Serial entrepreneur Andrew Hoag had a huge frustration.
At previous businesses he’d run, employee purchases were always a big struggle. Whenever one of his employees needed to buy something, he had to either hand over his credit card or convince the employee to file for reimbursement. Then there was all the work involved in keeping track of who bought what, why, when, etc.
“I realized that, as an engineer, I have better tools to keep track of my source code than I do my money,” Andrew says.
He decided to build a tool to fix the problem, and Teampay was born. Andrew describes it as a single sign-on for a company’s bank account.
When we spoke, he’d just raised $4 million between his pre-seed and seed rounds. Here are key lessons from Andrew’s fundraising journey.
What’s your SAFEst bet?
As a serial entrepreneur, Andrew knows his way around convertible notes. For this venture, though, he chose to raise through a SAFE, or a simple agreement for future equity.
He doesn’t have a hard and fast rule for when to use SAFE or a different approach. But for this company, he was looking for a clean, simple and quick investing strategy. That’s exactly what a SAFE offers. It’s effectively a contract to buy equity in a future round.
“Two kinds of terms on a SAFE can come into play,” Andrew says. “One is basically that the investor wants a discount on the next round. That discount may come by saying that the SAFE will convert at a price no greater than X.”
Alternately, a SAFE can have a ceiling called a cap, which ensures an investor’s money goes further in the next round. If the cap is placed at $7 million and you raise the following round at $10 million, the investor gets to buy his or her shares as if they had invested at a $7 million valuation.
If a SAFE is raised when a company is valued at $10 million, and discount is 20 percent with no cap, investors get to buy in at the $8 million level.
“The discount and the cap play into each other,” Andrew explains. “I think that’s a really important feature for entrepreneurs to understand, because investors understand it very well.”
It pays to get your story right
When Andrew started his pre-seed round, he only had a prototype and a PowerPoint to show investors.
“This is one of those ‘don’t do what I do, but do what I say’ things,” he says.
The issue wasn’t so much having an unfinished product as having an unrefined pitch, Andrew explains.
“The first story we took to the market didn’t fully capture the vision.”
He has helped other entrepreneurs tell their stories, but it still took him 14 months to get the story right for Teampay.
“In the beginning you want to test the story, knowing it’s going to change, and simplify things,” he says. “What wins an investment deal are the slides you remove from the deck, not the slides you put in it.”
Andrew also realized that the problem Teampay solves — managing employee purchases — might not be relatable for some VCs. But pitching VCs who have very little experience with a certain product is something many entrepreneurs face.
That’s why it’s critical for founders to learn to communicate their company’s value proposition crisply and clearly.
“We were not building a better mousetrap,” says Andrew. “We were getting rid of mouse traps all together. That’s really hard for people to understand if they’ve never had a mice problem. They haven’t had 200 people with multiple layers of delegation, sharing a corporate card attached to a clipboard and writing in what they bought.”
One of Andrew’s potential investors was so inexperienced with company purchases that he dismissed Teampay as a solution for poorly run companies. But Andrew was confident he could find a language potential investors could understand.
He did so through an analogy: “If you’re familiar with single sign on, you’re familiar with source code control. Yet none of them exist for a company’s money.”
Those turned out to be the magic words for some investors.
4 tips on pitching
When it comes to pitch structure, Andrew has strong opinions:
1. Keynote over PowerPoint.
“Simply because it always looks better,” he says.
2. Tell a story with slide titles.
Avoid building a series of slides with generic titles like: The Problem, The Solution, The Business Model. Instead, use the titles to tell a narrative. “There’s this technique of using the title of the slide to tell the main point, and then using the slide itself to list supporting data points,” he says. “It creates a really nice structure.” By doing it this way, investors are left with the impression of a full narrative built from the titles.
Andrew says that you’ll know that you’re on the right track when you can read the story from the slide previews on the left side of the screen.
3. Have an answer for the question, “why now?”
“It’s important to be part of a trend,” says Andrew. “Especially if you’re doing something different. Why is this important now? What is going on? Then talk about your solution. Then talk about your product. Too many people spend five slides talking about the product. The product is not the business.”
4. Be selective on your slide content.
Andrew recommends building an exhaustive appendix to your pitch, instead of trying to cram every detail into the slides. “Can you create a succinct story around why this is an obvious, inevitable change in the world?” Andrew asks. “Everything else is for backup.”
Giving potential investors a fully-fleshed out appendix lets them ask more thoughtful questions. It ensures that you have all the details you need close at hand, without muddying the story. The only catch is that it might take a few meetings with investors for an entrepreneur to identify which questions to include in the appendix.
When can you quit refining your pitch? Andrew says you’ll figure it out.
“As a founder or an entrepreneur, you need to be constantly iterating your story, and constantly simplifying it. You’ll recognize when you get that ‘aha!’ moment.”
Nathan Beckord is the CEO of Foundersuite.com, a software platform that has helped entrepreneurs raise over $1 billion in seed and venture capital since 2016. This article is based on an episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders have raised capital.