Insight written by Jason Plant, originally published on October 21st, 2021.
Let’s say you are an entrepreneur with the next big, disruptive idea. How would you go about convincing investors to trust in your vision? Continuing on from Part 1, here are some key items to think about when crafting your pitch.
Mind Your Information Asymmetry:
Information asymmetry is the inherent condition that the entrepreneur knows far more than the prospective investor about their company and its industry and market. This poses a significant advantage to entrepreneurs when pitching as they can choose to omit, or in extreme cases, falsify information in their pitch to make their company seem like a more attractive investment. Although entrepreneurs should highlight their companies’ strengths over their weaknesses , taking advantage of information asymmetry and spreading illegitimate information will degrade the trust of prospective investors. Additionally, when an entrepreneur is dishonest about the true nature of their business, they are less likely to get quality feedback that can be used to improve the company. Intentionally omitting or falsifying information in a pitch usually does not go unnoticed by investors (especially during the due diligence process when investors research all aspects of the business). The bottom line is that intentionally misleading investors should be avoided altogether as it does not benefit either party.
Structuring the Pitch:
How an entrepreneur conducts themselves with investors, how the pitch is formatted, and the supplementary materials provided before the pitch can make a big difference in swaying investor opinions. Firstly, providing investors with supplementary materials before the pitch date gives them the opportunity to understand the product and business model prior to the pitch. Then, valuable time during the pitch can be used to talk more in-depth about the investment opportunity, posing a benefit to all parties. One suggestion to entrepreneurs is to have two versions of their pitch deck: one with as few words as possible for the pitch, and one with as much information as possible for investors to analyze prior to the pitch. During the pitch, a sleek design with minimal words prevents investors from getting too distracted by slide content. However, prior to the pitch, there is no harm in providing a pitch deck full of information for investors to soak in. In fact, this practice builds trust with the investor as it shows transparency and helps the investor conduct due diligence more efficiently and ground themselves in the company’s fundamental details prior to the pitch.
The structure and format of the pitch deck itself can be the difference between an investor becoming interested in the company or becoming completely disengaged. A great pitch deck should contain less than 30 slides (not counting appendix), begin with a compelling hook, and tell an exciting story just from reading the headlines of the slides. A good order to follow for the first few slides is to open with the problem slide, transition into the solution slide that introduces the product, followed by a slide that briefly explains the product, followed by a slide containing traction. The team slide can be put in the first slide or the last slide; there are differing philosophies on this. One philosophy suggests that it makes the most sense to present the team slide in the beginning of the presentation since that is when the team is introducing themselves anyway. The opposing philosophy argues that the investor can best evaluate the qualifications of the team once they understand the venture that the team is undertaking. Other slides should include information on market size, financial projections, a competitive matrix, a company/product roadmap, and the terms of the raise, company valuation, use of funds, and amount of capital being raised in the current round (the slide containing these last four items is often called “the ask”).
For the problem slide, make sure the problem is framed as a market-based problem. Non-impact investors generally do not respond to companies that focus their problem slide on problems typically addressed by the government, non-profits, or NGOs, even if solving those problems would be highly profitable. Also, confirm that the problem at hand is a real problem where real needs are not being met. Most startups fail because they do not solve real problems. For example, many space companies are not solving real problems for paying customers. While the accomplishments of these companies are often extraordinary, few problems today can be solved most cost effectively by using spacecraft. Many startups that don’t solve critical problems start with technology and look for problems to solve with it, rather than having an organically sourced solution. Investors want to invest in companies with organically sourced solutions. Conducting extensive customer discovery is a great way to validate that the company is solving a real pain point for customers.
On that note, make sure it is extremely clear how the solution solves the identified problem. If the problem slide has a number that can be used to derive market size and the solution is perfectly aligned with the problem, investors are likely to see the investment as a big opportunity. Companies with great problem-solution fit and large markets become billion-dollar businesses.
Another few tips on pitch deck slides:
- Remember not to spend too much time on the product explanation; investors usually care more that it works than how it works.
- Use the traction slide to highlight 1–2 key metrics that present the company in its best light. These could be low churn rates, high month-over-month revenue growth, high customer retention, or industry-specific metrics that show evidence of differentiation.
- Show competition in a grid format, especially on the slide deck to be sent to investors before the pitch. A competitive matrix is another valuable way to display the competitive landscape, although it can only plot competition using two variables. With the competition slide, it is simply paramount to have a visual. Bullet points and other non-graphical formats tend to show too much information to process at once.
- The product roadmap should be mapped out with key milestones tied to financing rounds, with those financings also shown on the timeline. This gives investors an idea of whether the entrepreneur’s goals are realistic.
- If it is possible to convey market size on the problem slide, that is great, but it should also be overtly stated elsewhere in the pitch deck so the investor is clear on the entrepreneur’s perception of the market.
- Itemize the use of funds in the “ask slide,” as it is fair for investors to know what their money is funding. Generally, investors want their money to go towards growing the business rather than paying the founders, retiring debt, or addressing cash flow problems.
- Have appendix slides ready with information that there isn’t time to present in the pitch. Founders that answer questions by switching over to a pre-made appendix slide appear knowledgeable and prepared. The appendix is also a great place to put more technical information that may or may not come up during the pitch. Have these appendix slides in the slide deck that is sent to investors prior to the pitch, to give them as much prior information as possible.
- As mentioned earlier, as a company matures, there should be more emphasis in the pitch on financial growth metrics.
- Do not use emojis or bitmojis in a pitch deck; it is hard to take a founder seriously when cartoon imagery is plastered all over their slides.
When it comes to how the pitch is narrated, simplicity is paramount. The goal is to leave investors with a clear impression of why the business is special. While most companies have many key points they could talk on for each slide, try to focus on just one or two per slide and limit the time spent on each slide to no more than 1–2 minutes. Make sure the details presented are predominantly relevant to the investor’s investment decision. If an entrepreneur presents too much information at once, it becomes hard for investors to process everything and still come out with the intended key takeaways. Save the vast wealth of information that could be provided for appendix slides, Q&A, and the slide deck to be sent before the pitch takes place.
Sending out monthly investor updates by email is a fantastic way to keep investors and other stakeholders engaged with the company. State near-term goals in these send-outs that are easily achievable. Then, in later emails when the company can proudly share that it has achieved these goals, it shows investors that the founding team can set realistic goals and execute on them. This builds trust between investors and bolsters their confidence in the company and its team.
Apply competitive pressure appropriately. Updating prospective investors when the company’s round gets closer to being filled reminds investors that this is a limited-time opportunity that can pass them by if they do not commit soon. Additionally, during the pitch it is helpful to find a way to mention how many investors the company is currently talking to or has in the pipeline, especially in the earlier weeks of the round when the business does not have any capital committed. Applying competitive pressure also prevents investors from beating around the bush about whether or not they want to invest. Some investors can meet with a company’s management over a dozen times before revealing that they never truly considered investing.
Lastly, the most important thing to do in any pitch is to present the company with pride and passion. Confidence and an unmistakable devotion to the company’s mission is perhaps the biggest differentiator when it comes to pitching. Nothing grabs an investor’s attention more than a founder that truly cares about what they are doing and wholeheartedly believes in their company’s potential. The most confident and passionate entrepreneurs are generally also the best at convincing investors that their company will succeed.
Jason Plant is a junior from Sanbornton, NH who is pursuing a degree in Business Administration with an Option in Entrepreneurial Studies at the University of New Hampshire (UNH). Jason’s involvement at UNH includes serving as Principal and Liaison at the Rines Angel Fund, Dean’s Ambassador for the Paul College, Student Consultant at the B-Impact Clinic, Analyst at the Atkins Investment Group, and competing and winning prizes in the Social Venture Innovation Challenge (SVIC), the Maurice Prize Competition, the Holloway Competition, the i2 Passport Program, and the National Draper Competition. Outside of UNH, Jason runs his own online publication (Venture Time), attended Draper University, a prestigious Silicon Valley training program for promising entrepreneurs; works at 10X Venture Partners as an Associate, and interned at Orbit Group, a family office with $200 million assets under management. Jason also leads an R&D-stage start-up called HydroPhos Solutions, a circular economy social venture that aims to address the problems of eutrophication and phosphorus shortage by filtering phosphorus out of wastewater and reselling the phosphorus into the fertilizer industry.