A simple trick to get more investors

I still remember a horrible pitch session I was at in Silicon Valley over 5 years ago. I was pitching Skymeter, a potentially multi-billion dollar transport technology business, with deep patented technology, that had won industry awards. The guy before me was pitching a set of wireless drum sticks that let you play ‘air drums’. Shake them in the middle right and get a snare drum sound, top left cymbal, and so on.

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He stood up and demoed his product, playing his invisible drum kit, before quoting a few stats (and neglecting what seemed to me to be that his product served a tiny niche). Then I stood up to speak, and introduced our complex technology business. Afterwards, he was mobbed by investors. I stood there all alone.

Why is this? There’s actually an important psychological factor at work. A factor which explains why you need to make your business pitch simple. A factor that explains why you’ll raise more money if you do.

It’s all about the ‘processing fluency’

It takes mental energy for your brain to understand things. ‘Processing fluency’ is the ease with which things can be understood. Processing fluency matters for two reasons.

The first is obvious as an outsider, yet is often confusing to the entrepreneur speaking with great pride about their business. If you make what you are saying too hard to understand, then people won’t understand it. Every week I listen to pitches by our Founder Institute Toronto cohort. Last Monday, the feedback from one of our mentors was ‘after listening to you for the past 5 minutes, I still don’t understand what you do’.

If people don’t understand what you are doing, then they won’t invest in you.

It’s that simple. So make it simple, so they can understand.

How to make people believe things

There is a second, more surprising, reason to make things understandable. It makes people more likely to think what you say is true.

Imagine, for instance, two statements on healthcare in the US (which actually parallel the debate fairly well). One side says ‘Obamacare kills people’. The other says ‘the Affordable Health Care Act has given coverage to people without healthcare, which has resulted, on average, in lives being saved’. The second statement is logically stronger. The first statement is easier to agree with (unless it goes against your biases), just because it is easier to understand.

How do you use this as an entrepreneur? Make your business easy to understand. Make simple statements, that people can understand and hence agree with.

I remember an INSEAD entrepreneur I heard pitch a few years ago. He had some technology that helped cost-effectively provide pure oxygen (or something) that was valuable in treating newborns, especially in parts of the world where reliable medical supplies were hard to come by. And that’s roughly how he explained it.

As I tried to persuade him, his pitch should have been: ‘we save babies in Africa’.

He felt that was too simplistic. Too dramatic. Guess what? The human brain is designed to pay attention to drama … and to believe that simpler statements are more true.

Don’t complain, use this to your advantage

To return to my initial story, it is easy as an entrepreneur to blame the ‘stupidity’ of investors for focusing on the literal toy drumsticks, which have a limited potential, instead of the industry-transforming, patented technology.

The fault is not with the investors, it is with the entrepreneur. If I had made my business easier to understand, then I could very well have been flooded with investors instead.

If you aren’t getting the investors you feel you deserve, maybe the problem is with the complexity of your pitch. Make it easier. That will get people to agree with you more … and want to invest more.