Welcome to a BetaKit weekly series designed to help startups and entrepreneurs. Each week, investors tackle the tough questions facing founders today. Have a question you would like answered? Tweet them with the #askaninvestor hashtag, or email them here.
The world of venture capital can be frustratingly opaque, but it’s increasingly easy to find advice about pitching your startup. Why are VCs suddenly so open about what they look for in investments? It’s in our self-interest. Sharing content around my investment thesis and thought process helps define my brand as an investor and provides an easy quality filter separating out founders who’ve done a bit of diligence on me and my firm from those sending untargeted mass emails. Each investor will have a slightly different spin on how to structure a compelling pitch, but most of the advice pulls from the same core elements. Less commonly discussed is what VCs don’t care about.
Here’s some guidance on what to exclude from your deck (or avoid spending too much time focusing on).
Pitch competitions and local awards you’ve won
At face value, these seem like great data points that validate your company (and sometimes add a bit of runway to your balance sheet). These accolades can help give you credibility with potential customers and employees.
But for VCs, they can launch a concern that you’re unfocused and reactive (ex. travelling to pitch competitions far and wide), a local thinker (vs. focused on your global market and competitors), or doing something obvious (depending on the credentials of the judges).
Your advisory board
Advisors are an excellent source of value-add – they can help you navigate bumps in the roads that they’ve faced before, and can lend you credibility and make critical introductions with customers and/or partners.
However, VCs have become somewhat desensitized to an all-star advisory board slide, as there’s no firm time commitment, and some will agree to advise for an equity trade-off (removing any real validation from that advisor’s attachment to your company). This slide is likely going to get you questions about why the advisor hasn’t joined or invested in your startup instead. Don’t sacrifice your advisor network, but don’t assume it’s going to land you an investment.
Why you (or your team) are not full-time yet
Almost all institutional VCs are looking for founders to be working full-time on the business before they invest. If key members of your team are part-time, that begs questions about their commitment to the business beyond collecting a paycheck.
The novelty of your idea
Ideas are a dime a dozen in this industry, and execution is far more important. Your idea is likely excellent – but there’s probably another five founders that are working on the same idea right now (or tried to one year ago or five years ago, or will start working on it six months from now…) Focus instead on why your team is the best to win the market, the partnerships and customer acquisition strategies that are unique to your approach, and the specific value that you’re unlocking to your customers.
Your path to a <$100M exit
There’s substantial debate about including an “acquisition slide” in your deck – does it show a lack of ambition or does it show a realism about startup exits?
This point is a bit more subjective, but consider the size of the fund and their messaging around desired outcomes. We’ve run a whole blog series around M&A, and are thus a bit more receptive to a thoughtful and nuanced view of the acquisition landscape.
However, too much focus on acquisition can drive questions around your interest in building a billion-dollar company, which is the outcome that venture capital firms need. Your end goal shouldn’t be a tuck-in acquisition for Shopify, it should be to IPO.
What do VCs kind of care about?
Your product demo
These tend to waste time in pitch meetings. VCs care more about how fanatical your customers are about your product, and how you’re building a business from that product, versus what that product actually looks like. Send over a demo before the meeting, or insist that the VC sign up for a free trial or use the product on their own time.
If your product is highly complex, best shown rather than explained, or your product-focus and design is a core advantage, disregard this advice.
The best IP strategy is highly specific to the business you’re building. Does most of the value lie in technology, or are you building a SaaS business that’s more focused on your sales engine and distribution channels? Should you be filing patents or protecting your IP via trade secrets? I included this point not because patents can’t be important, but because your IP strategy is a more nuanced question and so patents won’t always be important.
Your degree or formal qualifications
Valuable businesses have been built by PhDs and university drop-outs. Education has far less of a signalling effect in the tech industry than it does in others. VCs are looking for founder-market fit instead. This might be best demonstrated through your education (if you’re building a satellite company, we want some key team members to have an aerospace engineering background), but it might be a totally unrelated data point.
Venture fundraising is hard because it’s fundamentally selling a future opportunity based on a thin set of current data points. If you’ve done your homework on fundraising, you understand that you need to establish a narrative or story arc for your company that uses those thin current data points to establish a basis for the exit opportunity.
When preparing your pitch it’s a natural step to inventory every attribute and data point you can think of and add them all, kitchen sink included, into the narrative. Unfortunately, this is not a good approach.
There are too many things that venture capitalist just don’t care about and a number we only care for marginally. Having too many of these “don’t care’s” in your pitch will weaken and dilute the pitch until we just want you to stop talking and leave our office. I’m not going to hold back here in order to help you, the founder, avoid these common pitfalls.
In addition to the list above, in order of annoyance:
- Logos of potential customers: We get it; logos are pretty. We care somewhat if they are customers that are solidly in your sales pipeline. We totally don’t care if they are just targets for your pipeline.
- Vanity metrics: number of downloads, number of website visitors. A good rule of thumb is, any metric that is a total sum over time – and therefore can never go down – is likely a useless vanity metric. We don’t care about them because they provide no useful information
- Graphs without scales: This is a personal pet peeve of mine. Graphs up and to the right are great, but without some sort of scale on the axis its just a pretty picture we don’t care about
- Press coverage: ironic, I know, coming from a BetaKit article. But yup, we don’t really care what press coverage you’ve gotten
- Your term sheet and self assigned valuation: Admittedly this is useful to get an understanding of your perceived self-value. But as a financing instrument, we don’t care. At best it comes across as cute, at worst it comes across as desperate.
- Invented metrics: Not quite as bad as vanity metrics are metrics that are non-standard or just plain made up. Market cap per eyeball, I’m looking at you.
- Your titles: founder: Tech, Product, Growth. These high level responsibility based titles are all you really need. We don’t care how many C level executives you’ve handed out.
- Your GPA: Shocking I know, but how smart you were in school doesn’t matter to us.
- The other VCs you are meeting with: we get it, you’re trying to convey a sense of FOMO or social validity, but we don’t really care.
- All the people you’ve met: yup, we don’t care.
- When you want to close your deal by: See term sheet above.
- Your NDA: we won’t sign it. Don’t care.
- The accelerator(s) you participated in: accelerators may have been helpful in starting your business, but like press, awards, and other social proofs, we don’t really care.
- Consulting/Research Reports: Research reports published on the 3D TV market in 2010 predicted the 2017 market in the billions. It’s zero. There are no more major TV-makers that make 3D TVs anymore. We don’t care about these reports because we know what they are worth.
There is tons of stuff we do care about, and the Ask An Investor series has tons of insights into how investors think about your pitch, your product and building a pitch deck. The lists above should be a useful resource to help trim down your 50+ page deck of all the stuff that isn’t necessary to get it down to 10 compelling slides.
PS: I like product demos. But agree, getting a product demo done in a pitch meeting needs to be well executed to use the short time efficiently.
Got a question for the investors? Email them here.