Mastering your pitch deck
While we’re in the middle of the COVID-19 pandemic, I thought it would be good to take our minds off for a bit and focus on the usual business of startups and VCs. Getting funded in the coronavirus times is definitely more troublesome but VCs still continue investing in good startups (if you’re a Series A / Late Seed startup — contact us at Inovo, we’re active!). I decided to go back to the very basics and discuss pitch decks.
It still surprises me to receive poor decks that lack fundamental parts from the investors’ perspective. Even though there are gazillion sources on the web with recommendations on how to prepare a pitch deck, I often have an impression that the key takeaways are missed. This post is to give a few guidelines when preparing the document and reflect the way we at Inovo think about pitch decks.
Why pitch deck?
First of all, why the deck matters at all? Sure, it is possible to raise without a pitch deck (best regards to Tidio, our last investment — more on this in Michal’s post). But let’s face the truth — usually you will be requested to send some pieces of information on your company before any meeting or call takes place. A well-crafted pitch deck comes extremely useful in any fundraising attempt. It is a fundamental document to support you during the meeting with investors while selling your story.
Moreover, there is one more crucial feature of a pitch deck that often gets underestimated in my opinion. It reflects the way you think about your business. Even if you haven’t spent a lot of time on your pitch, a simple, clear and concise deck shows your ability of critical thinking and selling your vision to an outside world.
Below you’ll find the key topics that I believe should be mentioned in any pitch deck. Usually, it will consist of 10–15 pages, but it’s also fine to make shorter or longer decks if you can keep the investor interested and not lose his/her attention — you need a consistent storyline without information overload to do that. The order of slides presented below is my framework that sounds coherent to me, but feel free to craft it your storytelling.
I. Intro
That’s pretty straightforward. Show your fancy logo and a sentence explaining what you do, so that the investor can easily pass the word to his colleagues without going too deep into your details. Think of it as an elevator pitch — a brief explanation of your company and its awesomeness. Do not launch into a presentation with an investor having no idea what your startup is about!
II. Market problem & your solution
Once you’ve introduced your startup, let’s look from a big picture perspective. Show what the market problem is and how your startup tackles it. Your product and its features are the solution to the problem and answer the “what you do” question. At this stage, you should indicate what is the benefit of your product to your customers.
III. Market size
This part is quite tricky. It’s not enough to look up some numbers from a report of a research firm and say that the market is enormous. It’s more about understanding how many potential customers are out there and how big your revenue potential is given that these customers would be willing to pay for your product. This is also the reason why most VCs prefer the bottom-up approach than top-down for market size estimation. The latter tends to be inaccurate quite often. Knowing the number of your potential customers also helps in setting the right go-to-market strategy and customer acquisition channels.
Another common mistake is that founders tend to inflate the total market value e.g. by mistaking GMV as their revenue potential, while in fact, their revenue is only a fraction of this amount as their take-rates are much lower or their products address only part of the market. Believe me, it is much better to show a smaller market than shortcomings in your critical reasoning.
Why VCs stick to larger markets and why is this part important? It’s the answer to ‘how big it can get’ that every VC takes into consideration when making investment decisions and assesses fundmaker potential.
IV. Business model
Investors must understand what your business model is. Is that SaaS, marketplace, D2C…? Who is your target customer — SMEs, enterprices, consumers? What is the value he gets from using your product? Does it justify the cost and is the ROI on the purchase high enough to buy it from you? How do you acquire customers? What are the customer acquisition channels? What are the moats and defensibility factors in your business?
You should also present unit economics of your business model that proves that the model is attractive, replicable and profitable at scale.
While the product is “what you do”, the business model is more about “how you do it (and how you get paid for it)”.
If you want to dig deeper on business models — see this great collection of resources.
V. Competition
I can’t tell how many times I heard that there are no competitors. And that’s not true. There is always competition. Even if there are no direct competitors close to what you do, there are always potential indirect competitors on adjacent markets or players fighting for the same customers as you do. And most likely, there are bigger, better-funded direct competitors with a longer operating history.
You should showcase the differentiating points that could convince investors that you’ll win the market (or at least become an important player on it). It could be a go-to-market strategy, proprietary technology, whatever — but you can’t be better in all aspects from the very beginning. I see too often that startups have a tendency to claim that they are superior to their competitors in everything they do, which is simply impossible. Due to limited resources, it is completely fine to start small and then grow rapidly with a well-crafted strategy.
VI. Traction
For later-stage startups, traction is usually reflected in growing revenues. But it is not limited only to the monetary terms. Traction could also be highlighted in operational KPIs (e.g. API calls, number of visits, product features used) and on customer level (# of upsell cases, growing usage of the product) which is often neglected.
Even if you’re an early-stage startup you need to show what you have already accomplished with your team and that there are any proofs of product validation by your future customers.
You always need to show your traction. If you don’t, a red light is flashing in the investor’s head — there is no growth or the founder is trying to hide something.
If you’re a B2B startup, it’s a good idea to present logos of your current customers and, more importantly, to show your current pipeline that should give a certain amount of confidence in further growth of your company. And when it comes to talking about the future, it’s what the next section is all about…
VII. Forecasts
You should include some kind of a forecast in your pitch deck. My preferred approach is to understand what the founder wants to achieve by the next round. So a detailed forecast for the next 12–18 months, an average time until the next round, is much appreciated as it shows that the founder is strategic and understands what needs to be delivered by that time.
A good forecast (i) is coherent with your historical traction and does not include unjustified leaps of faith e.g. conversion rates will double or churn will be lower with no change in product, (ii) is realistic, (iii) helps you determine what your strategic milestones & funding needs are.
I don’t take 5-year forecasts showing skyrocketing revenues and EBITDA too seriously. You can do whatever you want with numbers and Excel will give results accordingly. It would most likely be overoptimistic and unlikely to happen. On the other hand, if you present low growth in the mid/long-term, it’s a warning sign that you may lack ambitions of building a large company or it is not necessarily a company suitable for VC way but rather for bootstrapping. Perhaps ambition to become a large organization is better reflected in a vision that you could present elsewhere, but if you decide for a long-term forecast, make sure that it is aligned with your plans of conquering the world.
VIII. Team
The team is usually the most important element of startup investing. You can’t build a great company without a great team. In your pitch deck, try to highlight why your team has relevant backgrounds and experience by showing its members’ previous achievements (e.g. serial entrepreneurs, led the international expansion project, scaled the team from 10 to 50 ppl) and companies they worked for (usually other startups or BBNs — Big Brand Names).
If you have some great advisors or board members, be sure to place them on a slide as well.
Sometimes I get asked whether to present other team members who are not founders. If they possess relevant track record — then hell yeah! The ability to build THE team and attract talent is very highly appreciated by investors. Senior external hires are proof that your vision is compelling to industry veterans and you can build a winning team in the future once you have more resources to do so.
It is also a good idea to present this section on one of the opening slides rather than at the end if you have a super strong team.
IX. Current round
You should always tell what’s the amount you want to raise and what for — be it R&D, sales & marketing, foreign offices etc.
There are different opinions on whether to reveal your valuation expectations. Personally speaking, I prefer decks with pre-money valuation explicitly expressed, otherwise I make an assumption that the round size is 20–25% of the post-money. If the valuation is extremely high — you might be regarded as somebody not in his right mind, so be careful here and have some justification of the valuation you expect if you decide to put it.
X. Contact details
Make sure you don’t forget that one :)
General guidelines:
A. Don’t bullshit
Don’t try to hide potential problems — they will come up in a deep dive or DD anyway. And by that time a relationship with an investor can be seriously damaged. Investing is about trust and cooperation. It’s much better to talk openly about your problems and ideas on how to fix them. Only that way investors will trust you and could help.
B. Keep it simple
Make the deck simple and concise. It’s not an IPO prospectus. If you want to put too much text on slides, try moving them to appendices or additional documents to be sent separately.
The deck should give a good understanding of your business and get attention from investors after the first read, but you should be able to use it on your first meeting while presenting your idea and not getting investors bogged down in reading footnotes on the slide.
C. Get feedback
It is always a good idea to get critial feedback from your network incl. other founders or friendly VCs before sending out to your next round investors.
D. Why now?
I haven’t included the “why now” but it should be included somewhere in the presentation. It gets even more important in the current environment and COVID-19 implications.
Conclusion
I know that including all pieces of information I mentioned may not be feasible, but still, it’s good to have these questions at the back of your head and be ready to answer them.
I hope that this article goes a little bit deeper than most pitch deck guides available on the web. My intention was to make founders understand why pitch decks are important and what VCs think and see when analyzing opportunities for the first time.
What comes next? If an investor is interested in going further into discussions, you’ll need to be prepared for a much more detailed analysis of your business. And this will be a topic for my next article on “How to fundraise with Inovo?”…
If you liked the article or have any thoughts on that, please clap/comment! And once you have a good pitch deck make sure to send it to us if you are at Seed stage :)
