Seed investors don't just want to hear great data, they also need to be hooked by the personal story and the vision that’s driving your startup.
Reham Fagiri checked all the boxes before going out to venture capitalists for seed funding. Her pitch deck bulged with data on growth rates for her startup, AptDeco, which buys and sells new and used furniture online. Yet in spite of its obvious customer appeal, it took longer than she anticipated to reach her fundraising goals.
Her lack of connections certainly played a part. “I had to become a LinkedIn stalker when I first started,” she jokes. “I knew nobody.” But it was more than that. Fagiri found she also needed to better balance her impressive data with two other essential elements for a seed funding pitch: story and vision.
“Don't underestimate the power of storytelling,” she says. “We wouldn’t have been able to raise a dime without great metrics showing customer traction. But we also discovered that you basically need to tell a very human story about the pain point you found in the market. Investors also want to hear your vision of just how big an investment opportunity you’re offering.”
Fagiri shared her experiences with founders joining her in the first cohort going through Morgan Stanley’s in-house tech accelerator, the Multicultural Innovation Lab. Alice Vilma, Executive Director at Morgan Stanley’s Multicultural Client Strategy group, set up the peer session so that founders with early-stage startups, Ian Folau of Gitlinks and Rachel Mayer of Trigger Finance, could get some insights from startups at a later growth stage, like AptDeco.
Women and minority founders tend to rely heavily on data to prove themselves and the strength of their business, says Vilma, when it’s the story and the vision that helps the idea of the startup resonate.
“Women and people of color can find it hard to raise money, because they’re trying to prove out the business model,” Vilma says. “When you don’t know anyone in the venture-capital world, then you need to work that much harder to build connections, and you need a very human story to do that.”
Founders also need to paint a picture of how big an opportunity they're offering. “Tell them your vision for how big the company will be in five years time; show them that you have what it takes to make it happen, and then back it up with the data,” says Vilma.
The idea for AptDeco came to Fagiri when she was moving to New York from Philadelphia after her MBA. She listed her furniture on a large online classifieds platform and found that, in doing so, she was inviting strangers into her home.
“We always had a story and a vision as part of our pitch, but it never really stuck, until a mentor told us to start telling investors a story at a very human level,” Fagiri says. “Things really changed for us when we talked about the experiences we’d all had selling furniture online. There just had to be a better way for people to buy and sell used furniture, without letting creepy people into your apartment.”
Having a strong story helped build rapport with investors. “People invest in people, not just ideas. And it’s only human nature for investors to relate better to people who come from a similar background," says Fagiri. "So as a woman or a minority without connections, the more your story builds rapport with investors, the better.”
The more your story builds rapport with investors, the better.
Fagiri ultimately reached her seed funding goals, but it was through a lot of smaller checks, rather than a few large ones. To attract larger investments, Folau and Mayer were recommended to build on the scope and vision of their company's size, five years from now.
“We’re hearing that your data needs to be placed within the context of how large you expect the market for your product to be in five years time," says Folau. "You basically have to always be thinking about your needs a month ahead, but be talking about how big your business will be, five years from now."
Gitlinks' software monitors a corporation's use of Open Source code, to reduce its vulnerability to hackers. “Today we’re solving a niche problem set, but every company is now becoming a tech company and needs to download Open Source code. We know cybersecurity and regulatory vulnerabilities could become a much bigger problem spanning many industries in years to come,” says Folau.
Talking about the bigger opportunity ahead can also lure influential investors with a halo effect. “At the seed stage, you need investors who can give both capital and support,” says Vilma. “You want to have backers who are passionate about your vision for the company, who can give you advice and introductions to other investors.”
Mayer, a co-founder of Trigger, is now considering other customers, beyond retail investors. “We are very passionate about giving professional finance tools to the retail investor,” she says. “But after speaking to people at Morgan Stanley, we see there are so many other markets in which our product can be applied. It’s now a far bigger revenue opportunity that we’re talking about.”