Make Price the Last Thing

I receive lots of pitches, and one of the things I notice is that sometimes these pitches are very clear on pricing. Entrepreneurs will name the pre-money or post-money valuation, and sometimes they even lead with the pricing.

I think that’s a mistake, because if you don’t appeal to the investor on a pricing basis, it gives them an immediate reason to tune out, and chances are they won’t even pay attention to your initial pitch. If you make price the first thing, it’s an easy reason for an investor to say no to your pitch right away.

On the other hand, if you lead with your idea and they start to lean in and get excited about that, they might end up not caring that much about price at all.

Imagine you’re in a store and start admiring a ring in the jewelry case. You ask to see it, and before the salesperson even hands it to you, he tells you the price of the ring is $2,000.

That’s a lot of money, you think. Way more than you had planned to spend on a ring. You instantly decide not to buy it.

Now imagine instead that when you ask to see the ring, the salesman takes it out of the case, lets you hold it, and begins telling you about the person who designed it. It turns out you’ve heard of this artist, a much-admired woman in the local community. She recently passed away, and this was one of the last pieces of jewelry she ever made. The diamonds alone are worth more than $2,000, and there’s a good chance the ring will be worth $10,000 in a few years.

The price of this piece of jewelry is still the same, but now $2,000 doesn’t seem unreasonable. In fact, it appears that this would be a smart investment. It’s not just a ring–this is a rare and special piece of art.

Think of your startup in the same way. Wouldn’t you rather negotiate pricing with someone who is excited about what you’re doing? It gives you some leverage if the investor has developed a relationship with you and is already showing a lot of interest. You might even end up raising more money than you expected, and that could impact the price positively. So you could be short selling yourself short by talking about price right away.

Leading with the price is just a very transactional way to approach an investor. Generally speaking, it’s never a good idea to begin any relationship with a financial arrangement. This is a core tenet of the idea of “giving first.” Show value before you start talking about a transaction.

So keep in mind, when approaching investors–especially for the first time, before you have a relationship with them–leave price out of it.

Don’t make it the first thing, make it the last thing.

file under: Startups
  • Bob Crimmins

    David, such sage advice… as usual.

    I couldn’t help think about the many times I’ve seen early seed pitch decks with proposed exit valuations that appear to be so thoughtfully reasoned — multiples of EBITDA or recurring sales based on industry comps and even the logos of all the likely acquires. (Full transparency, I’m pretty sure I including something like this in an early deck I prepared for my first startup.) But here’s the thing: you can’t know what your startup is gonna do next quarter let alone next year… and especially not six years from now when and if an exit opportunity arises. It sounds so trite, but it’s true: have a clear vision for what you want to build and why… then focus on building value for customers and the rest of it takes care of itself. Your grad and heartfelt vision will very likely change (possibly so much so that you wouldn’t even recognize it), but as long as your listening and responding to your market, you just might end up in a conversation with a big company someday about your EBIDTA and your MRR.

  • Pingback: Mattermark Daily - Monday, February 13th, 2017 - Mattermark()