Personally, I think there is no value in upholding any smoke and mirrors to the rules of the game of venture capital and therefore I thought I would share my insights with the aim of contributing to the demystification of the art of fundraising. Please note, the following points mostly relate to a scalable, VC-type company.
Articulate the problem
The first problem I have with countless decks that hit my inbox is the fact that so many fail to articulate the problem they are solving, what their product does and why they are going to win, in a clear and compelling fashion. This may sound simple, but achieving the aforementioned is actually incredibly difficult to do. It is also so important, given the sheer volume of opportunities that investors consider on a daily basis. Sometimes I have even managed to get through a full hour meeting without truly understanding the value proposition, not for lack of trying. Throw away the buzzwords and verbose VC vernacular and try to answer the basics in your deck to get you to a first meeting.
Know your VC
Another basic but common faux pas is a lack of homework on the VC that the entrepreneur is meeting or on the individual that the founder is sending their deck to. Not only does this give the investor a red flag and likely mean you as a founder begin the relationship from behind the baseline, it also is a huge missed opportunity to curry favour, in the best sense of the word. Researching common ground to align your company with the investment thesis, stage and personal preferences of certain investors is encouraged.
Ditch the NDA
Do not ask VCs to sign an NDA, at least not straight away anyway. This is a point that has been covered extensively by other investors so I won’t labour it, but please do put together pre-NDA materials at the very least and do only ask for an NDA if you genuinely have some secret sauce. Even then it is likely to put a lot of people’s back up.
Keep the cap table clean
A very disappointing fact to learn for an investor excited by a company is that the cap table is potentially a deal breaker. Typically, when an early-stage investor gets involved with a company, it is with the expectation that there will be multiple rounds of financing to accomplish the ultimate milestones. If the founder (s) has already been diluted heavily, investors can become nervous that the economics will not sustain the founder throughout the lifespan of the company with many more rounds of dilution to come. This misalignment is a huge fundraising risk. Whilst cap tables can be restructured it is not the default for early-stage investors with plenty of other opportunities to back. University TTOs and tax-driven individual investors are a recurring theme in unworkable cap tables that I have come across. Of course, all this being said, not every company enjoys a linear fundraising blueprint and many founders have been at the mercy of unfavourable terms when traction has not been as hoped for.
Tell your story
Stories have long been held as the best medium by which to impart knowledge. In the case of investor meetings showing as well as telling is also very helpful. Weaving in your demo to bring your product to life should be a huge asset to the pitch and is not always delivered by founders. Wrapped into telling an effective story is having the right people to do just that. If you as the CEO are going to do investor meetings alone, ensure that you can answer first-meeting-type questions on all aspects of the business, including technical ones even if you are not technical. If you cannot confidently do this then please bring your CTO. Investors invest in people and storytelling is an important way to express the boldness and magic of your vision instead of spending the full meeting getting lost in the minutiae and detail. However, please be careful to not come across with self-assured hubris and never lie or mislead.
Bottom up market sizing
One common feature of investment decks that I personally think is a mistake, although one that is echoed less often by my peers, is that of top-down market sizing. More often than not I find it a redundant and lazy slide. Bottom-up is usually far more interesting and compelling. Even better is when founders use this slide to articulate their kernel of insight about the market. Tangential to this, please know your competition better than the VC.
Prepare your numbers
For early-stage investment, typically, 5-year detailed forecast financial statements are unnecessary. However, I encourage at least an assumption driven 18-month model and a cash flow forecast. Firstly, this is likely to save the investor some work and more importantly, it helps the investors to understand your thinking and really get underneath how the business model will/does operate. It is also important to articulate how much you are raising (without a huge range attached), what the use of funds will be and what milestones the business will achieve with it. This helps investors understand whether the opportunity fits their own fund model. Whilst we are on financials I do not recommend explicitly putting a valuation expectation on your deck. Building a financial model might also help a company think about whether they “fit” the VC model where good can be the enemy of great.
Finally, I wanted to include a heavily espoused mistake which I do not believe in, which is that of a warm introduction. Some VCs demand it and for many, it is strongly preferred. The problem with this filter is that it is awful for diversity. A recent report by BBB, in collaboration with Diversity VC and BVCA, entitled UK VC & Female Founders, found that there was, in fact, a penalty associated with cold pitch deck submissions: “warm introductions are 13 times more likely to reach investment committee and be funded than cold submissions”. This disadvantage is clear for all-female teams with 36% warm introductions versus 42% of all-male teams. I think it is important for all founders to be aware of this data point, whilst championing the need for it to change.