What VCs Wish You Included (Or Didn’t Include) In Your Startup Pitch
It’s not easy to start a business. It’s not easy to keep one going, either. But with a little luck and a lot of perseverance, someday you may find yourself in the exciting and challenging position of looking for funding to scale your startup. And when you do, you’ll probably be wondering how to make your pitch as strong as possible to get the attention of an investor like me.
As a venture capitalist, I sit down with hundreds of such entrepreneurs each year — and have to turn down meetings with even more. My fund, VU Venture Partners, sources and reviews a significantly larger amount of companies per year than a traditional venture fund, at roughly 8,000+ deals per year (6x more deal flow vs. a traditional fund), and we invest in ~12–20 companies per year, equating to an investment selectivity of 0.15–0.25% (4–7x more selective vs. traditional funds). Fellow VC Sean Jacobsohn best puts this in perspective, explaining that the average VC firm reviews about 1,200 companies just to make 10 investments…or ~1%.
And while most VCs would tell you they never tire of hearing pitches, it’s surely in your best interest to make our lives easier — and boost your own chances of success — by knowing exactly what we want to see in a pitch. With that in mind, here’s what we’re really looking for:
The fundamentals: Cold messaging and pitch deck templates
First things first, I want to acknowledge the fact that many VCs have a policy of “warm introductions only,” meaning they don’t often take meetings with people who haven’t been recommended to them by someone they know and trust (which also insulates the VC industry, for better or worse from outsiders). Nevertheless, if you’re unable to reach a VC through hard networking, you may try your luck at sending a cold email, LinkedIn message or DM on Twitter. After all, even finding investors’ email addresses can be a challenge in and of itself. We don’t publicly list our emails to avoid spam and it creates a small challenge for worthy entrepreneurs.
So, if you do resort to the option of sending a cold message, it’s crucial to be as concise as possible and avoid sounding overly immature or hyperbolic. In the message to the VC answer each of these main questions below:
- What does your company do? (1–2 sentences)
- What are your current revenues (if any) and key traction metrics?
- How much capital have you raised to date? (Note: I’m comparing total capital raised vs. traction to date, to get a sense of capital efficiency)
- How much money are you looking to raise now? Main use of capital?
- Are you looking for a lead investor?
- How much of the total round is already committed, and from who?
Even more important than the questions above, however, is your actual pitch — that is, the deck of slides you’d be presenting to investors if you were invited to a face-to-face meeting. This presentation must address several core points relevant to your business, so it’s best to use an existing template to be sure you don’t leave anything out. Here’s a link to one I created back in 2013, which has since become one of the most used startup pitch deck templates online.
It’s also worth noting that you should send your pitch deck as a link (for example, on DropBox, Google Docs, or DocSend) instead of an attachment when you send to investors. This awards you the flexibility of being able to update it or remove it as necessary, and makes it far easier for the recipients to access or share the document (especially if it’s a heavy file, so it won’t get rejected from inboxes).
A final point of early consideration: As investors receive hundreds of inbound pitches each month, don’t take offense if they don’t get back to you right away or at all — you’re not entitled to a meeting. However, following the thoughtful advice below should increase your chances that they do respond.
The important stuff: Facts, numbers and behaviors
Before digging into the details, let me reiterate the importance of using, or at least referencing, a template when creating your pitch deck. There are a number of topics that must be addressed, from a quick elevator pitch of your company, to defining your market opportunity, to explaining your revenue model, and more. A template can help you be sure to check them all off the list.
Below are a few, less obvious things, that would really impress investors to include in your pitch deck:
A clear description of what your solution is
Let’s start with the basics. Believe it or not, many entrepreneurs can be vague about what their solution is and does. In fact, I lost count the number of times I’ve reviewed a pitch deck or sat through a large portion of a presentation without being able to understand exactly what the company does. Make it easy for the investor to quickly understand what your company does.
With that in mind, be sure that your deck makes it crystal clear what your product or solution is and how it works. Include pictures in your deck along with a simple, clean explanation — especially for more technical solutions — to ensure that we know what you’re asking us to invest in.
The numbers behind your market size calculation
Another detail that many entrepreneurs overlook when making their pitch decks, and sometimes even when strategizing their business plans, is showing the numbers behind the calculation of their addressable markets. Of course, market research is immensely valuable, but investors are skeptical by nature — and you should be, too. If you didn’t perform the research yourself, how can you fully trust the numbers in the report? If you can’t quickly show me the math of how you got to your $50B market opportunity, you’re going to look pretty silly. Referencing a research report isn’t good enough. What’s your true target market size? Show me the math!
It’s a worthwhile exercise to calculate the size of your market yourself, even if it’s just to supplement your market research — be able to show how your target market adds up to a certain amount. Many VCs will quickly do their own calculations of your company’s market size in their heads during the first meeting, so we expect you to be prepared for this discussion.
Your unfair sustainable competitive advantage
Having a competitive advantage is an obvious necessity for any business. But at the end of the day, VCs aren’t looking for just any competitive advantage: we’re looking for an unfair sustainable one. This means, when discussing your competitive landscape, it’s imperative for you to explain what specific, unfair and sustainable advantage you have over any other direct or indirect competitor. And please don’t say “we have no competition”, as that’s almost never true, and if it is true, you may be going after a white space with lots of skeletons. It might be a white space for a reason!
For example, maybe you have a parking technology and your uncle runs a major real estate company, meaning you can easily secure a massive first customer and leverage his network to get many more customers (a proprietary sales channel). Or maybe you’ve recruited talent that no other company could match (people are proprietary). Or maybe you’ve locked down supply for your product at a low cost that no one can beat you on price (proprietary supply).
Whatever your unfair sustainable competitive advantage may be, highlight it for investors. And here’s a hint: It’s never your patents, but could be your brand (brand is often more proprietary than technology), team members, and ability to scale.
What you need help with other than capital
As you probably already know, VCs can provide support for your business with far more than just capital. This is why “smart capital” has become an emerging trend in the VC space, in which investors take a more active role in helping their portfolio companies.
Fellow VC Amjad Ahmad best describes this practice, writing, “fundraising is much more than securing the necessary capital for your company. It is about choosing the right investor to help you achieve your goals and who can offer you a lot more than just money.”
So, be sure to explain in your pitch deck what else you need help with other than financing. Whether it be mentorship, introductions to potential partners or even strategic guidance, call out the things that you want your investors to assist you with.
Your strategy to increase LTV and decrease CAC
Now to the more technical points… When assessing a startup, many VCs first look at a company’s LTV/CAC ratio. This figure looks at the average lifetime value (LTV) of a customer compared to the cost of acquiring a new customer (CAC), which gives investors an idea of your company’s ability to scale.
In my experience, the best entrepreneurs include their LTV/CAC ratios in their pitches (and those who don’t, should) — but even more rare are entrepreneurs that show how they plan to increase a customer’s lifetime value and decrease the cost of acquiring them.
Investors want to know exactly how you plan to decrease your customer churn rate and get them to stay with you longer. So, if you can provide examples and outline a strategy for doing just that, there’s no doubt you’ll be able to grab and hold a VC’s attention.
Your capital efficiency in comparison to your peers
Another technical consideration for your pitch deck, closely related to the LTV/CAC ratio, is about your company’s total capital efficiency, annual revenues / total capital spent. VCs use this metric to gauge how efficiently you have used the capital you’ve previously raised, and if that will change when using their money, should they decide to invest in your company.
VCs are most interested in how your capital efficiency ratio compares to your peers and companies with similar business models. For example, maybe your competitors have raised and spent $5 million in funding and are earning $10 million in revenue, so a 2x capital efficiency. Have you been able to achieve >2x, 1x, or <1x capital efficiency to date? Have you been able to grow faster by spending less money? If so, that’s what we’re looking for!
Capital efficiency is one of the best metrics to indicate whether a company will become the category leader as it means with equal amounts of capital, the company with better capital efficiency will outperform and win a larger share of the market, so if you’re able to show that you beat out competitors in terms of capital efficiency, you’ll definitely have our ears. Not to mention we’ll be impressed you were able to find out this information about your competitors in the first place. If you’re not playing the capital efficiency game, you’re playing the “who can raise and spend more capital first” game, which is certainly a strategy, but a riskier one, as it often leads to unsustainable businesses long term.
Generating $100M of revenue is great, unless you had to spend $300M to get there. Founders and investors are incentivized to do more with less, as it means smaller and fewer capital raising rounds, which means less dilution to the founder’s and initial investor’s equity, less time capital raising and more time executing the business, and leads to faster and more sustainable revenue growth.
No exaggerations and lies
A final point is actually what not to include in your pitch deck. And that’s exaggerations and lies. This goes for each of the points above as well: Don’t rely on hyperbole or stretching the truth. As investors, we make decisions based on facts, and aren’t impressed or fooled by overstatements. This type of behavior is a sure-fire way to leave a negative impression on investors very quickly.
With that in mind, avoid telling VCs that another investor is “interested” just because you’ve taken a meeting with them. It’s not a bargaining chip until we’ve verbally confirmed our interest as a team, and it’s not true leverage until you’ve got a term sheet signed. Even then we have the power to pull our offer. And stay away from other white lies as well.
Ultimately, the lesson is to be careful. You don’t want to piss off the people whose money you’re looking to spend.
Raising a venture round is no doubt a challenging endeavor. In fact, running out of cash is the second most common reason that startups fail. Accordingly, if you want to avoid being a part of this statistic, incorporate the strategies outlined above to boost your chances of getting a VC’s attention — and money.
Ultimately, however, VCs have limited time and capital, and can’t invest in every company that they like or believe will be successful. So, don’t give up if you’ve faced rejection a few times. Just because we’ve said “no” doesn’t mean you have a bad idea, nor does it mean that you won’t find investors, you just need to embrace the grind and turn over all the rocks until you find your best investor match. It can sometimes take 100+ investor meetings until you find your first investor that says yes.
However, if you feel you’ve truly exhausted the investor pool, that may be a clear sign that your company is not a great fit for VC, and you will need to decide to find an alternative funding strategy, continue to grow with internal cash flows, or to shut it down. There needs to be a 10x+ return opportunity for a VC to consider saying yes. If that’s not possible, you may not have a scalable business, but you may still have a solid “life-style business” that can be profitable and support your team.