You can have a brilliant idea, or even have an early stage business that’s already generating revenue, and you still won’t secure capital without a compelling pitch deck. Whether you’re in an incubator, accelerator or past your Seed round and into your Series A, having these five essential components in your pitch deck will help yours stand out from the crowd.
1. A one-sentence business summary that a kid could understand
There’s a saying that goes, “if you can’t explain a complex idea to someone in simple terms, it’s you who doesn’t understand it.”
Your idea or business is great, it’s innovative, utilizing cutting-edge technology, software, AI, etc. No one cares, if they can’t understand it. You have roughly 30 – 60 seconds to capture someone’s attention and if you need longer than that, you’re going to have a lot of problems securing interest in your company.
2. Clearly define the problem you are solving and who you are solving it for
“We’re disrupting a $50 billion industry!”, sounds great in press releases, but will most likely earn you a major eye-roll from most experienced venture capitalists (VC’s). While your product or service is undoubtedly great, not everyone is going to want it or need it. Start by narrowing down your target demographic to a small subset of the industry you’re addressing, then show how it can grow from there. Making grandiose claims without providing a roadmap to scalability just sounds like BS.
e.g. Instead of stating you’re going to reinvent HR technology services for every business in the US, start your focus on HR technology services in the Dentistry industry for offices with >20 people on staff in the state of Kentucky.
It sounds far more achievable and can be reasonably assumed this will serve as your foundation for future expansion.
3. Showcase a REAL current or potential client situation and how you are making their life demonstrably better than a competitor can.
A lot of people think they have great ideas about how they’d make life better for everyone. Far fewer think they have great ideas after having an actual conversation (or 50+) with prospective clients i.e. not their friend who is trying to be nice and supportive. VCs are pitched ideas hundreds of times a week if not more, they can usually tell whether you’ve researched your competition and actually talked to a significant number of clients and whether the pain-point you are resolving is big enough for someone to spend money on fixing. Show that your idea has survived being pitched to customers and that people would spend money to fix this particular problem. Provide context for why the problem can be a big deal.
Eye-roll Example: “Our CO2 extraction equipment provides cleaner cannabis oil than BHO and a 1% boost in yield over other CO2 extraction equipment providers. On top of the increased yield, consumers will appreciate the cleaner oil, so businesses will spend an extra $350,000 to buy our equipment.”
Great Example: “Cannabis Co., an average cannabis farm in California, was using BHO extraction, but switched over to our CO2 equipment for $350,000. Industry projections show a 15% greater growth rate in sales for CO2 oil than BHO oil and our guaranteed 1% extra yield translates to over $300,000 in additional inventory for them annually compared to our competitors.”
4. Show a clear path to profitability.
Undoubtedly, some of you will want to argue this point. Yes, we can look at Snap Chat and Twitter and Instagram and their successful buildup as legitimate companies, but none of them are doing so hot right now as standalone platforms and investors are paying attention. The mindset of just having a large consumer/active-user base translating to success is fading among investors. A robust financial model illustrating achieving aggressive revenue and key performance indicator (KPI) goals are a must. Mark Tebbe, a mentor of mine and prominent early-stage startup investor in Chicago was very fond of saying, “Build a business that sells $1 in return for $0.80 and I guarantee you’ll have a lot of customers, but there’s no way I’m going to invest in it!”
Understand the KPIs they will be looking for in your industry and make them readily available for review. Investors are enthusiastic about cool new businesses, but they’re also enthusiastic about making their clients money. They have a fiduciary duty to provide a compelling risk-adjusted return on investment for their fund and the IRR on a business that doesn’t have a plan to be profitable is most likely not going to meet their benchmark.
5. Include your investment ask, but not your valuation
It’s amazing how many incredibly smart and talented people forget this very basic, but arguably the most important, step. You can give the pitch of a lifetime and have the investor panel on the edge of their seats, but if you forget to ask for how much money you need to grow your business it makes you suddenly seem incompetent or at best inserts the seed of doubt. It’s also important to show exactly how you will use those funds. VC’s don’t want to be a part of a round that doesn’t have enough capital to survive until the next (e.g. 6 – 12 months) and they don’t want to be part of a round that’s overvalued as a result of asking for too much money and may necessitate a down round in the future.
Another big mistake I’ve seen is when founders include a valuation in their pitch deck and bring it up in their initial conversations with investors. I know some VCs that throw away pitch decks at the first-sign of a valuation, citing signs of founder ego and combative negotiations during a term-sheet discussion. It’s OK to have a valuation in mind, but I would recommend not mentioning it until you have term sheets from at least one venture capital firm. Let them make the first offer, it’s a stronger negotiating tactic to let the other person make the first offer anyway.
And those are my top five tips for preparing your pitch deck to help you secure venture capital. Let me know your thoughts down below in the comments section. If you have questions specific to your situation, feel free to shoot me a detailed e-mail using the contact me link and I will get back to you as soon as I can.
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