I’m now in the process of completely updating this post for 2010. I already have great new material…BUT I would really like to hear if there are any questions or requests for the updated version while I’m at it. Please comment here.
The post covers the one of the final 3 slides: Funding status/ask. The original outline is here: THIS is the OUTLINE.
Slide 10: Funding Status and Ask Slide
The funding ask slide requires a bit of finesse as you are starting a set of discussions that could turn into negotiations if your potential investor turns into your actual investor.
In this slide, a little back ground is very helpful. Make sure you let your audience know who you have raised money from in the past and at what valuation. This is not “secret” information; be open and transparent. If you seed funded your company, that’s a good story, make sure you talk about it. You should also talk about the structure of any prior formal investment by a third party: who, how much, when, format (common, preferred, convertible debt, etc).
It’s important to get right to the punch line of this slide; You MUST be prepared to address the following (have data, be thoughtful, use a clear explanation):
- how much money would you like to raise?
- why that amount? (what will it be spent on? how long will it last? what value will you create in your business using it?)
- could you do what you need to do with less? what might you do with more?
- are you actively working with anyone else on this round?
When it comes to timing, it’s important be realistic. If this is the first time you have met with this firm, it’s typically just the beginning of a process that will almost certainly involve multiple meetings over weeks if not months. For larger VC firms, you will not receive a term sheet until you’ve run the gauntlet of their Monday partner’s meeting…if you’re dealing with a top 25% firm, you’re not even close to “done” until you’ve got the Monday invite. Smaller firms are able to be much more dynamic and efficient…however, that doesn’t guarantee that they will.
If the conversation is going remotely well, you’re likely to be asked about your valuation expectations. If you have raised money at a particular valuation in the past, that is your starting point…but in this current macro-economic environment previous valuations do not guarantee ANYTHING. If you have a number in mind that is based on data that is realistic – don’t be shy – flop it out there. It’s important to understand enough about the VC business to know that investors tend to model their business on investment exits, cash returned to their limiteds…and consequently ownership percentages in their portfolio companies at the time of exit. Given this, it’s reasonable to approach a valuation discussion by starting with “how much of the company you’re comfortable selling in this round of financing.” Fixing the amount raised and how much you’re comfortable selling implies a valuation. Raising $300k while targeting selling 25% of your company imples a valuation of $1.2m. This is a useful way to have a valuation discussion because if the round size happens to go up (not uncommon) as the round & syndicate come together, you can at least make an argument for raising the valuation. No guarantee it will work.
The post covers slide #9, Financial Details, out of 12 total slides (11 + thank you slide) in THIS outline of a minimal investor pitch deck.
Slide 9: Financial Details
Independent of the stage of your company, communicating simple and clear financial details is critical to an investor’s understanding of the current state of your business. What they care about is very simple:
- current revenue and expense trends,
- projections for the same going forward,
- current equity situation (who owns what, option pool, near-term option usage), and
- current cash position.
…Cover these these items clearly and you’ll be answering their questions before they get asked.
For early stage companies, I believe that a “one quarter ago, current quarter, and 4-quarters-out” view presents a reasonably complete set of financial information. With such a time frame, you’ll show a bit of history, where you are today, and a reasonable guess at what is going to happen in the next year. I think a simple auto-generated excel graph help quickly communicate the ramp in both expenses and revenue.
If the company is really early stage and doesn’t have revenue or limited expense detail, it’s still far better to say something is explicitly zero (or unknown) than not mention missing/needing important data.
This example chart is a bit busy as it combines both the graph as well as a screen-grab from the company’s financial model spreadsheet. If you have a longer operating history or feel like you need to communicate more detail, it makes sense to break this into two slides: a graph (the reader’s digest version) and the spreadsheet detail.
Data that investors will always want to clearly understand include: what is your current and future headcount (this equates to your burn rate as headcount is almost always the biggest expense)? what is your current monthy/quarterly burn rate and how does that ramp over time? what is your current revenue and how does that ramp over time? How quickly are you approaching a cash-flow breakeven point? What’s your revenue run-rate 12 months from now? What’s the net loss / gain over the same period?
The post covers slide #8 out of 10 in THIS outline of a minimal investor pitch deck.
Slide 8: The Customer, Partner, Pipeline Discussion
Perhaps more than any other slide, this example can take a variety of forms. The “punch line” for this slide is to communicate what ever progress your company has made relative to actual customers, the future customer pipeline, and partners that help your business be successful in some capacity. Logos are always nice to look at but don’t get hung-up on anything other than clearly communicating your current status.
You may not have customers yet; or your customer base may be every consumer in the world. In any case, you need to communicate the current status of how well your business is working and customers (because they pay or should pay you money) are a great metric for investors to use to judge your progress so far. Revenue is, of course, the most binary judge of success…but revenue from a top-tier, brand-name, market-leading customer is (to some real degree) more valuable than revenue from a no-name company because markets tend to follow (adopt the same solutions in a similar time frame) the market leaders. Alpha or Beta (or non-paying customers) should be called out explicity.
The discussion of your company’s “pipeline” is basically a description of how customer acquisition is going. Whether you’re an Internet consumer application or building widgets to sell directly to other businesses, how efficiently your company acquires new customers is material to investors as they judge the state of your business and what could / should happen if they choose to fund you. How, exactly, do you acquire customers? How much does it cost to acquire them? What is your average deal size? How could your business make the average deal size go UP? What is the average deal size of other companies in this same market? Does this information align with the Market Size / Market Context data from Slide #3 ? (hint: it should) Once you have a customer, can you sell them MORE stuff more easily? Why / why not / how much / when will you have it to sell? What is the expected life-time value of a customer (be careful to think about this relative to the cost to acquire a customer)?
Partners are a necessary evil in most businesses. “Evil,” because in general, a company’s life would be much easier if it ran and scaled just fine without help from any other company. Partners might be a critical part of your business/market ecosystem; they might give you efficient access to potential customers; they might provide a critical part of your overall solution; they might actually sell your product or service for you. What ever they “might” do, the one thing that is for certain is that they require some level of “care and feeding” and that equates to time and money for your business. Make SURE they are worth it. And remember that all partnerships tend to fail in the long term if both sides are not benefiting to approximately the same degree relative to their business. What did the partner commit to, if anything? What did your company commit to? Do you need more than one such partner? How long will it take for you to measure partnership success? What is required to ensure they are effective? How might this partner accelerate, add scale, or de-risk your business and your execution?
One concept that we’ll keep coming back to is the concept of scale and, in particular, scaling your business. Investor’s excitement about your business is predicated on their beliefs regarding how your business scales from where it is today to something much larger and much more valuable in the future. Desire for scale in your business is, without question, is applied most directly to revenue. That said, there are many other factors related to scaling your company: business processes (go-to-market, sales, manufacturing, testing, etc), hiring, geographical expansion, and general awareness of your company / product / service. Of course, all these factors are related to revenue scale in some direct or indirect way. Think through the discussion generated by this slide as a tool to proactively address questions regarding how your business scales.
…two more slides to go.
…almost done! Again, THIS is the link to the outlining for a minimal investor pitch deck. This post covers the details of slide 7 with enough commentary to give you a sense of what you need to think about during a discussion on competition and your unfair advantage in this market.
It’s important to realize that investors (any many other people) will begin to understand what your company does by ANALOGY. Having seen many different companies over time (and understanding how THEY operate), understanding your company is largely an exercise in figuring how how you are similar to dissimilar to the companies that investors know well. Framing up a set of similar and/or dissimilar companies is one of the key purposes of the competition chart.
It is universally accepted that the standard “check-box” comparison chart will start with your company in the first column, having the vast predominance of boxes checked, and then proceed to list 3-4 other less-checked competitors that you’re in the process of wildly out executing. The example Slide 7 has three examples of these charts.
While nearly cliche, such a slide still serves the purpose of listing the competitive criteria that you deem important relative to your company and this market and how other companies in your space stack up. …and it’s probably best to NOT use the phrase “secret sauce” in your pitch…we’re using it here colloquially.
The set of competitive criteria for your company – the rows on these sort of slides – leads directly to your company’s unique competitive advantage (aka “secret sauce” or “unfair advantage”). There are a number of standard, competitive differentiators: being first to market, unique technology, patent protection, your amazing team, and others; these differentiators all have varying degrees of “defensibility,” which is an important concept when it comes to decribing your company’s competitive advantage. For example, being first to market may simply illuminate the path for a larger competitor who is willing and able to fast-follow your strategy and throw huge dollars at solving the same problem. Is that true? why or why not? Have your data-backed (versus emotional-bias-backed) answers ready!
The question that investors will have and that you must answer as best you can is this: if your company is successful, how will you defend its business from competitors who see your success and want some or all of it for themselves? What can you do differently? What can you do uniquely and realistically for how long? What CAN’T (or is really really hard to) be duplicated?
Again, in THIS previous post, I outlined the high-level flow for an investor pitch deck that, in my opinion, covered the basic, necessary information required for a solid, introductory investor presentation. Here, we’ll get into the details of slides 5 & 6 with additional commentary and advice to go along with each.
Slide 5: Business Model (aka How we make money)
The business model / how we make money slide is a critical component to the pitch deck. Again, it can take many different forms but the punchline is the same: our company does “this set of stuff” in order to make money. It may be a SaaS-based web application, it may be an appliance sold directly into IT departments, it may be a freemium model…what ever it is, you must explain it clearly.
As you can see from the example slide here, the business model slide can actually be a product/solution/service description as well…as long as you’re sure to describe HOW you sell the product and the details of your go-to-market strategy and/or plan.
A core aspect of the business model slide is an articulation of how the business scales within this business “model” and go-to-market strategy. For selling directly into IT departments, it’s scaling up a direct sales force; for a product that can leverage existing channels, it’s finding and signing up channel partners; for SaaS businesses it’s how customers “find” your company on the Internet and your cost of customer acquistion versus your lifetime value of the customer to the business. Does any part of your business act as a “loss leader” for another, more valuable part? if yes, then say so. Do you have two models running simultaneously? Make sure you clearly describe and delineate between them…and hopefully describe how they benefit and support each. You get the idea.
Slide 6: Company Progress and Milestones
The Milestone / Progress slide is your opportunity to show how far you’ve come since the original concept for your business.
In the example here, there are two simple examples of how you can present this information. This sort of slide gives investors a short-cut to understanding how well you’ve executed so far in your company’s life. Important, value-creating milestones over a reasonably SHORT amount of time suggests that your company is focused, you’re prioritizing what is important to grow your company and executing against that list.
Value-creating milestones can really be anything but should clear a certain “news-worthy” bar to make a list like this. I’d suggest that the following items would clear that bar: founding the company, funding events, launching a product, winning a customer or significant trial, signing business-affecting partners, and so on.
Importantly, this slide is also an opportunity for you to forecast what your company will do next. Nothing suggests great execution to an investor such as calling your shot and coming back later and showing that “you did what you said you were going to do.” Conversely, be very careful NOT to suggest a big milestone such a significant customer win unless you’re VERY confident. The first question out of an investor’s mouth during any follow-on meeting will inevitably be: “so, did you land that big account?” You never want to say “No” to that question because there is no good explanation for why not given the fact YOU are the one that told them to expect it.
In THIS post, I outlined the high-level flow for an investor pitch deck that, in my opinion, covered the basic, necessary information required for a solid, introductory investor presentation. Here, we’ll get into the details of the next two slides with commentary and advice to go along with each. This is the beginning of the narrative of your company. (NOTE: i’m tend to use product/solution interchangeably; not a best practice…but ok for this discussion).
Slide 3: Market Context
When building the Market Context slide, you should feel comfortable with the nagging feeling that SURELY everyone on the planet knows at least this much information about the market your company operates within.
Perhaps they do; perhaps they don’t. In any case, you need to frame up why you market is interesting: it’s big and growing; it’s going through massive disruption; it’s suddenly ready to enjoy the leverage of technology for the first time; everyone else is thinking about the problem/solution/etc wrong. It’s important to describe the (hopefully growing) market in which your company will capture a small and growing portion.
This is also your opportunity to describe any compelling dynamics currently at play; perhaps something that gives your company an advantage. In a real sense, this slide should be the set-up for your “secret sauce” / “why we should win” slide that is coming right up.
Slide 4: THE SLIDE: Company / Solution Overview
For me, this next slide is the most imporant slide in the deck. This is the slide that, if necessary, you could use to tell the entire story (what you do, why (=value) you do it, and for who) of your company.
While this slide can look VERY different, I believe it contains the same basic information for any company. The concept of the past, present and future is key to this sort of slide because it allows you to talk not only about the product/solution you’re selling today but your vision of the future and the associated products. Your customers value your ability to see into your/their collective future and anticipate problems they don’t even have yet.
In this example, the left of the blue bar represents all of the past…where customers didn’t need to (or didn’t KNOW they need to) use your company’s solution. But now, here in the blue bar, “we all now know we have this problem.” We should name it! A perfect use of the header space. Here, it’s called “The Land Grab” – which referred to broadband service provider’s need to quickly and efficiently acquire new broadband customers before their competitor beat them to it. NewCo has products to help with this…and the effect is “Broadband Deployment Acceleration.” Investors should appreciate how well you understand the problem (so well, in fact, that you named it). It also shows that NewCo’s products map to the problem and have a clear value proposition.
The middle, green bar represents the near-future. Perhaps NewCo’s customers are already experiencing problems associated with this near future. In any event, this represents the next step in how NewCo would work with their customers…and forecasts the products they might sell to address the next phase of challenges. If it makes sense, name this one too! This helps investors understand that you’re thinking down the path of product/market evolution and that you’re less likely to be a one-trick pony. The more logical the linkage, the better. Here, it makes all the sense in the world that FIRST you have to initiate the service, THEN you have to manage and support effectively while minimizing the costs to do so.
Finally, the orange section represents your vision of the future. If your company could wave a magic wand, this would be the resulting condition or capability. In general, this phase should be predicated in some capacity on the earlier phases. It’s really important for investors to hear your vision of the future; everyone will understand that it will take great products, a willing market, superior execution and money to get there…but you have to have a sense of where “there” actually is. If your company vision is having your first / only product increasingly adopted – that’s not a company vision – that’s just execution. In this case, the vision was to eventually enable broadband service providers to sell value-added services (gaming, security, triple-play) to their subscribers in order to create some lock-in and differentiation for their service…instead of being relegated to providing only the increasingly commodotized broadband “pipe.”