Picture Leon. He is a 35-year-old from Paris who loves travelling around the world. Two years ago, on one of his trips, he realised the poor wine education people had outside France, and he told himself to fix that. He came back to Paris, quit his job and went on to build a wine EdTech platform that not only teaches you about wine but also predicts which wine you are going to like according to your data gathered in the app.
He found reasonable success, but there is a particular thing that Leon really struggled with. And that was talking to investors. Because for people like Leon, investors are strange figures that don’t have a clue about building businesses and ask endlessly ridiculous questions.
During his seed round, he kept getting “no” for an answer, followed by vague phrases such as “you need more traction” or “we’re worried about competition”. So in other words, he was being criticised for his ideas, but wasn’t getting actionable feedback.
Why do investors speak another language?
It is very common to hear entrepreneurs complaining about funding rounds. Raising consumes a lot of time and can be very frustrating, considering the ton of other things they need to get done to keep the company running. But it’s not the investors fault. It’s all about communication.
Communication is king in financing rounds. And it’s hard, because founders are in the weeds thinking about their company every day and investors hear dozens of pitches every day. To distill a life’s mission to simple ideas, to get the investor interested and to be clearly understood all in a thirty-minute call sounds complicated, and it is.
Investors are always interested in the future. Much more than in the past or the present. They think in terms of future returns, so current customers are interesting because they show traction, execution and some sort of evidence of product market fit, but what they really want to hear about future plans, how big a market is and how will advance towards being a big business. The best VCs invest in potential, not just present evidence.
On the other side, people like Leon are focused on the present of the business (they haven’t got a choice) and are usually very proud of their customer base and their team. So they talk about that to seduce investors. And like that, Leon might be selling himself short.
So how do these two get on the same page?
Well, this is precisely what this post is about. Hopefully, at the end of it, both founders and investors reading this will be able to jump into finance rounds knowing what to communicate, and how to do it.
And we guarantee you that saves a lot of time and stress. For both sides.
How to get on the same page: the VIRAL framework
Luckily enough, smart people have thought about this a lot. Ross Baird, from Village Capital, a venture fund that challenges the current venture capital establishment, realised how tough it is for founders and investors to get on the same page, and did something about it.
As an investor, he realised that the problem was in communication. So he built a language for entrepreneurs to learn how to talk to investors and vice versa. He called this the VIRAL framework and took inspiration from no other than the guys at NASA.
NASA has a very similar problem to communicate about the level of maturity of a technology. Like funds, they invest in early prototypes with huge potential. The problem? How to rank them. So instead of saying “early-stage technology” or “late-stage” technology, they built a ranking which enabled them to say “Level 3” or “Level 9”.
The guys at Village Capital thought this was very handy, so went on to do the same for their startups. They developed a communication framework both for entrepreneurs and investors to communicate about the level of maturity of their startups. This way, founders know when and how to ask for money. And investors know what they have in front of them.
VIRAL is summarised in the chart. And this is going to be great for Leon’s Series A round, because he can now understand that “not hitting product-market fit” doesn’t mean that his customers are not sure about learning about wine, but rather that “his outbound sales still exceed his inbound'' and “his sales cycle meets the industry standard”. But not only that. If you look at the table, Leon also knows that when his inbound sales exceed his outbound, he will be in level 7 for the Value Proposition category and that if he is equal or better in the rest of categories, he will have the credentials to ask for a second VC round.
But Leon needs to watch out because the overall level of his wine platform will be determined by his lowest-scoring level in any column. He might be level 4 or above in all of the categories, but his startup will be ranked lower if he fails to score that high in just one category. So that is something to keep in mind, because it’s how the framework works, and it makes total sense.
VIRAL gives founders superpowers for finance rounds, but it is also great for business strategy. We explain why by comparing it to the Business Model Canvas.
VIRAL vs. Business Model Canvas
The Business Model Canvas is one of the best tools out there to plan your company. Alex Osterwalder introduced it in 2005 and fifteen years later, it remains a must. So one might think, why use VIRAL when I already master the Business Model Canvas?
Two reasons. First of all, because the Business Model Canvas doesn’t help you communicate with investors. And second, because the Business Model Canvas is about building a plan, and VIRAL is about scaling that plan. So they are compatible.
And how do startups scale? By increasing VIRAL levels in all categories: product, team, market… So the magic about VIRAL is that it lets you know what you need in every part of the business to improve the prospect of raising the next round. And that is amazing for founders because it lets them identify which parts of the business require more focus at any given time, which can sometimes be trickier than what you think.
Actually, if you look at the table and take a scroll on any category from bottom to top you’ll see what scaling looks like in every category.
Also, a founder might look at his company’s VIRAL and notice that it doesn’t have level 8 potential in some of the categories. That’s not a bad thing, it is only an opportunity to rethink the revenue model or perhaps make a couple of strategic hires to solve it.
And that is equally insightful for investors. Because, other than knowing where you are, they want to know how you are going to get to advance in every column. And they can advise you to make strategic moves on a particular column or even refuse to invest in your company. And that is precisely why preparing for investors with VIRAL can help founders raise a successful round.