How to tell your story to investors
Blog | January 13th, 2014
“Cause we know when we add up all those inches that’s going to make the f*ing difference between winning and losing. Between living and dying.”
-Coach D’Amato (Any Given Sunday)
Let’s roll the clock back two thousand years to ancient Greece, where Aristotle wrote Rhetoric, perhaps the most influential work on persuasion ever written. We know – you want to learn how to raise money, and we’re giving you a lesson in Classics – WTF is the deal? Just bear with us….
In Rhetoric, Aristotle argued that there exist just three means of persuasion within discourse: Logos, Ethos and Pathos. Logos is the use of reasoning. Ethos is credibility or authority of the speaker. Pathos is the emotional state of the audience.
Most entrepreneurs naturally gravitate towards Logos (logic and data based arguments) and Ethos (discussing their backgrounds, as well as those of their advisors, investors and partners). They overlook what can often be the most powerful tool in their arsenal: pathos, or the evocation of emotion within the investor.
So how can you implement pathos? One of the best tools you have at your disposal is storytelling – the focus of this article. Below, we first explain why storytelling is important, and then go on to give you an arsenal of immediately actionable strategies using storytelling. We end with a brief discussion of the importance of logos and ethos.
WHY STORYTELLING IS IMPORTANT
Originally, DJZ was founded to capitalize on the exploding global interest in Electronic Music. When first communicating this explosion to an investor, we had several options. Here’s one:
“The EDM market is now valued at $20bn, and is growing year over year at 344%. This growth is largely driven by teenagers.”
“My younger son and I went to Outside Lands (a music festival) in San Francisco a couple weeks ago. And as we go towards one of the larger stages he said “Dad, who is Stevie Wonder? I want to go see Skrillex”, and I think that represents where we are and where this younger generation is moving”
The first is a logic-based argument: It uses data to demonstrate that EDM has become mainstream, and that teens are driving this shift. Under Aristotle’s system, this is logos. The second is a story, which uses an anecdote to communicate the same thing.
Here’s why the story can be more persuasive than the cold hard facts:
1. It holds the investor’s attention
Via creating vivid and engaging imagery in the investor’s mind, the Skrillex-type story increases the chance that the investor’s brain remains focused on you and your pitch. The objective, data-centric approach is less compelling.
2. It is more memorable and communicable
The Skrillex story is far more likely to remain in the investor’s mind after the pitch than logic and data. This is advantageous not only because it means the investor will remember you, but also because it gives him a memorable tidbit to relate to other investors and potential supporters of the company, empowering him to become a spokesperson and evangelist.
3. The burden of proof is significantly smaller
The data-based argument is significantly harder to produce than the Skrillex argument: You have to find the data, and the data must be strong enough to withstand logical criticism. The Skrillex story creates no such burden. All you need to do is tell the story.
In fact (and here’s the fascinating piece), it doesn’t even follow that just because a kid likes Skrillex, EDM is a huge market. The story is just anecdotal. But that’s irrelevant, because the human brain is wired to conclude this generality from the anecdote. This is the great paradox of storytelling: The more specific the story is, the greater the perceived universality.
4. It gives you the opportunity to establish solidarity
If the investor has kids, the Skrillex story creates a feeling of solidarity, which will cause the investor to naturally become more amenable to your case. Data-based arguments rarely create such rapport
5. It can cut through complexity
DJZ is not a complex business. That said, imagine trying to persuade investors of the benefits of some new and complicated technology. An effective story of a use case can cut through the complexity quickly, whereas purely logic and data-based explanations may be substantially harder to understand
6. It bypasses the logical mind
When hearing a data or fact-based argument, your audience engages with it via their logical faculties. When listening to a story, however, your audience engages and responds on an emotional level. Our emotional selves can be far easier to persuade and mold than our logical selves.
7. Stories avoid win/lose scenarios and invite rather than force
Logic and data-based arguments draw lines in the sand and set up win/lose scenarios: You force your audience to either agree with the facts or not. This is suboptimal.
Stories avoid this because they do not explicitly lay out the facts. Rather they wrap the facts in a narrative, and invite (rather than demand) others to agree with them in an indirect manner. This is sales 101: ultimately you can’t force another person to do anything. He has to come around to your point of view on his own.
Hopefully it’s now clear why you must be able to tell compelling stories that support your vision. This is crucial not only within fundraising but also in any meeting requiring persuasion (e.g. biz dev discussions, closing hires, sales calls etc.).
Now let’s move on to some immediately actionable ways you can use storytelling to your advantage.
WHAT KIND OF STORY TO TELL
The great thing about stories is that you can choose almost any content you’d like, as long as it makes your company more attractive to investors. Here are a few sample content types to get you going:
1. Stories about customers
“DJZ is for 16 year old girls like Chelsea, in the Midwest. She dreams about going to Electric Daisy Carnival to watch Deadmau5 and Swedish House Mafia, but doesn’t have the money or the other necessary means to attend. DJZ brings the dream to Chelsea’s bedroom.”
2. Personal stories
“About a year and a half ago, I was sitting at an airport terminal, talking to my wife and wishing that I could make an offer for someone’s airplane seat so that they would switch seats with me. Everyone that I looked at was looking at their phone, and there was still no mechanism to do that. So I jotted a note in my phone: “a real-time buyer-driven eBay for people around you” and just left it at that. Didn’t really think twice about it. There’s about 15 other ideas in that same file in my phone.”
-Bo Fishback, Zaarly CEO
Especially if you are an unknown quantity, investors will inevitably be thinking: “Who is this guy and why is he here”. Personal stories are one of the most effective ways of answering this question. In the story above, Bo Fishback not only answers this question, but also adds a humanizing element by mentioning his wife. Notice how much more engaging and memorable this story is than if Bo had said something like:
“The demand for a real-time hyper-local marketplace is enormous. Assuming a 3% transaction fee, our base case revenue in FY2 is $50m”
3. Anything involving kids
(See Skrillex example above)
If your audience are parents, mentioning kids builds immediate rapport. If not, it at least adds a more human element to your personality
4. Anything involving relationships
“I’m Jack and there’s one reason I’m here. About 36 years ago, there were two best friends, and they started a pizza restaurant. They were 19 years old. One of them was named Tim, the other one was named Ron, and they set up this Pizza restaurant named Two Nice Guys. And the Pizza restaurant in St Louis Missouri started doing very very well. And they wanted to protect the business and also their friendship and they made one rule: They would not date the wait staff. And the first person they hired was my mother. And I was born 10 months later.”
-Jack Dorsey’s keynote at TechCrunch Disrupt SF
Relationships is another topic to which many can instantly relate (and hence helps you to build rapport). Although Jack’s speech isn’t for the purpose of fundraising, it is a great example of how to use storytelling to engage.
5. Stories that predict and deal with criticisms before they arise
“Like you, I hate music deals. At Turntable.fm, I went through extensive legal battles with labels trying to secure licensing deals. And I have many friends who got burned running or investing in music startups”
DJZ is a music startup. Music is a notoriously challenging business from a legal perspective, and the space has seen a whole catalogue of failed companies in recent years. As a result, many investors have a visceral negative reaction towards music deals. By telling a story to investors that raises the criticism before it inevitably arises, the negative impact is mitigated. If possible, you should then go on to deal with the particular criticism, or show how the criticism doesn’t apply to your business.
6. The “huge vision” story
Perhaps the most important story in your toolkit, and one you should tell as frequently as possible. What is the huge change your company will create in the world? What kind of a dent are you making in the universe?
TIPS ON CONTENT
Make sure that your stories are vivid and detailed. Describe situations and set the scene. Do not just stick to the salient points. Jack Dorsey’s speech above is a good example of this – he goes into detail about the name of the pizza restaurant, the name of the protagonists and the location of the proceedings.
Also, include elements to which your audience can relate. For example: everyday experiences and struggles, relationships, kids, sports. Jack achieves this in his speech by making his mother and father the protagonists of the story.
And of course, make sure the content does not induce negative emotions (fear, anger, sadness etc.), unless the evocation of these emotions somehow makes it more likely for the investors to say yes.
The majority of communication is non-verbal. Hence, the manner in which you deliver your stories is just as important, if not more important, than the content itself. For example, phrasing, posture and eye contact are critical. Vocal tonality also has a huge impact on how your stories are received. Lastly, don’t be afraid to pause. It makes you sound more in control, gives you a second to gather your thoughts and helps you to avoid ‘um’ and ‘uh’.
APPEALING TO MANY SENSES
This is a tip for implementing pathos more generally, whether it is in the context of storytelling or at some other point in you pitch. Attempt to appeal to as many senses as possible (i.e. sight, hearing, touch etc.). This will ensure that your audience is maximally focused on you, and significantly amplify your abilities to evoke emotions. Interactive product demonstrations work very well here. Watching a live demo of your product is far more engaging than listening to a founder pontificate in front of powerpoint slides. This is even more powerful if the investor can play around with your app, piece of hardware or website. Videos can also work wonders . Soundfocus (a YC-backed company making hearing aids) made an awesome one for their recent fundraise. Here is one we used for DJZ. Make sure videos are short (less than 2 minutes), well produced and are emotionally compelling.
Appealing to many senses at once is especially important at the beginning of the pitch, when an investor may be thinking of many other things, like his fantasy football team, or why the f**k he passed on Snapchat’s seed round. They instantly command attention and (in the case of videos) can spike the right emotions.
LOGOS AND ETHOS
In addition to pathos, rational argumentation (Logos) and your credibility as a speaker (Ethos) are crucial tools of persuasion, and it’s important that you use both. We won’t dwell too much on logos and ethos because they are much more widely understood and most entrepreneurs intuitively use both when pitching. That said, we have outlined below a few strategies to add to your toolkit. We begin with Logos.
One way to persuade via Logos is to memorize a few bite-size data points that sell the business well, and rattle them off as appropriate whenever you describe your company. These can be quite powerful, especially when delivered in rapid succession. For example:
“Our active users have been growing 50% per month, and now total more than 1,000,000”
“Our clients include The Federal Reserve, Coca Cola and American Express”
Rick Marini, CEO of Branchout, uses this strategy to great effect in this interview at 0:35: “we registered over 30m users and raised $49m of funding, connected millions of people to job opportunities”
Another way to utilize Logos is to demonstrate that your product is the inevitable next step in a macro-level trend. The following slide is a good pictorial representation of this kind of logic. In this particular case, Kleiner Perkins is demonstrating that wearables are the next major technology cycle in a history of decade-long technology cycles:
In terms of Ethos, your goal is to build your credibility in the eyes of the potential investors. One way to do this is to simply discuss your personal background, achievements and accolades, as well as those of your team. For example:
“I graduated Stanford with a degree in computer science, and my co-founder was an engineering major at MIT. We both worked on monetization at Youtube prior to co-founding our company”
Discussing brand name and/or notable investors, advisors or customers is another way to use ethos. All of this can be done verbally, or on a slide.
You can also build credibility outside of the meeting. Ensure your Google front page (i.e. the first 10 search results for your name) is impressive. For example: articles about or mentioning you, videos of you speaking in public, awards you have won, etc. Similarly, make sure that your profiles on all key social media pages (Twitter, AngelList, LinkedIn, Facebook) do you justice.