In Lesson 2, I stressed that the pitch is a story about the exit strategy and how your startup will make money for investors. Today’s article will look at what that means with an overview of the pitch deck. Then in the following weeks, we’ll dive into the details of each slide.
To start with, keep in mind you’ll have a few different versions of your pitch and pitch deck:
Elevator Pitch – a very brief summary of the opportunity (not the product but why someone should consider investing) usually 30 seconds or less that rolls off your tongue when you meet an investor in the proverbial elevator (or lobby, or bar, or anywhere else) and she asks, “So, what do you guys do?” This is also the one (short) paragraph intro you message an investor on LinkedIn or email to see if there is any interest. The only point is to ask, “Would you be interested in learning more?” If so, you can send the full pitch deck.
Demo Day Pitch – this is a brief pitch, usually 3-5 minutes with little or no Q&A. This pitch presents a basic overview of the opportunity, but leaves out important details. It’s usually for pitching at events where there are many other companies pitching. Like an extended elevator pitch, the point is to get investors excited enough to want to hear the full pitch later.
Full Pitch – this is the standard investor pitch deck that contains all the important information, and this what we’ll focus on today. The pitch typically runs 10-15 minutes, followed by 10-15 minutes of Q&A. You’ll need two version of the deck – one for when you’re presenting in person which can leave out any explanation you’ll be talking through, and a self-contained version that an investor can review by herself.
What is the goal of your pitch–to get an investor to write a check? Nope. It’s to get us interested enough to do a deep dive or begin the due diligence progress where we torture you with endless questions. So don’t try to answer everything in your pitch. Instead focus on telling your story of how we’ll make money by investing in your business.
A pitch deck follows a familiar pattern. I know you want to get creative to stand out from all the other pitches, but don’t. What needs to stand out is the opportunity. After reviewing thousands of pitches, an investor gets used to reviewing them quickly to see if they’re interesting. The first thing I do, for example, is check the 5 year financial projections near the end, then look at the deal terms on the last slide. If you switch the order or use tricks to grab my attention, rather than standing out, you’ll appear to be amateurs who don’t know how to pitch, and will end up in the reject pile. But do use every bit of that creativity to make the deck as easy-to-follow and professional-looking as possible. An attractive deck that follows the template with a clear story of how your business will make for investors will shine like a beacon through the fog.
Here is the usual flow of the pitch deck:
- The Business
- The Evidence
- The Investment
Over the next few weeks, I’ll dive into each of these elements individually, but broadly, there are three sections: the business, the evidence, and the investment.
Start off with the problem, show how your product solves the problem, give an estimate of the potential market need, and explain your strategy for how to reach all those potential customers.
Next comes the evidence that your company will be the one in a hundred that’s actually successful. How will you stop competitors from copying you, and why should someone acquire you instead of hiring a handful of people to build something similar? Who is the competition and why are you going to destroy them? Why are you the right team to succeed where the other ninety-nine failed? And most importantly, what evidence do you have that customers are interested in what you’re building?
Now we come to the climax–how the investor makes money. The five year financial projection shows your revenues at the time of acquisition, and the losses over that time will show how much total capital you need to raise. Then you list the companies that you expect to be interested in acquiring you and the multiples of revenue that they (or the industry) typically pays. That will give us an idea of your expected valuation at acquisition. And then the deal terms–how much are you raising now at what valuation?
Can you move the slides around slightly if that helps tell your story? Certainly. But it generally needs to follow this flow. Don’t start with your team, for example, even if that’s your strongest point (though in that case, certainly work a teaser into the intro – i.e. I was VP of some division at Google and our entire team had this problem, so I joined with the head of development to build our solution.)
What should you do if you don’t check all the boxes? For example, your team is straight out of school, or you’re too early to have any traction. An important topic for an entire article later, but here’s the preview: you have two choices – either fix the problem (for example, make the team stronger by adding an experienced cofounder) or make the rest of the pitch so strong that investors understand the value of the opportunity despite not everything being perfect. The earlier your stage, the less perfection is expected, but valuations are inversely proportional to risk.
Lastly, keep in mind you’re usually speaking to an audience of people who know nothing about your industry. Investors may have a background in finance or real estate, or be lawyers or retired executives. This is not a customer pitch. You need to explain what your product does in terms your parents or grandparents can understand. Give us context, explain the market, keep out the jargon, and focus on telling the story.
Join me again next week when we get started on the details of the pitch with the problem and solution slides.
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