The art of Inception for fundraising entrepreneurs (“Logos”)

June 23rd, 2011 by Greg Boutin

Image by Shing Yan via Flickr

In the movie Inception, any logical incoherence in the structure of a dream threatens to interrupt the dreamer’s suspension of disbelief – and wake them up. Pitching investors is a lot like incepting them: they need to (literally) buy into your dream. And likewise, the logic of your case must be flawless.

What makes it even harder is that, just like in the movie, most investors’ subconscious is militarized. Professional investors in particular, such as venture capitalists, have developed a fairly good BS detector, and will kick you out of their heads quickly if they detect logical impossibilities in your case. Friends and family are easier, but that’s because you’ve already overcome one of the key defense mechanisms: trust (we’ll come back to that point later in this series of post). Usually they will still turn you down if they don’t believe in your dream, though.

The higher your business objective, the stronger the foundations must be to support the weight of the structure. If those foundations are shaky, the whole thing will collapse. For a startup that seeks equity investors, an ambitious objective is not an option, it is a must. To support the type of 10-50x return sought by such investors, your business case needs to be bold and differentiated.

But the bolder and more differentiated it is, the more fears and objections it will raise in the heads and hearts of potential investors… To alleviate those fears, you need to root your idea in credible assumptions (your foundations) and use logic to build a cohesive case on top of those assumptions. That’s the “Logos” I talked about in my last post.

Practically, you will need to think about the main claims you are making and which backing evidence you have or will need for each one of them.

Compare these two statements:

Apple computer users see themselves as part of a distinct group. They like to buy clothes from big names, are more social and also like to hang out at Starbucks. So we think there is an opportunity to target them with a website selling branded apparel that mirrors their distinct brand tastes. We set up a blog page telling our friends about it.


According to an eMarketing study two months ago, each Apple computer user in the U.S. buys 15 branded pieces of clothing a year from shops such as [insert name of any hip shop here…]. A 2010 Nielsen survey also showed that Apple users rely 7 times more on social networks for product recommendations than the average user. Yet there is no website catering to their specific clothing needs, and letting them leverage a dedicated social network and a FaceBook widget to recommend products to each other. To test that idea, we set up a quick social network with handpicked clothing pre-orders and invited local Apple users here at the university to try it out: out of 70 target users, over 60% signed up and we pre-sold 20 pieces in a week.


Which statement do you think will resonate better with investors?

The first one presents assumptions as a series of unproven beliefs, with no explicit relationship to the business idea. How does the Starbuck connection support the business idea – is it because there is wireless access at Starbucks, because it’s also a big brand? Who knows?

Then it makes a logical leap to the business concept itself. In addition, the business concept description is not particularly refined, which will lead investors to make their own assumptions about the level of effort invested in this business idea. In practice, investors are unlikely to be particularly kind to such entrepreneurs.

The second statement might be a little longer (and certainly required more work), but it clearly states the key assumptions on which the business concept is based, with plain facts and sources to back them up. The set of assumptions is not necessarily complete (one might wonder what portion of Mac users would buy clothing online without trying them first, or how Facebook Ads doesn’t address that problem already), but the facts seem solid and at least the logic is clear.

You can’t address all possible objections in a pitch – there will always be some you haven’t stated or even thought of. But you can signal to the investors that you have left few stones unturned, that you are a person/team they can rely on, and that you are even more interested in the potential challenges in your plan than they are. With pitch #2, you are more likely to “incept” the investors into believing in your project. Pitch #1 on the other end will raise FUD (“Fear, Uncertainty and Doubt“) about your plan and your capacity to realize it.

I’ll build on that in my next post. On your end, what do you think? Have you experienced poorly/greatly constructed pitches and business cases?

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