the early-stage funding it requires.

You Have a Vision and a Brand

If you have an incredible idea, but not a working product to back it up, one thing is certain: the product vision and the brand must be thoroughly developed.

When you don’t have an actual product to showcase to investors, you need to have messaging that makes sense and immediately resonates. Within the pitch deck, it’s a good strategy to provide concept designs (aka “sexy mockups”) that show the future product’s look and feel. I’d also recommend getting to the point quickly (no need to string investors along slide-after-slide for a big reveal). Identify the problem, certainly, but then get to how your product will uniquely solve it.

An impactful way founders can ensure their pitch and product site stand out from the hundreds VCs are seeing each week is to showcase an understanding of product, product design and brand. Yes, you can showcase that knowledge without having a working product. Not all VCs—even ones that historically invest in digital products—have significant knowledge about the ins and outs of product. This is a fantastic opportunity to talk through your product’s user experience, the customer journey and the design elements that will make this product worth using over and over again. It’s also an opportunity to hone your early messaging (and avoid throwaway phrases like “end-to-end,” or “comprehensive”). Be clear who your product is for so that it’s clear who it is not for. Yes, the draw to define a TAM that’s in the billions is great, but the path to get there can be thoughtfully plotted out with targeted positioning, and highly-catered buyer-focused messaging. Not only will this shine a light on your product, but it will highlight you as a founder.

Many investors are evaluating not just market potential, but founder potential and legitimacy in those initial pitches. Showing product expertise in the form of a thoughtful, well-researched presentation or initial product site can make up for the fact that a product doesn’t yet exist.

A sophisticated digital product plays a critical role in a startup’s growth trajectory. And while most VCs know that, they are often not equipped to provide product strategy and development expertise that so many startups need. At Innovatemap, we understand and can help founders understand why their product design and brand matter so much, and then we can use research and data to develop that design and brand. In addition to strategizing and building products, our digital product marketing expertise allows us to produce a framework of what a product will look like and how it will function before it’s even born.

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