For Founders: How the Venture Capital Investors Deal With Your Pitch Deck

А useful guide for founders on how to prepare a pitch deck and how we look on it as a VC investor.

In times of Zoom calls and minimized face-to-face meetings it has become quite difficult to convey word-of-mouth information to investors quickly and efficiently. It seems that the elevator pitch has also gone down in history of the venture capital industry following the anecdotes of entrepreneurs of the 2000s and 2010s, giving way to even faster communications in instant messengers and chats.

Such a traditional tool as pitch deck has now taken on the most important function in communicating with investors - to convey and sell a business idea for you - which means that it requires as much attention as any other format for presenting your project.

What startups need a pitch deck

Spoiler: a pitch deck is needed for all startups of early and late stages, which in one way or another attract investments or enter negotiations with investors.

At the first stages of the company's development (Pre-seed or even Angel-stage), a pitch deck should succinctly express the essence of the project and “sell” the idea that the project is the future, and it is you who will be able to bring the future into reality, it is only a matter of time. As company grows and develops, it becomes more complex, and VC needs to consider more factors in order to make a decision about investments at a later round of high valuation. All the factors that influence the investment decision, namely the experience of the team, traction, unit economics, investment attractiveness factors, competitor analysis, can hardly be included in an oral pitch presentation.

Each VC runs through a large number of projects every day, and without information to refer to, you will get lost in the flow and communication will not be effective.

In reality, when a startup is looking for investors on its own, it needs to contact and communicate with everyone, for example, to tell 20-25 funds about the project so that communication continues with a subsequent call or meeting. When an entrepreneur has a pitch deck, he can make a text summary of comprehensive information about his company and send it to all the funds in his pipeline.

In fact, all the information about your project is like a heap of ripe oranges, and your pitch deck is like freshly squeezed orange juice. This simply reduces the time that founders spend on fundraising, and that investors need to decide on further communication.

How a pitch deck comes into investor's hands

There are different ways depending on the interested parties: either it is an investor who is looking for where to invest, or it is a project that is looking for an investor.

Professional investors, funds, and business angels, for whom venture investment is the core activity, are, as a rule, proactively looking for startups for their pipeline. Sourcing of projects is carried out, for example, through Telegram channels, mailing lists, major media, accelerators, and networking at events. Startups get through networking with other investors and founders fast-track to the top of the pipeline.

In case founders themselves are proactively looking for an investor, they try to find the right contacts and send information about their project directly. The most enterprising founders share an information-limited pitch deck publicly on various platforms, social networks and channels.

At A.Partners, most often we start negotiations with projects that our investment team has found independently. We are looking for projects in our pipeline in accordance with our investment theses both through open sources (channels, mailing lists), and through our co-investors and networking. The rule of good form for investors is to share the pitch deck of a promising project with colleagues if, for example, the project does not fit the investment thesis of the fund in terms of industry, stage, or technology, as another investor may be interested in such a startup.

Who handles your pitch deck

Professional investors work proactively on their pipeline, and often have a whole team. The question arises: “then who will actually deal with my pitch deck?”

Your pitch deck can fall directly into the hands of an investor, a managing partner of a fund, a business angel, if it has come from networking with other investors and recommendations from portfolio project founders. But more often, a professional investor team, such as an angel investment office or fund, looks for projects on its own before bringing up an investment.

What are the advantages of having an investment team working with your pitch deck first, and why is it worth developing your network, including employees of funds and investment companies?

First, when projects are reviewed only by fund partners, some of the investment opportunities can get lost, stuck in a pile of messages and emails. Sorting out incoming applications by the team is an effective way to get a sense of each project and assess its potential for investment. In any case, the project for investment is brought to the general investment committee, where the team convinces VC that the startup is promising.

Second, if an investor can be well-versed only in specific industries, a team of several people allows to expand competencies and specialize in a wider range of technologies and business models, so the chances of attracting investment for projects from a new niche for VC increase.

Third, all startups receive feedback - thereby increasing the conversion from the pitch deck to negotiations. In addition, even if a particular analyst hasn't recognized the potential of a project, in the course of collective discussions, colleagues will tell from their experience whether it is still worth taking a closer look at the startup.

Investment team provides VC with more expertise and visibility, increasing the funnel, the quality of evaluation and feedback on each project. The team has the right to take the next step without the permission of the fund's partner: request materials from the startup, calculate metrics and prepare information for the investment committee.

Among the disadvantages of working with an investor team is the fact that communication takes more time. After a pitch deck gets to one of the members of the investment team, interaction begins, in the course of which you will be asked for additional information for analysis, and more time may pass before the final decision. In some cases, analysts may lack experience, while an investor may see the potential and prospects due to long-standing expertise, intuition, knowledge of inner workings of the market and insider information.

How do we regard your pitch deck?

As a rule, a pitch deck contains 10-15 slides, including the title and final slide with contact details. These slides contain information about the product, the business model, the problem the startup solves, the market, competitive analysis, traction and metrics, and development strategy. Also, the presentation should talk about the team and indicate how much you want to raise, and what milestones to achieve with the help of investments and in what timeframe.

When running through a pitch deck, investors look closely at almost every detail.

Here are the top points that make it clear whether to continue communicating with a project:

1. Product. A clear and understandable description of the product - it is important for an entrepreneur to be able to explain simply and succinctly what kind of product he creates.
2. Traction. Traction may not be presented on your slides depending on the stage of the project. You should not take it as a must-have if you just have a product and have yet to test hypotheses. However, if you already have some revenue, customers, the unit economics has begun to converge, do not forget to highlight it.
3. Metrics. If you are a late-stage startup, you need to show revenue, profit, your achievements in absolute and relative terms, to show unit economics.
4. Market. Illustrate market phenomena that can trigger the growth of your business - something that will work for your benefit. An important factor is the size of the market - this information is checked and analyzed on the investor's side. For VC, it is important that founders understand and are able to assess and define the market they operate in, which indicates a deep understanding of their product, customers, the overall market landscape identifying its key players, and uptrends in the local and global market. Your wrong definition of the market may become a “red flag” for an investor.
5. Competitors. A startup that believes that it has no competitors seems either overly optimistic, or deceives itself and has poorly studied the market, or considers only direct competitors, and not indirect ones (how this problem is solved now in general, and not just within the same solutions that the startup operates). It is unlikely that a startup creates a new need for customers that did not exist before, so comparison with direct and indirect competitors is important for entrepreneurs to understand how their potential customers are now covering their need. The investor still wants to see a detailed comparison with close competitors in the market - specific companies, not phantom groups of competitors; and not just a comparison of products, but, where possible, a comparison of key indicators that determine the success of a company in your niche.
6. USP and secret sauce. Show how you differ from other projects, and what factor will help your startup soar and overtake competitors.
7. Team. Investors like founders experienced both in the industry of the product they make and in launching startups, and even better if you have already sold the previous business to a well-known player and exited with good returns. As the Venture Barometer 2021 report showed, the team is one of the most important factors for making an investment decision - these are the people whom investors entrust with their money, and success largely depends on the founders, no matter how promising the idea is. If you do not have exits and 30 years of experience in the industry behind you, there is no need to despair. You just need to convince VC that you and your team are the right people to let the startup soar.
8. Development strategy. To attract investment, it is important for every project to have a slide on which you predict traction from important indicators, such as revenue or user growth. Show milestones (in addition to tangible indicators, milestones can be important product changes, new market entries, etc.) that you plan to achieve and that will lead you to the next funding round. On your roadmap, show the indicators that you plan to achieve by attracting subsequent rounds: what place in the market do you plan to take, what increase in revenue to expect, how many users to attract. VC invest, in fact, in a kind of step-by-step picture of success, and it's important for them to know how you measure that success. It is a rare case to attract investments simply to “patch up holes”. If a startup is in trouble, it is important to show how investors' money can help turn the situation around.

Red flags for investors

What immediately repels an investor when they get acquainted with your pitch deck?

1. A sloppy and untidy presentation that does not reflect your corporate identity, unfortunately, does not look like you are a genius with a mess on the table, but illustrates your approach to business and attitude towards the recipients of your documents.

2. Misdirected presentation. Often you can find information about the investor's interests or the fund's investment focus on their websites, social networks, telegram channels. Do not waste your time and the time of investors - do not send a project that is not at all in the core interests of VC.

3. A presentation consisting of 10 slides, 5 of which are product descriptions, shows that you cannot clearly describe what you do or have a poor understanding of your product and what problem it solves. When a clear structure is maintained, this is an obvious factor that sympathizes with further communication with companies. However, if your startup has a complex technology or CapEx-heavy product (let's say you're pitching hyper-converged (HCI) solutions for IT infrastructure or something from the field of biotechnology), the product can be difficult to describe in less than 5 slides - in this case, specialized funds that invest in such fields are ready for long and intricate descriptions.

4. Inability to assess the market. No competitors, or only indirect competitors. And, of course, the “red flag” will be that you are “selling” to the wrong market.

5. Absence of a slide with a request, or there is no offer in the message to the investor. How much are you raising and for what purpose? It is alarming when the project team does not know how much money they need and for what.

And finally, a few tips:

There are projects with a simple and understandable business model, and there are high-tech startups whose product features are difficult to explain. Both are important and attract investments. The question is, which investor will be your profile one.

Present an ultra-tech project to a fund that invests in such technologies and has the expertise to understand your product, or to a generalist fund that makes 200-400 investments per year in different projects - in this case, you need to understand that VC will not understand the technology, and when negotiating, you need to adhere to the principle of “keep it simple”, which allows the brain to grasp the idea in a basic way and then impose complex structures.

Make your pitch deck exactly the size needed (10-15 slides). A presentation should not be too long or too short, do not overload the slides. Most likely, VCs have seen similar projects, and you need to stand out, show the unique character of your project and the factors of its investment attractiveness.

Of course, there are trending markets, and investors want to be the first riding a new wave of hype, but in all industries, there is a place for innovation. The combination of all the factors that we mentioned above will help your pitch deck fulfill its main function and lead to negotiations with investors.