• Steve Martocci, cofounder of the music-editing company Splice, had previously sold GroupMe to Microsoft for $85 million at just 27 years old.
• Still, Martocci worried he would not receive funding for Splice due to an over-saturation in the music startup space, he told Business Insider in an interview.
• Many VCs — even those who had made money off GroupMe — rejected him.
• Visit Business Insider's homepage for more stories.

Steve Martocci's résumé is sure to cause entrepreneurship envy.

Martocci cofounded GroupMe, which Skype bought for $85 million less than a year after launch. Martocci designed the app at a 24-hour hackathon when he was in his 20s.

Prior to GroupMe, Martocci founded Sympact Technologies, an email marketing company, and worked as a lead engineer for the online shopping company Gilt. 

Read more:The cofounder of GroupMe was 27 when the text-messaging platform sold for $85 million just a year after launch. Now, he's raised $107 million for a music startup that could make him even more successful. Here are his lessons for pitching, leading, and building a company.

Despite his stacked portfolio, the entrepreneur still feared he wouldn't get funding for his next venture: Splice, a music creation platform that raised $57.5 million in a Series C funding round earlier this year.

Many investors said no to Martocci initially, even those who made money off GroupMe, he told Business Insider's Shana Lebowitz in a recent interview.

But Martocci "didn't blame" investors who turned away from Splice in its early days. Creating a music platform was risky, Martocci said, because of the oversaturation of artists and ideas in the industry. "There are so many dead bodies buried in the space," Martocci said.

Still, he believed there was a market for Splice: "We're just in a very serious renaissance for music right now and the rise of the creative class. I think people underestimate how much content kids are forced to make these days."

Martocci was wary of entering the music space at first, but eventually decided to go for it after a serendipitous meeting at a conference in Bogotá, Colombia. The entrepreneur ran into Matt Aimonetti, an audio engineer and his eventual Splice cofounder. The two bounced ideas off each other and started building code for the project at the conference.

Then Martocci ran into Adam D'Augelli, a partner at True Ventures, in New York City. He showed D'Augelli what he and Aimonetti had built at home. D'Augelli agreed to invest, as did Andy Weissman at Union Square Ventures.

The early days of Splice were rocky. Martocci and Aimonetti launched Studio, which lets users store their work and collaborate with others — but the market wasn't ready for it, Martocci said. They had greater success with the launch of Sounds, which lets users download samples from producers, artists, and sound designers.

Today, Splice says it has 2.7 million users and counts among its subscribers Drake's producer Boi-1da, according to The Wall Street Journal. 

Martocci said the Colombia trip taught him that entrepreneurs shouldn't be afraid to bounce ideas off other people, and use networking to help make ideas stronger.

"I am very transparent, and ideas from me are pretty cheap," he told Business Insider. "Putting yourself out there, getting feedback, meeting people, building your network, all this stuff can really pay off."

Read Steve Martocci's full interview with Business Insider about his lessons for pitching, leading, and building a company.

SEE ALSO: The first-time founder's ultimate guide to understanding stock options

Join the conversation about this story »

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• Raising venture capital can be an arduous process.
• We've made it simpler with our comprehensive guide to understanding the language on a term sheet.
• Below are tips from founders, investors, and lawyers. For example: Think long term and weigh the importance of money versus control.
• Visit Business Insider's homepage for more stories.

If you've made it through the pitch process and are at the point where an investor has handed you a copy of a term sheet, you have a right to feel pretty excited.

So give yourself a few minutes to celebrate — and then get down to business.

While a term sheet isn't a legally binding document, it has the potential to shape every future round of funding you raise. It's extremely important to read it carefully, hire a lawyer to help you understand what you just read, and make sure you're comfortable with everything in there before signing your name.

Business Insider spoke with a series of entrepreneurship experts — including founders, investors, and lawyers — about key aspects of the term sheet and the most common pitfalls to avoid. Though everyone interviewed declined to share copies of term sheets they'd signed, citing confidentiality reasons, you can find templates on the National Venture Capital Association website.

Read on for the best advice we heard about term sheets:

Look at the big picture

It's easy to get bogged down in all the legalese in a term sheet.

But ask Jerry Chen, a partner at the venture-capital firm Greylock Partners, and he'll tell you that the main thing to focus on is the quality of the investor and the firm they work for. If you've chosen someone knowledgeable and experienced, it's unlikely they've included anything deceptive or unconventional in there.

The three key categories of terms to review, according to Chen, are valuation, governance, and voting rights (more on all those below). While other terms are important, they won't have as much of an impact on your company's future success.

Get familiar with the negotiation process

Keep in mind that you won't be drafting a term sheet — the investor will. If you're lucky, you'll have multiple investors vying to be the lead, so you'll receive competing term sheets. The terms you set with your lead investor determine the terms you'll set with other investors participating in the round, said Bouchra Ezzahraoui, a cofounder of the New York jewelry company AUrate, which launched in 2015 and raised $2.63 million in a seed funding round.

So exactly how long does this whole process take? Dave Kimelberg, the managing partner at Kimelberg PLLC, a New York City firm that provides legal counsel to entrepreneurs and investors, said that if your company's in demand, it could take just a week. Otherwise, VCs won't be incentivized to move as quickly, and negotiations might take months.

Read more:A startup founder who was rejected 148 times by VCs made these 2 small changes to her pitch, and she's since raised nearly $30 million

Know what constitutes business standard

The term "business standard" means "how things are typically done." If something on the term sheet isn't business standard, be sure to ask about it and how it will benefit the company, Ezzahraoui said.

For example, Kimelberg said term sheets today are typically two pages. If an investor sends you a 10-page term sheet, it's on you (and your lawyer) to figure out exactly why.

Then again, you may very well want to deviate from business standard in some portion of the term sheet. Just because something is business standard "doesn't mean it's how it should be done," said Nick Martell, a cofounder of the daily finance newsletter MarketSnacks. (Martell is now a managing editor of news at Robinhood, which acquired MarketSnacks in March and renamed it Snacks.) "There's always room for innovation in finance."

That said, if you do want to change business-standard terms, you'll need to back that up with supporting evidence, said Jack Kramer, the other founder of MarketSnacks (now also a managing editor of news at Robinhood).

Think long term

Always keep in mind that the term sheet you sign today will influence future fundraising rounds. "That document will tag around for a long time," Ezzahraoui said.

Sacha Ross, a partner at Cooley LLP, a New York City law firm that advises high-growth companies and investors, shared an example of how myopic thinking can come back to haunt a founder. Say you agree to give the VC a 10% cumulative dividend on their investment, meaning every year they receive 10% of their investment.

"A cumulative dividend of 10% for a $1 million raise may not be that impactful," Ross wrote in an email to Business Insider. "But if that dividend is carried through to a $300 million growth round, the preference can build quickly."

Ezzahraoui also advises founders to know where they want their company to go in two to five years, including the investors they want to target in their next fundraising round and what those investors primarily care about. She encourages founders to think about whether their current term sheet presents any obstacles to landing those future investors.

Remember this is the beginning of your relationship with investors

"There's this tendency to think of the fundraising as the milestone moment, as the capstone," Martell said. "The reality is that the fundraise is where the work just gets started."

Chen said the negotiation around the term sheets gives you a glimpse into what it would be like working with the VC going forward. It's the only time when you and the investor will be on opposite sides of the table, so you'll get to see how they conduct business.

Read more:The first-time founder's ultimate guide to pitching a VC

Educate yourself and seek legal counsel

As a first-time founder, you should absolutely seek legal counsel during the fundraising process.

"If you are going to spend money on legal," said Megan O'Connor, the cofounder and CEO of Clark, "this is the time to do it." The tutoring-software company, based in New York, launched in 2016 and has raised $3.5 million in angel and seed funding rounds.

Ezzahraoui added that it's important to do your own research — reading the literature, talking to other founders — even before meeting with your lawyer, so you know which questions to ask. And of course, don't be afraid to ask those questions. "You have to be confident enough in yourself to show when you're not confident," Martell said.

A word of caution: Patrick McGinnis, a serial entrepreneur who's the managing partner at Dirigo Advisors, an independent advisory firm, said lawyers can miss things too.

"You must read everything extraordinarily carefully, and you must do all the math yourself and make sure all the math works out," McGinnis said.

Another option is to ask the investor you're considering partnering with to give you a copy of a typical term sheet. It doesn't have to include exact numbers, but it could give you an idea of what it looks like so you're not caught by surprise or pressured to respond quickly, Chen said.

Plus, Ross said that "showing that you as a founder understand what's important to you, and want to know what's important to your investor, establishes your credibility."

Take the document seriously

A term sheet is not legally binding. Typically, the founders' and investors' lawyers will use the term sheet to draft other, legally binding documents, including stock-purchase agreements and shareholder agreements.

But as Martell warned, don't think you can change something when you get to the real contract.

"Once you agree to the term sheet, those are the general principles you're agreeing to, and nothing should be in conflict with what's in the contract," he said.

Weigh the importance of money versus control

In their 2016 book, "Venture Deals," Brad Feld and Jason Mendelson, cofounders and managing directors at Foundry Group, which invests in early-stage technology companies, wrote that VCs care primarily about economics (the return they'll get in a liquidation event, like an initial public offering or acquisition) and control (their ability to veto founders' decisions and shape the fate of the business).

Feld and Mendelson wrote that if a VC is preoccupied with any terms beyond the scope of economics and control, that shows you how nitpicky they might be down the line.

As for prioritizing money or control, Ezzahraoui said that sometimes you'll want to go with the investor at a lower valuation if they add more value to the business or if the term sheet positions you for a higher valuation in the future. As a founder, you have a fiduciary duty to keep the best interests of the company in mind, she said.

"Founders can get a little 'valuation hungry,'" O'Connor said, but it's also important to consider terms like dilution and future acquisition price. "Higher doesn't always mean better."

Pay attention to the liquidation preference

"Liquidation preference" outlines how the proceeds will be shared in a liquidity event. According to "Venture Deals," it's among the most important terms in a term sheet.

Capshare's guide to term sheets breaks down the standard practice: When a company is sold, preferred stockholders are entitled to an amount equal to what they invested before other stockholders receive anything at all. Preferred shareholders can also convert their shares into common stock and receive cash instead.

Keep in mind the size of your option pool

Your "option pool" is the amount of equity you can grant future employees. The size of the option pool (typically between 10% and 20%) is taken into account in the company's valuation, according to "Venture Deals"— meaning a bigger option pool isn't necessarily advantageous.

Feld and Mendelson recommended preparing an option budget for your negotiation with an investor, listing all the hires you plan to make between now and the next round of financing and how much equity you'll offer them.

Read more:VC giant Greylock, a Dropbox and Facebook investor, just hired a new partner to staff its portfolio's startups. Here's the No. 1 trait she looks for in executive candidates.

Consider board dynamics

Kimelberg encouraged early-stage founders to keep control of their board (meaning a majority of seats) and to keep it small. A three-person board is advisable, he added, typically with two representatives nominated by common shareholders and one representative for the preferred shareholders.

Whatever you do, make sure there's an odd number of seats, to avoid deadlock.

Review protective provisions

The protective provision outlines how much control VCs have over your company. For example, you might need their permission to sell the company, raise another round, issue more stock, or declare bankruptcy.

Kimelberg said the voting-majority threshold shouldn't be too high — in other words, "you don't want to have to chase down 70% of all the stockholders to get approval" for a certain decision. What's more, Kimelberg added, the protective provisions in this term sheet will set a precedent for your next round of financing.

Bring up any employment issues

"Any material employment issues, I would also throw into the term sheet, make sure they're there, so that you've surfaced them," McGinnis said. For example, if you're the founder of another company, the term sheet might indicate you'll spend 10% of your time there.

If you don't have any side projects but that paragraph is in the term sheet anyway, it's possible the investor suspects you've got something else going on, according to "Venture Deals."

SEE ALSO: The first-time founder's ultimate guide to understanding stock options

Join the conversation about this story »

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• GroupMe founder and Splice CEO Steve Martocci has raised hundreds of millions of dollars in capital for his startups.
• The fundraising success taught Martocci that venture capitalists know when an entrepreneur truly believes in the company's mission, or if they are just looking to make money, he told Business Insider.
• Visit Business Insider's homepage for more stories.

Steve Martocci knows a thing or two about raising money.

Martocci and his cofounder raised $11.5 million for text-messaging app GroupMe before selling to Skype for $85 million. Splice, a music-creation platform that Martocci currently runs, raised $57.5 million in a Series C funding round earlier this year, bringing the total investment to $107 million.

His private-plane service, Blade, scored $38 million in its Series B round in 2018.

Read more: The cofounder of GroupMe was 27 when the text-messaging platform sold for $85 million just a year after launch. Now, he's raised $107 million for a music startup that could make him even more successful. Here are his lessons for pitching, leading, and building a company.

Martocci said part of the secret to his fundraising success is truly believing in all his ventures. When asked how soon entrepreneurs should think about selling a company, Martocci said thinking only about money could be a recipe for disaster. 

If an entrepreneur is just in it for the money, venture capitalists will catch on, Martocci told Business Insider reporter Shana Lebowitz. 

Martocci said he aims to build Splice into the most "iconic" company in music history. As both someone who raises funds and angel-invests, Martocci said venture capitalists are turned off by a creator whose primary aim is to sell the company.

"If you're doing venture to be like, 'Oh, I can sell this for a few million bucks,' you're going in wrong," Martocci told Business Insider. "They'll sniff it out."

Even though Martocci wasn't just building Splice for the money, he still faced other challenges, like proving to VCs the existence of a market.

"Market is the hardest thing to convince VCs on," Martocci said. "I think we have some of the best market data about this space, but if you have to convince someone about a market [and] your plan, you are in an uphill battle." 

Read Steve Martocci's full interview with Business Insider about his lessons for pitching, leading, and building a company.

SEE ALSO: The first-time founder's ultimate guide to navigating a term sheet and avoiding common pitfalls

Join the conversation about this story »

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If you've made it through the pitch process and are at the point where an investor has handed you a copy of a term sheet, you have a right to feel pretty excited.

So give yourself a few minutes to celebrate — and then get down to business.

While a term sheet isn't a legally binding document, it has the potential to shape every future round of funding you raise. It's extremely important to read it carefully, hire a lawyer to help you understand what you just read, and make sure you're comfortable with everything in there before signing your name.

Business Insider spoke with founders, investors, and lawyers about key aspects of the term sheet and the most common pitfalls to avoid. 

Subscribe here to read our feature: The first-time founder's ultimate guide to navigating a term sheet and avoiding common pitfalls, according to founders, lawyers, and investors

Join the conversation about this story »

NOW WATCH: A Silicon Valley founder shares the 6 traits she looks for in the entrepreneurs she invests in

• A Columbia University psychology professor, who has taught MBA students at New York University and the London School of Economics, says they increasingly want to become entrepreneurs.
• Research suggests that few MBA grads go on to start their own companies — except at top programs for aspiring entrepreneurs.
• Opinions differ as to whether an MBA is helpful for people who want to become entrepreneurs.
• Visit Business Insider's homepage for more stories.

Tomas Chamorro-Premuzic started teaching MBA students more than 15 years ago.

Back then, all his students wanted to work for corporate giants like Goldman Sachs, IBM, and Unilever.

A decade later, Google, Facebook, Apple, and Amazon were the big draws.

But now, graduates aren't flocking to the corporate world at all, whether IBM or Amazon. When I interviewed him by phone last year for a story about the dangers of "entrepreneurship porn," he said of his students that today, "the vast majority tell me, 'You know, I'm going to be a startup guy. I'm launching something. I'm going to create the next big X, Y, Z."

Chamorro-Premuzic is a psychology professor at Columbia University and the chief talent scientist at Manpower; he's held positions at the London School of Economics and New York University.

His observations are anecdotal, so it's hard to draw any general conclusions. And data on the kinds of jobs MBA students want, as opposed to the jobs they ultimately land, is scarce. The data that is available suggests that technology is the fastest growing sector for MBA graduates, The Economist reported.

But some research does suggest that graduates of top business programs, and programs geared toward entrepreneurship, are more likely to become entrepreneurs than they were in the past.

Read more: The 25 best MBA programs in the world to get ahead in finance

Graduates from top MBA programs for entrepreneurs may be most likely to start their own companies

Business Insider previously reported on a study of over 30,000 Wharton graduates, which found that more than 7% of 2013 graduates started their own company right away. That was five times as many as in 2007. (Interestingly, the study also found that Wharton MBAs who become entrepreneurs tend to be happier than grads who pursue other careers.)

On the other hand, a Bloomberg survey cited on Quartz found that among 118 international and US MBA programs in 2016, just 3% of recent graduates at the median school started new businesses. But at Babson, where the MBA program focuses on entrepreneurship, that number is 19%. And at Stanford, which has classes and a coworking space for entrepreneurs, it's 16.4%.

Wharton and Stanford are also included on QS Quacquarelli Symonds' 2019 ranking of the best MBA programs for entrepreneurs; Babson is included on US News & World Report's 2019 ranking.

Read more: The ultimate guide to figuring out how (and if) you should start your own company

Entrepreneurs can't agree on whether an MBA is necessary

As for whether an MBA is necessary — or even helpful — for aspiring entrepreneurs, opinions differ.

Jon Staff, the CEO and founder of Getaway, a company that designs and rents out tiny houses, graduated from Harvard Business School in 2016. On the HBS blog, he wrote that getting an MBA was critical to becoming an entrepreneur: Aside from the educational component, he says 60% of the seed capital he raised while at HBS was the result of meetings he wouldn't have had if he hadn't been a student there.

Meanwhile, in a Financial Times Q&A, Brent Hoberman, executive chairman at Founders Factory, Founders Forum, and Firstminute Capital, says most MBA programs "are struggling to adapt fast enough to meet changing circumstances and demand."

He adds, "Some of the most important qualities in an entrepreneur are tenacity, determination and an ability to embrace uncertainty and risk. Business schools can't teach that."

SEE ALSO: 'Entrepreneurship porn' lures young people with a pretty picture of startup life, but it glosses over the most dangerous parts

Join the conversation about this story »

NOW WATCH: This self-made millionaire shares if it’s really worth getting an MBA

• Venture capital isn't as complicated as it might seem.
• Business Insider spoke with Andreessen Horowitz's managing partner and first hire, Scott Kupor, about what he looks for in founders.
• Kupor recently published the book "Secrets of Sand Hill Road."
• He said Andreessen Horowitz had always looked for founders who were overly confident in themselves and their business idea.
• Visit Business Insider's homepage for more stories.

Scott Kupor was employee No. 1 at Andreessen Horowitz, the venture-capital turned financial-services firm that has bet on tech darlings including Facebook, Airbnb, and Lyft.

In a former life, Kupor was a banker at Credit Suisse, where his responsibilities included overseeing companies' initial public offerings. In 1999, an executive at one of those companies said he was leaving to join the software startup LoudCloud, cofounded by one Marc Andreessen. Kupor was intrigued.

At a Denny's restaurant in Sunnyvale, California, Andreessen drew on a napkin to illustrate his ambitions for LoudCloud. The pitch was compelling enough that Kupor quit his job in finance and made the seemingly irrational decision to sign up.

LoudCloud, which Kupor considers a proto-Amazon Web Services, became Opsware and was bought by Hewlett-Packard. With the Opsware acquisition under their belt, Andreessen and his LoudCloud cofounder Ben Horowitz set out to build a venture-capital firm that would do more than simply write checks. They'd also provide startup founders with long-term support and guidance.

Since Andreessen Horowitz launched in 2009, Kupor and his colleagues have seen thousands of pitches from new and aspiring startup founders. They now manage a combined $10 billion in assets.

Kupor's new book, "Secrets of Sand Hill Road: Venture Capital and How to Get It," demystifies the world of venture capital, from the legalese on a term sheet to the overall framework VCs use when considering investments. (Sand Hill Road is a street in Silicon Valley that's home to multiple VC firms, including Andreessen Horowitz, and has become a byword for the venture industry.)

We sat down with Kupor and learned why Andreessen Horowitz had always looked for "egomaniacal" founders, why entrepreneurs with no relevant industry experience could be the most successful, and why some perfectly worthwhile businesses will never need an influx of capital.

The following interview has been edited for length and clarity.

Shana Lebowitz: I want to hear more about your decision to join what was then LoudCloud. You had a job. You were starting a family. And you weren't sure about joining. So how did you decide?

Scott Kupor: There were a couple of things. From a personal perspective, the job of being a banker in the [1990s tech] bubble was that you lived on a plane for 24 hours a day. It also meant that just when you thought you had a Friday and a weekend off, somebody would call at 5 o'clock on Friday and say, "By the way, we're pitching for this business on Monday morning, so I'm sorry if you had weekend plans, but we need to see a draft of a presentation." That got old after a while.

The other thing though was more positive. When you're a banker, you go on these road shows with companies. I would listen to these stories, and I just found myself fascinated with it. I was like, "Wow, it's amazing to hear the storytelling from these entrepreneurs."

When I went into this interview with Marc [Andreessen], I'd never met him before. And he's both physically imposing and he talks fast. He gave me his whole conquer-the-world strategy. He's like, "Look, this is how we're going to do it, and this is what it's going to mean, and this is what the opportunity is." I'm not sure I made a rational decision at all.

Read more: The 33-year-old CEO of a successful startup reveals the key to minimizing risk when you leave a steady job to become an entrepreneur

Andreessen Horowitz used to say they invested primarily in 'egomaniacal' founders

Lebowitz: You've worked for a startup; you also invest in startups now. Have you noticed that there are common themes in entrepreneurs?

Kupor: It's always dangerous to overgeneralize. But I really do believe you have to be willingly able to suspend disbelief in some respects to do a startup. Because we know the odds of success are just really low. The math just tells us that. And you're probably not likely to achieve, unfortunately, the business outcome that you had hoped.

When we started [Andreessen Horowitz], when we pitched our first fund, we said that we would invest in "egomaniacal founders." We literally had a bullet in our slide deck. The LPs looked at that and they said, "That's crazy — how could that be a positive characteristic of who you want to invest in?"

Read more: A startup founder who was rejected 148 times by VCs made these 2 small changes to her pitch, and she's since raised nearly $30 million

We realized, of course, the word choice probably wasn't that great. But that was the concept: We wanted people who were so confident in themselves that they were literally willing to quit their jobs and start over from scratch and walk through walls and do something that everybody has told them to their face is a waste of time or can never happen.

Over time, you have to be able to soften it to the point where you can attract employees. You can work with business partners. Some people can get away with it maybe their whole careers, but I think the really successful entrepreneurs are able to willfully suspend disbelief, but then also figure out a way to not make themselves impossible to deal with.

The other fairly consistent thing that we see in entrepreneurs is the ability to articulate what it is that makes the opportunity so compelling. You really can tell the difference between people who believe in what they're doing and who have the ability to convey that enthusiasm and people who may just — it's a job for them, as opposed to this is what they feel compelled to do as their life's mission.

A startup's founding team matters as much to VCs as the business idea

Lebowitz: Is it inherently bad if you see starting a company as just like any other job, as opposed to something you're compelled to do?

Kupor: It's not normatively bad. I don't know if I can prove this mathematically, but you would imagine that, given how hard it's going to be to build a business, if you don't go into it with that organic pull, you may not actually be willing to sustain all the challenging times that exist in the organization.

Read more: A founder who sold her first company for $25 million and landed Mark Cuban as an investor (twice) shares exactly what to say to pass a job interview at any startup

Lebowitz: Are there certain pitches you've seen that are emblematic of what you want to see in a founder or in a new business?

Kupor: The first real priority question for us is, "Is the market size that they're going after big enough that it can sustain a stand-alone viable, profitable business?" And that's just a function of the fact that we're wrong, unfortunately, more often than we're right on these things. We have to at least go into the decision at the outset thinking: "OK, what could this be? If this is successful, how big can it be and what can it look like?"

Once they answer that question, the teams that do really well help us understand why this team is the best team to go [execute] that opportunity as opposed to any of the other three, four, five, groups that might come in with a similar idea.

We have some [other] heuristics that we look at internally. "What was the problem that you were trying to solve? What experience brought you to that problem?" And in some ways we love to see you felt so compelled to solve that problem and you almost got forced into building a company because you realize the problem was bigger than what you were doing.

The third big area is, we really are interested in the entrepreneur's thinking around the product. We use this term "Idea Maze." What was the Idea Maze that they ran through in order to get to the ultimate product that they believe, at least, is the solution to the problem?

Every founder Andreessen Horowitz invests in has an 'earned secret,' whether they've worked in the industry for years or just entered it

Lebowitz: How often is it the case that people feel compelled to start a company as opposed to the alternative?

Kupor: There is one interesting counter, which is that backing somebody who has no predilections about the business and no preconceived notions about what that business might be, in some cases might actually be a good idea.

Herb Kelleher was the CEO of Southwest Airlines, and people asked him what his qualifications were for starting an airline business, and his answer was, "Because I know absolutely nothing about the airline business."

We always had this challenge when we first started [Andreessen Horowitz]. We would see a lot of LoudCloud-like pitches. And between myself and Mark and Ben, we had so much [residual anxiety] from having lived through all of the nightmares of running that business that we almost just redlined that area. The bliss of ignorance, to a certain extent, can be helpful.

Lebowitz: If I were thinking about starting a company, how would I know if my experience is going to work to my benefit or detriment?

Kupor: The two founders of Okta, Freddy [Frederic Kerrest] and Todd [McKinnon], both grew up in Salesforce. So, Todd ran engineering and Freddy was part of the business-development team there. In that case, they came from the industry and because they came from the industry, they had a unique insight that other people didn't, which was that the proliferation of these applications makes it very hard for the existing user authentication and security mechanisms to work.

Where sometimes these things go wrong is, if you've been in the financial-services industry for 25 years and therefore your mental model has become constrained by the fact that you're used to doing things a certain way, you get a little bit calcified.

Read more: A CEO who launched her company 14 years ago says too many founders have it all backward

Lebowitz: You say early on in the book that not every business needs to raise capital. Do you see this happening a lot, where people think raising money is trendy but don't really need to?

Kupor: That either manifests in a market size maybe not as big as people thought, or it might manifest in an entrepreneur who says: "Look, I think I can build a nice business, and I'm OK if it doesn't grow 100% a year. It'll be a nice $20 or $30 million business, and it might generate some cash flow."

That's a perfectly fine business to build. It's just that, for a venture capitalist who knows that they're going to be wrong a lot of the time, they have to figure out what's the likelihood this company could be in that upper-right tail of returns. You just get this cognitive dissonance between the interest of the entrepreneur and the objectives that the VCs have.

When we're doing an early-stage investment, what we're trying to imagine is the "What if?" question. "What if this company worked? What could it look like? How big could it be? How much revenue could it generate? Ultimately what could the equity value be?"

The rest of the analysis is, "What do I think the likelihood is of that happening based upon this team and their background and all the things that I've learned about them and anything I might know about the competition in the market space?" We have to believe that it can get there even though we know the likelihood is most of them will never get here. Forty percent will just go to zero at some point in time.

SEE ALSO: The cofounder of GroupMe was 27 when the text-messaging platform sold for $85 million just a year after launch. Now, he's raised $107 million for a music startup that could make him even more successful. Here are his lessons for pitching, leading, and building a company.

Join the conversation about this story »

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• Amazon founder and CEO Jeff Bezos has four key pieces of advice for budding entrepreneurs: be customer-obsessed, be passionate, take big risks, and fail.
• Bezos shared the advice at Amazon's Re:Mars conference in Las Vegas on Thursday.
• "We take risks all the time, we talk about failure," he said. "We need big failures in order to move the needle. If we don't, we're not swinging enough. You really should be swinging hard, and you will fail, but that's okay."
• Visit Business Insider's homepage for more stories.

Jeff Bezos has a message for budding entrepreneurs: be ready to take big risks and fail.

Bezos delivered that message at Amazon's Re:Mars conference on Thursday in Las Vegas after he was asked what advice he would give to anyone looking to start their own business. 

"Take risk. You have to be willing to take risk. If you have a business idea with no risk, it's probably already being done," he said, according to an Amazon transcript. "You've got to have something that might not work. It will be, in many ways, an experiment."

Many of those experiments will fail, but "big failures" are a necessary part of the journey toward success, he said. 

"We take risks all the time, we talk about failure," he said. "We need big failures in order to move the needle. If we don't, we're not swinging enough. You really should be swinging hard, and you will fail, but that's okay."

Read more:Jeff Bezos opens up about his father and why he was called 'Yeff' as a child

Bezos founded Amazon in 1995 with just 10 employees. He has since turned it into one of the most valuable public companies, with a market capitalization of nearly $860 billion.

He said that in addition to taking risks and failing, entrepreneurs must also be passionate.

"You'll be competing against those who are passionate," he said. 

Above all, he said, entrepreneurs should be "customer-obsessed."

"The most important thing is to be customer-obsessed," he said. "Don't satisfy them, absolutely delight them."

SEE ALSO: Amazon just fired the latest shot against Walmart in the free-shipping wars

DON'T MISS: Jeff Bezos has said that Amazon has had failures worth billions of dollars — here are some of the biggest ones

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• Entrepreneurship doesn't come with a rule book.
• These guides will help first-time founders launch a startup, raise capital, and dominate the market.
• They include tips from successful founders like Liz Wessel of WayUp, and seasoned VCs like Patrick McGinnis of Dirigo Advisors.
• Business Insider regularly interviews entrepreneurship experts about the different stages of building a company. You can read them all by subscribing to BI Prime.

Below is a list of guides to help first-time founders through every stage of building a startup, featuring advice from successful founders and investors.

• Deciding to become an entrepreneur: The ultimate guide to figuring out how (and if) you should start your own company
• Crafting your startup's story: The first-time founder's ultimate guide to building a winning pitch deck
• Persuading VCs to back you: The first-time founder's ultimate guide to pitching a VC
• Nailing the investor meeting: Top VCs reveal what they want to hear in a startup pitch — and what you should avoid saying
• Closing the deal: The first-time founder's ultimate guide to navigating a term sheet and avoiding common pitfalls, according to founders, lawyers, and investors
• Winning over new hires with equity:The first-time founder's ultimate guide to understanding stock options
• Transitioning to leadership:The ultimate guide to becoming a better boss in 30 days
• Making difficult staffing decisions:The startup founder's guide to letting people go efficiently and compassionately

SEE ALSO: PITCH-DECK LIBRARY: The pitch decks that helped hot startups raise millions

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NOW WATCH: Jay-Z is hip-hop's first billionaire. See how he and Beyoncé make and spend their money.

• Successful entrepreneurship comes down to overconfidence, says Andreessen Horowitz managing partner Scott Kupor.
• That's why Andreessen Horowitz used to say they looked for "egomaniacal" founders, who won't even consider quitting.
• Science backs them up. Psychologist Daniel Kahneman says you probably can't be wildly successful unless you're optimistic and overconfident, but those traits generally backfire.
• Click here for more BI Prime stories.

When Marc Andreessen and Ben Horowitz founded the legendary venture capital turned financial-services firmAndreessen Horowitz, they knew exactly what type of founder they wanted to back.

In the pitch deck for their first round of funding, they described this ideal candidate in a single word: "egomaniacal."

Andreessen Horowitz managing partner Scott Kupor remembers exactly how that went over. He told Business Insider, "The LPs would look at that and they said, 'That's crazy. How could that be a positive characteristic of who you want to invest in?'"

So the firm changed the wording.

But Kupor said the principle hasn't changed at all in the past decade. He said, "We wanted people who were so confident in themselves that they were literally willing to quit their jobs and start over from scratch and walk through walls and do something that everybody has told them to their face is a waste of time or can never happen."

It appears they're onto something. Andreessen Horowitz has made a name for itself through a series of high-profile tech investments, including Facebook, Airbnb, and Lyft.

In his new book, "Secrets of Sand Hill Road: Venture Capital and How to Get It" (the title refers to the street in Silicon Valley where Andreessen Horowitz and many other VC firms are located), Kupor explains that these traits are part of the founder's broader leadership abilities. Like most VC firms, Andreessen Horowitz looks closely at a founder's leadership skills when determining whether to invest.

Kupor lists some of the questions that are always top of mind for VCs: "Will the founder be able to explain her vision in a way that causes others to want to join her on this mission? And will she walk through walls when the going gets tough — which it inevitably will in nearly all startups — and simply refuse to even consider quitting?"

Read more: The glitz of 'entrepreneurship porn' leads startup founders to make fatal business mistakes. Here's how to avoid them

VCs want — and need — to back delusional founders

Kupor's observations recall insights from Daniel Kahneman, the Nobel Prize-winning psychologist who wrote "Thinking, Fast and Slow."

Kahneman has spoken about a "paradox" of success: You probably can't be wildly successful — i.e., Jeff Bezos or Elon Musk level successful — unless you're optimistic and overconfident about your chances.

But generally speaking, optimism (the belief that you're less likely than others to experience bad events and more likely to experience positive events) and overconfidence (an inflated sense of accuracy or ability in a specific area) are career saboteurs.

From the VC's perspective, it's a numbers game. The VC knows most of her investments won't pan out. But if she manages to find the next Bezos or Musk, that doesn't matter. So she invests in a bunch of "egomaniacal" and "partly delusional" founders (to use Kupor's language), hoping and assuming that one of them will make it big.

To be sure, Kupor said the best entrepreneurs are eventually "able to soften [their overconfidence] to the point where you can attract employees. You can work with business partners."

He added, "The really successful entrepreneurs are able to willfully suspend disbelief, but then also figure out a way to not make themselves impossible to deal with."

SEE ALSO: The first employee of Andreessen Horowitz — the legendary early investor in Airbnb and Facebook — explains why he actively looks for 'egomaniacal' founders

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NOW WATCH: Jay-Z is hip-hop's first billionaire. See how he and Beyoncé make and spend their money.

• Many founders wonder how to grow a business that's still relatively new.
• We asked entrepreneurs, investors, and management professors for their best practices.
• The experts advised hiring to fill the gaps in your skillset and prioritizing company culture.
• Click here for more BI Prime stories.

When it comes to scaling your company, "there is not a one-size-fits-all approach."

That's according to Deepak Hegde, associate professor of management and organizations at New York University. Hegde also directs Endless Frontier Labs, which helps technology and science startups scale. (One alum is Analytical Flavor Systems, a machine-learning and artificial-intelligence platform that predicts individual taste profiles that's now being leveraged to design boutique bread flavors.)

For one startup, Hegde said, scaling might mean locating a large-scale manufacturing facility to get a product out to wider markets. For another startup, scaling might mean hiring a sales team. Whatever your company's challenge, you'll need a customized plan of attack — plus the willingness to experiment.

One of the trickiest parts of scaling is transitioning from founder to people manager. Early on, said Alexi Robichaux, cofounder and CEO of the career-coaching platform BetterUp, "it's about you versus the world." As your company grows, you've got to build an effective team to help you tackle key challenges.

We asked Hegde and Robichaux, plus several other founders, entrepreneurship researchers, and executive coaches, to outline the fundamentals of growing a business. Read on for their best practices — and the most common pitfalls to avoid.

Start planning to scale as early as possible

Formal planning might seem antithetical to the move-fast-and-break-things version of entrepreneurship. And while more research is needed to prove truly conclusive, studies of thousands of startups indicate that having a business plan can boost the odds of success.

One study, published in 2017 in Strategic Entrepreneurship Journal, looked at data from more than 1,000 entrepreneurs in the US between 2005 and 2011. The researchers compared pairs of founders who were otherwise identical, except one wrote a business plan and the other did not. As it turns out, planners were 16% more likely to succeed than non-planners. (Success was defined as the point when monthly revenues had exceeded monthly expenses for six out of the past 12 months.)

Hegde explained why having a business plan can attract investors. "In order to scale, you need money," he said. "But in order to get money, you need to show proof of scalability."

The plan is (part of) that proof. "Scaling really is about planning," Hegde said. "It requires thinking maybe two, three, four, five years ahead, rather than simply thinking about how are you going to do the best pitch to sell your first customer or your first VC."

A solid strategy is to build a minimum viable product for that would be scalable with the right resources. Then show investors that any money they put in "can be deployed in ways that can meaningfully help expand the markets, or the customer base," and so on, Hegde said.

Know why you're scaling in the first place

Approach scaling with intention.

That's what Hint did. Since 2005, Hint has marketed naturally flavored beverages. It's become a staple at Silicon Valley companies like Google and Facebook. More recently, Hint expanded its product offerings to include sunscreen; soon, the company will sell deodorant as well.

Hint founder and CEO Kara Goldin has explained to Business Insider the logic behind this expansion. Her goal from the outset was to solve consumers' health problems — whether through safe, affordable sunscreen or nutritious, tasty beverages. In both cases, Goldin said, she realized that there were tons of options on the shelf but that people had no easy way to tell which was the healthiest choice. And even if they could, it would probably be out of their price range. Hint could change that.

Remember, too: You're not obligated to scale your business. And it's best to figure out your ambitions around scaling before seeking venture capital. For Hint, scaling has meant reaching roughly 190 employees after 14 years and snagging John Legend as an investor.

Scott Kupor, managing partner at Andreessen Horowitz, previously told BI that one of the first things VCs evaluate is market opportunity, i.e. how big your business can eventually get. It's perfectly ok to build a $20 or $30 million company — but it might be hard to convince a VC to partner with you on that.

Hire to fill the gaps in your skillset …

"As a founder, you are so used to doing everything yourself," Hegde said. "Your startup becomes your baby." That mentality can lead to a few mistakes — namely, trying to do much yourself or micromanaging the employees you bring on.

The truth is that no founder is skilled at every aspect of running a startup. Typically, founders are talented salespeople: They can convince a VC to invest, a job candidate to join the team, and a customer to sign up. That doesn't necessarily mean they'll be a good manager — which, if you ask Cat Hernandez, an operations partner at the venture-capital firm Primary Ventures, is fine.

"Let's assume that your business grows really quickly and you have hundreds, if not thousands, of employees at some point," Hernandez said. "Your job is to set the strategic direction of the company and, yes, be able to drive a leadership team. Some parts of that require you to be a good manager — but if you know that's not your core skill, hire people [who have it]."

Read more: A Columbia professor who has taught MBA students for 15 years says graduates no longer aim for Goldman Sachs or Google. Here's what today's top talent want to do with their degrees.

… and do it sooner than later

Don't wait to build out your team until you're comfortable delegating responsibility. Do it now!

Christine Beckman, the Price Family Chair in Social Innovation and Professor of Public Policy at USC Price, conducted research that found the most successful entrepreneurs hired for specialized roles — say, an operations expert or a marketing expert — early on. "They set it up right from the beginning, rather than trying to go back in time and fix systems and processes that were put in place at the beginning, but no longer work as the company has grown," she said.

Beckman analyzed the executive team members at nearly 2,000 startups, plus how long it took those startups to raise capital and to go public. She discovered that founders who try to do everything themselves wind up "trying to cover more functional areas than they necessarily have expertise in" and "slowing things down because there's a bottleneck of decisions needing to go through these general managers," Beckman said. The founders who hired specialized talent were more successful because they saved the entire team time and effort.

Steve Martocci, cofounder of GroupMe as well as CEO of the music-creation platform Splice, learned this lesson the hard way. "I waited too long to hire an assistant," Martocci wrote an email to Business Insider. "In the early stages of building the company, I always felt guilty about the expense, because at that point I was so focused on the product that it seemed okay to go without [an assistant]. But as the stakes got higher, I started missing important meetings that had a material impact on the company."

Martocci added, "Having since hired an experienced assistant, I can attest to the significant value that she has provided me, and by default, the company."

Read more: The cofounder of GroupMe was 27 when the text-messaging platform sold for $85 million just a year after launch. Now, he's raised $107 million for a music startup that could make him even more successful. Here are his lessons for pitching, leading, and building a company.

Learn to delegate

So you've hired some new team members. The next step is letting them do the work they signed up for.

It's not as easy as it sounds.

To Robichaux, cofounder and CEO of BetterUp, it's about deferring to people with more specialized skillsets.

"If you're a really good early-stage founder, you're probably a high performer who's a really talented individual contributor in some vector," he said. "You may not be good at everything, but you're good at programming, you're good at product, you're good at sales. That only gets you so far."

As your startup grows, he noted, you have to get comfortable managing a team that's more high-performing than you are individually.

Executive coach Marshall Goldsmith has explained why delegation can be difficult (for new managers in general, not just founding CEOs). Successful people typically advance by proving over and over again how intelligent they are. They're inclined to do the same once they're in a leadership position — even though that can backfire. The biggest challenge for new managers "is not always winning,"Goldsmith previously told Business Insider. Instead, they learn to position others to do the winning for the organization.

Read more: An employee-coaching startup used by Airbnb and LinkedIn just raised $103 million in a Series C round

Prioritize company culture — and tweak where necessary

"Culture" might seem like a fuzzy concept. But Hegde emphasized its importance. He said founders should make sure the people they bring on are aligned with their culture — even if they don't yet have a section of their website that outlines the company's mission statement and values.

Another common mistake is "not subtracting when you add," said Ethan Mollick, associate professor of management at the Wharton School of the University of Pennsylvania. "The things that made you successful early on aren't always useful later." For example, all-hands meetings (a.k.a. all-staff meetings) might not be helpful or even feasible once the company reaches 500 employees. Scaling, in so many ways, is about adapting to the organization you've created. 

Accept that you need to take care of yourself first

Somewhat counterintuitively, your top concern as a team leader is … you. And Robichaux said that's where most founders go wrong. "We think our job first and foremost is to take care of other people," he said, when in fact "your No. 1 job as a leader is to take care of yourself."

Justin Kan, the founder of Twitch and Atrium, recently shared about his firsthand with the challenges of entrepreneurial mental health. "You can be burned out no matter how successful you are, and you can be unhappy no matter how successful you are," said Kan, who sold his first startup for $1 billion. The stress trend is a national one: a 2012 Gallup poll found that entrepreneurs were more likely than other workers in the US to feel worried and stressed.

That doesn't mean you invest in self-care at the expense of the company's well-being. That also doesn't mean you take a monthlong vacation while your company's imploding.

By taking care of yourself, Robichaux means getting "in a good mind space" and having "the emotional resources to be compassionate and not snap at someone." It's why Robichaux prioritizes physical workouts as well as mindfulness exercises in his schedule.

"That is more important than looking at this other document at 11 p.m. That is more important than getting someone feedback late at night," he said. If he doesn't make time for exercise and mindfulness, he's operating from a "faulty foundation and everything will suffer."

SEE ALSO: The first-time founder's ultimate guide to pitching a VC

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NOW WATCH: Stewart Butterfield, co-founder of Slack and Flickr, says 2 beliefs have brought him the greatest success in life

• AOL achieved tremendous success by picking up where other internet startups had left off.
• That's according to Jean Case, a former AOL exec and the author of "Be Fearless."
• In turn, Case writes, contemporary tech giants like Google and Facebook have benefited from AOL's innovations.
• Click here for more BI Prime stories.

AOL was built on the backs of other businesses' failures.

And as former AOL executive Jean Case writes in her book, "Be Fearless," the company's ability to pick up where others had left off was nothing short of brilliant.

Earlier in her career, Case worked at a company called The Source, which she describes as "a text-based information utility for consumers that featured early versions of email, conferencing, and content." While the service was unthinkably slow by today's standards, Case writes that the concept behind it "was a really powerful idea, democratizing access to information and communication."

It just needed the proper execution.

After The Source failed to take off, Case moved on to the company that would become AOL. It was founded by Steve Case (Jean Case's husband), Marc Seriff, and Jim Kinsey — three founders who'd already experienced their own series of business failures.

The previous iteration of the company, Quantum Computer Service, had been a partner of Apple's, until so much conflict led Apple to back out of the deal, as Steve Case writes in his 2016 book, "The Third Wave." From that experience, the founders learned that they wanted to create their own brand and pay for their own marketing.

QCS' service was rebranded as America Online in 1989.

Read more: Billionaire AOL cofounder Steve Case says he waited 10 years for the moment he realized his company was a success

As Jean Case boasts in the book, AOL had nearly 30 million subscribers at its peak and was the first Internet company to go public. She writes that Steve Case "led the team to experiment in areas that had previously limited growth for our competitors," including consumer-friendly pricing and membership plans.

In turn, today's tech giants found success by modeling themselves at least partly after AOL.

Case writes that Facebook, Google, and Twitter "all benefited from the innovations that AOL introduced." She adds, "Innovators can take major leaps or make a Big Bet by looking at where previous efforts fell short, and fully exploiting the lessons of those failures."

SEE ALSO: I've been an angel investor in 100 companies over 8 years, including a bunch of unicorns. There are 3 ways to tell which startup ideas will blow up and get a piece of the deal.

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NOW WATCH: Stewart Butterfield, co-founder of Slack and Flickr, says 2 beliefs have brought him the greatest success in life

The path to becoming a unicorn isn't quite as mysterious as it seems.

If you've ever wanted to know exactly what entrepreneurs tell investors to win their support, you'll want to join Business Insider Prime's very first webinar, happening this week. We'll ask Henry Ward, the founder and CEO of $1.7 billion startup Carta, to unpack what makes an excellent pitch deck.

Carta is on a mission to modernize how stock options and early-stage investment is done. On the webinar, Ward will walk us through both an early pitch deck and his Series E deck, showing how he made a compelling business case and convinced investors from Andreessen Horowitz and Lightspeed Venture Partners to buy in.

Join us on July 11 at 1 p.m. EST for this exclusive opportunity. It's a must-see for new company founders and aspiring entrepreneurs.

BI Prime members, check your inbox for an email invitation with the subject line "You're Invited" for details on joining this member-exclusive event.

If you're not yet a member, sign up. 

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Our webinar with Henry Ward, the founder and CEO of $1.7 billion startup Carta, is live right now! 

Carta is on a mission to modernize how stock options and early-stage investment is done. In conversation with Business Insider correspondent Shana Lebowitz, Ward is walking us through both an early pitch deck and his Series E deck, showing how he made a compelling business case and convinced investors from Andreessen Horowitz and Lightspeed Venture Partners to buy in.

Join us today, July 11, at 1 p.m. EST for this exclusive opportunity. It's a must-see for new company founders and aspiring entrepreneurs.

BI Prime members, check your inbox for an email invitation with the subject line "You're Invited" for details on joining this member-exclusive event.

If you're not yet a member, sign up to get access to the webinar happening now. 

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• There's no set way to sell a business successfully.
• We asked founders who have done it to share best practices and common pitfalls to avoid, and to provide best practices and war stories in exclusive conversations with Business Insider.
• For example, Jyoti Bansal, founder of AppDynamics and Harness, recommends selling a few shares instead of selling the whole company if you need the money but don't want to lose control.
• Click here for more BI Prime stories.

Jyoti Bansal decided to sell AppDynamics to Cisco the day before the company was set to go public.

Cisco had offered $3.7 billion for AppDynamics, which was nearly twice what the app-analytics business was pricing its IPO at.

That meant many AppDynamics employees would fare very well financially. And for Bansal, who is now the CEO of Harness, an automated software deployment platform, his team's well-being was the deciding factor.

"We had at least 400 employees who would make more than $1 million if we sold," Bansal previously told Business Insider. "You have to do the right thing for them — $1 million is life changing."

Not every entrepreneur will find themselves torn between such appealing outcomes. But deciding to sell the company you've built from the ground up, and then finding the right partner, is rarely easy.

So Business Insider asked Bansal, plus other seasoned entrepreneurs and an academic director of entrepreneurship in exclusive interviews, to share some best practices around selling a startup — and the biggest pitfalls to avoid.

Our sources include:

• Marla Beck, the founder and CEO of luxury beauty retailer Bluemercury. She sold the company to Macy's for $210 million in 2015.
• Justin Kan, the founder and CEO of Atrium, a law firm for startups. He sold Twitch, a live-streaming platform for gamers, to Amazon for $970 million in 2014.
• Jeanette Miller, director of the corporate innovation and entrepreneurship major at Penn State Smeal College of Business and associate director of the Farrell Center for Corporate Innovation and Entrepreneurship.
• Steve Martocci, the founder and CEO of music-creation platform Splice. He sold GroupMe, a group-messaging app, to Skype for $85 million in 2011.
• Marc Lore is the CEO of Walmart eCommerce US. He sold retail startup Quidsi to Amazon for over $500 million in 2011, and Jet.com to Walmart for $3 billion and stock in 2016.

Read on for a practical guide to selling your startup.

Don't build a company just to sell it

Miller, the Penn State professor, advises founders to have a potential exit strategy (like selling your company or taking it public) in place from day one.

You should keep that potential exit in mind during the fundraising process. Beck has learned through running Bluemercury that some venture capitalists want to see a return on their investment sooner rather than later, which means they may pressure you to sell or go public before you want to.

That said, building a company just to sell it can backfire.

As GroupMe and Splice founder Martocci previously told Business Insider, venture capitalists can "sniff out" founders who go in with the intention to sell. They'll be dissuaded from backing those founders, who don't seem truly committed to fulfilling the company's mission. Instead, those founders are prioritizing monetary gain.

Focus instead on making your business as successful as possible. A growing company will inevitably attract interest from potential buyers.

The right time to sell

Some founders wind up selling their company out of desperation. Maybe their company is losing money or growth is stagnant.

To be sure, it's hard to predict whether you'll wind up in those circumstances. But the best time to sell is when you don't need to.

That's according to Kan, the Twitch and Atrium founder, who wrote a blog post about selling a startup. In an interview with Business Insider, he added that you should ideally be in a position of leverage when you sell. Leverage could mean your company is growing rapidly or you have interest from other potential buyers. Twitch, for example, reportedly had acquisition offers from Google and Yahoo!.

"If you're running out of money, your company hasn't been growing, and you're desperate to sell it, then you don't have any leverage," Kan said. Partners aren't just looking for a proven record of success, they want to see the potential for continued success.

Consider alternatives to selling

Bansal sold some shares of AppDynamics when he declined an offer of $350 million, thinking he would continue to grow and try to achieve unicorn status.

He points out that any founder can do the same: sell some of your shares without giving up complete control of your company. That way, you can continue growing the business while also gaining some financial stability.

He said his wife wasn't happy that he was turning down the $350 million offer. "But selling a small amount of my stock made her very happy and supportive for continuing to do it in the longer term," he added.

Read more: Jugs of coffee, lots of Advil, and no sleep for 4 days: A startup founder reveals what it was like to sell his company for $3.7 billion

Think about what you want to accomplish before you negotiate with potential buyers

Do you want to scale? Do you need easier access to capital? Figure out what your ambitions are — and remember that they might not be the same as another founder's.

"People forget that entrepreneurship is really personal," Beck said. "You need to actually understand what you want and what you're trying to do and actually take some time to reflect."

Beck recently advised a founder who was evaluating multiple offers from potential buyers. The founder realized that none of the offers were exactly what she wanted. Beck told her to take a step back and figure out what was important to her, and then push for what she wanted if she wasn't getting it.

Be realistic about your company's valuation

It's hard to be objective when calculating your company's value. As Kan points out, the potential buyer is likely valuing your startup based on where it fits in with their short- or long-term strategy — and their number is likely lower than yours.

Miller's research suggests that new founders can be especially naive. "The first business is always the most challenging because you're usually relatively unrealistic," she said. "And the opportunity that is in front of you, everybody thinks it's going to be a billion dollar company."

It probably won't be.

One potential solution is to get an external party (i.e., a banker or a lawyer) to come in and value your company for you. "When you have a banker and someone you really trust or believe in," Beck said, "they're able to talk to all the parties and figure out what the right terms are and what's important to each party, so you come to an agreement."

Before selling Bluemercury to Macy's, Beck interviewed five different bankers before settling on one she trusted. She said too many founders make the mistake of hiring the first banker they meet and rushing to sign a contract, only to realize that the person or the terms aren't a good fit.

Read more: A CEO who sold his first startup for $1 billion explains how to build a company and stay happy at the same time

Set expectations with your partner upfront

Before you sign a term sheet, be clear with the acquiring company about your vision for the partnership.

When Beck was in conversation with Macy's about selling Bluemercury, she was clear that she wanted to continue scaling while still maintaining the company culture. She set those expectations with Macy's upfront. 

Beck recommends getting into the nitty-gritty as much as possible. For example, she said, you should decide how often you're going to meet with leadership at your parent company.

Beck, for her part, wanted to stay focused on growth and didn't want to be distracted by having to prepare for a weekly or monthly meeting with Macy's. "It was really important for me to have the mind space to continue to be a creator as well as a CEO scaling a company," she said.

Read more: The first-time founder's ultimate guide to navigating a term sheet and avoiding common pitfalls — with a sample from a major VC

Know whether an offer is legitimate

Approach every offer with a degree of skepticism. 

In his blog post, Kan shares a few ways to tell if an offer is "bulls---":

• It doesn't come with an expiration date or the promise of a term sheet to be delivered within 24 to 48 hours.
• The acquiring company isn't doggedly pursuing you to prevent you from looking elsewhere.
• They're offering to pay you $10 million and your startup already has a term sheet for a $15 million Series A round. (These are hypothetical numbers, but the point is to clarify valuation expectations as soon as possible.) 

Do some research upfront to make sure you don't waste your time on subpar offers.

Don't be afraid to negotiate or to see what else is out there

Kan urges founders not to be afraid to say no.

"A potential acquirer's first offer is rarely its best offer," he writes. "The potential acquirer isn't going anywhere." In fact, Kan writes that being willing to walk away gives you some leverage in the negotiation.

Another key negotiation strategy is initiating some competition, Kan writes. It's similar to the way a job candidate wants interest from multiple companies, to incentivize each firm to bump up their salary offer.

Bansal agreed. Once you've gotten an offer that piques your interest, he said, ask around and find out from other potential buyers what their terms would be.

Bansal admitted he didn't shop around after Cisco offered to buy AppDynamics. But, he said, "that's a common thing that a lot of companies should do." That way, you'll be more educated as to how appealing the first offer really is, and you'll be able to make the right decision for all your shareholders.

Consider important factors beyond money

Money may be the most readily quantifiable piece of an offer. But it's not the only important one. 

Bansal outlines three questions to think about when evaluating offers. 

1. Does the buyer's mission align with your company's? "You want to solve a particular problem," Bansal said. "How much does the acquiring company believe in that, and how much are they aligned with your mission and the vision that you had as a startup?"
2. Does the buyer's culture align with your company's? "As a founder, you are responsible for your employees, your team," Bansal said. "You don't want them to get into a culture where they would not enjoy it, or they would hate it, or they would say something like, 'This is not what I signed up for.'"
3.  Will the buyer's offer allow you to accelerate your company's mission? Maybe the most compelling thing is their sales force, or their capital. Focus on what your potential partner is bringing you.

Considering these factors will save you potential regret after an acquisition by making sure that the company you've built retains its mission and culture.

Read more: Founders and investors reveal the ultimate guide to scaling a startup — and common pitfalls to avoid

Be prepared to experience some regret or confusion

Some entrepreneurs who have sold their companies have expressed regret. Lore, for example, remembered selling Quidsi to Amazon as something of a let-down. "It was this really depressing sort of moment where we didn't even want to go out for a drink," he previously told Business Insider's Alyson Shontell. "It wasn't a celebration. It was sort of like mourning."

Even founders who are pleased with their decision should anticipate some feelings of confusion. 

"It probably would've been good to raise more money and keep going," Kan said. "But I can't really regret that."

Explain to your employees why the acquisition is a good thing

Whether or not they're losing their jobs, employees may find the acquisition news jarring. It's your job to help them understand why you made this decision and what their future looks like.

Entrepreneur and angel investor Brad Flora remembers telling the staff at his startup, Perfect Audience, that he'd sold the company.

In a Slate article, Flora writes, "When I shared the news, the team stared blankly at me, unsure if it was a good thing or a bad thing." He and his cofounder spent an hour answering employees' questions. Eventually, they realized it was a positive development, since most of the proceeds from the deal would go to employees.

Flora was able to tell his employees, who took risks to join the fledgling company, that they had earned "a big chunk" of cash and stock. He considered that the best part of the process. 

Keep your employees' best interests in mind

Your employees' careers are just as important as yours.

In periods of organizational change, Miller says there's a "huge uncertainty" among employees about what's going to happen to them. It's important to consider their perspective as well. 

That's why Bansal accepted Cisco's offer and declined to go public as planned. After all, how often can you deliver $1 million to 400 employees?

Read more:HOW TO START A BUSINESS: The ultimate guides for founders on launching a company, raising money, and becoming wildly successful

SEE ALSO: Building a company that sells for millions might sound like a dream — but for CEOs who do it, the next chapter can be just as hard

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• Henry Ward is the founder and CEO of Carta, a company that helps with equity management. Carta is valued at $1.7 billion.
• At a Business Insider webinar hosted by the correspondent Shana Lebowitz, Ward dissected the pitch decks he used for a $7 million series A funding round and a $300 million series E round.
• He identified the domino chart in particular as a slide found in almost all great decks.
• Click here for more BI Prime stories.

Pitch decks are the heart of startup fundraising. When done right, these decks can draw in millions of dollars in funding.

Henry Ward, the founder and CEO of Carta, a company that helps with equity and ownership management, has raised $448 million from investors like Andreessen Horowitz and Lightspeed Venture Partners. Carta is valued at $1.7 billion, after a $1 billion jump in valuation over five months elevated it to unicorn status.

At a recent Business Insider webinar, Ward walked through the pitch decks he used for a $7 million series A funding round and a $300 million series E round.

As he told the Business Insider correspondent Shana Lebowitz, the hardest part for him in building these decks was crafting a narrative he could explain in the limited amount of time he had with investors.

"Great pitch decks are about telling stories," Ward said. Those stories take investors from the inception of the idea all the way to how the world would look if the idea were implemented.

Read more: The first-time founder's ultimate guide to building a winning pitch deck

Bill Gurley, a Silicon Valley investor known for his investments in startups like Uber, GrubHub, and StitchFix, writes that "VCs believe that better storytellers make better entrepreneurs." The story they tell has to be compelling, interesting, and digestible.

Founders can better convey all of those elements with what Ward called the most essential slide: the domino chart.

"Almost all great pitch decks have a form of this," Ward said. "It's a road map of market penetration. Every domino chart for a company will be different."

The domino chart tackles the question "How will you increase the market?" Founders should communicate their answer to this through the chart and ultimately get investors involved who believe that they can do it.

"Pitching is not a convincing exercise — it's a filtering exercise," Ward said. "In the early stages of a startup, investors want to work with companies that they get excited about."

Read more: The first-time founder's ultimate guide to pitching a VC

The domino chart can generate that excitement among investors, and putting it together helps founders understand their long-term market. If you're creating a pitch, including a domino chart could elevate your deck from good to great.

SEE ALSO: HOW TO START A BUSINESS: The ultimate guides for founders on launching a company, raising money, and becoming wildly successful

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• Founders of early-stage startups fixate on product-market fit, with good reason.
• However, there may be a factor that surpasses product-market fit: how much the startup emotionally appeals to investors.
• Henry Ward, the founder and CEO of Carta, an equity management firm currently valued at $1.7 billion, says pitching is more of a filtering than a persuading exercise.
• At a Business Insider webinar hosted by correspondent Shana Lebowitz, he addressed what he would've done differently when pitching investors at an early stage.
• Click here for more BI Prime stories.

Early-stage founders don't understand that raising money from investors is more about message-market fit than product-market fit, says Henry Ward. At an early stage, delivering a message that personally resonates with investors yields better results than trying to persuade them with numbers.

That's what Ward believes, and he's led Carta, an equity management startup, through five rounds of funding that yielded $448 million. Carta is currently valued at $1.7 billion.

At a recent Business Insider webinar, Ward emphasized that early-stage startups are funded based on how much they emotionally appeal to investors.

In those very early stages, with so many companies out there, it's almost always true that an investor decides to fund an early-stage company because it touches them personally, Ward told BI correspondent Shana Lebowitz. He added: "I think a lot of founders don't understand that."

Founders want to know why they aren't receiving funding, and investor responses can be misleading. Ward explains that investors usually give a business school answer when rejecting a company, and point to product-market fit. 

Read more:Here are 3 things every founder needs to know about market fit, according to a serial entrepreneur who sold his first company for $85 million less than a year after launch

The actual problem lies with lack of message-market fit, or bringing a message personally attuned to investors interested in the market. Investors in early-stage startups aren't driven by metrics as much as promise of future return. They want to work with companies they get excited about. The message that founders pitch should fit, or be emotionally compelling to, the investor. 

Read more:One of the most successful investors in Silicon Valley says hearing these 2 things will instantly make him love a startup pitch

Ward encourages founders to "just move on" when investors reject their company in its early stages. Founders should keep moving through investors until they find the ones who are both emotionally and financially invested in their companies.

Ward can tell if investors are excited or not within 10 minutes of pitching to them. The key is the questions they ask. 

"An investor that's not excited about what you're doing will ask you all these questions about what could go wrong in your business," Ward said. "An investor that is excited about what you're doing will ask you what could go right."

SEE ALSO: Top VCs reveal what they want to hear in a startup pitch — and what you should avoid saying

Join the conversation about this story »

NOW WATCH: Most hurricanes that hit the US come from the same exact spot in the world

• Hiring the first employees at your startup is about building a team that will lay the foundation for success.
• We asked founders, investors, and business professors to share some best practices.
• For example, hire people to fill the gaps in your skill set and keep in mind your long-term vision.
• Click here for more BI Prime stories.

It's easy for new founders to fall for the "superhero mythology."

That's Jason Nazar's term for thinking you personally have all the diverse skills required to build a company from scratch. But no one does.

Nazar, the cofounder and CEO of Comparably, told Business Insider he was a victim of the superhero mythology when he first launched the company, a website that monitors workplace culture and compensation.

In reality, though, companies are successful because of the dream teams that are built around the founder, Nazar said.

As a new startup founder, you'll want to hire people who can fill the gaps in your skill set and rocket the company to success. It's easier said than done.

We asked a series of entrepreneurship experts — including founders, investors, and business professors — to outline some best hiring practices. In exclusive conversations, they shared revealing interview questions, common pitfalls to avoid, and how to know when you're ready to bring on your first employee.

Our sources include:

• Krystle Mobayeni, cofounder and CEO of BentoBox, which helps restaurants design their websites
• Liz Wessel, cofounder and CEO of WayUp, a job platform for college students and early-stage professionals
• Tomas Chamorro-Premuzic, professor of business psychology at University College London and Columbia University
• Cat Hernandez, partner at the venture-capital firm Primary Venture Partners
• Christine Beckman, the Price Family Chair in Social Innovation and Professor of Public Policy at USC Price
• Glen Evans, vice president of core talent at the venture-capital firm Greylock Partners
• Kim Taylor, cofounder and CEO at Cluster, which recruits for advanced roles in manufacturing
• Cesar Carvalho, cofounder and CEO at the corporate fitness program GymPass

Read on and learn how to navigate hiring in an early-stage startup.

Know when it's the right time to expand your team

You (and your cofounders, if you have them) may have secured seed funding before adding anyone else to the team.

Read more: The first-time founder's ultimate guide to pitching a VC

Now, your goal in hiring the company's first few employees is to get the product or service to market.

Evans, of Greylock, said the specific type of hire will depend on factors including the skills and experience of the founding team, the experience necessary to build the business or product, and how much progress you've made so far toward product-market fit.

At software companies, for example, the first few hires are typically engineers. Based on her experience at Primary, Hernandez said those engineers are either building a minimum viable product or optimizing the baseline product the founders put together. From there, Hernandez said, founders usually look for business roles to support the initial go-to market.

And if you're considering bringing on a contractor instead of a full-time employee, Evans said there are two key questions to help you decide:

1. What skills are missing that would be critical to building the company or product?
2. Is this a long-term or short-term need?

If the skills are critical and it's a long-term need, "it's probably a good time to consider hiring someone [full-time] to round out the team," Evans wrote in an email to Business Insider.

Hire to fill the gaps in your skill set

Among the entrepreneurs she's worked with at Primary, Hernandez said, the most successful founders "have a self-awareness about their strengths and weaknesses." Plus, they're able to hire people to complement their skill sets as their business grows, Hernandez added.

If the founder is a visionary, for example, they bring on someone who's good at execution. Or, if they've got an engineering background, they look for an experienced marketer.

Beckman's research suggests this kind of self-awareness can prevent problems down the line. One study indicates that founders who hire experienced specialists — say, in marketing or operations — early on are more successful than founders who wait until there's a specific issue.

Founders who try to be generalists, Beckman said, can cause organizational bottlenecks because they lack the appropriate expertise for every domain and because every decision needs their approval.

Read more: A new book by Facebook's HR consultant urges bosses to pass on well-rounded job candidates. Here's the unconventional hire it recommends.

Avoid hiring clones of yourself

Chamorro-Premuzic, a business professor, said founders often make the mistake of hiring people just like themselves, an established bias in organization psychology. (Executives across industries are known to do the same thing.)

"When someone looks like us or behaves us like, we're likely to say that we like that person," he said. "It's a socially acceptable way of being narcissistic."

Indeed, Nazar said that one of his biggest mistakes as an entrepreneur was trying to hire people like him. "It was one of the things that I was just absolutely wrong about," he said.

Read more: The ultimate guide to becoming a better boss in 30 days

A growing body of evidence suggests that diverse teams outperform more homogeneous ones. While it's important that employees share your core values, it's also important to look for people with different stories and experiences.

Diversity can refer to skill sets and personalities, or to gender and ethnic backgrounds. It allows for people who look at situations from different angles.

Assess whether job candidates are suited to the startup environment

Chamorro-Premuzic said founders should prioritize "learnability" above all in job candidates. Learnability refers to the willingness to grow and adapt your skills in a rapidly changing workplace. It's similar to a growth mindset, or the belief that your talents can be developed through effort and feedback (i.e. they're not fixed).

To suss out learnability, interviewers can ask indirect questions that point to curiosity, like if potential employees take a different route to work everyday. 

Founders should also be wary of hiring people who need a lot of structure.

At Cluster, Taylor previously told Business Insider, she looks for people who will be "comfortable with the fact that their role will be changing; they're going to be doing different things every day."

To that end, Taylor gives job candidates "really unstructured problems" to solve, similar to those at Cluster. She said that it becomes clear quickly who needs hand-holding and who doesn't. Those who fare better in unstructured environments may have a relatively low "need for closure," a scientific term for the desire to know the answer and an aversion to ambiguity.

Nazar, for his part, is honest with potential employees about the realities of working at a startup. He often tries to "scare" people away by being frank about the challenges ahead.

"If they opt out, I know that they probably weren't going to be a good long-term fit," he said.

Be careful when hiring friends (of friends)

Across industries, your chances of landing the job are higher if you were referred by a current employee than if you weren't. There's a good chance that your first few hires will come from within your network.

But Mobayeni cautions that you should put the same magnifying glass on job candidates you know as on the people you don't.

She learned that lesson the hard way. In the early days of BentoBox, she hired someone she knew socially. "I probably didn't do the right diligence or ask the right questions in that process," she said, which became "problematic in the long run." They parted ways after a handful of months.

Don't wing it

As with any hiring process, consistency in interview questions and procedures is key to ensure that all candidates are screened through the same filter. If possible, WayUp CEO Wessel said, have multiple people rate a candidate on the same factors and then discuss, so as to reduce the possibility of unconscious bias creeping in.

Read more: A former Google HR exec says he's seen too many people make the same mistake trying to interview candidates for jobs

And if you're not an expert in the area you're hiring for, Wessel recommends that you find an advisor or friend who knows more to help you with the interview process.

You'll also want to ensure that your hiring process is legally sound. Gusto, which makes human-resources software for small businesses, has a helpful guide to hiring your first employee (in the US). Rules vary by state, but every employer should get workers' compensation insurance.

Once your first hires start, be sure to have them fill out a a W-4 form, which determines their tax withholding amount, and an I-9 form, which verifies their eligilbity to work in the US. You'll also need to set up a payroll schedule.

Hire for the jobs you'll need in the next few years

Every startup needs a long-term vision. And every new hire should contribute to making that vision a reality.

But it's easy for founders to get caught up in what they need today.

Carvalho previously told Business Insider that his hiring decisions in the early days of Gympass "were not optimal" because they weren't equipped to tackle new challenges as the company grew.

As a result, they had to keep bringing on more senior people. "What I learned from it is that being able to plan for the next two to three years helps a lot."

Still, it's worth noting that plans can change. You don't have to keep employees on forever if they're not suited to the company's new strategic direction.

Patty McCord, former chief talent officer at Netflix, previously told Business Insider that managers should regularly evaluate whether their current team is equipped to tackle the next big challenge. If not, the manager may need to let some people go.

Think carefully about equity

Many early-stage startups offer employees equity in the business, partly as a way to woo them away from more established, higher-paying companies.

The process can be confusing.

In a blog post, the venture capitalist Fred Wilson outlines a series of steps for granting stock options:

1. Determine your company's "best value." That number can be, for example, the valuation on your last round of financing or a recent offer to buy your company that you declined.
2. Break down your organization into different levels: the senior management team, director-level managers, key employees, and employees in non-critical functions.
3. Assign each level a multiplier (e.g. 0.5x, 0.25x, 0.1x, and 0.05x, numbers that Wilson said were standard in 2010.)
4. Multiply each employee's base salary by the corresponding multiplier so you get a dollar value in equity.
5. Divide the dollar value of equity by your company's best value. Multiply that number by the number of fully diluted shares.
6. Voila! You have the appropriate grant amount.

Explain to new hires what their compensation package really means

If you are granting equity, make sure to have a conversation with new hires about what their compensation package really means. After all, not every new hire will have worked at a startup before. And while it's employees' responsibility to ask questions, you should be willing to share as much information as you can to assuage their concerns.

As Sophie Kahn, cofounder of the sustainable jewelry company AUrate, told Business Insider, you can also consider your employees' personal preferences. Some people care more about base salary, while others care more about equity, she said.

Offering customized compensation packages is a way to stay competitive because it's a win-win. Founders are more likely to attract top talent (who can afford to be picky about where they work) and employees feel appropriately valued.

Remember, too: If you don't yet have the funds to offer market-rate salaries (and you're granting stock options to compensate), Wessel recommends being transparent about this with candidates.

Cultivate a culture of ownership

At BentoBox, Mobayeni wants employees to be empowered.

Read more: A former GE exec who trained new managers found that almost all of them were making the same mistake

"You want a team from the beginning that's thinking about the business as much as you are," she said. "If they're being micromanaged, or if they're just carrying out a to-do list that's dictated from whoever is above them, then that sense of ownership and care is not there as much."

Indeed, employee autonomy is a key driver of creativity and proactivity. Not to mention that if employees feel disconnected from the company mission, they're more likely to leave.

To that end, Mobayeni lets her employees make mistakes (within reason) and celebrates when they come up with an idea and see it to fruition.

"Having that connection to the work that they're doing is just super important," she said.

SEE ALSO: Founders and investors reveal the ultimate guide to scaling a startup — and common pitfalls to avoid

Join the conversation about this story »

NOW WATCH: Most hurricanes that hit the US come from the same exact spot in the world

• Raising venture capital is easier with a perfect pitch deck.
• On a recent webinar, Carta CEO Henry Ward walked us through his series A and series E decks, which have helped him raise $448 million and reach a $1.7 billion valuation.
• Ward shared some important lessons he learned during the fundraising process, including the importance of including a 'domino chart' and having 'message-market fit.'
• Click here for more BI Prime stories.

Carta was conceived over lunch at a Thai restaurant.

CEO Henry Ward was there with Manu Kumar, an investor at the venture-capital firm K9 Ventures. Kumar had backed Ward's last startup, Secondsight, a suite of investment tools that was, in Ward's words, an "absolute failure."

For whatever reason, Kumar still believed in Ward. And now he had a new idea for him.

In an interview with Business Insider, Ward remembered Kumar wondering why he still got a paper stock certificate in the mail when he invested in a private company. Investing in public companies was so much easier.

Ward was a "finance guy," Kumar reasoned, referring to Ward's master's degree in capital market finance. Couldn't he solve this problem?

Nearly a decade later, Carta is a $1.7 billion platform for buying and selling shares in private companies. (Kumar is a cofounder.) Carta recently closed a series E round, which brought its total funding to $448 million.

If you talk to Ward for more than a few seconds, you'll see at least one reason for Carta's explosive growth. Ward is a master salesman. He makes complex financial concepts easy to understand; he's excited to answer questions about the company that he's probably fielded 100 times before.

Ward recently participated in a Business Insider Prime webinar, where he walked us through his series A and series E pitch decks. We learned about the importance of "message-market fit," how Carta raised $800,000 in three weeks, and the only reason investors will support an early-stage company.

We've also linked to a recording of the webinar at the bottom of the post.

The following interview has been edited for length and clarity.

Shana Lebowitz: Hi, everyone. Thanks for joining today's webinar with Henry Ward, founder and CEO of Carta. I'm Shana Lebowitz, correspondent at Business Insider, and we are thrilled to have Henry here today walking us through his pitch decks. Carta is a platform for buying and selling shares in private companies. They've raised $448 million so far and were recently valued at $1.7 billion. Henry is about to show us slides from his series A and series E pitch decks. He'll talk about what worked and why. Henry, thanks so much for being here today.

Henry Ward: Thanks for having me. This is super exciting.

Lebowitz: We're excited, too. We'll start with Henry's series A pitch deck. So this is from back when Carta was called eShares. And Henry, I wonder if you can tell us what was the biggest challenge for you in building this deck?

Ward: Great decks are about telling stories. The hard part is: How do you craft a narrative that you can explain? Especially in the early stages, where you tend to have a little bit shorter time with investors, you can explain the narrative of an idea at inception all the way through the execution against that idea of what the world will look like if you were to execute on that idea. Investors look at hundreds of decks a month. How do you tell them a story that they can digest in 10 to 15 minutes and really get what you're trying to do and make it compelling and interesting? And that's really the challenge.

I'll share this book, which I highly recommend for anybody doing a pitch deck or even a demo script. It's called "The Presentation Secrets of Steve Jobs." It's an unfortunate title, but it's actually very good. And it really talks about how to craft a narrative and how to get to that climax point in the presentation that you want people to walk away with and remember. So I highly recommend it.

Read more: The founder of a billion-dollar startup says that this book on Steve Jobs' presentation secrets taught him how to nail a pitch

When I first started doing this series seed and series A deck, I read this book. I hand-wrote my entire presentation and I practiced it over and over, and it all came from this book and learning how to do this. If you want to be a great pitcher, start with this book. With that, let me then share my series A deck here. The way that we try to basically break all of our decks, whether it was series seed, all the way to our last series E deck, is to start with, 'Hey, what are you? What do you do? How do you do it? And then what does the world look like if you won?'

The No. 1 question investors will ask after you introduce your business

Ward: The very first question in this series A deck is, 'Hey, what is eShares?' [Pictured above is a slide that reads, 'eShares is capturing the next generation of IPOs.'] We're an SEC-registered transfer agent; that's what we do. We issue securities, which are options, debt, and derivatives from companies and investors. We automate the approval and compliance of those securities. And if we're issuing all the securities for a company, we're tracking their shareholder registry, also known as a cap table. And then if we're capturing all of the stock certificates for investors, we're now capturing their portfolios.

And those are the two sides of the product. So that's what we're doing and concisely did it in eight slides. Second thing is, 'Ok, well, how do you make money at this?' [Pictured above is a slide that reads, 'We charge $20 per transaction.] That's the No. 1 question investors will ask after they ask what you're doing. Our business model has changed significantly, but back then we charged $20 per transaction. This was our pricing list. We explained that we chose a transaction pricing model because of volumes and company willingness to pay and all of those things.

Read more: The first-time founder's ultimate guide to building a winning pitch deck

This is the business model we chose, and then everything else is free. We have all these other bundled products to create engagements. But our core business is the issuing of the securities. That's our revenue model. And then on top of that platform, we then can bundle more and more services. At the time we were doing 409A; we added stock option expense accounting. This is really a roadmap of revenue streams that we were going to build on top of the core $20-per-issuance product. And so that's it. We explained the entire business model of Carta in three slides. Again, super concise, succinct, as tight as you can make it. Make every word and slide count.

I explained to an investor what we do and how we make money. Now it's the performance stuff. How are we doing as a business? [Pictured above is a slide that reads, 'We are growing revenue 40% month/month.'] We launched in January. We made $820 in January 2014. By August, we were doing $71,000. This is not cumulative. It wasn't even revenue; it's bookings. So it went from $820 to $71,000. We went from eight companies to 60 companies per month. We looked at cohorts. A cohort is a group of companies that started in January that paid us $X. How much money did they pay us in month two and month three so we could show that cohort dollar value was increasing?

Our customers love us. So this is a testament to our product. We had all these references through Twitter and then our big climax statement was, "Look, we saw this huge problem, we created this new business model that never existed before, and we grew from $820 to $70,000 a month in revenue with less than one year and spending $1.2 million." We got about 60 companies a month with zero salespeople.

So this was our 'Hey, we can really execute' slide. And then this was our ask. [Pictured above is a slide that reads, 'Raising $6-$8M Series A to converge private market.'] We're raising $6 to $8 million on a series A to converge the private market. This was our vision slide. One slide that says, "Hey, if we win, this is what this entire market will look like." And that was the C deck. We had an appendix, which is an ownership map and network edges. We did some definitions for people that didn't understand because it's a pretty arcane thing. We run some risk factors, put in some market cap information. But really the appendix stuff is not super necessary. In hindsight, I would've taken this out. I don't think this does anything. This is the shot that you want to have at the end: "Hey, if you did all these things, what would happen?"

Let me fast-forward to the series E deck. The epilogue to the series A is we ended up raising a $7 million round led by Union Square Ventures. We were raising $6 to $8 million. I ended up right at seven. In general, you want to err a little bit lower. Union Square Ventures led it with $5 million and then we filled out the other two to get the seven. But you do want to err on the lower side, because it's much easier to say, 'I'm going to raise six' and go to eight than to say, 'I'm raising eight' and then you can't fill to eight and you go to six. It's a very bad negative selection bias. If you want to raise $8 million, say you're going to raise six and then just get over-subscribed. Don't go the other way. Pro tip for everybody.

The only reason an investor will back an early-stage company

Lebowitz: You just alluded to some things you might've done differently in your series A deck. And I wonder if you can tell us anything else you might have construed differently when you were pitching investors.

Ward: One of the big things that I think is really hard for founders, especially in the early stage, is they think pitching is a convincing game. And I'm not saying persuasion isn't a big part of it. You are trying to make an argument for why your business is compelling. But especially in the early stage, pitching is not a convincing exercise. It's a filtering exercise. So much of that early-stage stuff is not metrics driven; it's not financial-analyst driven; they're not really looking at the business today. What they're really thinking about is, 'Hey, what could this business look like in the future?'

Read more: Here are 3 common mistakes founders make when raising their first funding, according to a CEO who's already raised $150 million for his startup

And in those very early stages, with so many companies out there, it's almost always an investor decides to invest in an early-stage company because it touches them personally. It's just something they personally get excited about. And I think a lot of founders don't understand that. So they go and they pitch an angel investor or a seed investor. And the seed investor doesn't quite like it. They don't say, 'Hey, I just don't get excited when I hear you talk about cap tables. This is not something that excites me.' What they'll say is, 'Well, I don't know if I believe you can make a real business out of this.'

They'll try to find a business-school answer to it, but the reality is underneath, they just don't get excited about it. They can only work on so many deals with so many companies. They want to work on companies they get excited about. A lot of founders take that rejection as something was wrong with them, that they couldn't convince this investor to be excited about it. Just move on. That's the wrong investor, get to the next one, and keep moving to investors until you find someone that's passionate about the problem you're solving.

Read more: The first-time founder's ultimate guide to pitching a VC

And you will be able to tell, because an investor that's not excited about what you're doing will ask you all these questions about what could go wrong in this business. An investor that is excited about what you're doing will ask you what could go right. And so within 10 minutes, I could tell whether this investor was going to invest or not. And it was entirely about whether they were excited about the business, saying, 'Hey, if you did this, then you could do that.' Versus, 'Hey, what happens if this doesn't work?'

How a billion-dollar startup founder raised $800k in just 3 weeks

Lebowitz: That's such helpful advice. I'm glad you shared that. One of our viewers actually has a question for you, Henry. How were you able to secure seed funding and also how would you differentiate the pitch deck that you used during angel investing rounds compared to your series A round?

Ward: I wish I had pulled up my seed deck. I don't think I have time to try to dig it out. The seed deck is really interesting. It's even more primitive than the series A deck. And the seed [round] was really just a filtering exercise. The punchline [for Carta] at the time was 'Nasdaq for private markets.' That's what I was pitching. We were going to go build a Nasdaq for private markets. 98% of investors in 2013, when we did the seed round, didn't want anything to do with Nasdaq for private markets. SecondMarket [Editor's note: SecondMarket Solutions built a platform for trading shares in private companies. It was acquired by Nasdaq in 2015] had just gotten their butt kicked. Nobody wanted trading in the private world. It just seemed like a completely dead idea. But I went through, I don't know, 70 angel investors. This is a party round. It wasn't led by anybody.

I just had to get angel investors and get them $50,000 at a time. 98% of the market didn't want to have anything to do with a Nasdaq for private markets. But the 2% that did really wanted it, there was a subset of angel investors in 2013 that were still like, 'Hey, why is the public market so liquid? I can buy stock on any trade; I can trade any stock I want in the public world. But in the private world I can't trade anything.' And they got really excited about that one thing, and I just had to find all of those investors. The good news when you do these party rounds is the hard part's at the beginning. But once you start finding a few of these investors, they get excited about your idea. They know other investors. They go call those investors and say, 'Hey, you should check this company out.'

And they are much more likely to get excited about your idea, in part because they know the investor, but also they're in that same circle than [they would be] if you met an investor cold. And so when you do these seed rounds, they're really hard at the beginning, but they get much easier. So for example, our seed round was $1.8 million. I think it took me maybe three-and-a-half months to soft-circle the first million. I did the last $800,000 in two-and-a-half weeks. And it's just because, once there's enough critical mass in it, everybody converges in it and you get the round done. And it accelerates.

The one slide every pitch deck needs to succeed

Lebowitz: That's really incredible, Henry. Thank you for breaking that down for us. Why don't we transition into the series E deck, and you can give us a little background on how you put that together.

Ward: Sure. The series A deck was a $7,000,000 deck. The series E deck was a $300 million deck. We raised $300 million off of this deck. You'll see it's better than the series A deck. But you'll see the formats actually not all that different. So the first thing I do is, 'Hey, what are we doing?' [Pictured above is a slide that reads, 'The problem.'] Public markets are efficient, liquid, transparent. Private markets are not. Why is that true? We're building this database. This is really the same stuff I was saying earlier, just a little bit better and more clearly. Over five years, my articulation of what we're doing has tightened up, but it's the same thing, right? What are we doing here? We're building this database of assets and we're issuing securities from point A to point B, and this stuff now looks really familiar.

This is exactly what I had in a series A. [Ward reads off the deck] 'We issue electronic shares, options, debt, derivatives. We automate their approval, and compliance.' This is literally exactly the same slides from series A. 'We track the cap table' — again, same slide — 'track the portfolio' — same slide — 'venture capital is our first network.' This was in there as well and then there's an appendix. So, we talk about the network effect here. We talk about the network effect when you go from VCs to LPs. So we're talking a lot about networks here. We say, 'Hey, with our network effect, we have nodes and edges. Our business model is really simple. We sell software and services into the nodes. Then we move money between the edges.' And then this is called the domino chart. Almost all great pitch decks have one. You've just got to figure out which is yours.

There's a great post by Bill Gurley. You've got to figure out how to have this slide in here, which is, how do you increase the market? [Pictured above is a slide that reads, 'And keep going...']

Read more: The founder of a $1.7 billion startup shares the one slide every pitch deck needs to succeed

So we start with VC, the market increases to LPs, and you've got private equity, you've got private companies, you've got public companies, you go to real estate. And it's this road map or path of market penetration. Every domino chart for a company will be different, but almost all great pitch decks have to have some form of this. That's what we're doing, right? It's a little bit longer. It's maybe eight or nine slides of what we're doing.

Frame your startup in the context of other successful businesses — but don't say you're the 'Uber for X'

Ward: Then how are we doing? Quick snapshot, right? Because they don't know your company. So, 'Hey, we were founded in 2012. We have seven offices. [Ward clarified that this is not current Carta data. To date, he said, they have about 600 employees, $700 million in ARR, 1 million shareholders on the platform, and almost 13,000 customers.] So you give them a snapshot into the company. You give them growth curves. This [refers to the graph of Carta's ARR] is our ARR growth curve. [Ward said the deck included about 10 more financial charts that are not public, including payback period, average contract value, net dollar retention, and margin assets.] But basically in this 'how are we doing?' snapshot of the company, and then a bunch of the metrics that are important. So depending on if you're a B2B SaaS business versus e-commerce versus blockchain, whatever it is, you have to put in the metrics.

Read more: Founders and investors reveal the ultimate guide to scaling a startup — and common pitfalls to avoid

So you'll have your 'Hey, this is how awesome we are' or 'how awesome we're performing' slides. [Pictured above is a slide that reads, 'Network effects.'] I talk again about network effects. We're very much a network-effect business with relationship network effects and data liquidity. Here's something that's subtle, or maybe not so subtle. When we look at products, we're like, 'Hey, we have a cap-table product and an LP-management product.' These are relationship-network products. Then we compare them to network businesses like Facebook, LinkedIn, Slack.

And there's this either subtle or not-so-subtle thing where you are now comparing yourself to the largest, best tech companies in the world, right? Just by saying, 'Hey, we're doing the same thing LinkedIn is doing, except we're doing it for companies and not people's résumés or jobs.' Same thing when we look at data; we have all this data that we're accumulating. The comps are Google. Facebook parlayed their relationship network into a data-network business.

Bloomberg of course is a data-network business. Liquidity, when we think about stock exchanges, we comp those to Nasdaq and NYSE. And so you're putting in investors' minds, 'Hey, this could be a very big business because look, we're standing on the shoulders of giants. Look at the companies that came before us with these types of business models. We can do the same thing, but for this space versus that space.'

And so whenever you think about how do you want to frame your business in a broader context, you want to find great companies that you can compare [your business] against and say, 'Hey, we're doing something similar in this way.' The old terrible version of that is, 'Hey, we're the Uber of babysitting.' Or whatever. Don't do that; it's so cliche. But figuring out the underlying structure that allows you to say, "Hey, this is a business model that's known and we're taking a new spin on this business model and this business model is very valuable."

The test to determine if you should be raising late-stage capital 

Ward: Part two [of the series E pitch deck] is how we're doing today. And then part three is what we're going to do. And I call it last thoughts. [Pictured above is a slide that reads, 'Ownership as simple as payroll.'] And I'll say, 'Hey, let's say we're able to do the things we want to do. What does the world look like in the future?' And so I talked through, 'Hey, ownership as simple as payroll.' Right? We talk to the largest companies in the world and say, 'Hey, if you could put employees on an equity platform as easily and simply as you put them on your payroll platform, would you do it so that everybody that works at Cargill, the largest private company in the world, will not only get their bimonthly payroll, but they'll also get equity in the process?'

And we do that by creating this database. And I walked through this database that we're building with stock ledgers and portfolios, and then I talk about how, if you have this infrastructure, if you have this database, you can now create a capital market on it called CartaX and you can do private stock trading and all of these things. And then I talk about how this is a global problem, because you can go capture not only the private assets in the United States, but do it around the world. I go through the storyline of, 'Hey, if I look 20 years from now, if Carta does all the things we want to do, what does Carta and more importantly, what does the world look like in 20 years?'

That's what I want to paint in the last section of the pitch. Because venture is looking for large outcomes. And so they have to see a vision that spans 20 years. And if you can't articulate a vision that spans 20 years, it's very hard to raise late-stage capital. You can still do series A, series B. Because if you do series A, series B, and you're a $300 or $500 million exit, that's not a terrible outcome. But if you're raising $300 million at a $1.7 billion [valuation], you have to have a path to a $10 to $20 to $50 billion outcome. And those types of outcomes take a decade or two to get to.

What investors really mean when they tell you to hit certain milestones before coming back

Lebowitz: That's great. Henry, we have another question from the audience. This person would like you to discuss some of the milestones your VCs required in each round, and whether that helped shape some of the slides in the pitch, specifically how you thought about articulating your success in the deck.

Ward: We didn't really have milestones from our investors. This is how our fundraising worked. Our seed round was $50,000 checks at a time. [It was] really hard. [For our series A round, we took] 30 meetings on Sandhill road: nothing. Went to New York, met with three firms, got three term sheets. Something about the New York venture community in 2014, they got what we were doing. Financial infrastructure just wasn't the Silicon Valley thing. Fintech was payments back then. They didn't understand anything else. You had to go to New York if you were doing a fintech company. It was hard, but easier than the seed. The series B was actually insider-led. One of the firms gave me a term sheet, but I did not have [them] lead the round, Spark [the venture-capital firm Spark Capital]. USV [the venture-capital firm Union Square Ventures] led the round.

Spark, I gave them a small chunk of the series A and invited them to come to the board meetings and just hang out and get to know us. They preempted the next round on a series B because they could see the numbers before anybody else could. For series B, I never went to market. They took it off the table. That was really easy. Then for the series C, we went to market. We actually had a preemptive term sheet that anchored us at $200 million. Then we went to a $200 million pre [-money valuation]. Then we took that and went to market to price-check it and we ended up going around, doing the rounds, doing the road show. And we were able to drive the price up to a $280 million pre[-money valuation] or there's $320 million post[-money valuation].

We did 40 [Carta raised $42 million in a series C round] on 280 [a $280 million pre-money valuation]. For the series D, we didn't go to market. That was preempted. Someone came in and gave us a term sheet we couldn't refuse. We grabbed that one and then for the series E, we went to market. All this stuff, it's not really milestones. It's when you get a feel for, 'Hey, the business is doing really well. We have a lot of momentum and investor appetite is strong, and so we should strike while the iron is hot.' And so I think we may be a little bit unique. I do think there are other businesses where they're like, 'You have to hit these clear milestones, and if you do this we'll invest.' But I think that's much rarer than most people think.

I think founders believe that because VCs tell them that. Because it's an easy way for them to say no. You come in and you're like, 'Hey, I want to raise money.' They don't really feel right about it. They don't want to do it. But instead of just telling you, 'Hey, I don't really like your business or, 'I don't like you,' or whatever it is, they'll say, 'Well, hey, if you make these milestones, come back.' And so then the founder gets all excited. They run off, spend six months chasing this milestone, and they come back and the investor is like, 'Well, the milestones moved. I'm not really sure.' And so I wouldn't worry about what investors tell you to do. I would just build a great, valuable business and the rest of the stuff will figure itself out.

Lebowitz: Well, thanks for giving us that little glimpse into the mind of a VC. It looks [based on polling earlier in the webinar] like the thing that's most challenging for everyone in the audience about building a pitch deck is summarizing their company's mission in a limited number of slides. I wonder if you could speak to that Henry, how you figured out how to whittle down all the information and data you had about Carta into just a few slides.

Ward: Yeah, it's the most important thing you can do. Read that book ["The Presentation Secrets of Steve Jobs"]. It'll help you think through that. I don't do this anymore, but in the early days I used to write my pitch word-for-word and memorize it as a script. And then you'll get better. You'll get better and you can start riffing on it. But figuring out how to clearly, cleanly, simply, and concisely articulate what you're trying to do may be your most important job. Because it's not just that you're doing it for fundraising. It's all I do for recruiting. This pitch that I gave on the series E, I do a condensed version of this pitch probably eight to 10 times a week, between an investor just coming in and swinging by, to talk to executives I'm recruiting, to employees that are new that want to meet me and go, 'Hey Henry, why am I here?'

Read more: A billion-dollar-startup founder used a classic memory strategy to perfect his investor pitch — and raised $448 million

I do [this pitch] probably 13 or 15 times a week. And so you just keep practicing and practicing, and every time you tell the story of your company, try to do it a little tighter with fewer words. Now I have a 30-second version, if I meet someone in the elevator, to describe what we do. I've got a two-minute version, if we're in a new meeting and I just have to introduce Carta. I've got a 10-minute version if I'm recruiting an executive. I've got a 30-minute version if I'm in a meeting with investors. But you will really start to dial it in. I'm not exaggerating. I literally do some version of this Carta pitch 12 to 15 times a week. I can do it in my sleep now, and you will, too. You just have to get out there and do the reps.

Lebowitz: Thanks for that. We also have another viewer question, which goes back to your earlier deck. How did you demonstrate product-market fit and demand for Carta services in the early days?

Ward: Great question. It was actually easy because we had it. It's much easier if you have it. This is how we demonstrated it. [Henry pulls up the revenue slide in the series A deck] In January 2014, we made $820 that month and acquired eight customers. Seven months later, in August, we acquired 60 customers just in the month and made $71,000. When you go from $800 to $70,000 in seven months, you've got product-market fit. It was pretty easy. I didn't have to convince them. The biggest problem that I had in the series A was not demonstrating product-market fit. I had the numbers to prove it.

The biggest problem I had was TAM [total addressable market]. People didn't believe that there was a big enough market here. [They would say,] 'Yeah, great. Good for you Henry. You got the $70,000 in a month, but you're going to get to $10 million a year in revenue and then that's it. There's nothing left to do.' And that was the biggest challenge that I had to overcome to raise capital.

You need to nail 'message-market fit' if you want to raise millions from investors

Lebowitz: That's awesome. Thank you so much for sharing that. Henry, would you share a final piece of advice on putting together the perfect pitch deck?

Ward: Practice, practice, practice. Do this deck with other people. The series A, I think the final version was 'eShares series A: V [version] 41.' There'll be tons and tons of iteration. The thing that everyone talks about is product-market fit. There is the same thing in venture, which is you need message-market fit. You're trying to find the message that resonates most with investors. And so you will constantly have to iterate to get that thing right, and you can practice with other CEOs who have raised money. Then practice with associates and constantly iterate, trying to figure out what's resonating and what's not resonating.

Read more: The founder of a billion-dollar startup says you need to nail 'message-market fit' if you want to raise millions from investors

On the seed to series A [rounds], I used to put up a camera, pitch to myself in the camera, and watch myself, which is extremely hard to do. You cringe. But I did that for months. So, practice.

Lebowitz: That's terrific advice. Thank you, everyone, so much for joining in today. I hope you took away some great learnings about putting together your pitch deck. And Henry, thank you for sharing all of your wisdom.

Ward: Yeah, thank you. I hope it was helpful.

Lebowitz: All right. Thank you, everyone.

Ward: Bye.

SEE ALSO: The founder of a $1.7 billion startup walked us through the pitch decks that helped him raise $448 million

Join the conversation about this story »

NOW WATCH: The founder of a $1.7 billion startup walked us through the pitch decks that helped him raise $448 million

• On Tuesday, Catalyst announced it raised $15 million in a series A round led by Accel.
• Catalyst CEO and co-founder Edward Chiu decided to start the company after his stint at DigitalOcean, where he built customer success software.
• Chiu says that compared to competitors like Salesforce and Gainsight, Catalyst's software is design-focused and easy to use.
• Chiu says that initially, Catalyst struggled with hiring, and he learned it's actually better not to hire the best talent, but rather the people who will contribute positively to the company culture.
• Visit Business Insider's homepage for more stories.

When Edward Chiu was the head of Customer Success and Sales at cloud company DigitalOcean, he built an internal tool that made it easy to manage customers. 

After receiving positive feedback from many people within the company, he thought it was a no-brainer: he should probably build it for the mass market. 

He and his brother Kevin Chiu then co-founded Catalyst, a New York City based company that develops software that onboards customers and measures how happy they are and if they would recommend it to other people.

"When I showed this tool to other customer success leaders, they said this internal tool is better than what I'm paying $100,000 for software on the market," Chiu, who is CEO of Catalyst, told Business Insider. "Most entrepreneurs, when they come up with an idea, they don't get the opportunity to see if there's social proof...We had the chance to dogfood it."

On Tuesday, Catalyst announced it raised $15 million in a series A round led by venture capital firm Accel. Chiu, who was one of the earliest employees at DigitalOcean, says he's excited about the opportunity to work with Accel, as this year, some of Accel's portfolio companies like PagerDuty, Slack, and CrowdStrike have gone public.

"For them to anoint Catalyst with this huge series A investment goes to show they're betting on this market being the next wave they're excited about," Chiu said. "It shows they take their companies across the finish line and they turn them into world class organizations."

Read more: The CEO behind the smash-hit PagerDuty IPO says that she looked at 51 other chief exec roles before she chose to lead the $3.9 billion company

With the funding, Catalyst plans to invest in its product and marketing strategy. In the future, it also plans to invest in features that automate and learn from the data Catalyst is collecting. For example, this can give information on an organization's top spending customers, or smaller customers to reach out to that have the potential to grow.

"As we build out more features, we continue to maintain the same user aesthetics that brought us here," Chiu said. "That's something they're very excited about."

Better than a PowerPoint deck

Catalyst competes with companies like Gainsight and Salesforce. But Chiu says Catalyst's software is a lot easier to get started with and use — even people who normally don't deal with customer operations. He says it's a sign that customer success has become a company-wide initiative, rather than the realm of a single department.

Chiu also says Catalyst's software just takes minutes to set up, while other companies' software is "very clunky" and can take months.

"We have CEOs logging into Catalyst and product managers logging into Catalyst to take a look at the feedback the account manager is taking from customers," Chiu said. 

Chiu says that investors were excited about how Catalyst's product has been leveraged at a company like DigitalOcean. This helps when selling to customers as well.

"The biggest thing is we had social proof," Chiu said. "For most companies, when you're a seed stage, it's a PowerPoint deck."

Don't hire 'the best engineers'

Chiu grew up in California's Orange County, spent some time in San Francisco, and now bases his company in New York. He says the diversity of New York City is one of its key advantages, and he hopes Catalyst becomes a company that can represent the New York City tech scene.

"Having lived in San Francisco, I felt everyone was in tech, everyone was talking about their perks," Chiu said. "Coming here, not only is there a diverse group of people, there are diverse ethnicities and diverse careers and occupations. That is a good healthy mix when it comes to an environment where people go back to their homes and not be in the tech world."

Still, hiring can still be difficult, especially in New York City. One challenge Catalyst faced, Chiu says, was that initially, it struggled with hiring and building the right team.

"This is my first company with my brother," Chiu said. "We didn't know how to do anything. We didn't know how to hire. We didn't know how to fire. There was a point in time where we made some bad hires, and we hired some of the best people. They were very good at what they did, but they weren't necessarily the future leaders of the organization."

From this experience, Chiu realizes it's not talent that builds companies, but people who can work together and build a positive culture. Now, the company has grown to 19 people, plus a one-year-old dog that spends a lot of time at the office. 

"You don't hire people who are the best engineers or best salespeople or best product people," Chiu said. "Building the best culture builds the best company...Yes, you're out there trying to hire the best of the best engineers, but that doesn't always mean they're a good fit for the organization and they actually care about your business to help you win."

SEE ALSO: DevOps startup CircleCI raised $56 million to supercharge how programmers push code

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NOW WATCH: 7 lesser-known benefits of Amazon Prime

• Entrepreneurship is hard enough. But when you present your startup's pitch deck, you have to flaunt your design skills too.
• We asked successful entrepreneurs and investors how to do it right.
• Their tips included: Explain why now is the best time to launch your business, and don't forget to say what your company is actually doing.
• We've also included a video in which the CEO of billion-dollar startup Carta walks us through his Series A and Series E pitch decks.
• Visit BusinessInsider.com for more stories.

They tell you not to judge a book by its cover — but investors will absolutely be using your pitch deck to evaluate your company's potential, so you'll want to make a stellar impression.

To that end, we asked a series of successful entrepreneurs and investors for their best advice on creating an impressive pitch deck:

• Justin McLeod, the founder and CEO of Hinge, a dating app.
• Kim Taylor, the founder and CEO of Cluster, which recruits for advanced manufacturing roles.
• Christina Carbonell and Galyn Bernard, the cofounders of Primary, a children's clothing brand.
• Megan O'Connor, the cofounder and CEO of Clark, a tutoring-software company.
• Jen Rubio, the cofounder, president, and chief brand officer of Away, a travel brand; Steph Korey is the CEO.
• Masha Drokova, the founder and general partner of Day One Ventures, an early-stage capital firm.
• Anu Duggal, the founding partner at Female Founders Fund, which invests in early-stage technology companies run by women.

Their main takeaways? Keep it simple, and include the information that's most relevant to each investor.

At the bottom of this article, you'll also find the recording of a webinar in which Henry Ward, the CEO of billion-dollar startup Carta, walks us through his Series A and Series E pitch decks. Carta has so far raised a total of $448 million.

Read on for a practical guide to pitch decks and some impressive examples.

Customize your deck to the specific investor you're pitching.

You might envision walking into a room full of investors, requesting $1 million for your company, and walking out a few minutes later, triumphant.

That's not typically how things work.

McLeod said it's more common (and more effective) to form a relationship with the investor before making your pitch. That includes asking the investor what kind of information they want to see in a deck and which numbers are important to them.

Prepare multiple documents that tell your company's story.

Taylor recommended creating different versions of your deck. Specifically, you'll need a short intro deck, as well as one for in-person meetings and another for follow-up calls.

Verify investors before sending them confidential information.

Taylor warned founders not to include financial information in their intro deck and "blindly send it to people without qualifying them." She recommended DocSend for this purpose.

Make sure to visually represent your brand identity.

Ideally, by the time you're putting together a deck, "you have enough of a vision for the brand that you're building" that you can visually represent that brand, Carbonell said. Too often she sees other founders' decks "either not well designed or generically designed," and missing their "brand personality," she said.

Taylor reminded founders to design their title slide and not to leave it as an afterthought.

"First impressions matter!" she said.

Don't go overboard with the information you present.

Keep your pitch deck concise.

A few entrepreneurs mentioned that they'd used the venture-capital firm Sequoia Capital's pitch-deck template, which includes 10 slides, each with one key point.

And Taylor said she uses Guy Kawasaki's 10/20/30 rule: "A pitch should have 10 slides, last no more than 20 minutes, and contain no font smaller than 30 points."

Remember that your deck should tell a story.

Your deck should outline the most important points about your business — not everything about your business.

As Bernard put it, your deck should "tell a story" so that investors "can understand where you think the business is going to go."

It goes back to knowing which numbers and metrics matter most to each investor. "If you throw all of your numbers into your deck, it may not tell a story," Bernard said, and the investors "may not latch on to the right point."

Rubio said founders should "paint a specific picture of the one (or maybe two!) biggest opportunities that you're working to leverage, and then focus your pitch on how you're going to approach them."

"Otherwise, it's too easy to give the impression that you're not clear on your purpose and the value you're uniquely bringing to the table."

Pretend you're creating a deck for your parents.

Carbonell said one of the best pieces of advice she'd heard on this topic is to pretend you're presenting the deck to your parents.

In other words, don't be afraid to "brag a little bit"— your parents want you to succeed — and "give them a little bit of context for some things," since they might not be experts in the space like you are.

Carbonell said this mindset had helped her spot any holes in the Primary pitch deck.

Include just one point per slide.

When you're creating a deck to use during in-person meetings, avoid the temptation to cram every slide with information.

"Each slide should have one cohesive, clear point, and it should not take a lot of text to make that point," O'Connor said.

Remember you'll be talking during the presentation, she said, "so you don't need everything you're going to say also on the slide."

Use one slide to explain who's on the team.

"In the early stages, a VC is investing in the person (or team), not the company," O'Connor said. "They have to believe that you are the one that can accomplish the mission above anyone else."

That's why she recommends including a blurb on the entire team and their professional backgrounds. During the pitch, you can talk through your story as the founder.

Read more:A founder who sold her first company for $25 million and landed Mark Cuban as an investor (twice) shares exactly what to say to pass a job interview at any startup

Include your bio if it's relevant.

Taylor said that "people remember narrative and why you are doing something." If your personal or professional background is relevant to the company, include that in your deck.

For example, Taylor grew up in an advanced-manufacturing hub in Wisconsin, so she includes that point when she's pitching Cluster.

Don't forget to say what your company is actually doing.

Yes, it sounds obvious. But the Primary founders said it's easy to get so deep in the weeds that you forget to tell investors what the purpose of your company is.

"Occasionally, we are so close to what we're doing, what our actual product is and what we're offering, that we forget to say it," Bernard said.

Read more: A CEO who launched her company 14 years ago says too many founders have it all backward

Outline both your grand vision and your concrete execution.

Your pitch deck should address two points, McLeod said: "Here's the grand vision of where this is going to go and why this is a big idea" and "We're going to really nail this one narrow thing really well."

When McLeod was pitching Hinge, he emphasized the global vision of changing dating culture. But he also showed that he had gotten people using the app in the first place.

Address the market landscape and competition.

Duggal said one common mistake she sees in pitch decks is "not addressing competition or figuring out the market landscape."

"When we think about investing in a company, we want to understand — that's great that you have an interesting idea or you spotted something that has the potential to be an exciting business — but we also want to understand what is already in the market," she said.

Explain why now is the best time to launch your business.

Don't just talk about the problem and your solution, Carbonell said. Also answer the question "Why now?"

"It can be very helpful in persuading an investor not only that you have a good idea, but why now is the right time to pursue it and why it hasn't been done before," she added.

Drokova said: "A deck is all about why [the business] should exist today and that you're ready and capable to execute it. With Day One Ventures, it was about our insights into communications and PR, and seeing how much it helps early-stage companies grow in size and valuation, and how it assists with recruiting top talent."

Highlight the cost of customer acquisition.

O'Connor said investors are always interested in hearing about your cost to acquire a customer. "At the very least," she said, "you need to be able to show that your CAC will decrease over time, and what your plan is for making that possible at scale."

Include whatever data you can to inspire confidence.

Early on, Korey said, "you might not have enough data to successfully show anticipated traction." In that case, "focus on other metrics that you can share," including qualitative feedback from your initial research.

"When the hard data doesn't exist yet, there are other ways to prove that there's an appetite for what you're building and a path towards success," Korey said.

Specify how you're going to spend the money you raise.

Investors want to know what you'll be doing with their cash.

"You need to be more specific than just letting the investors know you're going to build the company and should be able to speak to things like headcount, office space, vendor agreements, R&D, and any other big expenditures for your business," O'Connor said.

Highlight your plans for growth.

Duggal said every deck should include a five-year growth plan.

Tell investors how long it will take to get their money back.

The "payback period" is how long it will take for investors to recover the cost of their investment.

"Investors are going to give your company money because they believe they can eventually make a profit off of it," O'Connor said. "So in addition to clearly articulating how that will be possible, you'll also need to share a specific timeline of when it's going to happen."

Read more:A startup founder who was rejected 148 times by VCs made these 2 small changes to her pitch, and she's since raised nearly $30 million

Tweak the deck based on the feedback you get from each investor.

When the Primary founders started pitching investors, they realized they needed to make their deck even simpler.

"Not all of the points that we were making were coming across as clearly as we wanted to," Carbonell said. So they updated the slides for the rest of their investor meetings.

Now watch the video below, in which the CEO of unicorn startup Carta dissects his Series A and Series E pitch decks:

Looking for more guidance on pitch decks? Check out these decks that helped startups raise millions.

SEE ALSO: The first-time founder's ultimate guide to pitching a VC

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