Elizabeth Yin's must-ask pitch questions
Today’s topic: questions Elizabeth Yin asked during a pitch (and her analysis afterwards)
Perhaps the best way to get good at investing is to listen in on an experienced investor’s pitch meetings with founders. I did this with Elizabeth Yin when I first started at Hustle Fund nearly 5 years ago. And it accelerated my investing education in a way no other education system has achieved. By far.
So when Angel Squad hosted a Shark Tank-style interview where founder Garrett Serviss pitched Elizabeth on his company (Colorfull) in front of the Angel Squad community, I had to watch.
Below are some of the questions Elizabeth asked Garrett, why they were relevant questions, and a breakdown of her analysis once the call was over.
But first, what is Colorfull?
Colorfull is a pre-seed startup that re-imagines the future of corporate food delivery.
There are a lot of food delivery companies out there already – ezcater and ZeroCater have been around for years and are valued at $1.6B and $100m, respectively. Even brands like Doordash and UberEats have gotten into the corporate food delivery game.
So, what’s different about Colorfull that enabled them to even get a meeting with Elizabeth?
Founder Garrett Serviss explained that Colorfull is doing things differently than these legacy brands. The biggest differentiator is that Colorfull is partnering with ghost kitchens to reduce delivery fee costs.
Ghost kitchens are restaurants that all work out of the same space, whose only purpose is to deliver food. Consumers cannot dine-in at these restaurants. There is no brick and mortar. Rather, food businesses focus on making the meals, and rely on delivery apps for distribution.
There are brands that operate ghost kitchens where you’ll find 30-40 companies all working out of the same space. Food delivery companies pick up the orders and bring them to consumers.
Colorfull is taking advantage of this system. They’ve inked a deal with a big-name ghost kitchen brand. This means they can offer ~30 restaurants to corporate employees for lunch each day while:
- Going to one pickup location
- Incurring one delivery fee
- Delivering all employee meals at the same time
There’s obviously a lot more to the biz, but for the sake of this article we’ll start digging into Elizabeth Yin’s questions and analysis of the biz.
The power dynamics of the partnership
When you have a business that’s built upon another business, there’s a major risk factor.
- What happens if the other business fails?
- What happens if the other business takes advantage of the partnership and jacks up their fees?
- Or – biggest question of all – what happens if the other business decides to go after this market themselves?
That was Elizabeth’s question: What happens if the ghost kitchen partner goes after this market themselves?
I love this question because it gives us insight into how Garrett is de-risking the business. It also tells us a lot about his relationship with his biggest partner. In the case of Colorfull, Garrett explained that the partnership with the ghost kitchen brand will dominate for the company’s first year.
The ghost kitchen partner takes care of the supply side of the business, so Garrett can focus on the demand side: sales, customer development, and user experience. But he’s hyper aware of the need to de-risk the business by not relying on just one partner. That’s why he’s already in talks with other ghost kitchens.
Even if his ghost kitchen partner decides to compete with him – which he’s confident they won’t, given the ghost kitchen’s previous experience doing something similar without success – Garrett is already building relationships with other brands doing something similar.
He’s setting up his business to withstand problems with any one partner.
And that’s called de-risking.
What can I answer for you?
This question never fails to surprise me. Even though I’ve sat in on dozens of Elizabeth’s pitch meetings, by the time we get to the end of the interview, it’s hard for me to remember that this is a critical question.
The power dynamic in these meetings is so clear. You (investor) hold all the cards. The founder should feel lucky just to have secured time with you. Right?
This may be true – although not always, depending on investor interest, availability of equity in the round, etc – but it’s still critical to give the founder an opportunity to get their questions answered.
Garrett seemed pleased to have the opportunity to ask Elizabeth a question. His question: do you ever actually invest in startups in these Shark Tank-style interviews?
A great question. It’s straightforward, realistic, and kinda flips the power dynamic by putting the investor on the spot.
Elizabeth’s answer: when we run these Shark Tank-style interviews, it tends to be a low hit rate. Most startups don’t secure an investment onsite. But it is possible. And we WILL get back to you.
I love that last part: "we WILL get back to you."
So many investors ghost founders after a pitch meeting. It’s not only disrespectful, it’s a huge waste of the founder’s time. The founder will follow-up relentlessly, waiting to hear back. They’ll also dedicate brain space wondering what an investor is thinking, or where they (the founder) went wrong.
So assuring the founder that they don’t need to stress about hearing back from us feels like a kind, human-first response.
Elizabeth’s post-interview analysis
In her post-interview conversation with Angel Squad founder Brian Nichols, Elizabeth shared some thoughts. Here’s what it boiled down to: Each company has a set of things that are super important to get right. A set of things that need to be more de-risked than others.
For a company that’s building a design tool for designers, the product and UX has to be exceptional. And for a company that’s building a CRM tool, the team has to dominate at sales.
For Colorfull, Elizabeth honed in on two things Garrett needs to get right:
- Unit economics
- Enterprise sales
If Garrett can nail both of those elements, Elizabeth believes the business will be de-risked enough to become a major player in this space.
But did she invest? You'll have to stay tuned to find out.
(That’s called a cliffhanger.)