This is the updated, 2012 version of the ReOverthinking start-up pitch deck; since the first version was written in 2009, this post and it’s predecessors has been read on average 50 times a day…often more than that. I really hope this indicates the number of entrepreneurs that are thinking about or working on a start-up.
Please use comments to ask questions and make suggestions for the next version.
A successful pitch deck organizes the concepts and details about your business so that you can clearly and simply communicate excitement, metrics and aspirations to potential investors. It is, at the end of the day, a facilitator of discussion and not a stand-alone product. This post will take personal experience pitching and listening to 100’s (and 100’s) of pitches and help you structure a complete investor pitch for your start-up.
What’s new in this version:
- Slightly adjusted the flow of the presentation
- There are 2-3 examples of some of the more important slides
- NOTE: think you have a better example of one of these slides? Post it to the comments of this deck and I’ll include the best slides in the next version.
- The discussion for each slide has been expanded based on feedback and observations over the past year.
- Along the way, I’ve tried to call out “Best Practices” that represent, for the most part, universal advice that withstands the test of time. Feel free to disagree.
There are three reoverthinking “companion” posts to this one; Read #1 before you meet with VCs and read #2 and #3 after you’re funded:
3. The current start-up planning post.
Swing thought: Experienced, early-stage investors get excited by the following:
Visionary, experienced entrepreneurs…
Solving a valuable problem in a huge, growing market…
With some fundamental, defensible advantage…
That’s been proven through scalable customer traction…
In a business with healthy-margins and low capital requirements.
A bit of background
Entrepreneurs tend to have consistent questions regarding pitching professional investors (both angels and VCs). For example:
- What topics are required in a pitch deck? what should be omitted? WHY?!?
- what is the best way to communicate xyz?
- What depth of information should be provided in the deck?
- What about those 7 really great slides that make the too lengthy?
- What’s is the best flow from slide to slide? why?!?
The number of companies that have been funded using this template continues to grow…and I hope it helps you refine your company’s story and how you tell it to potential investors.
So what does your company do?
You may be surprised to find that it’s difficult to concisely describe your company, its business model, or market opportunity. If so, it’s critical to investigate, discuss and understand why that is the case. You might not be ready to pitch professional investors. You may need more iteration on the product, with customers, or in your target market.
An increasingly common way that start-ups answer this question is to describe their company in the context of another company. For example, we’re mint.com for start-up finances. Or we’re OpenTable for Self-storage. Clearly, this is a good shortcut if the analog company is successful and the market is large and growing (see above list of 5 things investors want). I think it’s interesting to consider that Google, Facebook and Twitter probably couldn’t have described their businesses this way because of the lack of analogous companies.
Implicitly or explicitly, investors will ask this question and the others that are posed in the discussion below – and the only truly “wrong” answer is not having thought through the possibilities (“I don’t know because…” can certainly be an acceptable answer).
- Create your own deck! This is as true today as it was in the first version of this example deck; create a deck that allows you to tell your story according to your style and your business; use your own look and feel; name the slides what you want; tell your story with text, pictures, spreadsheets, hand puppets, etc.
- Don’t leave out critical information! This outline is my list of what constitutes “critical information;” no professional investor will fund your company without knowing the information suggested by this outline. That said, if there are elements to your business that are critical and unique – make sure you include them in your pitch and discussions. Force yourself to limit your core investor pitch slides to less than 12…put everything else you think you might want to talk about in a “back-up slides” section after the final, “Thank you,” slide. In my experience, you will rarely get through a 15-20 slide investor pitch.
- Proactively answer the big questions! If there are obvious, elephant-in-the-room sort of questions regarding your business: address them before they get asked. This is always a better way to go because it proves you understand the issues and are not scared of them. If you let investors “discover” big issues during the pitch by not bringing them up proactively, they can easily assume that you were nervous about that fact or that it’s a true weakness in the business.
- Please please please don’t just read your slides! Investors can read the words; they want the story behind the story. The details and anecdotes allow investors to get to know you and how you think. Reading your slides is a rookie mistake. A complementary suggestion on this point is to limit the font size (the bigger the better) and number of words per slide (less is more).
- Be passionate and informed! A core part of what investors look for and “invest in” is the team itself – show them your passion and be sure to know data from adjacent or competitive markets, companies, and models. Smart investors want to see a self-aware founding team that knows what they don’t know as well as understands their collective strengths and weaknesses. Investors want to see a team that is comfortable NOT knowing all the answers (this is the nature of being an entrepreneur)…as long as the team has the drive and determination to find and verify that answer.
- Finally, at a tactical look-and-feel level, it’s important to have enough white space in your presentation format. I like a white background because it prints and projects cleanly. I like titles that are single-line and as few words as possible; less is more in a presentation because it allows for questions and conversation instead of simple presentation of the ideas.
2012 Example Investor Pitch Deck
Slide #1: The Title Slide
NOTE: the black “Slide #X” text will help you track the actual deck to this discussion; each slide in the PPT deck is labeled in this manner.
Include company name and date on your title slide. Also, it’s fair to add an investor-specific “presented to …” note such as shown in the Title Slide picture. Why the investor-specific tag? Good VCs will honor the notion of confidential information – but don’t try to get them to sign an NDA (they’d rather not hear your pitch) – they see many different versions of very similar businesses every day and will not risk being conflicted. A simple and effective way to minimize the sharing of your investor deck is to (1) distribute soft-copies only in PDF format and only if asked; and (2) ensure the investor’s name/firm is on EVERY page. That way, if it gets around, everyone will know where it came from and that should create at least some amount of hesitation ahead of sharing.
Ideally, you’re off this slide as soon as everyone is settled or maybe just ahead of that…quick…the clock is ticking and your potential investors probably have very short attention spans. Help them understand your business in as few slides as possible. Let’s go!
Slide #2: Agenda + Company Overview
BEST PRACTICE: Every slide should ideally communicate exactly one concept (the “punch line”). All the words and pictures on each slide should serve the purpose of delivering that punch line in a clear, linear manner.
- Maybe the investor has an investment in this space and therefore has some very specific market questions that they want to be sure to cover;
- Perhaps they have heard a few interesting things about your company that they want to be sure to dig into those items before the meeting is over;
- Perhaps you had an introduction from someone or some firm that they know and want to understand the relationship between parties.
The Company Snapshot serves to key purposes (aside from violating the single punch-line best practice): first, it tells investors who are not familiar with your company what you do. I can’t tell you how many times I’ve been in a pitch (to me, as an investor) where we’re at slide 5 in the deck and I’m still not sure what it is that this company does. Don’t make your investors guess…lay it out simply along with the other details of your company so you don’t make anyone spend your precious pitch time on silly information you should have dished out earlier. That said, don’t give your entire pitch while on this slide; 5 minutes max on this slide.
The second thing that the Company Snapshot slide does is create a simple and effective way for partners at the firm who were NOT at your pitch meeting to easily understand the high-level information about your company at-a-glance. In most cases, there will be more people involved in making the investment decision for your company than are in the room when you first pitch – give them an easy way to start understanding why they should care about you, your company, and your opportunity. Include: business focus, target market, significant customers & partners, how many employees you have (gives them a sense of your expenses), any other existing investors and how much has gone into the company so far, when & where was the company founded (this is touched upon again in the funding ask slide near the end), where are other offices, and what can they expect in terms of revenue and expenses (”pre-revenue” is a fair answer as well).
Slide #3: The Team Slide
Potential investors will want to know about you and your team so you should be prepared to have a slide that allows you to brag on yourself and your team a bit. My advice is to keep the slide short and sweet. Pictures are optional but they’re a nice, visual touch…and clearly less likely as your company and executive team grows in size.
BEST PRACTICE: if you can have the team details such as background, passion, expertise, etc. to come out organically during the presentation and subsequent discussion, it makes for compelling reinforcement that you’re the right team to tackle this problem.
Hopefully, the core team has direct experience that is relevant to this company in this market at this time. If so, then it’s great context for the rest of the presentation and espcially as a lead-in to the problem/solution/market slides where you can tell the “in this giant market, our team has such fantastic experience that it informed our killer product for this huge problem.”
If the team is a ‘generic’ group of bright people with an interesting idea, it’s still worth talking about. For example, how did this team come together? What are the unique synergies of the group?
If your company has already signed up advisors and board members, then it makes sense to tell your investors about the extended team that is helping lead the company and why you chose them. Usually, advisors and board members have market-relevant experience and relationships that are worth bragging a bit about.
Slide #4: The Problem Slide + Why Now?
Slide #4A sets up a generic Problem that your company is solving. It is the first of the three core slides of any great investor pitch: the problem + your solution + the market. If necessary for context, your problem slide can hint at the solution and market but should be as focused as possible on the problem itself.
A great problem slide should not be controversial; it should characterize an obstacle or inefficiency that is inhibiting a coherent group of customers from doing business in a clearly “better, faster, stronger” manner. The benefit to the customer almost universally boils down to positive financial impact over some period of time. You will know if your problem slide resonates with your audience if you see knowing smiles and heads quietly nodding as you’re describing the problem.
You’ll have time to talk about your vision for the market and the future of your product in just a couple sides, here you really need to nail that you have identified a problem that exists, effectively, today. Why are you not two years too early or two years too late? Why is this a pressing issue for your target market (2 slides from now)? What are the various nuances of this problem that you can illustrate so as to show how you elegantly solve them in the next slide?
Slide #4B describes the problem (in 2004) as a “security risk gap” created by security issues exceeding the capacity of the IT group to address them. Clearly, this “gap” causes reactive fire fighting by the IT department, business downtime, loss of productivity and therefore billions of dollars lost annually. The bullets on the right give plenty of opportunity to discuss the problem in much greater depth if appropriate for the investor audience: What’s a “walk-in worm”? Firewalls are porous? Patching is impossible – really?
Slide #4C describes broadband service provider challenges rolling out their new (in 2001) broadband service and supporting their customers. They had all made huge CapEx investments and didn’t know how long it would take to make broadband a profitable service because of the operation expense in rolling it out and subsequently supporting it. This slide was used with investors and customers and literally described a $100m business in 2001-2002.
Slide #5: The Solution Slide
To be clear, slide should talk about your product as well as how it addresses the problem of the previous slide. Screen shots are great; a demo is even better (see #5B below). If necessary for context, the solution slide can hint at your company’s market, business model and go-to-market strategy.
- A great solution slide can be slightly more controversial than the problem slide since it represents your company’s opinion and should describe how you address the problem from the previous slide.
- A great solution slide needs to be as simple as possible; complex solutions and products are harder to create, harder to sell and generally cost more time and money to bring to market.
- A great solution slide basically communicates the value proposition: “we work hard so you don’t have to.” Yes, you’re the scrubbing bubbles of your industry.
- A great solution slide needs to communicate defensibility and some sort of proprietary advantage. If there is no technology or process defensibility, winning in a market could come down to which company spends the fastest to get product created, marketed and sold in order win customers faster than competitors. Money will be the bluntest form of differentiation…and the most expensive from an equity perspective.
- Your solution slide might be best served up as a “case study” if your product is more like infrastructure or “part” of a larger solution. How a big-named customer uses your product to solve their problem is compelling an perfectly illustrative.
- If you plan on doing a demo, I’d make it no longer than 5-10 minutes and get back to the flow of the pitch. Most investors will assume that you will make your product work; the demo is brief proof of that plus any compelling features you can show quickly.
- The Intrusion Prevention System product line slide shows the product as well as the automatic security update service as the solution to the looming IT “security risk gap.” This slide isn’t especially simple but it does convey a valuable, proprietary product line and integrated service. All other things being equal, it’s easier to suggest that hardware is more proprietary and defensible than software.
Slide #5C describes a broadband service management product (the product had a name, but was removed from this slide) that no only saves operational costs for customers but speeds time to market and creates happy subscribers! The combination of tangible and intangible benefits worked well together in both investor and customer meetings; the intangible “icing on the cake” value propositions wouldn’t have won the deal but they resonated strongly in an early, competitive market.
Slide #6: Market + Market Context
- Why is your market interesting? How large is the market and the opportunity in your market?
- Conversely, if the market seems small, explain why it’s sufficiently large to support growing your company to a compelling size?
- Is something currently driving disruption or creating new opportunity in an old market? Or are there any compelling dynamics currently at play? (do you have insights that nobody else has?)
- How fast/slow is growth or change occurring in this market? (are you early or late?)
- Is your market segmented in a unique way? How so? (All Fortune 500 or SMB / mid-market?)
- WHAT PORTION OF THIS MARKET DO YOU HAVE ACCESS TO AND WHY? How do you fit in? Note: This can help set up your unique competitive advantage / “secret sauce” slide.
When building the Market / Context slide, assume that your audience knows very little about your market, its size and related data. You need to show that you deeply understand the market and clearly frame up why your market is interesting: it’s big and growing; it’s going through massive disruption; it’s enormously fragmented; it’s suddenly ready to enjoy the leverage of technology for the first time; everyone else is thinking about the problem/solution/etc wrong.
Most importantly, you must answer the question: given the market and opportunity, what portion of this market do you have access to TODAY and why? What is your company’s birthright in this market given your current solution to today’s problem? Where exactly is your foothold on the other side of Geoffrey Moore’s chasm? Please, explain.
This is also your opportunity to describe any compelling dynamics currently at play; perhaps something that gives your company an advantage. In a real sense, this slide should be the set-up for your “secret sauce” / “why we win” slide that is coming right up. This is also an opportunity to set the stage for discussing product-market fit: your company should be positioned such that its clear how you will enter and start to capture a small and growing portion of the opportunity.
Slide #6A shows a somewhat non-traditional market size and opportunity chart. In this example, the Intrusion Prevention System (IPS) market of 2004 was a tiny fraction of the over-all $10b IT Security market. This IPS segment was literally stealing budget from other more traditional (and better known) security segments because of the product’s efficacy and this was a good way to show the momentum of a relatively small and less-well-known opportunity. And yes, did you notice how that arrow looks like it’s coming out of the bucket (the DDoS graphic is able to be ungrouped if you care how that was done). Come on.
Slide #6B shows a market that comprises a subset of on-line retailers in the US. This subset is characterized in detail on the right with a visual representation of their relative size on the left. While my initial impression was that this was a small target market, the clarity of description and the rest of the pitch made me comfortable that the team was chasing a compelling opportunity.
Slide #6C sets up the growing home security and automation market. This slide does a nice job of showing the timeframe, a visual+numerical representation of the growth and a sense of a increasingly complex market segmentation in the out years. This is a great slide to have an detailed conversation around that could clearly demonstrate you know your market well.
Slide #7A, 7B: One-slide biz overview (optional)
- As much as I hate to say it, I consider this slide optional. For very early-stage start-ups, this slide will be too difficult to create because of the breadth of reality and vision it requires. That said, I highly recommend giving it a shot.
- In some pitches, you’ll spend the entire meeting talking while sitting on a single slide; when that happens, this should be that slide.
- Done right, this allows you to describe what you do, who you do it for, why that’s important and your vision for the future. It should also allow you to explain why your company should win as compared to competitors or the status quo. Therefore, to me, this slide can be the most valuable slide in the deck …and it will probably take the most effort, revision and contemplation of any slide in your deck.
While this slide can look VERY different from company to company, I believe it contains the same basic information for any company. The concept of the past, present and future is key to this sort of slide because it allows you to talk not only about the product/solution you’re selling today but your vision of the future and the associated products. Your customers value your ability to see into your / their collective future and anticipate problems they don’t even have yet.
In this example, the left of the blue bar (obviously nothing shown in the slide) represents the past …where customers didn’t need to (or didn’t KNOW they need to) use your company’s solution. But now, here in the blue bar, “we all now know we have this problem.” Naming this “phase” is a good use of the header space. Here, it’s called “The Land Grab” – which referred to broadband service provider’s need to quickly and efficiently acquire new broadband customers before their competitor beat them to it. NewCo has products to help with this…and the effect is “Broadband Deployment Acceleration.” Investors should appreciate how well you understand the problem (so well, in fact, that you named it). It also shows that NewCo’s products map to the problem and have a clear value proposition. …and it leads to straight to the green bar.
The middle, green bar represents the near-future. Perhaps NewCo’s customers are already experiencing problems associated with this near future. In any event, this represents the next step in how NewCo would work with their customers…and forecasts the products they might sell to address the next phase of challenges. If it makes sense, name this one too! This helps investors understand that you’re thinking down the path of product / market evolution and that you’re less likely to be a one-trick pony. The more logical the linkage, the better. Here, it makes all the sense in the world that FIRST you have to initiate the service, THEN you have to manage and support effectively while minimizing the costs to do so.
Finally, the orange section represents your vision of the future. If your company could wave a magic wand, this would be the resulting condition or capability. In general, this phase should be predicated in some capacity on the earlier phases. It’s really important for investors to hear your vision of the future; everyone will understand that it will take great products, a willing market, superior execution and money to get there…but you have to have a sense of where “there” actually is. If your company vision is having your first / only product increasingly adopted – that’s not a company vision – that’s just execution. In this case, the vision was to eventually enable broadband service providers to sell value-added services (gaming, security, triple-play) to their subscribers in order to create some lock-in and differentiation for their service…instead of being relegated to providing only the increasingly commodotized broadband “pipe.”
Slide #7B is the version of the slide that was actually used for the broadband management software company. All I can say is that EVERY customer loved this and it opened many doors for the company that would have otherwise been closed because it demonstrated that we understood the lifecycle of our customer’s business. It also super important to note that the company never executed to the final vision on the chart – we never achieved that value-added service vision because the company became successful along the way in only the first two columns.
Slide #8: Business Model and Traction
- How, exactly, does your company make money? Do you have any examples of this working so far? If you do, how many and how exactly did you validate your product-market fit? If you don’t, how do you plan to validate your assumptions?
- Does any part of your business act as a “loss leader” for another, more valuable part?
- Is it software? Packaged or SaaS? Subscription or License revenue? What your MRR (monthly recurring revenue)?
- How does your product get sold or distributed into the hands of your customers? Physical sales force, SEO/SEM LeadGen or inside sales reps?
- Do you have two models running simultaneously? is that good or bad & why? Make sure you clearly describe and delineate between them…and hopefully describe how they benefit and support each.
- Relative to this model, what you’ve accomplished so far? How does that de-risk your business?
- What you plan to do in the near future? Why? and in what time
The business model (how we make money) and traction slide is a critical conclusion to the set-up of the problem-solution-market triumvirate.
BEST PRACTICE: It’s easiest to discuss your business model by talking about the consequence of that business model in action…aka “traction.” This slide can take many different forms but the punch line is the same: “our company does this set of stuff in order to make money and now let’s talk about the results (if any) of our execution so far.” It may be packaged or SaaS-based software, it may be an appliance sold directly into IT departments, it may be sold in any number of models…now is the time to ensure investors understand how the business works.
A core aspect of the business model slide is an articulation of how the business scales within this business “model” and go-to-market strategy. The concept of “product / service distribution” is highly related to this for certain start-ups. For example:
- If you are selling directly to IT departments, you probably will need to build a direct sales force (this is considered relatively “old school” but still works in certain situations);
- for a product that can leverage existing channels, it’s finding and signing up channel partners or indirect sales folks;
- for SaaS businesses it’s how customers “find” your company on the Internet and your cost / method of distribution. What is the customer acquisition cost versus your lifetime value of the customer?
- …or maybe it’s a necessary mix of these models.
The model/traction slide is also an opportunity for you to forecast what your company will do next. Nothing suggests great execution to an investor such as calling your shot and coming back later and showing that “you did what you said you were going to do.” Conversely, be very careful NOT to over forecast. The first question out of an investor’s mouth during any follow-on meeting will inevitably be: “so, did you land hit that big milestone?” You don’t want to have to say “No” to that question.
Slide #8A shows two of examples of Milestone / Progress slides; When your business model doesn’t have much run time on it (when the start-up is pre-product or pre-revenue), use this type of slide because it allows you to discuss the progress you’ve made when that progress is not users or revenue. This sort of slide gives investors a short-cut to understanding how well you’ve executed so far in your company’s life. Important, value-creating milestones over a reasonably SHORT amount of time suggest that your company is focused; you’re prioritizing what is important to grow your company and executing against that list.
Slide #8B shows a company with real traction; the business model implication in this chart is that there is a clear understanding of the conversion rate from traffic-by-channel to customers-by-channel. If the cost to acquire the traffic across each channel is also well understood, then the cost to acquire a customer is basically just math. This is when investors start to get excited. Because if you know the lifetime value of a customer, then it may be that one or more channels are profitable already and much of the model risk has been eliminated from the business…now it’s just a matter of adding sufficient capital to scale the business more quickly.
Slide #8C shows a a nice “funnel” picture with two months of data in an overly complex table. Despite the confusing table, it does show monthly improvement in conversion rates from sign-ups to activations and then to paying customers. Even more interesting to the investor who is paying attention is the impressive depth of data that the company is tracking relative to customer acquisition efforts and costs. This slide provides great fodder for a high-quality discussion: how did you get that many sign-ups? What did you do to improve conversion rates? How good can conversion rates get? What is your churn rate? Again, if these customers are valuable enough, we may have a “working” business model on our hands here. exciting!
(optional) Slide #9: Other Key Business Metrics
- What metrics do you track? why?
- How have your metrics trended over the past and what are your forecasts for the future?
- What are these particular metrics important to your business?
- Can you control them? How? In what timeframe?
Metrics are critical in today’s businesses and especially early-stage start-ups because in many cases, pre-revenue companies only have proxies for success and good execution. Good metrics are a tactical reflection of the business milestones you discussed in the previous slide.
And fortunately, detailed metrics are easier to gather and track than ever before: Google analytics, salesforce.com, and many other bits of infrastructure tend to spit metrics out in volume. Picking the metrics that make sense for your business and making decisions based on those metrics is a critical part of early scaling efforts; the most important metrics for your business will likely change over time.
The slide at right shows a list of potential business-relevant metrics that you might track, including: traffic to site, recurring revenue, website conversion percentages, up-sell ratios, # of product downloads, average revenue per user, and so on. It’s important to show the past, present and future in a timeframe that is meaningful to your company.
(Optional) Slide #10: Competition & your company’s “Secret Sauce”
- How are you different?
- If you’re not wholly different, how do you compare to others in your market?
- How will you defend your business from competitors?
To be clear, if your start-up has some real, preferably proprietary competitive advantage, this slide isn’t really optional – you should talk about it!
It’s important to realize that investors (any many other people) will begin to understand what your company does by ANALOGY. Having seen many different companies over time (and understanding how THEY operate), understanding your company is largely an exercise in figuring how you are similar to dissimilar to the companies that investors know well. Framing up a set of similar and/or dissimilar companies is one of the key purposes of the competition chart.
That said, category defining companies (facebook, twitter, zynga, etc.) probably didn’t have a chart that looked like this. If you are category defining, by all means paint that picture as clearly as possible; otherwise, optimize around making your company as easy to understand as possible for your potential investors.
For the typical chart, it is universally accepted that the standard “check-box” comparison will start with your company in the first column, having the vast predominance of boxes checked, and then proceed to list 3-4 other less-checked competitors that you’re in the process of wildly out executing. The example Slide 9 has three examples of these charts; feel free to mix up the model in anyway that tells the best possible story.
While nearly cliche, such a slide still serves the purpose of listing the competitive criteria that you deem important relative to your company and this market and how other companies in your space stack up. …and it’s probably best to NOT use the phrase “secret sauce” in your pitch…we’re using it here colloquially.
The set of competitive criteria for your company – the rows on these sort of slides – leads directly to your company’s unique competitive advantage (aka “secret sauce” or “unfair advantage”). There are a number of standard, competitive differentiators: being first to market, unique technology, patent protection, your amazing team, and others; these differentiators all have varying degrees of “defensibility,” which is an important concept when it comes to describing your company’s competitive advantage. For example, being first to market may simply illuminate the path for a larger competitor who is willing and able to fast-follow your strategy and throw huge dollars at solving the same problem. Is that true? why or why not? Have your data-backed (versus emotional-bias-backed) answers ready!
The question that investors will have and that you must answer as best you can is this: if your company is successful, how will you defend its business from competitors who see your success and want some or all of it for themselves?What can you do differently? What can you do uniquely and realistically for how long? What CAN’T (or is really really hard to) be duplicated?
(Optional) Slide #11: Partners, Customers, Pipeline
- Who are you working with today?
- Who will be your customer tomorrow?
- How, exactly, do you acquire customers?
- What is your go-to-market strategy?
Your company may be too early stage to have a slide like #11; and more than any other slide, this example can take a variety of forms. The “punch line” for this slide is to communicate what ever progress your company has made relative to actual customers, the future customer pipeline, and partners that help your business be successful in some capacity. Logos are always nice to look at but don’t get hung-up on anything other than clearly communicating your current status.
If this slide doesn’t add to the “traction” story from Slide #8…then don’t do it. This slide helps if there is a story behind the story or a set of impressive customers that deserve special mention.
You may not have customers yet; or your customer base may be every consumer in the world. In any case, you need to communicate the current status of how well your business is working and customers (because they pay or should pay you money) are a great metric for investors to use to judge your progress so far. Revenue Solves All Problems and revenue is the most binary judge of success…but revenue from a top-tier, brand-name, market-leading customer is (to some real degree) more valuable than revenue from a friendly or no-name company because markets tend to follow (adopt the same solutions in a similar time frame) the market leaders. Alpha or Beta (or non-paying customers) should be called out explicitly.
The discussion of your company’s “pipeline” is basically a description of how customer acquisition is going. Whether you’re an Internet consumer application or building widgets to sell directly to other businesses, how efficiently your company acquires new customers is material to investors as they judge the state of your business and what could / should happen if they choose to fund you. How, exactly, do you acquire customers? How much does it cost to acquire them? What is your average deal size? How could your business make the average deal size go UP? What is the average deal size of other companies in this same market? Does this information align with the Market Size / Market Context slide (hint: it should) Once you have a customer, can you sell them MORE stuff more easily? Why / why not / how much / when will you have it to sell? What is the expected life-time value of a customer (be careful to think about this relative to the cost to acquire a customer)?
Partners are a necessary evil in most businesses. “Evil,” because in general, a company’s life would be much easier if it ran and scaled just fine without help from any other company. Partners might be a critical part of your business/market ecosystem; they might give you efficient access to potential customers; they might provide a critical part of your overall solution; they might actually sell your product or service for you. What ever they “might” do, the one thing that is for certain is that they require some level of “care and feeding” and that equates to time and money for your business. Make SURE they are worth it. And remember that all partnerships tend to fail in the long term if both sides are not benefiting to approximately the same degree relative to their business. What did the partner commit to, if anything? What did your company commit to? Do you need more than one such partner? How long will it take for you to measure partnership success? What is required to ensure they are effective? How might this partner accelerate, add scale, or de-risk your business and your execution?
One concept that you must keep coming back to (thinking about, analyzing, modeling, planning) is the concept of scaling your business. Investor’s excitement about your business is predicated on their beliefs regarding how your business scales from where it is today to something much larger and much more valuable in the future. Desire for scale in your business is, without question, is applied most directly to revenue. That said, there are many other factors related to scaling your company: business processes (go-to-market, sales, manufacturing, testing, etc), hiring, geographical expansion, and general awareness of your company / product / service. Of course, all these factors are related to revenue scale in some direct or indirect way. Think through the discussion generated by this slide as a tool to proactively address questions regarding how your business scales.
Slide #12: Financial Details (revenue, expense, HC, projections)
- What is your current and future headcount (this equates to your burn rate as headcount is almost always the biggest expense)?
- what is your current monthy/quarterly burn rate and how does that ramp over time?
- what is your current revenue and how does that ramp over time?
- How quickly are you approaching a cash-flow breakeven point?
- What’s your revenue run-rate 12 months from now? What’s the net loss / gain over the same period?
Independent of the stage of your company, communicating simple and clear financial details is critical to an investor’s understanding of the current state of your business. What they care about is very simple:
- current revenue and expense trends,
- projections for the same going forward,
- current equity situation (who owns what, option pool, near-term option usage), and
- current cash position.
…Cover these items clearly and you’ll be answering their questions before they get asked.
For early stage companies, I believe that a “one quarter ago, current quarter, and 4-quarters-out” view presents a reasonably complete set of financial information. With such a time frame, you’ll show a bit of history, where you are today, and a reasonable guess at what is going to happen in the next year. I think a simple auto-generated excel graph help quickly communicate the ramp in both expenses and revenue. If the company is really early stage and doesn’t have revenue or limited expense detail, it’s still far better to say something is explicitly zero (or unknown) than not mention missing/needing important data.
This example chart is a bit busy as it combines both the graph as well as a screen-grab from the company’s financial model spreadsheet. If you have a longer operating history or feel like you need to communicate more detail, it makes sense to break this into two slides: a graph (the reader’s digest version) and the spreadsheet detail.
Data that investors will always want to clearly understand include: what is your current and future headcount (this equates to your burn rate as headcount is almost always the biggest expense)? what is your current monthy/quarterly burn rate and how does that ramp over time? what is your current revenue and how does that ramp over time? How quickly are you approaching a cash-flow break-even point? What’s your revenue run-rate 12 months from now? What’s the net loss / gain over the same period?
Slide #13: Funding “ask” + use of proceeds
The funding ask slide requires a bit of finesse as you are starting a set of discussions that could turn into negotiations if your potential investor turns into your actual investor.
In this slide, a little background is very helpful. Make sure you let your audience know who you have raised money from in the past and at what valuation. This is not “secret” information; be open and transparent. If you seed funded your company, that’s a good story, make sure you talk about it. You should also talk about the structure of any prior formal investment by a third party: who, how much, when, format (common, preferred, convertible debt, etc). It’s important to get right to the punch line of this slide; You MUST be prepared to address the following (have data, be thoughtful, use a clear explanation):
- how much money would you like to raise?
- why that amount? what will it be spent on? how long will it last? what value will you create in your business using it?
- could you do what you need to do with less? what might you do with more?
- are you actively working with anyone else on this round?
When it comes to timing, it’s important be realistic. If this is the first time you have met with this firm, it’s typically just the beginning of a process that will almost certainly involve multiple meetings over weeks if not months. For larger VC firms, you will not receive a term sheet until you’ve run the gauntlet of their Monday partner’s meeting…if you’re dealing with a top 25% firm, you’re not even close to “done” until you’ve got the Monday invite. Smaller firms are able to be much more dynamic and efficient…however, that doesn’t guarantee that they will.
If the conversation is going remotely well, you’re likely to be asked about your valuation expectations. If you have raised money at a particular valuation in the past, that is your starting point…but in this current macro-economic environment previous valuations do not guarantee ANYTHING. If you have a number in mind that is based on data that is realistic – don’t be shy – flop it out there. It’s important to understand enough about the VC business to know that investors tend to model their business on investment exits, cash returned to their limiteds against the size of the fund raised…and consequently ownership percentages in their portfolio companies at the time of exit. Given this, it’s reasonable to approach a valuation discussion by starting with “how much of the company you’re comfortable selling in this round of financing.” Fixing the amount raised and how much you’re comfortable selling implies a valuation. Raising $300k while targeting selling 25% of your company implies a valuation of $1.2m. This is a useful way to have a valuation discussion because if the round size happens to go up (not uncommon) as the round & syndicate come together, you can at least make an argument for raising the valuation. No guarantee it will work.
Slide #14: Thank you, questions, contact info
More than anything else, this slide serves as the indication of the end of the presentation. Questions and other discussions are welcome.
That said, if you somehow managed to get here in a linear, non-distracted manner it’s probably more cause for concern than celebration. The flow of most investor presentations diverges wildly as questions, deeper details and anecdotes drive the conversation – and that is a good thing. It shows your investors are interested.
Whew! That’s it for 2012; PLEASE ASK QUESTIONS AND COMMENT. I’ll try to address them ASAP.