Next, Final Frontier: Lessons Learned Investing in West & South Africa

During my time at global early stage seed fund, 500 Startups, I’ve led deals in agriculture marketplaces in Indonesia (iGrow), global workflow management software from Brazil (Pipefy), and even education or sewing marketplaces in “emerging markets” like the MidWest of the United States.
500 Startups has a culture of looking ahead to emerging markets, so I was encouraged to follow my investment thesis that there is massive opportunity in thinking ahead.
There were many haters, especially when I became interested in West Africa:

“These markets are too early.” 


There’s no downstream capital for these companies.”

Initially, I was worried about whether I would be stranding these companies or whether it was too early for 500 Startups.

Over the last eight months, we have invested in four companies in South and West Africa through our accelerator program: Sweepsouth, (B14),  KudoBuzz (B14), mVendr (B16),  Podozi (B16), and just recently accepted SureGifts in Batch 18, one of the fastest growing loyalty technology companies in Nigeria and Kenya.

This piece is about what I learned investing in these markets, and why I think all serious investors should learn and be aware about what’s happening on the African continent.

Geeks On A Plane 2016 will be in Africa, so there is an amazing opportunity coming in March.

Here’s what I learned.

1) Why go to West or East or South Africa in the first place? The Future is African. 

This stat that blew my mind: “Sub-Saharan Africa will have a population boom from today’s 900 million people to 2.4 billion by 2050, with almost half of the world’s children being on the continent by 2100.”

There are 54 countries in Africa with unique individual cultures that are all geared for massive economic growth – 50% of the people on the continent are 19 or younger.

I read this right before my trip, and my mind was blown. There were talks of startups like Paga, ACE, Jobberman, Jumia, and increased funding:

“$400 million in VC funding for African startups in 2014. More than a billion dollars will be invested in Africa by 2018.”

Trends in “M-commerce”, B2B for growing SMEs, fintech, big data, and more have been covered in great pieces like this one from I-Dev International. But, you have to go. There’s nothing you can read in a book that will prepare you for feeling the energy and innovation building in the ecosystem, and we international tech investors have a lot to learn.

2) Mentorship is more rare than money, and foreign investors and entrepreneurs can add immense value.

Meltwater Entrepreneurial School of Technology – a two-year entrepreneurship funded school that finds and invests in entrepreneurs from Nigeria, Ghana, and Kenya invited me to visit after I made an accelerator investment in a graduate company called KudoBuzz, a SaaS tool for e-commerce companies.

I was blown away during my time giving a guest lecture and spending time with the entrepreneurs at MEST. What also blew me away was that Jorn, CEO and founder of multi-national SaaA company Meltwater,  spends time every single quarter mentoring young entrepreneurs.

It’s his time, not just the considerable capital Meltwater has invested, that makes MEST an amazing addition to the ecosystem.

At 500, the main areas we were able to help the startups were around understanding the fundraising process.

From our South African founder of Sweepsouth, Aisha Pandoor, called Sweepsouth’s experience in San Francisco in the accelerator a “game-changer for SweepSouth in the level of mentors and the network we’ve had exposure to, both of which would previously have been quite far out of reach for a startup based on the other side of the world.

As one of the first services marketplaces in Africa, it was hard to find local founders and mentors with enough experience to provide meaningful advice, and this is a conundrum for other disruptive African startups.”

3) The challenges are real, but they can be overcome (with time).

Last batch, I led our first accelerator investment in a Nigeria-based company called Podozi, a beauty e-commerce company, going after the exciting African women market who spends five times more on beauty and hair than other ethnic groups and will continue to grow.They had graduated from, a Nairobi-based incubator.

My thesis around Podozi was around my conviction about the growing and interesting beauty market in Nigeria and across the continent, and in the founders, Teniola and Wale. Building an e-commerce beauty brand like Sephora will be challenging, but someone will win in this market. I believe Teni and Wale have the conviction and experience to win. However, their journey will be full of challenges.

Not only were there challenges with logistics, basic office management, and recruiting – the dropping value of Nigerian Naira made tracking metrics complicated and disheartening for them.

Then, there was the bleak downstream capital situation. Clayton Bryan, in the SF office, helped me connect Wale to local angels, as well as explore more downstream capital sources for African-based companies in the European VC scene in London, Dublin, and other hubs.

There are super early stage programs like MEST, Savannah Fund and then growth funds, but very few options in between, which is why Podozi and other startups must focus on revenue and growth until they reach the stage they can access capital in their markets or foreign investors.

Four months after making the bet on this team, I watched Teniola (TeniBeauty to friends) pitch at Demo Day stage with confidence.


3) Focus on founders – experienced founders are beginning to emerge

Since downstream capital is challenging to close in the ecosystem, so it makes sense to filter for scrappy founders and innovative, clever business models who can be more cashflow generating if they haven’t raised locally.

Other accelerators are beginning to take notice. While I was at MEST, I also had the chance to coach three Ghanaian and Nigerian women, all-technical team, building a social app for African hair calledTress. Nine months later, they were accepted into the YC fellowship program, and today they are raising a seed round to grow faster.

I’m very excited about the team that is joining me in San Francisco this coming week for the launch of Batch 18 – SureGifts. The founders are ex-Jumia (one of most successful e-commerce brands out of Rocket Internet) early team members and have already raised capital. They have already proven they can expand out of their local market and have scaled from Nigeria to Kenya.

These are the types of founders that we are getting at 500 Startups now, since we have been investing, learning, and building relationships and reputation early.

4) Community is key.

Many programs and accelerators in emerging markets are early and still figuring out how to provide value in their early ecosystems.

Many “angel investors” aren’t used to investing in technology startups and come from real estate or private equity, not operating backgrounds, which can create problems between the local investors and entrepreneurs.  It’s another example where money is less valuable than mentors and experience.

Our role is to support and identify  the best credible and local investors to co-invest with, as well as to provide perspective and mentorship to entrepreneurs on the ground. Even if your fund does not support international investments, you can begin to make the relationships.

Distrust between local investors and entrepreneurs can be complicated, but as foreign investors we can provide perspective about the importance of fair practices and terms for early stage technology investments, as well as encourage communities of entrepreneurs to share information, help each other, and build sustainable communities.

Trust is hard to build, but after my experiences with MEST, She Leads Africa, and other great organizations, I am confident these communities can become sustainable.

 5)  Just go and learn for yourself.

If you’re an early stage investor and have any plans to be a part of the emerging economies globally, you’re missing out if you continue to ignore (or overlook) the African markets – the only color we care about as investors is green.

Foreign investors can provide a lot of value through mentorship and spending time helping entrepreneurs who are solving problems in their communities.

I urge other investors to pay attention to what is happening on the African continent, from Lagos and Accra to Nairobi to Johannesburg.

Come join us at GOAP and find out for yourself.

Additional Resources:

The Most Common Myths About Startup Accelerators — Busted

In most aspects of life, the gulf between expectation and reality is larger than expected, but that’s where growth comes from.

This principle also applies to startup accelerators, where founders fortunate enough to gain admission can access networks that provide mentorship, emotional support, and eventually, funding.

Tristan Pollock, a 500 Startups Venture Partner and Entrepreneur-in-Residence, is part of a team at 500 that reviews thousands of applications for each 12-week batch, which usually only admits 40 or 50 companies.

Today, we’ll reveal the most common myths founders have when they join an accelerator, and how Tristan’s own expectations evolved after joining 500.

EIR + Venture Partner Tristan Pollock
EIR + Venture Partner Tristan Pollock

What are some of the top misconceptions founders have before joining an accelerator?

A large part of it is setting expectations at the beginning. Sometimes, the people that do the best coming into the accelerator are the ones who realize that most things in life are what you make of them.

They come in and say, ‘I want to talk to this person about this specifically,’ they ask the best questions, they put the time in where it’s needed, but they don’t go to every single thing if it’s not helpful. They have good EQ, overall.

The people that struggle think we’re going to work for them, like 500’s going to be like adding more employees to the team. It’s not the case. Most founders coming into the batch are really bad at standing up and presenting. If you could see the quality of the pitches at the beginning versus what people look like at the end, it’s like night and day.

The smartest founders are interested in the more actionable things that will help their business grow.

Do people think they pitch well?

I think people come in probably with a higher level of confidence than they should.

Many of them confirm the idea that Americans are way overconfident. You’ve seen those studies about how Americans think they’re good at math, but they’re way worse than they think they are? Like that.

Maybe they just haven’t been challenged in a public speaking setting. It’s one thing to be good in your head, but to convince other people who work in startups or investors is different.

Even people who have good experience in the past — bought a company, or sold one — might not have been challenged to be a better public speaker. Some people come in who are horrible, some are OK. Getting that confidence and boiling the pitch down to a short, simple message? That can be the difference between getting funding and not getting funding.

How much does prior experience help a founder who joins an accelerator?

Generally, people coming in with past experience have something specific that they’re looking for, like all the newest growth marketing avenues they could be using, or they want to access the 500 network because they’re not from Silicon Valley, so they’re gong to meet as many people as they can here, and take advance of the founders’ network.

People come in thinking different things about what they’re going to get out of it, usually it’s not the money, though.


It’s not about the money? It IS an investment vehicle.

The smartest founders are interested in the more actionable things that will help their business grow. You can throw money on a failing company, but once they come in in and take advantage of our growth expertise, the network or the founders around them, then they can get a lot more out of it.

Which of your expectations were the first to fall after you joined 500?

[laughs] That’s a good question. For me, having raised money from 500, I didn’t go through the accelerator, so it’s like a night-and-day comparison since founders are taking a small $50 to 100K check. 500 did Storefront‘s seed and series A, so I was kind of clumped in with a ton of other companies, but 500’s accelerator has a real community.

I went through AngelPad, and some of the things from that experience definitely helped, like the mentorship and the network. My biggest misconception was looking at 500 as ‘spray and pray,’ where they’re just going to do a s–t ton of companies.

People come in thinking different things about what they’re going to get out of it, usually it’s not the money, though.

Did other perceptions shift after becoming an EIR and venture partner?

When I came in, I saw that the community was so strong, along the people on the team. The culture in the office that our founders selected, making sure that people are respectful and very conscious of each other and taking care of each other?

I don’t know, there’s just something special about the culture that I never really saw from the outside.

Working in a startup can be isolating. Do founders get culture shock when they’re dropped into an immersive social environment like 500?

Most are eager and enjoy it, but for some, maybe if you’re on the technical side of the company, it can be very difficult to get work done. I know I need to focus and it can be hard to get work done in the office.

But, that’s also one of the big benefits; there’s serendipity when you can introduce a founder to someone who’s dropped in, and a lot of good things cam come of that. But yes, it can be distracting a lot of the time. You spend a lot of time with founders in each batch, and they spend a lot of time together. During a Demo Day, I saw how tight those relationships can grow, which was unexpected.

They’re not only building a network that they’ll bond with and go to with questions or hard times, but also people they can have that beer when they really need it, as well as 500 staff people who really take care of you and make sure you have an outlet. I’ve had meetings with people where they cried, or we’ll go for a run or go get beers. There’s that hard side of startups that 500 really acknowledges, so you can come to us not just for the business side, but for everything. We’re a very loving family.

Are there cases where a founder you voted against accepting into the accelerator defied expectations?

Oh, for sure. [laughs] And it’s happened the other way around, too. The accelerator is a place where you get to see real progress, so it’s really incredible to see where things go. Sometimes, you have that ‘I told you so’ moment, and sometimes, you’re thinking, ‘this is a great founder to have around, but the business is going to have a hard time succeeding.’

The best companies sometimes come out of polarization in the selection process. When one person says, ‘I hate this company,’ and another person says they love it, that creates great debates, because it causes people to have such strong opinions.



Why Your Accelerator Rejected You

500 Startups Partners Marvin Liao and Elizabeth Yin are warm, friendly individuals, but they also break a lot of hearts.

As gatekeepers for 500’s San Francisco-based accelerator, Liao and Yin lead teams that review anywhere from 1,500 to 3,000 applications per 12-week round.

Venture Partner Marvin Liao

There’s nothing fun about raining on someone’s parade, but with only 35 to 45 slots available, there’s a lot of disappointment to go around. “We have to look through every single one, then we filter it down,” said Liao.

500 Startups EIR Elizabeth Yin
Venture Partner Elizabeth Yin

Which Applicants Are Most Likely To Hear “Yes” From 500?

“We really do take it case by case,” said Yin, though there are a few hard and fast rules. “In most cases, we look for a complete full-time team that has a product already launched, ideally with paying customers.”

“We’re a customer acquisition-focused program,” said Liao, so he’s always seeking opportunities “in some huge market that we’re all personally interested in, and where there’s availability of downstream capital.” Many applicants embody a several of these traits, “but it kind of needs to hit all of these points before we bring you in,” Liao said.

No Market, Revenue, Customers Or Live Product? Come Back Later.

Even in Silicon Valley, there’s such a thing as being in too much of a rush, Liao and Yin agreed.

“If you have an idea and haven’t done anything with it, that would probably fall under the category of too early,” she said.

In other cases, “it may be that the market’s there and founders are really awesome but they’re still very early, so they better suited for a batch downstream,” Liao added. “They don’t know who their customers are, or, after I walk out of the interview, I’ll have no idea of what they’re working on.”

Cap Tables Matter

In many cases, international startup founders are more likely “to have a cap table that’s screwed up,” said Liao. “We love you, we love the company, but the fact that you as founders own 30% of the company is going to make it hard for you to raise downstream capital, so we can’t invest, period,” he lamented. “That’s a lot more common than you’d think for international companies.”

“This is not a one-time thing. You’re not applying to college. This is a continuous process.” — Elizabeth Yin

Yin said 500’s interests are “fairly broad” and extend beyond software into verticals like fintech and ecommerce,”where you can get a lot of online customer acquisition.”

Entrepreneurs seeking to join a 500 batch should make sure they’re good with the size of the checks they’ll receive; pharma founders need not apply, as the sector is “too rich for 500,” said Yin.

Entrepreneurs who don’t follow the guidelines or submit incomplete applications aren’t even considered, and liars need not apply.

“We had someone say in their application that they’re doing $5 million in revenue,” recalled Liao, “and then we interviewed them and found out that they hadn’t even launched yet. That interview ended pretty quickly, he said. “We haven’t had to kick anyone out yet, knock on wood. you try to catch that stuff during the interview process.”

“We should not be picking people based on personality because great entrepreneurs come in all shapes and sizes.” — Elizabeth Yin

Results Are More Important Than A Startup Founder’s Personality

If Yin and Liao question an entrepreneur’s values or business acumen, they’re unlikely to move forward, Yin said, citing an example of a team with a high burn rate. “If they hadn’t raised that much money and it seems like the money they had wasn’t going towards anything useful, we thought these people were too spendthrift and the money’s not going to go towards growth.”

That was a subjective judgment, Yin acknowledged, but it was came from key metrics, not a personal vibe. “That part is where subjective, unconscious biases can start to creep in, and I am very leery of that,” she said.

“When everybody says, ‘I really love this founder because he or she is a hustler,’ I push people to dive into what specifically does that mean,” Yin said. “Do you like a person’s personality because they’re outgoing and charming and friendly? Or, is it that they have actually exhibited concrete results?”

“We should not be picking people based on personality because great entrepreneurs come in all shapes and sizes,” said Yin.

Liao concurred. “Do we think that they’re smart? do we think that they’re coachable? Do we think that we can be helpful?” He’s not looking for polished presenters. “They learn that due to people on my team like Andrea Barrica, who are very good pitch coaches and storytellers with an ability to say to founders, ‘here’s what really matters.'”

When Yin encounters serious introverts who have great products and no sales skills, she advises them “to really make the concerted effort to sell more, or bring somebody else on board.”

Even among the founders who are accepted, “about half just don’t do well in the interview,” admitted Liao.

“We value persistence.” — Marvin Liao

500 Startups’ Transparent Rejection Process Encourages Founders To Reapply

As a former entrepreneur, Yin said she always grew annoyed when investors would pass on her pitch without offering any feedback or rationale. “If you try to push them further, they’ll say, ‘it’s not a good fit or something vague like that,'” she said.

Instead, Yin said she strives to be as open as possible with founders who weren’t accepted into the batch of their choice. “Any company who asks us specifically why we’re passing, we’ll be very up front about that,” she said. “This is something that I strongly believe in.”

“A rejection from us is not a rejection forever.” — Elizabeth Yin

“A rejection from us is not a rejection forever. We recognize that entrepreneurs are constantly learning and people will make lots of mistakes,” said Yin, who said a handful of the companies in each batch were initially rejected. “Even if we don’t agree and see eye to eye, it doesn’t mean that we’ll never aligned later on.”

“This is not a one-time thing,” she said. “You’re not applying to college. This is a continuous process.”

Liao said founders who aren’t accepted should ask 500 for feedback and advised them to stay in touch. “As you’re getting traction and making progress, keep us updated,” he said. “We value persistence. And, don’t take it personally. We’re fairly selective.”


The 500 Accelerator in a Nutshell

Today’s is the last installment in a series of essays by 500 founder Troy Sultan documenting his journey through the 500 Accelerator, Batch 16. Here Troy shares his closing thoughts on the Accelerator, and his opening thoughts for the considerable “Everything Else” that’s on its way. 

To read the rest of the Troy’s posts in this series, scroll to the end of this piece for links. To apply for Batch 18 (deadline June 20, 2016), go here.

It was 10pm on a Monday in November, two hours before the application deadline for 500 Startups’ 16th batch. Two months prior we were interviewed and rejected from Batch 15 — for good reason. We were too early.

The company was barely a couple months old and wasn’t ready to fully leverage the accelerator’s value. While aware of this, we interviewed anyway to learn what that value actually looked like, and if it would be relevant when we were indeed ready for it.

Two months later on that Monday night in the office, we were heads down GSD. My calendar interrupted, reminding me that applications were due at midnight for the next 500 batch.

I broke the productive silence and muttered to Wade for a quick sanity check. “We’re not interested in 500, right? Application is due in 2 hours.”

Wade: “Nah. What’s the value?” I agreed, and that was that.

“But wait!” my brain said. “Lets torture ourselves by imaging a fictional scenario where we regret not applying at some point in the future!”

So I blurted aloud, “Imagine —just for argument’s sake — sitting in the 500 office a few months from now laughing with new friends, fist-bumping over big wins, having grown and learned in unimaginable ways, looking at each other asking, ‘Can you image if we didn’t apply?’”

Fast-forward 6 months, and we’re now 500 grads.

Filming our batch video (full video at the end of this post)

While it’s feels impossible to fully capture in a blog post, I try my best to highlight our experience below.

Some lessons & wisdom we’re walking away with:

  • The people you think have their shit together, don’t.
  • You’re great at some some things and suck at others. Figure out both quickly.
  • Some of the best companies don’t reflect it at the seed stage.
  • As an investor or employee, if you consistently pick winners at the early stage, you’re lucky, not good.
  • Ability to fundraise at the seed stage is largely dependent on you running a “tight process”.
  • Shit happens at every early stage company: cofounder breakups, down months/flat revenue, bad hires. It’s not just you.
  • When your company starts to grow, things get harder not easier.
  • You’re more than just the founder of a company. You’re a unique human being that others love regardless of your company’s outcome.
  • You must find ways to enjoy the journey or you’ll go insane (this one is particularly tough for me).

Other takeaways from our experience:

Focus & Direction

Our target customer changed. We went from selling into multiple customer types to one. This led to us refocusing our product roadmap and feature set, refining our sales and on-boarding process as well as our messaging. We’re more focused.

This changed the way we’re thinking about the business as a whole, which comes with it’s own challenges. Contrary to my broader point here, we’ve lost clarity on the company’s long-term vision as new learnings and opportunities came to light. We’re becoming more comfortable with not building the big vision now and focusing on the immediate opportunity in front of us as things will change.

Collaboration + Community

It’s easy to build in isolation. Isolation from customers/users, friends and family and other entrepreneurs in the trenches. I’ve written before about thepsychological challenges of company-building and I believe isolation is the breeding ground for these. This is something the 500 environment helps you avoid.

The office space was one of my favorite parts of the program. It’s an intensely collaborative space where you can’t avoid cross-pollinating with creative and vulnerable minds on similar journeys. Pains. Lessons. Growth. Fundraising. Hiring. Firing. Emotional swings. Swapping stories. Friendship.

The level of intellect, curiosity, hustle and standard that permeates the 500 office and community is both contagious and addicting. I felt FOMO regularly when leaving the office. I knew that time spent elsewhere had less of an impact on my personal growth.

That said, there’s a clear downside to this setup: distraction. It’s easy to spend the day bonding with batchmates and not building your business if you‘re not disciplined. It’s easy to convince yourself the relationships are valuable (and they are), but there’s a direct impact on your bottom line for each hour you’re not heads down. As they say, balance is key.

Network, Learning and Inspiration

There’s something to say about building a powerful network in a friendly, organic environment vs. one that feels forced. We know a lot more smart folks now than we did before the program and those relationships feel real as opposed to transactional.

We met dozens of operators and investors who came by for late-night chats and shared insights on their mindset and entrepreneurial journey with off-the-record candidness. And they were accessible. We connected with many of them personally who were genuinely interested in being helpful.

Two sessions that had a memorable impact on me were Gary Swart of Polaris Partners and Jess Mah of InDinero. They served as a strong reminder that we’re all human; that we all go through hardship. It’s the ones that don’t give up who win out.

From an evening chat with Wesley Chan of Felicis Ventures, an under-publicized fund with massive wins:

Support & Validation (or a punch in the face)

Confidence is a huge part of staying the course as an entrepreneur, and having a sounding board to let you know when you’re killing it (and when you’re fucking up) is invaluable. The 500 culture is exceptional at telling you like it is, no filter.

He loves us.

The 500 partners have seen hundreds of companies pass through the accelerator, so learning what other later-stage companies looked like at seed makes for an interesting perspective. It’s an implicit measuring stick and helps build confidence when you get praise and create a fire when you’re slumping.

You learn that the teams touting growth, getting press, raising large rounds are, again, just normal humans. Like you and I. Smart, hardworking people who muscled through the troughs. That’s it.

You leave 500 deeply believing this.


Building a company is a lonely journey. We got close with the 500 team who genuinely care about our success, and not just because they’re on our cap table. They care about our emotions, mental health and how much we’re enjoying the process. They know all days won’t be good ones. They invest in you ability to win long-term and they make that clear. I’ve never felt pressure to exaggerate numbers or disclose anything but the exact truth about the health of our business, my psychology, worries, challenges or concerns. It’s hard to put a price on that.

And although B16 is winding down, I feel like we’ll have that trust forever.

Last but not least: Fun

To my point above on enjoying the journey, we had insane amounts of fun. As a fellow batchmate likes to say, we burned the candle on both ends. I’ll tell this one in pictures:

That night we all went out in suits. For no reason.
Batch ski trip to Lake Tahoe
BBQs on BBQs
Farewell dinner 🙁
More BBQs

After the program ended, a batchmate and I sat in my apartment reflecting on our experience. Best parts? Worst parts?

While this post summarizes the good, we were at a loss for the bad. Sure we can nitpick: mentor whiplash (major first-world problem), seating charts, scheduling, wifi and A/C issues (if I showed up to a meeting with you sweating, it wasn’t nerves I promise) but we had no substantial knocks against our experience — honestly. It was incredible.

That said, our conversation landed on a massive caveat:

You get out of the 500 experience (and other accelerators, by our guess) what you put in. Accelerators are kitchens, not restaurants. You have to get dirty and cut through the noise to find value for team and your business. One can easily go through an accelerator and get marginal value from it. That’s the asterisk next to most self-driven learning models and, well, life in general.

My recommendation

If you’re an early-stage founder, I highly recommend considering an accelerator, whether 500 Startups or another. If you think your business is beyond the ‘accelerator stage’, I’d reconsider (at least as it relates to 500). Much of our batch raised $500k-$1M+ prior to the program and some had up to 20 employees. I’d bet they feel similar to us about the experience.

Do your diligence on existing programs, talk to alumni founders and partners and decide which program is the best fit for your company.

While it’s hard to know today the affect 500 will have on our business long-term, it certainly feels like we made the right decision. It’s changed the way we think — and that lasts forever.

Thanks so much for following our journey 🙂 If you’re interested in joining 500, applications for Batch 18 in SF are now open. Apply here and let me know you applied.

P.S. — Check this out:

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How To Pitch A VC

“Everyone” understands the high-level goals of a pitch: Make yourself memorable, and drive home your product’s value.

But working out how to put it all into one, non-boring pitch is another matter altogether — and something we work on extensively as part of the 500 Accelerator.

Over the years, we’ve learned that sticking to a step-by-step strategy for pitching VCs is a common struggle for startup founders.

Do they introduce themselves before or after their companies? Should they list their most impressive metrics upfront or work them into the pitch? What’s the proper way to end investor conversations?

Good pitches follow a rigorous structure for engaging investors and proving a company’s value.

Like all good marketing and sales, the startup pitch process starts before you ever walk into the office—it starts with research.

1. Know Your Audience

Before you ever walk into a VC’s office, you need to research the person you’re going to be meeting and adapt your strategy accordingly.

First you have to understand his/her interests:

  • Does the VC have expertise in your area? Adjust your pitch according to how much background knowledge they have.
  • Have they had any successes? If so, frame your company in a similar light.
  • Did they publish mission statements? Figure out their priorities and focus on addressing them.

Then you have to understand the logistics. You need to make sure the fund is in a position to invest in you and that you’re talking to the people who can make it happen:

  • What is their fund size? If they have a $25 million fund, they won’t cut you a check for $10 million.
  • Where are they in their lifecycle? If a firm is towards the end of their fund, they’ll be more selective in writing their last checks.
  • Who are you meeting with? If it’s someone below partner, he/she won’t be making any decisions. You may still want to meet w/ him/her, but it’s important to know.

What you’re trying to find is the simplest possible explanation of your company’s value—tailored for the VC you’re meeting. When you figure it out, practice it again and again until there are no weak points in your presentation.

2. Grease The Wheels, Then Get Straight To The Point

When you walk into the room, your first instinct is going to be to jump right into your pitch. If you do this, you’re wasting a valuable opportunity to refine your pitch for these particular investors.

Instead, start by asking them one question: “What is the most important thing you want to make sure I cover?”

This answer is hugely helpful in focusing the rest of your presentation. If they ask about market size, you’ll know to spend extra time covering it. If they ask about your team, you’ll know where to take a deeper dive.

Opening with this question also gets them engaged early in the process, before you’ve begun to really pitch your product. It helps to set a casual tone for the pitch, which is a huge boost to you.

Have A Casual Opening Conversation

Investors aren’t just investing in your company, they’re investing in you. Beginning with a causal conversation engages them person-to-person, instead of presenter-to-presentee. That connection can be very persuasive.

There are many casual conversation openers, like bringing up a mutual connection, but the key is to give the best, most authentic impression of yourself. Scott Friend, managing director at Bain Capital Ventures, says that he comes to pitches with two questions in mind:

  • “How good of an evangelist is this person going to be for their company?”
  • “Is this someone I would want to go to work for?”

Both of these questions center around your charisma and character, two things you can impress early on with some quick conversation. However, don’t let the conversation prattle on. Keep it to a few minutes tops, and then get into the meat of your pitch.

Start Things Off With A Succinct Tagline

Get to your pitch’s core by introducing your company with a tagline and short explanation. Right out of the gate, you want investors to know what they’re looking at and why they should care.

A good tagline should be seven words max, and should hint at your company’s vision in a memorable way.
Curios Following your tagline, you need to explain what your company does. Do this in less than five seconds, in language anyone can understand.

For example, “We make Facebook ads easy” is a good, straight-forward explanation of your service. “We drive synergistic mobile bitcoin monetization through international arbitrage using a distributed GPU cloud-based computation and transaction engine written in assembly,” is a mess.

The last thing you want is to ask a VC to waste mental energy figuring out your convoluted explanation.

3. Segue To Your Numbers

Now that you’ve piqued investors’ interest, you want to get them engaged with your company’s story. This brings you to a fork in the road:

  • If you have strong metrics, make sure to bring this up early and be specific.  e.g. “I founded this SaaS company two years ago, and today we’re doing a $2m runrate.”
  • If your metrics are weak, begin your story by focusing on how massive the problem is. e.g. “I founded this company after realizing there are a million teenage cricket players like Jim, unable to get a date.”

When you talk about your metrics, you have to make sure they’re integrated into your company’s story. You can’t just say “We have 1000 downloads.” Without context, your metrics don’t make sense.

Showcase Your Most Relevant Traction Metrics

In general, the further down the funnel a metric comes from, the more valuable it is.

For example, having 20,000 downloads doesn’t mean you have 20,000 customers right now. Your active users, on the other hand, show how many top customers you have right now.

Depending on the specifics of your business, your actual metrics might differ, but they should be related to these:

  • B2C Companies: DAU / MAU > Downloads > Partners
  • B2B Companies: Revenue > Number of Customers > Pipeline leads

Maybe your B2C service is a web app, so you track user registrations instead of downloads, but in general this is how you should prioritize your metrics.

Once you’ve decided which metrics to show, keep three things in mind:

  • Do your numbers support each other? If you have a huge number of B2B enterprise-level customers but your revenue is low, investors will sense something is wrong.
  • Are you using industry standard metrics? Making a VC translate your “custom” metrics overcomplicates things.
  • Can your metrics stand alone? If you have weak metrics, highlight some strategic partnerships to prove you have the infrastructure for growth.

It’s important you follow this strategy when you’re focusing on traction metrics. When your traction alone isn’t impressive, however, you’ll need a different approach.

Highlight Your Potential Growth With Market Metrics

When your traction is weak, you can always use market metrics to underscore how high your ceiling is. Market size and availability are key here.

Airbnb’s first pitch went this route:

AirBNBBy breaking down what their company could be in such a simple diagram, investors understood the exact segment of the large market they were attacking.

When you take this approach, you have to convince investors that you understand the problem that customers in this market face and that your product is the best solution to it. You need to be able to describe the specific segment of the market, the specific problem, and your product’s specific and differentiated value in a way that anyone on the street could understand.

If not, it’ll look like you identified a large vague market but couldn’t figure out how to penetrate it.

4. Tell Your Product’s Story

After showing investors why they should care about your product, you’ll be tempted to show off all the features you’ve spent time developing. But investors only care about the problem your product solves, and why it’s the best at solving it.

The most powerful way to explain your product’s value is with a story. Speak slowly and naturally as you tell investors how you, or a hypothetical person (preferably a real one), experienced this real life pain point, and how you dreamed up your product to fix it.

You want your story to be streamlined and approachable. It should make your product’s value obvious, and it should engage investors on a personal level.

If you don’t have a story, you can still explain the problem your product solves, but you’ll sacrifice the personal engagement a story brings. Still, this is a better option than telling a story no one can relate to.

Showing The Product’s Value

When it finally comes time to explain your product, focus on its benefits, not its features. The difference is this:

  • Benefits: What your product helps customers accomplish. e.g. “The iPod puts 1000 songs in your pocket.”
  • Features: What your product does. e.g. “The iPod is a digital music player with 1 GB of storage.”

These benefits are why customers will buy your product and help grow your company, which is an investor’s top concern. However, you’ll need to incorporate your benefits into your company’s story, and you shouldn’t make it sound like they were easy to develop.

Stories without contrast are boring, and investors want to hear about your ups and downs. They want to hear how you struggled early on, what roadblocks almost kept you from building this solution, and how you overcame.

These contrasting points make your story memorable, which should be a primary focus in your pitch. But being memorable alone is not enough. Once you’ve engaged investors with your story, you need to convince them that your solution is the best.

Pinpoint What Makes Your Company Profitable

Explaining your product’s value is one thing, showing how that value becomes revenue is another.

There are three aspects to this:

  • What makes you better than your competition?: Prove your market expertise and highlight your competitive advantage / differentiation.
  • How are you monetizing?: Explain clearly how you’re turning this advantage into dollars.
  • Are you profitable right now?: Compare metrics like CAC to LTV to prove your current profitability.

Your company needs one amazing thing that makes it a real winner, and this is your competitive advantage. More than that, you need a clear path to converting that advantage into profit, and some evidence that your plan is working.

However, investors aren’t just evaluating your product, they’re evaluating you. They need to have faith in your team’s ability, and it’s your job to instill that belief.

5. Sell Investors on Your Team

Investors want your story to be about more than a great product, they want to know how special your team is. They want to see that when things looked grim, your team had the grit and skills to keep the company going.

Investors are also particularly interested in teams because companies pivot all the time in search of opportunity, but their core team usually remains consistent.

Back when Airbnb was still AirBnB, Paul Graham emailed Fred Wilson to urge him to invest. When Wilson said he was skeptical about the product in its current form, Graham told him to focus on the team, saying “Ideas can morph. Practically every really big startup could say, five years later, “believe it or not, we started out doing ___.”

Selling them on why your team is both exceptional and resilient enough to grow your company is critical to instilling confidence in your investors. For a great example of this, look at 500 alumni Headout.

How Headout’s Team Raised $1.8 Million

Headout is an app that handles same-day event booking for travelers. Their pitch raised $1.8 million at our February 2015 Demo Day. Look at their team introduction to see why.

HeadOut1Building a recommendation engine that covers vastly different cities requires a strong team of developers and business development. The team has a balanced skill set that made this a compelling investment to investors.

HeadOut2However, more than just being balanced, the team showed hustle and strength by tripling their revenue in just three months.

In just a minute-long pitch, the company was impressive to a lot of investors.

How To Walk Out Of The Room

Now that you’ve reached your pitch’s conclusion, you need to make a clean exit.

You’ll want to give a very brief summary of your presentation in a few sentences. Include what you do, how you do it, and your key metrics. As a closer, use a memorable phrase, possibly reworking your opening line to include metrics.

There will likely be questions as soon as you finish. Stay confident. Keep your body language and voice natural, and converse with investors as if you were talking to another founder. Always bring the conversation back to your company’s core value.

That value is what investors care about, not just the flair of your presentation. If you stick to this formula to showcase that value, you’re going to be having much more successful results when you’re walking into those offices on Sand Hill Road.

Lastly, you’ll want to have a strong call-to-action.  Find out what are the next steps and make sure not to leave the room without understanding specifically what is going to happen next and on what timeline.  Good luck!

>> Applications for the 500 Accelerator are open now. Apply for Batch 18 here. <<

The Two Biggest Challenges For Beauty/Fashion Startups

Many founders in the beauty and fashion spaces mistakenly think growing a successful company is all about having a big following. They think the first step to a million dollars in revenue is having a million followers on Instagram.

That’s not the case. Some fashion entrepreneurs have amassed massive followings, but as a result of their work building a great business, not as a prerequisite.

Whether you’re building a name brand or a revolutionary piece of technology, the business model and the product always come first. But getting those right is not easy. Fashion and beauty are uniquely challenging verticals—they’re all about inspiring feeling, about capturing a sense of magic, about conveying a certain charm. You’re often not competing on cost or efficiency, traditional startup differentiators, at all. You have to do things differently.

There are two particularly difficult things about building a company in these spaces that founders thinking about going into beauty and fashion urgently need to know.

You Need to Test Monetization Early

When you get 1,000,000 Instagram followers, a zillion likes on your Facebook page or tons of traffic to your blog, you get great at content and branding. The problem is that you’re merely good at what everyone else is also good at. And you’re no closer to turning that traffic into sales.

The real gap and opportunity for fashion entrepreneurs today is in figuring out how to monetize your audience. That’s one of the most powerful ways to take a business to scale because it lets you grow revenue without large increases in operating cost.

Testing monetization early—even as you continue fast growth—forces you to understand what your audience is really worth. A couple of considerations:

  • Growing your following first can turn follower count into a vanity metric that encourages spammy tactics and results in low engagement from your following. Low engagement means it will be difficult to monetize your audience.
  • Testing monetization forces you to build a loyal following, which is based on delivering an awesome experience and creating real value.

Curate the audience that you target from the very first day. That audience may be much smaller, but if it’s very, very active, you’ll have the foundation you need to scale. And quickly figure out the business unit metrics behind this audience so that when you turn your focus to product and sales later, you’ll already have a strong sense of what to sell.

Why Glambot Built a Product

500 Startups alum Karen Horiuchi started her company Glambot (Batch 13) around the offbeat idea of buying and selling pre-owned makeup.

Amazon and eBay had policies against preowned makeup. Craigslist and random web forums were sketchy and full of fake or unusable makeup. You can imagine that, to disrupt the supply chain by circumventing middlemen like big e-tailers and department stores to sell used makeup straight to the consumer, you would need to build a considerable social media following.

Screenshot 2016-04-22 at 1

Coming out of 500, Glambot was doing over $1M in annual revenue run rate, growing 30% month over month with 60% gross margins.

Karen started by building Glambot as a separate site. When you’re building a marketplace, you can’t outsource your audience to Instagram or Facebook, because that’s at the very core of what you do. Over time, she built its reputation into that of a trusted dealer of used goods, not an easy feat for something as personal as makeup.

That she built her own marketplace and network totally separate from Instagram or Facebook is the key to her high margins and non-linear revenue growth, and it’s what makes the revenue she does have all the more valuable.

“Although an impressive following on Instagram is nice to have and gives the appearance of success,” Karen says, “what really matters is money in the bank. An ecommerce start-up needs to focus on revenue through conversion. Survive first then flaunt later.”

That attitude is precisely what’s given her a foundation for blowing past the $1M to $2M ARR ceiling that other beauty startups, built on top of flimsier distribution, hit.

Product First

Look closely, and you’ll see that most fashion and beauty startups are really just Shopify stores. That can be a problem if the shopping experience is critical to your user experience.

The best companies in the beauty and fashion space look a lot like their fellow tech companies—they’re 100% focused and obsessive about product, because they want to deliver a unique user experience that delights customers. They:

  • Build their own tech. If you have no full-time technical people on your team and you’ve outsourced your technology, how can you iterate quickly based on customer feedback to build a product that people love?
  • Lead with a demo. It shows your focus is on product, not customer acquisition, and that’s what you need to build a novel product that people will try.

In fashion and beauty, it’s in creating an original product and changing consumer behavior that you find massive opportunities, because people still buy and sell clothes pretty much the same way they did 30 years ago, and this needs to be disrupted.

Despite the rise of online shopping, most people still prefer brick-and-mortar shopping for all kinds of reasons. They like seeing clothes in person, touching them, seeing how they move and putting outfits together. The startups that win in this space incorporate that experience into their products.

How Glam Street Built on Bbrick-and-Mortar

Glam Street (Batch 13) cofounder Agustina Sartori started off her Demo Day presentation with a slide that explained her company’s value proposition in one image—a drugstore’s makeup aisle. “Imagine trying to find the right makeup,” she said, “In this place.”
Screenshot 2016-05-05 at 4.36.43 PM

Glam St is a B2B beauty company with a simple yet powerful product: virtual makeup try-on.

The app lets users virtually try on a number of different kinds of makeup via webcam, while Glam St’s main business model involves using brands to get that app onto huge e-commerce sites and onto tablets in the hands of in-store stylists.

Glam St is a great example of a company that recognizes the power of the brick-and-mortar experience and doesn’t try to fight against it. You can use their app at home, and in that case you’re getting what’s valuable about the brick-and-mortar experience—the process of trying makeup on and seeing what it looks like—while ditching the drive there, the parking, and the crowds.

When you use the Glam St app in-store, it’s just a layer of software on top of a traditional brick-and-mortar experience. It augments normal shopping, but it doesn’t try to replace it.

KmNagJiQSr2YkvqN3mbM_imagen2 (1)

There’s very good reasons to work with, rather than against brick-and-mortar. Buying beauty products is an inherently participatory and social act—you touch, you feel, you try things on. Instead of trying to completely change the way people shop, what Glam St is doing is simpler and more valuable. They’re using software to improve the way people already shop.

That’s part of the reason that coming out of 500, Glam St was doing over $400k in annual run rate with 60% margins. That’s in an industry—beauty—worth a global $50 billion.

Despite the value of that market, a lot of people still believe that you simply can’t sell high-margin goods online. Or, they say that the brick-and-mortar experience is static and unchanging. Both are wrong. You just have to understand what you’re selling.

Beauty isn’t something you can sell the same way you sell USB cables. You won’t win if you use technology simply to make something cheaper or faster. You have to use technology to actually improve the experience and deliver value.

Growth Style

Some people look at beauty and fashion companies and just see vanity, surface, and gloss. They see celebs lending their likenesses to market-clunky, Pinterest-clone apps and think that the whole field is just backwards.

But in reality, beauty and fashion are incredibly difficult verticals to crack as a startup, and the people that are doing it are some of the most ambitious and intelligent founders out there.

Some companies can grow on the merit of one competitive advantage, but beauty and fashion startups need to combine structural efficiencies with the kind of effortless cool that their customers expect. They have to understand in equal measure two things that couldn’t be farther apart—the cold logic of achieving non-linear growth and the emotional desire that drives fashion.


The Startup Pivot Pyramid

In 2011 we raised $2M from some of the top investors in Silicon Valley. Our startup, SocialWire (later renamed Manifest), helped online retailers instantly personalize the shopping experience when their customers signed in with Facebook. However — we soon learned that it was hard to convince the big retailers to add our product recommendations to their websites which they’ve been optimizing for years. We also found that not enough customers wanted to sign in with Facebook while they were shopping online to get a more personalized experience.

With most of our $2M still in the bank, and a technology that was good at matching Facebook users to the right products, we decided to pivot on the problem we were solving for the same customer and rebuild our product. Instead of generating product recommendations using Facebook — we would dynamically generate personalized product ads on Facebook. This new direction resonated with online retailers and the company was eventually acquired by Rakuten.

Searching for Product Market Fit

Finding product market fit is hard. Most companies fail while searching for it. Marc Andreessen, in his 2011 essay, introduced the term as a moment in your startup’s journey where things start to work. More and more customers demand your product and you achieve sustainable growth.

When you have product market fit, you know it.

Most successful companies go through several pivots to find product market fit. What makes it work is usually not one major pivot, but a series of experiments across customers, problem, product, technology and growth channels. Is there a process for entrepreneurs to experiment across these areas of their business in an efficient way?

Growth marketers already figured this out. Great growth people are not necessarily the most knowledgeable marketers — they approach marketing like scientists. They have a thesis on how their idea (e.g. new advertising channel) will lead to growth, they run the experiment, look at the data and if the experiment is successful — they make it repeatable. I strongly suggest you read this by Brian Balfour, check out this talk and spend time on to understand the growth experimentation process.

Growth experiments are the tip of the iceberg — that is your startup.


But growth experimentation is the tip of the iceberg — that is your startup. How can entrepreneurs apply this process of experimentation to other areas of their business, and pivot to find product market fit?

Introducing the Pivot Pyramid

Enter the Pivot Pyramid. It is a visual guideline to help founders make changes and run experiments in different areas of their business to drive growth. As investors, this is similar to how we ask questions and evaluate your startup. As founders, you could use the same guideline to come up with ideas or pivot your startup.

the startup pivot pyramid diagram


Customers are the foundation of your startup. The problem you solve, the product you build, and the technology it’s built with — all depends on who your customer is. You may change and pivot your customer, but when you do, you will need to re-evaluate everything above in the pyramid.


Maybe you have identified the right customer, but you are solving a problem that doesn’t exist or doesn’t matter that much. You can pivot here, but you’ll need to re-evaluate and change your solution, tech, and growth strategy. If you have the customer and problem right — you have a market.


You’ve identified the problems that matter to your customers. Now you have to build a product that resonates with your customers better than existing solutions in the market. Like any other changes in the pivot pyramid, changes you make in product must target quantifiable growth.


Your technology is just a means to build your solution. Even if your product resonates well with your customers — your technology choices may be hindering your growth and retention. For instance, one of the main reasons Friendster failed as the first mainstream social network was because they couldn’t keep their servers up with demand.


All changes in the pivot pyramid must lead to growth. But some experiments do not require any significant change in your product or technology. These changes reside at the top of the pivot pyramid. A great marketer should frequently experiment with new growth tactics. This is needed because most growth channels get saturated or become too expensive over time.


Famous Examples of Pivots for Each Stage


Key Takeaways from the Startup Pivot Pyramid

Frequency of Experiments

Changes you make at the bottom of the pyramid won’t be frequent. For instance, you can’t change who your customer is the problem you are solving often. The pace of experimentation increases at the top of the pyramid. This is especially the case as your startup matures and you find product market fit.

Start with the customer and problem

A common mistake entrepreneurs make is that they start with their product and technology without truly understanding who their customer is. If this is broken — nothing else works. That’s why you shouldn’t focus too much on marketing before you nail the customer, problem and solution. First, you have make something people want. You don’t want to put jet fuel in a car with a broken engine. Fix the engine first.

Pivoting below, changes everything above

The changes you make at the bottom of the pivot pyramid, will impact your decisions above. But the changes you make at the top, don’t necessarily require you to change things below.

For example — if you pivot on your problem, you will need to change or re-evaluate your product, technology and marketing channels. On the other hand, if you changed your technology stack, your customers may not notice any changes in your product. Similarly, experimenting with a new marketing channel may not require any changes in product or technology.

You can’t have multiple types of customers

A common mistake that kills early stage startups is focusing different types of customers at once. The changes you make at the bottom of the pivot pyramid will impact the decisions you make above like product, technology and marketing. So if you focus on more than one type of customer, you are literally building multiple startups at once. As you mature as a company and achieve product market fit — it is to have more than type of customer (e.g. SMB and Enterprise). As an early stage startup, you can’t afford to do that.

Marketplaces (e.g. Uber, Airbnb) are an exception to this. Marketplaces have two types of customers from day one: Sellers and Buyers. But that’s why building marketplaces is really hard.

All experiments must lead to GROWTH

One of the most important things founders can learn from growth marketers — is the scientific process for experimentation. That is also the foundation of the pivot pyramid. If you have an idea for a pivot like “testing a new marketing channel” or “implementing a referral program” (GROWTH) or “migrating your servers to AWS” (TECHNOLOGY), make sure it is closely tied to a measurable goal to help with growth. Have a thesis, run a low cost experiment, measure the results, and if it works — implement change.

What is your Pyramid?

So, what is your Pivot Pyramid? Tell us about your pivot stories and how they made an impact in your business.In the mean time, be sure to follow us if you want to hear about real examples of successful pivots from companies in the 500 Startups portfolio.

You can also find this post on Selcuk’s blog and follow him here.
Here’s the full Pivot Pyramid deck on SlideShare:
* Special thanks to Dominic Coryell, Mathew Johnson, Andrea Barrica, Susan Su, Yonas Beshawred, Sahin Boydas, and Carl Fritjofsson for reading drafts of this, providing feedback and suggesting edits.