Build A Winning Deck & Make Investors Believe You're the Next Unicorn | Fin VC GP Logan Allin

I'm Logan. I started FinVC back in 2018 as a spin-out of SoFi Ventures. And hopefully everybody's familiar with SoFi, but we are, we were, and are now a public company, but focused on the student lending and consumer fintech space. At FinVC, we call ourselves fintech nerds with capital. And we're really focused in on enterprise SaaS within the fintech space in the US and Europe. We do that out of an early-stage fund and a growth-stage fund. So we're fielding decks in the thousands every month, and so we see a lot of presentations and want to provide some guidance on best practices in terms of what we're seeing in the space. We have 7 unicorns on our platform, so we've seen a lot of companies from seed stage into unicorn. We're going to use one of our earlier-stage companies as an example, which is a company called NeuroID, which is in the behavioral analytics space. They measure fraud and friction using behavioral analytics. This deck is public. It was featured in Business Insider as one of the best early-stage decks. If you go to Business Insider and you just type in NeuroID, you can see the original presentation, but I'm using it as a visual guide example. Feel free to shoot me questions on chat. I'll do my best to respond to those in real time. But I wanted to take you through some thoughts that we have on communicating your story as an entrepreneur. Because at the end of the day, as a VC, we're seeing a significant number of presentations every day. And we're looking at these presentations, as you may be able to see in your DocSend shares, In some cases, we're looking at it in a matter of seconds. And for us, we're very thesis-driven, so we're looking for business model fit and thesis fit. And then beyond that, we're looking for the following things that I'll go through. So in telling your story, communicating your thesis on why you think your company needs to exist and why you think there's a huge market opportunity specifically for the problem that you're solving for, and being very clear about what your product currently accomplishes, the product roadmap that's ahead, and then the business model that you're gonna use to monetize that. I can't tell you how many times we get a presentation and we're fintech experts, we're fintech nerds, this is all we do, and I can't understand what the company actually physically does, and I go to their website and I'm also confused. So understanding what business you're in sounds basic, but needs to be super clear. So in NeuroID's case, They're basically digital body language. That's their view in terms of understanding what that digital footprint is. And we got very excited about that in preventing fraud and also understanding friction in a funnel process. Second thing is team alignment. We see a lot of teams that are solving— trying to solve for a business problem, and then it's not clear why this is the right team to solve that problem. Market inflection— why now in terms of you're going after this problem? Some people are early to a problem. Some people are too late to a problem when there's a huge amount of saturation and competition. Why is this the right inflection point? Understanding of initial traction. You may be pre-seed, so you may not have any traction, but at least you've done some customer conversations and surveys to validate that, yeah, this needs to exist. And then I always tell entrepreneurs to flip the script on the VC as quickly as possible. I love entrepreneurs that do this. When we're in a conversation and an entrepreneur is pitching me and they're saying, "Hey, why should we take your money?" Capital for the best entrepreneurs is a pure commodity. There's plenty of capital out there, but you need to find the right VC partner and you should be asking your VC upfront the hard questions. I'm seeing a question from Liz. Good question. So I'm looking at this as early stage, kind of seed, Series A in terms of your presentation. Certainly a lot of these themes will carry forward, but wanted to give you guys a little bit of a view on that. David, I like your question. Yeah, it is not passive. It's actually, if you have a thesis and you have an understanding and you've been doing this for 20 years, you have a pretty clear view on messaging and presentations, and you have a limited amount of bandwidth. So absolutely, we give every company a fair look, and we have a team of 12 people. So a lot of people are spending a ton of time looking at companies that are sending us presentations, applications, but if you don't capture their attention, you don't structure your deck and your story in the right way, it's not going to hit home and you're probably not going to get a first meeting, which is, which is unfortunate. Second is just on the business model. So really understanding whether this is a feature product or platform, right? VCs and companies really enjoy investing in platforms and those have longevity and scale. Versus a feature or, you know, a singular product that may not have that scalability and that market size ultimately. And then understanding who your customer is and the voice of that customer. So personas, the types of people that you're going after and so forth, really critical to make that clear and to show product market fit, e.g., hey, these are the logos that we've been able to bring in, or these are the initial customer conversations we've had and here's been their feedback in terms of how we're positioning the company. Monetization. Your pricing model is really important. For us, we look for businesses that have both a recurring revenue element to their business, so they've got a subscription model, traditional enterprise SaaS, or you're selling into middle market and SMB and you've got some kind of recurring revenue subscription based on the size of the business, and then maybe you have a transaction element. So in fintech, that might be interchange, or it might be some kind of lending fee or rev share or the like. So being very crystal clear on how you're pricing, how that will translate into your other metrics and specifically your ACVs. Being very upfront about the competition in terms of why you will win, also really important, right? So you're gonna have competitors, you're running into people in the market. Why are you winning when you go against them? And is there a specific moat around your business that really differentiates you from the, the competition. Team is everything, right? In a seed stage and even in a Series A, when you're kind of early days on your traction, understanding who the team is, their background, and the relevant experience in terms of why this is the team that's going to solve this problem and take it— taking it forward is huge. And so we spend a lot of time getting to know our team members. We do channel checks and we, you know, ask for references certainly, but we're also doing off-sheet channel checks and asking, you know, former colleagues and so forth how it is to work with you. Just be very prepared for that to, you know, have a strong story on this team, why it's the right dynamics. If you are hiring in the future, where you're looking to fill in on the management team, very critical, and just understanding where your blind spots might be and so forth. So team is really critical in articulating your experience, how you're working together, who's covering off what in the organization and so forth is really big. Market sizing is an art and a science. So understanding how big this market is, particularly if you're going into a new space, is really important for you to understand and for your investors to understand. Larger markets translate into larger companies, and it also creates a higher probability of success. And I think sizing the market in terms of potential customers, how much revenue they're spending. So in the enterprise SaaS world, for example, within fintech, financial services industry spends $1 trillion per year on technology. About 40% of that, or $400 billion rather, is on software. So that's a big market. And then within that market, obviously, it divides down into the types of enterprise SaaS companies. And you're really looking to produce both for your own sweat equity and for your investors a 10x+ type outcome and how you're gonna accomplish that and what you think that scaling curve looks like is really important. And then for Chris's question on TAM versus SAM, definitely look at TAM and SAM and both need to be significant in terms of, yeah, the bigger market, but what market is actually realistic? And what percentage realistically in the near term can you capture within that market? I'm gonna take us through a bunch of metrics here, and we have some proprietary metrics that we developed at FinVC. It was funny because we were looking at early stage and growth stage companies, and if you look at SaaS metrics that are produced by the investment banks or research groups, they're almost all public market comps. And you're kind of like, this isn't that helpful. So we actually developed Seed A and B metric benchmarks for early-stage entrepreneurs. And we're going to share those with you today. They're there for you to take away. This is a bunch of sweat equity that we developed on our own. And then we also looked at other metrics that we like to look at that we think are super relevant. So these are all fairly obvious. I would say we'll go through some more complex ones here in a second. Top line, both on a net revenue basis and on an ARR basis are really critical. I would say, you know, one key piece here is we see a bunch of, I'll call them fuzzy metrics that come across. Contracted ARR is my favorite. There is no such thing as contracted ARR. You either have recognized ARR or you have bookings, right? So you could describe bookings maybe as contracted ARR, But understanding revenue recognition, particularly in an enterprise SaaS business, is super critical. And understanding what that pipeline looks like and the probability of that potentially getting converted. When you're early stage seed and Series A, even through kind of Series B, your month-on-month growth is pretty important because you can see some really dramatic swings there. CAC LTV, so how much you're paying to acquire a customer enterprise, middle market, or SMB, or consumer if you're a consumer-oriented business, getting very clear about that CAC being fully loaded. So don't try to play games with CAC and LTV calculations, just be very clear on how you're arriving at that number and what that LTV looks like. And the LTV obviously is really critical in terms of your ability to upsell and cross-sell that person. ACVs. So When we look at ACVs, this is average contract value. So we're basically looking at how much are customers willing to pay on average for your product? More relevant in enterprise SaaS context, obviously, and this is very enterprise SaaS geared, I admit, but it's also important to understand what your value per consumer is as well. So I would certainly look at that in addition. So, you know, I would say that, Let me just go to this slide here, which is a little more instructive. So we look at seed, Series A, Series B, primarily out of our flagship fund. We also look at Series C, D, but I'm gonna focus here on the early stage opportunities. So this is every metric that we look at. And I think, you know, same can be said for largely every other VC. And this is what we're benchmarking you against when we receive a company that's raising a seed round, a Series A round, or Series B round. B round. We share this with all of our portfolio companies because they very much want to understand where they should be in their lifecycle when they're preparing to raise more capital and what best in practice looks like. So Series C companies, you know, from an ARR perspective, we're typically looking for $500K to $1 million in ARR to seed. That can be forward-looking, right? So you could be doing $100K to $250K in ARR But if we can see bookings and pipeline growth that's trending towards $500K to $1 million, we're gonna get excited about that and we're gonna dig in, right? So that's how to think about ARR in the seed stage. It's a, there's a little bit more of a forward-looking basis in the seed and certainly in the Series A and Series B, we're giving you forward-looking credit in terms of your multiples. So if you're doing $1 million of ARR this year, but you're expecting you're gonna do $5 million of ARR next year, and you can provide some meaningful pipeline to support that forecast, we're gonna give you that credit for next year's revenue in our valuation considerations. And then the other ones that I like to look at in the seed as, as companies scale is concentration risk. So we'll look at your top 10 customers and we'll look at what revenue they're generating. You don't wanna have too much concentration there because if you lose one customer, obviously that's a big healthy chunk of your ARR. And that goes hand in hand with looking at churn numbers. So if we can look at your cohort analysis and be comfortable that you're getting low churn, typically sub-10% at scale, and you're getting high dollar net retention numbers, meaning not only are you not churning, but you're growing and upselling your customers, that's a huge consideration for us. Backlog and implementation is also a metric we look at in terms of how long is your sales cycle and then how long does it take you for you to implement. We tend to look at a lot of API and developer-driven solutions. So typically there's an API or sandbox in there. It's pretty self-serve. We do have some companies that obviously sell in enterprises and there's more of an enterprise sales process there. And we're looking at how long that implementation is and how easy it is to integrate. Are these APIs? Is this mobile SDK? Is it a pretty straightforward implementation that's not going to take a ton of professional services dollars. We're looking at, you know, billings, which, you know, billings or bookings, right, which is sold but not implemented. So you can't recognize that as ARR yet from an accounting standard perspective, but it's largely contracted and it's high probability from a conversion perspective. We're also on a qualitative basis, we're talking to both current customers and prospective customers. And if you're a good VC, like we'd like to think we are, you're making introductions to prospective customers. So when we meet a fintech company in seed or Series A stage, we're actually making introductions to potential customers. And that gives us a lot of insight in terms of your sales process and your sales motion, gives us insight into the customer feedback and how they're viewing the product in their tech stack, whether there's friction there, what the particular product feedback is. And then we're also getting insight in terms of the implementation and the follow-through in terms of your customer success. Hopefully this is helpful in terms of the benchmark. I'm going to come back to this slide and then I'm going to start taking questions. But these obviously you can take away, but these are all the calcs around how we think about each of these different metrics. And so gives you a sense for how we look at them and how you should think about measuring them. And I think we've gone over largely all of these. So I'll go back to the slide and take some, take some questions.

Logan, thank you so much. We do have a couple questions in the chat if you want to start there. First is just, you know, this criteria, is that for companies of any stage or early, early? Can you shed any light?

I addressed that earlier. I addressed all the questions that are in the chat except for the one One from David here, which I'll take. So our metrics here are obviously early-stage focused. I think in building a presentation, a lot of the lessons learned that I shared certainly are meaningful from seed through to exit. But I was trying to focus this on earlier-stage entrepreneurs really building a story on how they can become a unicorn. For David's question, if you're disrupting an industry and potentially changing a market, yeah, his question is if your product is a disruptor versus an enabler, that's the way we think about it. So disruptor companies, for us at least, tend to be consumer and SMB-focused, so you're competing with some kind of incumbent and you found a way to disrupt them. We don't tend to invest as much in that space in fintech because it's fairly saturated, candidly, but certainly in other industries, you know, absolutely disruptive companies. Can be massive businesses. Just look at Uber and Airbnb and DoorDash and so forth. Those are long-tail, very binary-type outcomes, and those can be exciting businesses. How do you view— sorry, I'm just going to go through a couple of other questions here. So yeah, so Geraldo asked about pre-revenue, pre-seed stage. I would say that, you know, pre-revenue, pre-seed, you're much more relying on the team, the thesis, and the product roadmap versus something that has more product-market fit, right? So this is seed, seed-plus stage as a starting point where we're looking for folks that, you know, have a product in the market and are starting to get traction. And then in terms of other questions, Yeah, so I would say CAC/LTV questions that you guys are asking, and being early in a company's maturity cycle, totally understand and agree with that sentiment. These, these numbers mature, right? So as you get more cohorts, more time and experience with your customers, you're going to get more maturity on what that true LTV/CAC ratio is. And, you know, early on in the seed stage, you should definitely be having kind of a 2 to 4x type LTV to CAC ratio, right? If you're not able to show right-sized unit economics from the get-go, what does that mean at scale? So I think I covered that one off. Chris Messina asked me about municipal government solutions. Hey, great question. Selling into governments are hard. We were looking at a company currently that's focused on using blockchain for municipal bond issuance. And generally, companies like Palantir have been successful selling into governments. There's a company called OpenGov that's been successful selling to governments. Longer sales cycles, more challenging, but certainly a lot of budget and obviously opportunity. But our view is that government should be one of your verticals, not your exclusive vertical independency. So Ron asked me about how do you see strategic value for the acquirer versus current company's EBITDA and ARR? Yeah, so definitely looking at both, right? So Ron, if they're acquiring the IP and they're integrating that and they're viewing that as a new revenue channel, they're looking at themselves as a distribution channel and the size of the opportunity under the underneath their umbrella versus really existing EBITDA and ARR. Certainly that customer inclusion in that new business might be meaningful, but they're broadly really looking at sizing the opportunity in terms of the IP and the moats of that business and what that can mean with their existing distribution models. Farron asked me about 600% year-over-year growth. Yeah, it's a small base. You know, seed stage companies have very— you're starting at zero and then you're getting to, you know, $60K to $600K type ranges, you get to pretty large rates. Vishal asked me a good question about retention numbers. So interestingly, what we found in enterprise SaaS is actually an acceleration in growth and significant COVID tailwinds, as we're calling them. Work-from-home type businesses, distributed work type businesses, digitization companies. So we have a company in our portfolio called Netomi, which provides digital customer service. And as you can imagine, people can't go into bank branches, they can't go into call centers, so there's a massive amount of benefit to having a digital customer service operation. And but for consumer and SMB companies, absolutely, there was higher degrees of churn, obviously some challenges in rightsizing those businesses. There's probably gonna be some down rounds or flat rounds in those types of models. So, you know, this is again very much geared towards enterprise software type companies, à la SaaS versus a consumer SMB-oriented company. I'm just gonna scroll through some of these other questions see if I missed anything here. Nate asked me about enterprise. So enterprise customers, typically, you know, these are large, call it Fortune 500 companies. So you can think about it that way. And then middle market and then SMB. So that's how we divide the channels. Jack asked me about positive EBT, I'm assuming you mean EBITDA. We don't invest in profitable businesses. As a VC or a private equity player, you're looking for companies that are growing 80% to 100%. They're really maximizing on top-line growth versus profitability. Ultimately, obviously, there has to be profitability on the horizon in more of these growth and pre-IPO companies, but as it relates to early-stage companies and growth-stage companies, EBITDA is not an equation. Darius asked me a good question on top red flags if the team is not right, and I'll close with this question just to, you know, give you a sense for that. You know, I think on the team side, we're really diligencing the team members in terms of their past history. So we like repeat entrepreneurs in particular. We also prefer are technical CEOs, so product and eng backgrounds as CEO. They could have started a company previously as a repeat entrepreneur and completely failed, and that's all good. If they learned something from that and they're coming back and starting a new company, that grit and resilience that demonstrates is awesome, and we're very happy to back those types of entrepreneurs. I would say the flags come from entrepreneurs who came from a company Maybe they had some reputational issues in prior leadership roles that we've been able to determine. Culture is a big thing we look at. So if that entrepreneur, you know, didn't really, you know, set the right tonality culture-wise, they didn't believe in D&I, they didn't believe in having a collaborative work environment, these types of metrics we take very seriously when we're evaluating a team. I would say the second flag on a team is just a big gap in the team. So if they don't have a CFO, VP of Finance, or a COO who's really running ops, and/or a CRO who's running the sales motion and the go-to-market strategy, there really needs to be at least some completeness in the team. It might just be a CEO and a CTO, but they need to be very clear about what aspects of the business they're looking at. So hopefully that is helpful insight. Obviously, you're welcome to take the presentation with you. This will be posted and distributed. And hopefully this gives you a sense for benchmark for a SaaS company as you're out in the market and some insight on developing presentations. So I'll close there and appreciate everybody carving out some time, particularly for folks here in San Francisco. Go during your lunch hour.