In our increasingly quantitative world, the ability to craft a great story seems like it’s almost a dying art form. Yet science shows us how stories that connect with their audiences, build trust, and create buy-in are as much about narrative as they are about content.

In my 20 years of working with startups, I’ve seen completely untethered businesses with charismatic storytellers raise unexpectedly large amounts of seed capital. Meanwhile, lots of solid businesses that couldn't tell a good story struggled mightily.

Although we often speak of storytelling as an art form, it is also informed by science - underpinned by biology, formulated with cognitive psychology, and tested through decades of empirical research.

So what is a startup equity story anyway?

A startup equity story is a narrative showcasing a startup’s growth potential and value to attract investors.

How do different equity stories differ?

Not all equity stories are the same, nor should they be. The maturity of the company and the round of funding it's raising largely determine how the equity story is crafted and what its content consists of.

Younger companies raising early-stage funding are, by nature, more aspirational. So they must paint a picture of a better world they will help to create. Their narratives are grounded in potential and possibilities, and they lean on hypotheses and strategies to test them over concrete data. Furthermore, scale is described by market opportunity (TAM/SAM/SOM) rather than market capture.

Conversely, more mature companies seeking growth capital craft their stories around tangible achievements, showcasing their track record as evidence of their capability to capitalize on their market potential. They present data that represents what they have achieved as much as what they hope to. And they speak of scale in terms of market share rather than opportunity alone.

Debunking equity story myths

With all of the resources at their disposal, I'm still often surprised how many founders get the equity story wrong simply because they're operating on false assumptions. Some of the core fundamentals and values of pitching investors get missed, which almost always results in flat-out rejections if not some nicety that means roughly the same.

Here are the six myths that I encounter most when working with founders in fundraising mode.

Myth #1: An equity story is about getting money.

• Reality: An equity story is about bringing on a partner.
• Lesson: Focus on building relationships of trust.

Myth #2: An equity story is a presentation.

• Reality: An equity story is a narrative with a plotline and arc.
• Lesson: Speak like the village elder, not the McKinsey consultant

Myth #3: An equity story results in an investment.

• Reality: An equity story matriculates you in the process.
• Lesson: Focus on getting the audience to want to learn more.

Myth #4: An equity story is comprehensive.

• Reality: An equity story is a carefully crafted, abridged narrative.
• Lesson: Less is more. Only present what is defensible.

Myth #5: An equity story is an opportunity to display how much you know.

• Reality: An equity story is an opportunity to exhibit your ability to sell.
• Lesson: Delivery can be just as important as content.

Myth #6: An equity story has all of the answers.

• Reality: An equity story often has hypotheses that require further testing.
• Lesson: Be transparent about what you don’t know. But have a plan to figure it out.

The power of storytelling

Humans are story processors.

Our brains are wired to understand and process the world through narratives, as we constantly create stories in our heads to make sense of our experiences. As a result, brain activity is 5x greater in stories than when we process data or facts.

Stories fuel emotions.

Stories can evoke emotional responses as we connect the narrative and its characters to our own feelings and experiences.

Stories enhance memory.

Stories are memorable because they provide context, making it easier to find patterns and connections that encode long-term memories.

Stories immerse us.

Our brains simulate the events of stories so we can experience them in our minds, engaging the same neural networks as if we were experiencing them in real life.

Stories transport us.

When we get lost in a story (narrative transport), we lose sense of the world around us, connecting deeply with the experiences it describes.

Stories help us identify.

When immersed in a story, we take on the perspective of its protagonist, creating connection and trust with that character.

Stories persuade us.

Great stories trigger a combination of analytical and emotional thought, inciting both logical analysis to embed memory and triggering emotions to build connection and trust.

The duality of storytelling

Great stories hit us from all sides, engaging our analytical and emotional sides in tandem. That’s because the way we think, the biology behind our thoughts, and the mechanisms that trigger engagement, memory, and persuasion are both logical and emotional, effortless and effortful, systemic and heuristic.

The biology of storytelling

Stories light up our brains in a myriad of ways, displaying the vast interconnectedness of our biology when engaging with a descriptive narrative. Specific regions exhibit analytical thinking, emotional reactions, immersive experiences, and even human connection. Here are just a few brain regions critical to the storytelling experience.

| Analytical vs. Emotional |

Prefrontal Cortex

The analytical aspects of stories activate our prefrontal cortexso we can better understand narratives, analyze their elements, and predict the consequences of their actions.

Limbic System

The emotional aspects of stories activate the amygdala and hippocampus, enhancing empathy and connection and making experiences feel more personal and significant.

| Immersion |

Sensory and Motor Cortices

These brain areas become active when imagining the sensory details and physical actions described in a story, simulating the experience as if it were real. This activation enhances the vividness of the narrative world, making the story's events feel more immediate and real to the audience.

Frontal Lobes

Deep engagement in a story may reduce activity in parts of the frontal lobes responsible for critical analysis and self-awareness. This allows audiences to suspend disbelief and minimize critical analysis, deepening their immersion.

Default Mode Network (DMN)

Stories activate the DFN which enables us to imagine future scenarios, consider others' perspectives, and construct a sense of self within the narrative. This fosters immersive experiences.

| Empathy |

Mirror Neuron System

When we imagine a character performing an action or experiencing an emotion, our mirror neurons activate as if we were experiencing the action or emotion ourselves. This helps us empathize with the characters' actions and emotional states.

Theory of Mind Network

This network, which includes the medial prefrontal cortex and the temporoparietal junction, enables us to infer what characters are thinking and feeling, which is crucial for understanding characters' motivations and anticipating their actions.

The neurochemistry of stories

Stories can release a variety of neurochemicals in response to the feelings they illicit throughout their arc. By understanding the cognitive mechanisms behind these neurochemicals, what thoughts and actions they spark, and the characteristics of a story that trigger them, storytellers can strategically use neuroscience to become masters of the craft.

Oxytocin

• Release: in response to feelings of connection
• Response: empathy, trust, and generosity
• Story Triggers: character-driven stories, dramatic moments, connection with the storyteller

Cortisol

• Release: in response to tension
• Response: increases alertness, attention, and focus
• Story Triggers: narrative conflict, obstacle, and struggle

Adrenaline

• Release: in moments of high tension
• Response: fight or flight mechanism
• Story Triggers: narrative suspense, surprise, and emotional intensity

Nitric oxide

• Release: in moments of stress
• Response: mood modulation, stress inhibition, and memory encoding
• Story Triggers: suspense, emotional themes, humor

Dopamine

• Release: in response to arousal
• Response: motivation, reward-seeking, learning, decision-making, cognitive flexibility, and mood
• Story Triggers: plot twists, surprises, humor, sparked curiosity, climactic moments

Endorphins

• Release: during moments of relief or triumph
• Response: reduced stress, enhanced pleasure, and energizing, positive affect
• Story Triggers: emotional catharsis, triumph, positive resolutions (with high stakes), touching moments

Serotonin

• Release: during positive mood states
• Response: mood regulation, focused attention, learning enhancement, greater imagination, and memory processing
• Story Triggers: positive experiences, happy endings, social bonding, calm and contentment

GABA

• Release: during relaxation
• Response: mood stabilization, increased concentration, and stress relief
• Story Triggers: peaceful settings, emotional resolution, contentment, relaxing descriptions, comforting character interactions

Elements of a Story

Although stories can be crafted in almost any way, there are numerous storytelling models with empirical evidence that are particularly effective at engaging audiences effectively and immersively.

Freytag's Pyramid is a classic story blueprint that uses well-paced progression, heightened tension, and satisfying resolutions that resonate emotionally and captivate the attention from beginning to end. Its seven components are the backbone of many of the stories we love most (yes, Star Wars is one of them).

1. Exposition: This is the story's introduction, where characters, setting, and the initial situation are established. It sets the scene for the action to come and provides the background information necessary for understanding the story's context.
2. Inciting Incident: The crucial event that sets the main plot in motion. It disrupts the balance of the protagonist's world, compelling them to take action and embark on a journey or quest.
3. Rising Action: The rising action introduces a series of events that build tension and complicate the plot. This section develops the initial situation, introduces conflicts, and builds toward the story's climax. It's where the protagonist faces obstacles that need to be overcome.
4. Climax: The climax is the turning point of the story, often the most exciting and emotional part. It's the moment of greatest tension, where the main conflict reaches its peak. The outcome of the climax has significant consequences for the protagonist and often determines the story's direction.
5. Falling Action: The falling action involves the unraveling of the plot's complications. It leads toward the resolution of the story's conflicts and problems. This section shows the aftermath of the climax and begins to steer the story toward its conclusion.
6. Resolution: In a series, the resolution sets up elements for future stories, leaving some questions or challenges open-ended to be explored later.
7. Denouement: The denouement provides a sense of closure to the immediate story while often leaving larger series-wide questions unanswered.

Elements of an Equity Story

There are quite a few models out suggesting theirs is the blueprint for the contents of a startup pitch. While each approach is well-considered and useful, I have developed an alternative model based on my learnings about narrative arcs and neurochemistry.

The best startup equity stories follow a pattern that parallels the Freitag Model almost perfectly. Here’s the same pyramid model with traditional story milestones substituted with those of an equity story (and the neurochemicals they can release when delivered effectively.

| Exposition |

1. Intro/Purpose

Establish the setting and context and build connections with the audience to trigger oxytocin.

| Inciting Incident |

2. Problem

Build tension in the story arc and bring drama to introduce the problem to trigger cortisol.

| Rising Action |

3. Pain & Persona

Introduce your ICP as a character and increase your story’s tension by vividly describing the intensity of the pain they experience. If powerful enough, this can trigger adrenaline.

| Climax |

4. Solution

Introduce your solution with suspense and emotion to trigger the release of nitric oxide in your audience.

5. Secret Sauce:

Unleash the dopamine with a climactic introduction of your USP and try to surprise the audience with the novelty and wonder of your innovation.

6. Moneymaking

Show your audience how you will make a lot of money and they might find themselves teeming with endorphins, imagining your shared triumph over the market and all of the wealth you will create.

| Falling Action |

7. Founder-Market Fit

Present your team in an engaging way that connects your experience and fit with those of your audience. This can trigger serotonin and promote social bonding.

8. Competition

Unpopular opinion… this part is stupid.Don’t do it if you don’t need it. But if it’s demanded of you, focus your differentiation on how you will create more positive outcomes (not more features) than your competitors. Because experiencing positive outcomes is serotonergic.

9. Traction/Roadmap

Present your past, present, and future strategy with transparency and conviction. Your openness and relaxed confidence can drive serotonin.

| Resolution |

10. Ask/Use of Funds

Frame your ask by explaining how, with their help, you will solve the problem together. Tap into GABA with relaxing descriptions, a calm tone, and emotional resolutions to your story.

| Denouement |

11. Call to Action

Call for audience action with words of calm inspiration. Paint a picture of a beautiful new world you and your audience will create together by using collaborative words like we, us, and our.

In Conclusion

The ability to craft a compelling equity story is one of the most important skills a startup founder can acquire. It goes beyond just putting together a polished PowerPoint filled with attractive charts and visuals. The essence lies in constructing a narrative that connects with both the analytical and emotional sides of investors, positioning them as partners in a shared mission rather than mere financiers.

By understanding the biological, cognitive, and emotional drivers behind effective storytelling, founders can learn how to skillfully blend strategic and analytical information with engaging and relatable narrative content. This enhances the appeal of the startup's purpose and potential, increases the likelihood of a successful fundraise, and affirms the founder's skill at what is arguably their most pivotal role – Storyteller-in-Chief.

Bonus Point

If you want to see one of the best startup equity stories ever (in my opinion), check out this oldie, but goodie.

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