I worked at a VC firm. Here’s what your pitch deck should look like.
Your window of time to grab a potential investor’s attention is narrower than ever.
The COVID-19 pandemic has deeply impacted the startup ecosystem, with founders being compelled to revise business plans, and certain industries, such as travel, facing significant obstacles to growth, even survival.
Yet venture capital investment is at an all-time high, as of Q2 2020, and consequently, investors are examining more pitch decks now than in any other period over the past few years. With this aggressive spike in interest, the time VCs have spent assessing an individual pitch deck has fallen — from an average of about 3.5 minutes to below 2 minutes. This presents a challenge for founders, who need to push through their message as clearly and efficiently as possible to pique a potential investor’s interest.
As an intern at Fuel Venture Capital, a Miami-based VC firm focused on startups with exponential technologies, I’ve learned the perspective and thought process of investors — insights that may be useful for founders seeking to stand out among VCs.
Over the last few months, I have evaluated pitches from companies of a wide range of industries and been involved in the due diligence process for several potential investments. Ultimately, I have found that there are certain characteristics that can define an effective pitch deck and help your startup succeed during these turbulent times.
Know Your Audience
The foundation of any strong pitch is a thorough understanding of your audience — the VC you are presenting to — and their goals for the interaction.
VC firms use a pitch deck as a starting point to get a sense of who the founders are and whether his or her company is worth further evaluation.
The presentation should reflect that the founders are qualified and capable of taking the company all the way to an exit. Poor style and exaggeration or omission of information can have heavy impacts on the minds of investors. It is also wise to back up as much as possible with data—even assumptions you may take for granted.
The Pareto principle, when applied to venture capital, means that VCs generally expect 80 percent of their value to be attributed to 20 percent of their investments. This implies that only a minority of portfolio companies will be responsible for most of the profit and thus, a VC is always searching for that special company that will produce 10x or 20x returns.
To prove you are one of those companies, you should understand how VCs identify them.
Many VCs use standardized, tried-and-tested, procedures to analyze a startup’s future worth to assure they are making a sound investment. Techniques including the Berkus Method, the Scorecard Method, and Risk Factor Summation are especially popular for earlier-stage companies that don’t have the financial data necessary for a more classic approach such as the Discounted Cash Flow method. It is important to note that these methods involve qualitative inputs, and factors such as the strength of your management team, which will be partially based on the pitch deck, are taken into consideration during calculation.
The ultimate goal of a VC is often to return its investment through an eventual IPO or acquisition. Several venture capitalists I have worked with at Fuel (each with years of experience in PE and VC) have stressed that a well thought-out exit plan is a prerequisite when considering taking a stake in a company. However, VCs can have differing expectations — some may be willing to stick through 10 years of growth, while others will not. Having these goals aligned is critical to a successful and constructive partnership. Thus, you should be open about your hopes for the future by including a slide on an exit strategy accompanied by information regarding possible acquirers and exits of similar companies.
Follow the Data
Data is useful for optimizing your pitch deck for two reasons: first, it shows what VCs expect, and second, it reveals the most important areas you should spend the most effort refining. DocSend has analyzed startup pitches to determine the ideal length and flow of a pitch deck. Based on their research, VCs anticipate around 20 slides that tell a story about your company — the problem, the solution, and how and why you are poised to succeed.
The key elements to cover can be found in Fuel Venture Capital’s pitch deck template here.
Each slide should include 35–50 words, with the exception of the “team” slide, which averages at around 80 words in successful pitches (allowing you to emphasize your expertise and track record). With an average of 6 seconds spent per slide, the information you provide should be easy to digest, taking advantage of key words and frameworks VCs are likely to be familiar with (such as the Porter’s 5 Forces model for your competitive landscape analysis).
Entrepreneur’s Handbook analyzed over 100 pitch decks from successful startups and determined that the most important factors were the market, target audience, and product uniqueness. Research also shows that the “team” and “financials” slides are incredibly important. When financials are included, as they should be for post-seed companies, investors spend significantly longer examining them (23.2 seconds) than any other part of the pitch deck. Ensuring that these slides are perfected will certainly help you appeal to potential investors.
Show Situation Awareness
One of the most frequent questions VCs will pose to founders — especially in this environment — is, “Why now?” To counter the general atmosphere of uncertainty, founders must prove both an awareness of the changing situation and an ability to adapt in the face of sudden shocks.
In terms of the coronavirus, Fuel Venture Capital’s Managing General Partner and Chief Investment Officer, Maggie Vo, CFA, has published several articles with advice on how to reorientate your startup, both in terms of surviving and thriving. Some takeaways include the importance of building a cash runway and a doubling-down on capital efficiency and unit economics. Regardless of how heavily your industry has been impacted, your pitch deck should include the steps you have taken to react to the pandemic, as well as your capacity to weather future storms.
This extends beyond COVID-19 — macro trends involving market conditions and political developments have far-reaching consequences, and demonstrating a propensity for flexibility will underscore your team’s value and ease concerns in the minds of investors.
Zihan Kabir was a 2020 Summer Intern at Fuel Venture Capital. He is a student of the University of Pennsylvania pursuing a dual-degree in international studies and business.
