Startup Funding Masterclass: Part Seven
Following last week’s article on how to find the right investors to focus on, it is now time to convince them.
In this article, we will help you prepare by looking into a pitch deck example to finally get to a pitch deck template.
We have chosen to focus on pitch decks for early-stage startup startups. As companies mature over time, their investors and investment proposition changes, therefore so should the pitch materials.
This is also important when looking at pitch deck examples. It’s always best to focus on examples of companies in comparable states and sectors.
This post is Part Seven in a new Masterclass series on Startup Funding. Funding is the fuel that every business runs on. Knowing the ins and outs of funding is therefore essential if you want your startup to be successful. We searched for a compact-yet-comprehensive guide on startup funding and found it nowhere, so we decided to build one ourselves. This is that essential guide.
We bring it to you in partnership with Belgium’s largest startup and scale-up accelerator Start it @KBC, supporting and promoting more than 1.000 entrepreneurs with innovative ideas and scalable business models.
– Jeroen Corthout, Co-Founder Salesflare, an easy-to-use sales CRM for small B2B companies
---
To whom and why
Before making any presentation you should always understand your audience and clearly define the purpose of your presentation.
Understand your audience
Understanding your audience will be the first step towards convincing them.
Expect your audience to have the following characteristics:
- Limited time for your pitch
- Looking at several pitches every day
- Looking for opportunities by finding clues of successful businesses (investor mindset)
Therefore your pitch deck should aim to offer those clues, by answering the most important questions an investor has. And it should do this in a clear and concise fashion.
Work with a purpose
When you go about creating your pitch deck, you should do this with a clear purpose in mind.
As we discussed in our article on VCs, investing in startups is a very uncertain business. Most investments will go nowhere and the industry is heavily reliant on a limited amount of big wins.
So remember that this is what the investor is looking for. Your presentation should convince your investor that your company has the potential to be that next 10x company.
Your pitch deck is however not the sole document that will be used to make an investment decision. Refrain from including every possible detail and metric. This document is all about getting the investor excited and setting yourself up for further discussions.
Typically investors are looking for the following items in your pitch.
Market opportunity
The upper limit of your company’s potential will always be the addressable market.
So before anything else, you need to convince the investor that there is a market for your product and that one day you can generate a lot of profit from that market.
A good market opportunity is typically a combination of the following factors:
- A relevant problem that needs to be solved
- Existing products/companies that do not provide the right solution
- A timing component that enables a new solution (regulation, customer behaviour, etc.)
Ability to execute
Once the investor is convinced for the market opportunity, the question arises whether you are the right team for the job.
Investors are looking for teams that are able to execute. Determining the strength of your team is a crucial part of their investment decision, as they would rather invest in an A team executing a B product than the other way around (trusting an A-team to eventually move to the right product).
Therefore show off your team, the team’s track record, and your wins so far, to highlight your ability to execute.
Scalability
Once a market opportunity is defined, it is also a matter of being able to deliver on the opportunity.
An important indicator of success for investors is the ability to successfully acquire and grow customers in a scalable manner.
Make sure to focus on the ability to scale both in terms of product and business model.
Competitive advantage
Any big opportunity will draw several competitors.
Investors are looking for startups that can compete in the long term. The first step in doing so, is understanding and correctly assessing the competitive landscape.
Show your knowledge of the market and highlight your unique competitive advantage; whether it is a network effect, hard to replicate technology, or the ability to out-execute everyone else.
Take a look at what investors see as sustained competitive advantages, or “moats” as Warren Buffet calls them.
Positive momentum
Finally, investors want to see as much evidence as possible that the business will work out. A good start is a lot of positive momentum.
Try to show your momentum by your results in building a team, creating your product, getting customer traction, and of course growth in sales.
Prepare the pitch deck
Now that we clearly understand our audience and the purpose of the pitch, let’s become more practical.
Form
Before diving into the content, a few words on the form.
Limit the number of slides
First of all, people are not good at understanding more than 10 concepts at a time. Additionally, they are also not very focused.
Make the most of your audience’s attention span and limit yourself to the key concepts and points that will truly make a difference.
We recommended having around 10 - 15 slides and only one message per slide.
Don’t be too dense
As people limit the number of slides, they also tend to cram more information on them.
Don’t. Try to boil down your messages to the utmost important items.
If the investor walks away after having read your slides, what are the key things that she should know? Make sure these points are made and leave out any distractions.
Tip: Use clear and concise wording, refrain from overusing examples and data points. A great way of limiting yourself is by using a big font (30pt).
Formatting
While this is certainly not about who is best at PowerPoint, the look and feel do matter.
Almost all companies also rely on a brand and an associated feeling to sell their products.
As you are trying to convince an investor that your company can win, this brand is also of importance. Therefore, you should protect your brand at all times and especially during an investor presentation.
Tip: Using a good colour scheme and a clear font goes a long way.
Content
Now that we have settled on the right form, let’s dive into the content of your pitch deck.
What better way to illustrate this than by using the AirBnB pitch deck.
0. One line summary
Aim to define your company in a single declarative sentence.
Don’t list features of your next product. Instead focus on communicating a clear mission or purpose for your company; one that should last for many years.
This will be harder than it looks and it should be.
1. Problem and opportunity
What problem are you solving? What pleasure are you providing?
Not only define what you are trying to solve. Also define for who, how it is being solved right now, and what the major shortcomings are of the current approach.
2. Define your solution
Now focus on your business and product.
Clearly, illustrate how your business will provide the right solution and why this is awesome for your customer.
Do you save people time, money, generate revenue for them, or provide them with much-needed entertainment?
Make sure the investor fully understands the pitch to your customer and why this is so compelling to them.
3. Why now
A lot of great companies had a great sense of timing when starting out.
Perhaps there is a recent technological breakthrough, change in regulation, or a change in customer behaviour that makes your business a possibility today.
If you can convince an investor that you are part of a strong wave, you will present a very compelling investment case.
This slide is not always easy to include. If you can, definitely do it, if not, no worries. As you can see this slide was also not included in the Airbnb pitch.
4. Market potential
Clearly identify your customer and the associated total addressable market.
Generally, there are two approaches to find your total addressable market:
- Top-down: Start from an existing market from which you expect to take a piece
- Bottom-up: Start from possible clients willing to spend a certain amount on your product
Try to leverage existing research. Company filings, equity research reports, and whitepapers by consultants can be great resources.
If you create an analysis yourself, make sure that it is easily verifiable. Explain your estimates, provide details for your assumptions, and source any data points that are used.
Put all the information out there for an investor to come to the same conclusion.
For example, if we make the claim that our CRM software for small B2B businesses is a significant improvement over the existing software, then we can take that market as our total addressable market.
5. Competition and alternatives
For almost every problem your customer will have a number of possible solutions.
Make sure to understand the entire competitive landscape. If the investor can find more relevant competitors with just a Google search, it will reflect badly on you.
Provide a good overview of who the direct competitors are, what the adjacent markets are, who the possible entrants are, and what the possible substitutes are.
Also clearly define where you differ from others and why you should win this competitive battle.
Refrain from doing a feature by feature comparison and instead focus on differences on the level of strategy and focus, things that last beyond the next major product update.
6. Business model and strategy
This section is all about explaining why you are potentially running a hugely profitable business.
Explain to investors how you plan to make money. Use current unit economics but also clearly indicate how they can change in the future. You need to sell them on the future potential and use your current metrics to establish confidence.
Start off by answering the following questions:
- How have you acquired customers in the past and how will you in the future?
- Where did you find your previous customers and what have been the associated costs (acquisition costs)?
- What are your conversion rates?
- How many customers continue working with you (or the opposite: churn)?
Also clearly illustrate the plans for growth going forward.
Will you increase your sales and marketing team, penetrate new markets, or upsell current customers?
This is the place to clearly and concisely explain it all.
7. Team
It is time to show your team.
Investors are looking for the right team to execute. Include bullets on previous achievements and complementary skills to strengthen your point.
You can possibly also add key positions that you are looking to fill.
8. Metrics and historical financials
Depending on the stage of your company and your recent performance, it can make sense to include some metrics and historical financials in your deck.
The key thing to show here is your positive momentum and traction.
This slide should not just be a copy of your spreadsheet but should grab the attention of the investor to the relevant line items or metrics that prove your thesis.
If you decide to use a graph, make sure that it is well formatted to support your point, but refrain from being too creative with the axis.
9. Plan
Now that you have hooked investors, it is time to explain why you are raising capital and how you will use it in the following period.
Items to include are:
- The period during which the money will be put to use (e.g. runway)
- Product and business milestones/goals in this period
- Key hires to make
As a way to support your plan, it can be good to include high-level financial projections.
Make sure to cover the same period as the period for which you are raising capital (e.g. 12 - 24 months) and support your numbers by clear projections on the number of users and customers that will be required.
Everyone knows that financials are a shot in the dark for startups.
A well structured financial projection can however give investors an idea on where things are headed, what the key levers are, and how grounded management is.
10. Round
Finish off by going into detail on how much money is being raised, whether there are any previous commitments, what the timing is of the round, and any other relevant round details.
Other documents to prepare
Start by creating the pitch, as this will be the main story that you are trying to sell to investors.
Once you have settled on your pitch, you can leverage this work to create the other necessary materials.
Other materials:
- Teaser
- Due diligence documents
- Legal documents
Tip: Structure these documents in directories in a shared folder, make sure to have clear naming, an index file, and the right permissions.
Teaser
The ideal outcome of a teaser is that the reader wants to see you pitch.
Additionally, it serves the following purposes:
- Enables you to pitch to the investor
- Warms up the investor before your pitch
- Enables the investor to share your story within the firm
In order to accomplish this, the document should be a summary of the key aspects of your company in an easy-to-read document (A4 page | Long email).
Make sure to highlight the following key aspects:
- Product: Explain the product and why it matters (Problem / Solution)
- Market: Highlight the market opportunity (Addressable Market / Timing)
- Team: Show the execution team
As you can see the content of the teaser is highly overlapping with your pitch.
Due diligence
Your pitch is all about convincing investors to take an in-depth look into your company for future investment.
Now, as investors do this, they will come back with a bunch of detailed questions.
You can be prepared for this and cover 90% of their due diligence questions upfront. This way you not only speed up the process, but also leave a good impression.
Tip: As you are in a due diligence process, try to keep control of your documents by limiting who sees them at what time.
Product documents
A key aspect of the investor’s due diligence is to better understand your product and the associated technologies.
You can prepare the following documents to support this discussion:
- Technology outline: Provide detail on the technology (PDF, Word)
- Product outline: Provide detail on the product (PDF, Word)
- Product development outline: Provide detail on the development roadmap (PDF, Word)
Key metrics
A lot of investors will also do basic spreadsheet modelling before making an investment decision.
This is not to forecast your business, but this effort allows the investor as an outsider to understand your business and the key levers for success.
In order to support this effort, investors might come back with a lot of metric related questions.
For a start, you should prepare the basic historical financials on a monthly basis:
- Revenue
- Cost of goods sold
- Customer acquisition costs
- etc.
Depending on your sector, you should also prepare a detailed analysis of the relevant metrics.
Generally, the investors will be looking for additional details on three key items:
- Cost to acquire a client
- Sales value of a new client
- Cost to serve a client
Depending on your sector, this can result in some form of cohort analysis, customer acquisition analysis per channel, unit economics analysis, etc.
Marketing and sales
As part of your pitch, you probably made some claims on future growth.
These needs to be backed up by a solid marketing and sales plan.
During due diligence, investors might request more detail, so prepare the following:
- Marketing plan (PDF, PPT)
- Sales plan (PDF, PPT)
- Sales pipeline (XLS)
Financial plan
Finally, investors also want to understand how it all ties together and how you plan to use their investment to create value in the next 2-3 years.
Therefore, it is important to prepare a 3-year financial plan that builds from your sales and marketing plan and provides a detailed overview of future spending.
Make sure to include the following in your spreadsheet:
- Historical financials
- Revenue, COGS, CAC, etc.
- Customer growth
- Personnel growth
- Product development costs
Legal documents
Typically these documents come into play once you have signed a term sheet, but it is best to have the preparations done beforehand.
Make sure to have digital and physical copies of the following:
- Contract signed by the company
- Previous investment agreements
- Articles of Association
When preparing these documents, make sure to separate them as much as possible. As with the documents shared during the Due Diligence process, it is best to keep as tight an access control as possible.
---
Ready to prep that pitch deck? Or already working on the other documents? 🤓
We wish you good luck and hope this overview helped you out!
Let us know if you have any questions left; we’ll be happy to elaborate! Also, don’t forget to tune in next week for Part Seven in our Startup Funding Masterclass: How to make the perfect startup pitch deck!
We hope you liked this post. If you did, spread the word!
👉 You can follow @salesflare on Twitter, Facebook and LinkedIn.