Live Every Week Like It’s Shark Week: Inside Your First VC Pitch

When talking about pitching, there are no absolute rules and each founder will do these differently, this is just a guide on how I think a good framework can be made which looks investor ready. So here we go!

Firstly, work out how much time you have. Most meetings with investors are one hour. Often, investors will have “new company day” and you may be back to back with other potential companies seeking the same investor. Some people, myself included like to schedule all pitches on a recurring day or day(s) in a week where possible so you should always assume that you are actually going to be compared with multiple other companies which are in the investor’s head, if not literally right after you in the same room.

So let’s walk through a timeline for the one hour. You should always assume that the VC will have to leave when they say they do, so if you have anything that is core to your proposition or that can refute objections it needs to be within that time – so don’t leave questions till minute 58. I like to tell founders to break this into eight sections – remember time is always ticking so make sure when you practice or are in the room you keep the ball rolling by looking surreptitiously at the clock and make sure you get through all eight. The only caveat here is if you think the investor is really loving what you are saying and you then may want to keep on that section for a bit longer, but don’t assume you can add an extra five minutes on to the back so you’ll need to cut something else down on the fly. The eight sections roughly look like this.

  1. Small Talk and Setting the Scene – 10 mins
  2. The Problem – 5 minutes
  3. The Solution – 10 minutes
  4. Why You? 10 mins
  5. Unit Economics – 5 minutes
  6. Your Vision – 10 minutes
  7. The Ask – 2 minutes
  8. Question Time – 5-10 mins

Bear in mind the first investor meeting is largely for the investor to get to know you and find any huge red flags. They will have looked at your deck, looked at your website, but probably not really gotten in depth into unit economics or the like. They may have a preexisting investment in the sector and if so they have probably asked them if they have heard of you and have any thoughts. The first investor meeting is not the place to be doing deep dives into due diligence questions – it will largely be high level and making sure that nothing sounds really out of place, that the team seems good and that they believe in your product and vision. You should not be and are not expected to go through your financial model line by line in your presentation and I encourage you to stick with very simple math which I will detail below.

Note in the below article I go through a bunch of slides which are an not exhaustive list of what you need, so I am just talking about the ones that often get spent time on in the meeting – there will likely be more slides you need in your deck which are not mentioned in here to illustrate your value proposition.

 

Small Talk and Setting the Scene – 10 minutes

So the clock is ticking. Remember most meetings don’t start on time and make sure you are there early and with your presentation up and your demo ready if you have one so you can start as soon as the investors arrive. If you have people dialing in via phone your side, make sure they are on the line at least ten minutes before they are supposed to be so you can work out if the investor’s conference number works etc. At this point, it is a very simple “great to meet you –  thanks for making the time, hope you’ve got the deck and had a chance to read it.” Always ask the investor that question as sometimes the response will be no. Bring extra copies of your presentation in hard copy to give to people if they don’t have one.

Most investors will offer to talk about themselves, what they are looking for and their interest in the sector which you should accept but by the end of the small talk, introducing everyone and this investor background we can be up to 15 minutes in length (i.e up to a quarter of the time). Make sure if you have more than two people attending that you either introduce by name and title instead of a full bio or literally a ten-second bio like “Hi, I’m Peter, I’m the CTO and co-founder, and I’m ex-Google, and before that, I started a machine learning startup”. The aim here is to get into your presentation as quickly as possible.

Life lesson: in most meetings I have been to the first ten to fifteen minutes is always small talk and getting the presentation and/or phones working and everyone in the room if there are multiple people. So you probably only have 50 mins to shine.

The Problem – 5 minutes

This should be at most two or three slides (not including the total addressable market). If your app is a consumer app or something which is more general than niche then this is typically a time to have a story. Emotional responses elicit more interest than logical responses. Typically this is a story about you and the problem you had which led you to found the business. If it’s not you then it should be your target customer persona “Lucy is a 25-year-old professional who earns over $75,000 a year but does not have any savings”.

The first 2 slides are generally questions, by question I mean “did you know that X% of 20-30-year-old professionals do not have access to X”. If you are going to put any full color pictures in your presentation this is often a light-hearted and fun way to start the pitch.

Your next slides will be more serious and have graphs, data and market sizing assumptions. They generally reflect a series of initial and then follow on markets with concentric circles with the first circle being your current market and expanding outwards. I typically recommend people to not have “Global” or “Worldwide” as the last circle and try to have the circle size being large but not ridiculous. Remember, the investor is testing both a) is this a big enough problem and b) could you be the market leader i.e greater than 50% of your market. Also remember that your model and business plan needs to correspond to this, and you need to have sufficient market share of your market in your plan to lead it.

One of the first things the investment analyst at the firm will be asked to do is test the market assumptions (i.e do the market stats seem correct) and work out who else has what share in their market. So if the market leader currently has 10% and you are projecting 30% in two years it will look very odd unless you can prove a data-driven thesis.

Generally, unless your stats are very off, or someone has an investment in this field, you will not get strong pushback in the meeting because people will want to get into the unit economics and the like.

The Solution – 10 minutes

Depending on how complicated your solution is, this is either a very quick or potentially more lengthy scenario. At a minimum, the first slide of this section is “So we created X, an [app] that does Y”. You should have a one or two-line vision statement and or value proposition on this slide.

Slide 2 is a value chain diagram showing exactly what you do and what you don’t do. People often forget to include this slide but basically, the investor really wants to know at what point does your product start and other products end. Draw a big box or otherwise colour code what you do in the diagram. Unless you really come from a fintech background or have a special reason to do so, investors want you to focus on the stuff that is differentiable. Unless you have a specific reason to do so, there is no reason to build say a payments engine for example and you will see Stripe or Pin (a shameless plug for one of our investments) or other payments providers in this slide.

If you have a demo or MVP this is the time to bring out screenshots, your app or the demo. You generally spend 5 minutes explaining what you are trying to achieve and then 5 minutes demoing the MVP, app or the above. While you demo you should point out how it solves specific pain points identified in the problem section. I always encourage people to have a video as a backup if for whatever reason the internet, your page, wifi etc goes down and your product demo doesn’t work etc (happened twice last week at pitch day).

You will end this section with a slide or recap highlighting the key benefits to reinforce this. This should largely mirror how you sell the product to customers. If you have net promoter scores or testimonials from customers e.g screenshots of emails etc or logos then you can add this in here as well.

I note you will probably have a pricing and “tier” (e.g free, standard, premium) slide in here, but I like entrepreneurs to talk about this later on in the presentation in depth. You should mention who your target market is and contract size etc but note you will talk about unit economics when you get to the slide.

 

Why You? 10 mins

There is no right answer to this section and a lot of founders rely upon traction to answer this question. Examples include a slide full of logos that you have to the extent you have big customers. Normally the pitch is something like “we believe we are going to be the pre-eminent solution in market X because” and then a list of your key product/business highlights. You then may have a few supporting slides such as

  • Slide 1) User graph or user and revenue graph over time plus other relevant operating metrics which may include churn / typical contract length and stickiness etc
  • Slide 2) Our clients
  • Slide 3) Competitors and their product versus your product on a tick and cross system. I note that almost every deck we see that has this has the company presenting with all ticks and everyone else at significant crosses, so just assume that people will discount this if it isn’t actually the case.

Further slides contain anything specifically special, patents, technical diagram, commercial test results or industry benchmarking, partners etc.

If you operate in an industry where regulation is key, you should have a regulation slide (e.g medical, deposits, insurance etc) and how you are addressing key regulatory issues which are often a good “moat” or why you have a competitive advantage.

Note at this point we are over halfway through the hour and we want to make room for questions and we haven’t even explained how the business model works. So try to not get drawn into too much debate in the first sections, and take questions offline where it is hard to answer and commit to answering them via email later.

Unit Economics – 5 minutes

I encourage all founders to have a unit economics slide or slides. This should set out your proposed cost and revenue structure, and/or your actual cost or revenue structure if you have customers. This should at a minimum have:

  • How much is your product?
  • How much does it cost directly to serve your product? (i.e hosting, other direct costs). Note this does not include say marketing or your salary this should be the direct cost of providing each additional contract as a MARGINAL basis. Revenue minus direct costs of goods sold equals the gross margin. For software (excluding amortization of software development costs) this can be 70-90%. If your gross margin is 30% and none of your competitors are, do not assume you can convince anyone this will change over time.
  • Fixed costs base / opex per marginal transaction.
  • Customer acquisition cost (CAC)
  • Lifetime value of your customer
  • Projected churn rate of your customers

For the last three, we don’t have enough time to go through this in this post but see this link here. Assume any VC will ask you to step through in detail your assumptions around this if not in this meeting then in the next. So proactively address that question by saying something like:

so my contract is X dollars per month, it costs Y dollars per month to serve and then my operating / acquisition costs are Z which means that for every new customer I aim to make Q dollars per customer or a gross margin of R% and an operating margin of S%. That translates to targeting a 3x LTV:CAC ratio on the CAC of P dollars I mention and a payback period of 9 months.

If you can’t accurately articulate these numbers you need to get these sorted before you talk to institutional capital.

You may have some slides here showing key contracts and how much they make and/or potential contracts to show effect on cash to the bottom line which you can talk to.

“This shows that if I get these two next contracts I am close to winning I can expect an additional $x per month in cashflow and we have seen that once people go through the freemium product over 30% of people upgrade and then stay for at least 12 months’

You should have a marketing slide in here which shows your channels and assumptions on channels to the extent they are relevant e.g Social, direct sales, reseller sales etc. Showing maturity of thought by segmenting CAC per channel and marketing spend per channel is key here for a more mature product if you are raising at a valuation over $5-10m pre-money, you may get away with it as broad assumptions under that valuation.

Your Vision – 10 minutes

At this point often we are running out of time but a well thought out pitch will go through two slides here, business plan and technical roadmap.

The technical roadmap is typically first. Here is what I have built and here is what I am building. You should include somewhere a simplified diagram of your technical architecture which includes the main things that people may want to know so that you can get through the section a bit quicker e.g hosting, platforms/languages used, geographies etc. You should also make clear in the diagram what you own or are developing and what you are licensing or using.

Business plan discusses the next 12-36 months and where you see the business heading. You should generally talk about this while the financial forecast is on the screen (they are two separate slides but you can do the talking on the second slide with the financials).

The financial forecast should have some operational metrics below so that you can correspond them to the business plan:

“you can see in Y2 we aim to have 10% of market X which corresponds to Y users. So therefore you can see that at an average contract value of Z per year that equals my revenue of U dollars you can see in 2019′.

Try and do the math for the investors so it is easy to follow as that is one of the most things that impresses me about founders – those who can show the math simply and can show you insights at a simple level and that they understand it.

“you can see in Year 3 we stop spending so much on development because our CRM module done and we start turning that into additional money on sales and our cashflow statement reflects that’.

If you can demonstrate that sort of insight as a founder you almost always get the investor to take a further look at the information because it demonstrates you understand how the levers for growth in the business and how you can make money for them.

The Ask – 2 mins

You need to end strong. So this is typically saying you need $X at $Y pre-money EV and the round has Z dollars remaining with U dollars taken. You can also describe here the specific synergies and reasons you think they should invest including focusing on your slide that shows a potential opportunity for the investor’s portfolio company.

Be as personal and tailored as you can about why they (specifically) or their investee companies could benefit (specifically) from your company.

Question Time – 5-10 minutes

Question time should be two way, no matter if you think this is the investor you really really want and no other investor makes sense.

I usually encourage people to start with “do you have any initial feedback at this point or are you happy to take questions’. 90% of investors will start with questions, so remember to go back to initial feedback if you don’t get any.

At the end of this, a good founder will ask, so what would be the typical next steps from here and the typical diligence requirements. In almost all cases where the investor is interested the next step is to send across an NDA if not already signed and give them access to more data. You should agree who is doing that and when you will send it, and when you expect to grant them access and for how long. You should also be clear as to what your timing is and ask the investor how long their total DD period is. We typically like to get an informal two way check every say five to seven days during a DD process where both parties confirm they are interested in continuing and if anything has changed.

In my personal experience, DD usually falls apart at the beginning rather than the end so you usually should have some inkling early on if it will not make sense for either parties.

Other Things Which May Come Up

There will obviously be other things that come up in the deck which may or may not get airtime. Capital structure will get some airtime if you have other institutional investors or a weird capital structure and you should have one of those slides. I note that typically companies don’t put their round history in there but I ask for it in every meeting i.e when did you raise last and at what round so it should either be in your slide or you should have those numbers in your head.

Team and team bios may also offer discussion if you didn’t go through them in the Introduction s section. As may specific contracts, names or logos in your deck. If you have something in your deck and it is a metric, you show know as a founder where that metric comes from and how it was calculated (i.e if someone asks you how installs are calculated one of the worst things you can do is say my CTO does that). You should assume that whatever you show in your deck will be specific metrics the investor will diligence later including the robustness of the calculation and/or data set and the ongoing tracking. Again a red flag is metrics that are made ad-hoc for the deck and have no other tracking. So if you are not tracking metric X, then either start tracking metric X or remove it.

– Jason Cheong