Startup Fundraising Guide - Ep. #4 - Pitch Decks

Hey everyone, I'm John Coogan and welcome to the fourth installment of my guide to startup Fundraising. Last week I talked about how to meet investors, and today I'm going to talk about building a great deck. Remember, building a great deck doesn't mean you've built a great business. You need to make sure your company is making its customers happy, growing the customer base significantly every month, and has a giant pool of potential customers. If you've done all that, you might not even need a deck to close a big round Decks come into play when a professional investor is ready to make a decision on whether or not to invest. Most angel investors never need to see a deck to make a decision. They just want to talk to you directly and hear about the business. But for professional investors like seed funds and VC firms, you'll need to pitch a larger audience and have some materials that can be circulated within the firm. It can be intimidating to think about all the different people that will judge you based on this deck, but don't let that stop you from keeping it simple. Stay concise. Eight to ten slides are perfect for a seed round. You might expand this to 15 or 20 slides for a Series A, but the information always needs to be laid out in a clean and simple manner. Remember, after investors sign a term sheet, they can request more specific information during due diligence, which we'll talk about in a later video. Never waste money buying complicated templates or paying for design services. I've linked two great slide deck templates from Y Combinator and Sequoia Capital below. They might seem overly simplistic, but just look at any Apple Keynote and you'll see how effective slides can be when they keep things straightforward during a pitch. The deck shouldn't be the main attraction. VCs invest in people, not decks, so you want to be able to have a great conversation and just use the slides to guide things. Focus on short bullet points and key takeaways instead of full sentences or paragraphs. A great slide deck will cover the following 10 items, your company's purpose, the problem, the solution, the why now, the market size, the competition, your product, your business model, the founding team, and your financials and traction. Let's go through them one by one. We talked about the elevator pitch before and your company's purpose Slide is a great opportunity to reiterate that this description isn't just for the investor you're currently meeting with. It's also the phrase that they'll repeat internally at their firm and potentially send to other investors who they collaborate with make it clear, make it concise, and make it memorable. Substack did a great job of this with their first major deck. When substack launched in 2018, Patreon had already raised over $100 million and most investors were familiar with that model, but it hadn't been widely adopted by newsletter writers. Additionally, Ben Thompson had proved that independent writers could gain lots of subscribed followers with his newsletter. Clearly describing who the customer is and what you do for them is is critical to keeping this slide memorable. Describing the problem and the solution is the best way to introduce investors to your market opportunity. In talking about the problem, make sure to describe who the customer is, what their pain is, or what they don't have the ability to do today, and then talk about how they solved this problem. Currently, the solution slide is where you demonstrate your company's value proposition and how you solve the customer's problem. This is a great place to show how your customer uses your product and what value they get out of it. This format works for all kinds of startups, but Airbnb has a particularly good set of slides on the problem and the solution. They highlight three common problems when the high price of current options, the lack of community when staying in a hotel, and the fact that people with extra space can't easily host travelers to make extra money. Their solution is a web platform that lets users rent out their space to host travelers. In doing so, Airbnb users can save money while traveling, but make money while hosting and connect to the city. After you've articulated the problem and the solution, you'll need to explain why this is the best time to start a company focused on providing a solution. Timing is super important in startups. If a particular technology is not quite polished enough or affordable yet, you could be too soon to gain wide adoption. Conversely, if you enter the market too late, there will likely be plenty of competitors providing a better solution. Already, the social media management company Buffer did a great job of explaining the growth of social media in 2010. When they launched, they showed that social media was basically doubling every year, and they make the case that soon every business would need to manage social media pages. Buffer's products are designed to make this easier, so even though the need might have been small back in 2010, it was the right time to focus on building tools for social media management. It's not enough to just be building something in a growing market, investors have to believe that the size of your market will eventually be huge. This slide serves to profile who you will ultimately generate revenue from and how big the opportunity is. You can think about this in three the Total available market, or tam, which is a very broad top down approach that captures all of the revenue in a given market. Then there's the Serviceable Available market, which is the part of the TAM targeted to your products and services specifically. Lastly, there's the Serviceable Obtainable market, or som, which is the part of the market that you can actually capture. You want to strike a balance here and come up with a number that isn't so huge that you'll get laughed at, but isn't so small that you've left out obvious adjacent markets that you could expand into. LinkedIn did a great job of sizing their market in 2004 when they raised their Series B. They highlighted three key areas where they could monetize the service and offered comparable products and market sizes for each. Remarkably, their total market size was just over $10 billion in this deck and in 2020 LinkedIn is estimated to earn over $8 billion in revenue. Not bad for a 16 year old prediction. The competition slide can be a tough one because entrepreneurs often don't like admitting that there are other people working on the same thing. It makes their ideas seem less novel, but it's a fact of life. If you're going after a big problem, there will be other companies offering solutions already. You want to make sure that you're not just listing competitors though. You want to show how you're different. It's common practice to use a 2x2 matrix to illustrate your market position. FrontApp did a great job of this in their Series A deck. The company makes a shared inbox so multiple people can collaborate on emails together. Typically, options for this fell into two separate business ready and good messaging experience, and there wasn't much overlap. Front was aiming to create business software that would feel as intuitive to use as consumer apps like Gmail and Facebook messenger, and this slide clearly shows how they stand out from the competition. Now that the customer and market are clear in the investor's mind, you need to focus on your product and solution. Specifically, you need to break down your form factor, functionality, features and intellectual property so everyone in the meeting understands what you're building. Investors try out lots of startups, but certain products, especially in enterprise and biotech, might not be immediately relevant to an investor. So go into enough detail here to to make it easy to visualize your product. FrontApp did a great job of explaining their product in their fundraising deck because it's a bit of a complicated enterprise product with lots of features they use two slides to illustrate the design. First, they show you a basic screenshot that gives you a look at the app as the customer would see it. Then they flip to a second slide with callouts for all the different features. Tucking those advanced features into a friendly design is their main value proposition, so it's important to call out these in the deck your business model is how you plan to make money from all those customers who love using your product. You should explain your pricing structure, how much you typically earn from a customer, and how you plan on acquiring new customers. Twine FM is a platform for freelancers who create content for brands. Their business model slide is extremely straightforward. They take a 20% commission on all transactions that happen on their platform. Sometimes you may need to explain your plans in more detail, like Foursquare did in their 2011 pitch deck. Since Foursquare was a social network, it was free to use for the end user and they relied on monetization from local businesses. Foursquare's initial business model didn't work well though, and they had to pivot. So be sure you're really testing your assumptions here. The Team at the earliest stages this is the most important slide of the deck. Investors will often make bets on talented founders even though they aren't sure that the current business will work out. You need to show that you have the experience and determination to make your startup successful. No matter what. Investors want to know that there is a committed team on board with the relevant skills to build and manage the company as it grows. Square's first Pitch Deck is a great example of how to highlight your team. The founders were very well known in Silicon Valley for their previous work and it was clear that they could manage a high growth tech company. Today, Square is worth over $60 billion. Companies that aren't growing can't really call themselves startups, they're just small businesses. Showing big growth numbers is going to be the data that proves the hypothesis you've laid out in the rest of the deck. You've explained how the business works, but in order to merit investment you have to be growing and the faster the better. The analytics company Mixpanel outlined their growth very clearly in this fundraising deck. The exact figures have been redacted, but you can see that the growth curve is up and to the right. They also include a sample summary of their financing to date, which helps investors understand where the company is and what the next round might look like. LinkedIn also demonstrated a great technique for showing growth. They started by showing what their initial growth projections were when they raised their Series A, and then on the next slide they show what actually happened. They outperformed significantly and it's really clear from this slide that they're onto something real. Decks are just one small piece of the fundraising puzzle, and in many cases you might not need a deck at all. So don't spend too much time building it. Remember that they're just a tool to structure your thoughts and and are never really a replacement for an engaging conversation. Ideally, the deck will drift into the background as you start diving into different opportunities for where the company could go and how big the opportunity is. Next week I'll talk about how to read a term sheet and close a deal, so hit the subscribe button and ring the bell if you want to be notified when that goes live. And if you have any questions about decks or think I missed something, please leave me a comment below. Thanks for watching.