Remove This One Slide from Your Pitch Deck to Stop Scaring Away Investors

Aaron Dinin, PhD
Jun 23 · 8 min read
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Do you ever wonder what it’s like to be a venture capitalist? If you’re a fundraising entrepreneur and you haven’t thought about it, it’s time to start. Not because you’re jealous of VCs, and not because you want to become a VC. You should wonder what it’s like to be a venture capitalist because it’ll help you understand how VCs make their investment decisions. This will give you valuable insights into the best way to structure your fundraising pitches.

Need an example? Consider the following scenario that, in some important ways, mirrors what it’s like to be a VC.

How venture capital is like gambling

Imagine we’re together in a Las Vegas casino. I hand you one million dollars worth of chips and give you the following three rules: 1) you can choose any game in the casino; 2) you can only play the game once; and, 3) you have to bet all of the money. If you win, I’ll let you keep 20% of the winnings, and I’ll give you more money to bet in the future. If you lose, you’ll never get more money from me. In fact, you may never get to come back to Vegas again. What game would you choose?

If you’re like any rational person faced with this kind of scenario, you’ll begin examining all the games in the casino and start comparing your odds of winning versus the potential payoff. That comparison won’t be identical for everyone. Some people will have experience playing certain games, so they’ll factor their personal skills, abilities, and comfort levels into their decision-making process. Other people will look for the betting opportunity with the objectively best odds. And another type of person will opt for a riskier bet with a bigger multiple on the payout.

There’s no right or wrong answer. This is, after all, just a hypothetical scenario that’s never going to happen. Instead, what matters is, when faced with a high-stakes game of chance, you’ll do your best to determine the bet with the best odds for a positive outcome based on your assessment of the situation.

The same scenario happens every day for venture capitalists. They have large sums of other people’s money they have to spend. Remember, they can’t keep it. Their job is to invest that money. But they have to invest the money on incredibly risky startups. They are, in a way, gambling.

When they win their bets, they get a percentage of the winnings and a good shot at getting more money to invest in the future. When they lose, the odds of getting another opportunity to play the game decrease dramatically.

In this scenario, venture capitalists behave just like any rational person faced with the opportunity I described in the casino. They carefully analyze the betting opportunities that give them the best odds at winning, and then they bet accordingly. This is called “de-risking” their investment.

Understanding how VCs de-risk their bets is important for entrepreneurs because it helps them determine what kinds of information in a pitch deck might entice venture capitalists, and what kinds of information will scare them off.

What entrepreneurs think de-risks investments

Entrepreneurs and investors de-risk investments differently. The biggest motivator for entrepreneurs to invest their time and effort is the size of the opportunity. By size, I don’t necessarily mean monetary payout (though this is often an important consideration). I mean overall value, which can include factors like the entrepreneur’s personal passion for helping people within a certain industry.

As a result, entrepreneurs tend to approach their fundraising pitches from the perspective that the best way to de-risk an investment is by demonstrating a venture’s overall value potential. To do this, they identify problems or needs in a market, guestimate how many people have that problem, then start doing back-of-the-envelope math that looks something like this:

If 100 million people have this problem, and if I can sell a $100 product to just 5% of them, then I’ll make $500 million and be rich!

I guarantee all entrepreneurs, at some point in their careers, have performed some version of the above calculation in their heads when quantifying the potential of an idea. I know I’ve done it more times than I’m proud of. And I’ve seen dozens of pitches from entrepreneurs with slides that include this exact type of naive math.

But even if you’re not naive enough to be one of those entrepreneurs, there’s a good chance you’re guilty of making the same mistake in a less obvious way. In fact, there’s another problematic strategy for presenting the potential size of a market opportunity that’s often encouraged by so-called pitching “gurus” and commonly taught in business schools around the world. It’s commonly described as the Total Addressable Market.

The myth of market size

A slide containing a startup’s Total Addressable Market, or TAM, is a common strategy entrepreneurs use to describe a startup’s revenue potential. To calculate a startup’s TAM, entrepreneurs estimate the number of potential customers, multiply it by an estimate of how much those customers are currently paying or might pay in the future for similar services, and plop it onto a slide. The result is an obscenely large number showing a TAM worth billions of dollars, or hundreds of billions of dollars, and I’ve even started seeing trillion dollar TAMs. The purpose is to either explicitly or implicitly tell investors “lots of people are going to buy our product.” The only problem is investors don’t fall for it.

No good investor ever believes the numbers they see on a TAM slide. They know the estimated market size used to calculate TAM is based on circumspect Internet research that’s likely to have been wildly inflated. And they know the estimated customer spend is coming from an overly optimistic entrepreneur. These two problems result in unreliable TAM slides.

In addition, in the unlikely event that the TAM you’ve calculated is miraculously accurate, TAM numbers get inflated so often that investors won’t trust whatever numbers you present regardless of their validity. And by the way, using the phrase: “We think these estimates are conservative” won’t help, so stop saying it.

In a way, showing investors your TAM is like what casinos do with their slot machines. Slots are the easiest game to play in a casino. You put money in and pull a handle. That’s it. It’s so easy, my 18-month-old daughter could do it, and she’d have a blast.

Have you ever noticed that slot machines are also the game with the brightest lights, loudest sirens, and huge signs about the size of their potential jackpots? There’s a good reason: slot machines have some of the worst odds in a casino. Slots are the game casinos want people playing, so casino owners try to make them the easiest and most exciting.

Flashing your TAM on the screen is the same concept. You’re trying to wow your investors with a big number. But any sophisticated investor is going to do exactly what any professional gambler does to slot machines: ignore the pretty lights and flashy numbers and go somewhere with better odds. Is that what you want your investors doing when they see your pitch deck?

How investors actually de-risk investments

When investors are considering placing a bet on a company, they don’t care how big you think the market is. If they’re halfway decent at their job, they already have their own beliefs about the market size of your venture and its potential. It underpins their entire investment thesis, and nothing you place on a slide is going to change that. Besides, if your startup is truly as revolutionary as you’re probably claiming, the market size should — theoretically — grow significantly as you become more successful.

Instead of hoping you’ll educate them about the market size during your pitch, investors are focused on something else entirely. They’re trying to calculate your odds of success. They do this by looking for ways you’ve de-risked the investment.

Of all the ways to de-risk an investment, the most useful for investors is information about how much it costs to acquire a customer. This is critical because market size doesn’t matter in isolation. If you have an enormous TAM but the cost of acquiring customers is more than the customers will pay, then you don’t have a viable business.

As a result, investors want slides in your pitch that show you know how to capture customers. Slides detailing your customer acquisition strategy help them de-risk the investment. To continue my casino analogy, since investors are looking for indicators your company has better odds of succeeding than the other bets they could make, your ability to acquire customers in a cost-effective way is a great proxy for showing you’re able to compete in the marketplace.

From that perspective, your goal in a pitch isn’t to convince investors that a big market exists. They already believe that, or they wouldn’t be talking with you. Instead, your goal is to convince them you have a viable strategy to capture a large portion of demand in a market they already think is big. The way you do this is by focusing on how you get customers.

That means you can leave out the slide showing the size of your market and instead explain your reliable, repeatable, predictable, scalable customer acquisition strategies. For example, tell them how every 64 cold emails you send produces one sales call. Show them that each new blog post you publish generates an average of 56 demo requests. Explain that any trade show you attend results in 18 new customers. Present data demonstrating $186 spent on Facebook Ads creates a customer with a lifetime value of $186.50.

In other words, whatever customer acquisition data you have, that’s what investors want to see. Customer acquisition data is proof you know how to get customers and how much customer acquisition will cost. This information helps investors calculate your startup’s odds of success compared with the 50 other startups they’re talking with that are all targeting the same total addressable market.

That’s right… just like in a casino, your game isn’t the only one investors can bet on. Lots of other startups are crowding around them, flashing big numbers, and promising huge jackpots. But professional investors aren’t easily distracted by those kinds of gimmicks, meaning you’re not going to attract them with louder noise and brighter lights. They’ve got money they have to spend, the stakes are high, and they’re calculating odds. The only way to prove you can give them the best chance of winning is by showing real data about what it costs to get a customer.

The Startup

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Aaron Dinin, PhD

Written by

I teach entrepreneurship at Duke. Software Engineer. PhD in English. I write about the mistakes entrepreneurs make since I’ve made plenty. More @

The Startup

Medium's largest active publication, followed by +717K people. Follow to join our community.

Aaron Dinin, PhD

Written by

I teach entrepreneurship at Duke. Software Engineer. PhD in English. I write about the mistakes entrepreneurs make since I’ve made plenty. More @

The Startup

Medium's largest active publication, followed by +717K people. Follow to join our community.

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