Venture Capital | Part 2/7: Pitch Decks
The next stage of analysing a startup, once the deals have come in is to analyse the opportunity through the pitch deck that they send across to the VC.
Typically, pitch decks have a similar structure and a predictable format. There are 12 slides to it, each with a different purpose.
Page 1: Cover
The goal here is to create understanding.
This page should not need an explanation. One slide, we want to know what your company does in one line.
We want clean, crisp, with no distracting elements and please, oh please, no “the world’s first” or “amazing/incredible/life-changing/xyz” kind of words. This is your 15-word summary, and if you can’t summarise your idea in 15 words, it’s already a red flag.
The elements are — Your company’s name, logo, description, and your name, contact details.
An optional element is a picture, but it should be EXTREMELY relevant, and add a lot of understanding to the concept. We don’t want stock images that are there just for “design”.
Anything you feel like adding, make sure it’s really, really, really needed.
Pro-tip for every slide: Deleting elements can go a LONG way. Think of it this way — it lifts the average of the page.
Page 2: Problem
The goal here is to create empathy.
The investor should read this slide and immediately think “Ah, I get this problem”.
Now what if you are playing in a space that is completely unrelated to an investor? For example, say your product makes life better for gamers. Pick the smallest part of the problem that is relatable to most people, and then expand it to gamers. Something like — “Hey you know how when your internet is lagging it gets hard to get tasks done? Well, this happens to gamers and affects their entire gaming experience. On average, XX$ is lost per user and XXB$ is lost by the company annually.” (That’s a really crude illustration, but you get my point)
There are things you want to add here:
- Relatability — We should understand your problems, if you can’t make us care about it you probably can’t sell the product to customers either
- Breakdown— What are the different parts of this problem, we want to know if you understand the problem deeply, do you live and breathe it?
- Causes — Why does this happen? Break it down and show us that you can go one step further to understand why it happens, so that you can target your solution to the core of the issue
- Scale — Is this problem big enough? Will it continue to grow? We love big numbers
Page 3: Solution / Product
The goal here is to create hope.
Here we present our nonobvious truth. After we show the audience that there is this huge problem, we show them that we have the magic bullet. Remember, we are writing a film, a great story. This should be an emotional journey.
Here, we want to show that we are holding the shining key to the one thing that can solve the problem. Be clear. the audience does not want to know what other solutions exist, they want to know why you are the only one.
List out two things:
- What your product does — The features, benefits and use-case of it (from a top-level)
- Why this will solve the problem — Be clear on what this solution does that makes it a perfect bullet
Page 4: Market
The goal here is to create excitement.
Here, we want the investor to see the scale this can grow to, and dream big. We want the market to be large and juicy. Ideally, the TAM should be in the double billions and SOM in the triple millions.
There are a couple of things I see consistently being missed on this slide, that makes the investors do mental gymnastics to figure out the answers. Never a good sign.
- Define what your market is — Markets can be defined in 101 different ways. The apparel market, v/s the P2P rental market, v/s the P2P market can all define the scale of a particular company, but I can assure you, just one of these describes the opportunity accurately and realistically.
- DO NOT just write a number so that it sounds big — We can understand markets pretty well, and the minute we catch you do this, we will lose all interest. Trust me.
- Always cite sources — Market sizes are an estimation game, and different sources will share a different number. Often, people just pick the biggest number but you will get brownie points for picking the most reliable source instead. It will suggest a commitment to honest business.
Page 5: Business Model
The goal here is to create reassurance.
The VCs want to know how you will make money. They want to see solid unit economics (meaning at the smallest unit, the business is profitable)
Here, try to answer the question of profitability at the tiniest level (that could be one store, one user, etc.). The fundamentals should look sound and should look scalable. Especially now, in this funding winter, we need profitability to be seen at its core.
Regardless of the specific units you measure, there are always a few key points on which you should focus:
- The costs for you to acquire a new customer/market participant/user/viewer.
- The value they bring to your business over the life of their relationship with your company.
- The expected change in your unit economics over time as your business moves from one phase to another.
Pro-tip — VCs love recurring revenue and high switching cost, which is why B2B tech is a space we are excited about. Try to show the same in your company.
Page 6: Traction
The goal of this page is to display momentum.
Investors want to feel like they are getting on a bullet train. They don’t want a car that is yet to be assembled or a horse carriage moving slowly. On this page, we want to see growth in key metrics.
Now, it doesn’t help if you just put in the shining numbers and don’t cover the key things they want to see (depending on your specific business, this could mean # orders, % take rate per order, % churn, acquisition cost, etc.)
Also, we don’t want to see just growth. We want to see compounding growth. The difference here is, it shouldn't just be linear, it should increase more every week — like double a week. not just adding the same number every week.
Be sure to balance fluff metrics of traction (Twitter followers, etc.) with key hard metrics — and make sure every metric you show MATTERS.
Page 7: Growth Projections & Exit Vision
The goal here is to create a vision.
This slide exists to excite us with numbers. To show us how big this can grow
I recommend mentioning where you got the multiples from and key cost efficiencies that are expected in the future that cause that hockey-stick kind of uptick we are looking for.
The worst thing you can do here is use inexplicable multiples and unlikely cost efficiencies to display an inflated sense of where your business is going. We see a lot of decks, and we will see RIGHT THROUGH IT.
Remember, honesty is key. Don’t think that if you can just get a meeting, you will get away with inflated numbers. Processes are rigorous, I assure you it will be a huge dent in your credibility if things don’t add up. And the community is small, and we talk.
Bottomline: Moderate expected growth is better than inflated high growth.
Page 8: Competitive landscape
The goal here is to display consensus.
Here, you need to show that you understand the market. That you aren’t blind to competitors creeping in, but you’re also not blind to an empty market garnering no interest.
We want to see this —
- That the market isn't too empty or too crowded
- That the market is gaining traction over time, and
- That we are early and have a section to ourselves
- We also want a little bit of “why now”. Why is this the perfect time for this company?
This is a great place to add some commentary on why this market is ripe for our entry, and why competitors are not capturing a key segment. Often, this slide only has a diagram (as above) with no text, but that’s a wasted opportunity.
We are telling a story, and in this context, leaving key things to the imagination is bad for everyone — because it opens the door to bias, and there is a limit to everyone’s appetite to risk, even VCs.
Page 9: Competitive advantage
The goal here is to display excitement.
Here we talk more about why we are different, and more importantly why others can’t do what we are doing right now. Wax lyrical about your product’s features and why it is important to the market, but please NO adjectives/hyperbole/superlatives. No “the best platform” nonsense. We will decide if it’s the best.
One thing to watch out for is being just a “feature” in a space with a big fish. It’s okay to serve a need but if it’s something that a large company can build themselves, we will get played out of the market.
Page 10: Hypotheses & early proof
The goal here is to display rigor.
I have added this in as an ode to one of the great pitch decks I had seen one time, but it’s a rare one.
So this slide has a set of 4 hypotheses and early results they have seen that support this. List the top 10 things that need to be true for this venture to be a success, and show us early results of that being true.
Example — for a luxury clothing rental company to succeed,
- People must value wearing luxury clothing over renting
- People must be willing to rent out their wardrobe
- People must be comfortable with online payment
- Having variety in their wardrobe is valuabe
And now list in early results. For example,
- Luxury market is growing by XX% in YY years
- Rental already exists in X and Y markets
- Online payment adoption is XX% in YY market
- Key reason of donating clothes to thrift shops is XX
(This is an example but you get what I mean)
We want founders to show us that they have their eyes open, heads on our shoulders, and will pivot when needed, and this shows us that they have a finger on the pulse.
Page 11: Team
The goal here is to display competence.
Here we talk about who is building. This slide comes at the end of the storyline but is the most important.
Side note — I see way too many people putting this slide at the front thinking it shows that they are clued into the VC process and the fact that the team is the most important decision factor — but the thing is, the team means nothing if we don’t know the idea yet. The team at the end, please. On the bright side, it at least means we will look through the entire deck and the more time we spend on it the better it is for you.
What we want to see is a team that is —
- Competent — We want to see accolades, prizes, great universities, and great companies. Not because these things mean you will have a great, successful startup but because experiences like McKinsey, Law, Ivy League, and Goldman Sachs — teach you rigour and discipline. They teach you how to get up every day and do a great job. This is extremely useful to internalise if you’re going to be a founder. We also want to
- A good mix — We want teams that cover each other's flaws. We want to know if there’s one technical, one operational and one visionary on the leadership team. Personally, I want to see a generalist co-founder (I’m not a fan of product market fit, I care more about excellence because excellent people can make things happen anywhere)
- Passionate — Passion will carry you forward on days when you don’t have energy. It doesn’t have to be your life’s mission, but it’s nice if you care about it, and you know enough about it.
- Razor-sharp — Always reassuring to see a sharp, smart founder. We will know they can command respect and attract a great team of people who are similar to them
- Not an asshole — We need to trust that the person we are giving money to won’t lie to us, won’t commit a felony, won’t siphon money. We are in business together, and business only works if both parties aren’t assholes.
Page 12: Round Raise
The goal here is to display humility.
This is up to you, make sure you do it with consultation from others.
When we read it, we are looking to answer the following things:
- Will they be able to fill this round?
- When will they have to raise again?
- Will they have enough runway to reach the next round?
- Are they looking at the right metrics to grow?
- What valuation are they looking at and how will they set it?
Page 12: Next steps & Contact
The goal here is to display movement.
Simple slide. A good call-to-action helps here. Ideally, tailored slide with how much money has already been raised and when they want to close the round by.
More general tips
Design (don’t overdesign)
Clean design yes, overdesigned elements no. Find a middle ground, use templates, and outsource. It has to be designed well.
No adjectives, please
They mean nothing. They are empty words, they waste space. Avoid.
Every word counts
Don't waste space, Less is more. Be punchy.
Format to send
Docsend helps to track who is viewing it, nothing clunky. No Google slides/WIP things.
Answer their questions before they ask
After every pitch, you should update your pitch deck answering the questions they have asked you. You will reach a point where everything is answered. and nobody will say no eventually. Top tip: start with small VCs
This draft is part of a 9-piece series focusing on the inside of the VC industry. It is told by a current VC associate, to help entrepreneurs lift the curtain. The goal is to learn to raise better by speaking the language and giving VCs what they look for. It will include —
- Sourcing | Where good founders like to work, play, rest
- Pitch Deck | What we look for in Ideas
- Initial Meeting | What do we look for in People? On Founder Market Fit
- Due Diligence | How Heavy is the Past? — Data in VC, Financial analysis of VC firms
- IC | The Art of Making Good Decisions
- Deploy | Term sheets
- Exit | Ways to do it