Part 1 – The pitch deck (apologies for the image, but didn’t we all enjoy the film?)
Until artificial intelligence is capable of identifying unicorns among startups by crunching data on entrepreneurs, markets and business plans, we will have to rely on the tried and tested route to VC funding – the pitch.
There is little that conjures such a vivid image of the excitement and energy of early stage startup culture than the pitch process. And for good reason: it works.
The pitch is the moment missions, visions and dreams face their first real test. It’s the point at which seed stage VCs like Episode 1 decide whether your business has what it takes to make it to a Series A funding round and beyond.
That doesn’t mean we treat it as a beauty parade. For us, it’s the principle way we begin to understand the people with whom we might build enduring, valuable relationships. At Episode 1 we take a very hands-on approach with the companies we invest in, so at the pitch we’re evaluating the people as much as, if note more than, the business plan.
A brilliant pitch won’t convince us to invest in an underwhelming company. But a great company does need to do itself justice and reveal its potential to us.
Over a series of posts, we will share our thoughts on what constitutes a good pitch and offer some advice for how to hone yours. In this first post we’ll look at the pitch deck – the distillation of your business into a series of slides with just the right information to pique our interest.
Simply the best
It goes without saying that you should scope out any venture firm you’re pitching to and make sure your business would be a good fit. Look at any relevant materials they have on their website, such as investment criteria or blogs offering advice. This post is one of many on the Episode 1 blog that offer insight into how we work and the kinds of companies we’re interested in. You can also get a good handle on our past investments by looking at our portfolio page.
So, assuming you’ve done this basic homework your next priority is to get your pitch deck polished. There is no magic formula for the ideal pitch deck, so we’ll try and give you a good idea of what we like to see.
The trick is to keep it simple. And it is quite a trick because most of the founders we see are very accomplished people and the problems their businesses solve tend to be big, complex ones. Plus, you are pitching to intelligent, experienced VCs who don’t need spoon-feeding. But this is not a question of dumbing down. It is a question of being clear, concise and compelling. Lots of signal, little noise.
We use pitch decks to select which companies we want to meet for a face-to-face pitch, so yours needs to stand on its own feet and answer some fundamental questions without you being in the room. We need to quickly understand:
– What is the problem you have identified in the world?
– How are you solving it?
– Why this is a big opportunity?
– Why are you and your team the right people to successfully execute on this idea?
The key is to strike a balance between simplicity and containing enough detail for us to get a feel for those four elements of your business.
If you can convey all that information to adequate depth whilst keeping it simple, well that’s a pretty good signal that you will be able to explain what you’re selling to a customer….
This is where it is far better to show than tell. Evidence that your product or service has traction is extremely powerful. Show us that the problem is real and that you can solve it, but, more importantly, that there is a significant market for your solution. The best way to do that is to demonstrate that real people are engaging with your product or service in some way. If you can show us that people are paying (at least something) for it, using it (a lot), and getting (a lot of and growing) value from it, then that makes a very compelling case for future market potential.
Which leads us on to another important aspect of your pitch deck – working out the size of market that could exist for your service, and whether that represents a venture scale opportunity rather than an angel scale one.
There are two approaches for defining the size of addressable market:
– Top down: this seeks to size up the entire market from existing information, such as research reports and other statistics. The problem here is that the numbers can be inaccurate or out of date and lend themselves to assumptions and generalisations.
– Bottom up: this our preferred approach and is based on pricing for different sizes of customer – small, medium or enterprise-scale (what we call rabbits, deer and elephants). If you’ve worked out your pricing for each and the number of businesses in each tier for any given country, some simple maths will give you the size of addressable market.
Again, proof is invaluable, so it’s good if you can show in your pitch deck that customers are paying for your service or have indicated they would do so. Alternatively, you might be able to draw a parallel with another company with a similar revenue model that demonstrates yours is viable.
The ability to execute on a great idea is as important as the idea itself. Much of the scrutiny we give to a pitch deck is focused on the information about your team, to satisfy ourselves that there are people in place with the ability to deliver. A lot of our investments are in leading edge deep tech that is often borne out of research, and so we put a lot of store in academic pedigree. In the main, we want to see a good range of relevant and complementary expertise, experience and skills across the team, with minimal doubling up between team members.
Pitch deck nuts and bolts
The deck itself really doesn’t have to be very complex. We have limited time to digest its contents and so prefer not to have to wade through lots of text. What we do like to see is data to back up the claims you make about the problem you are solving, your solution, the potential market for it, and evidence that your team has the skills and experience to deliver.
For an initial pitch you don’t need many slides. Aim for a deck of between 12 and 15 slides with the main ones covering these key areas:
– The problem
– The solution
– Your business model
– Traction / evidence it works
– Size of the market
– Your team
It should be possible to describe the essence of the problem and your solution each on a single slide, possibly two. You can then add slides with supporting data and proof points, such as case studies and pilots with real customers that demonstrate demand.
The perfect pitch deck would convey all of this evidence-backed information in a compelling narrative arc. This isn’t the kind of perfection we’re after, though. We understand that few early stage tech entrepreneurs possess strong storytelling skills, so we’re more interested in the underlying raw material. Crafting effective strategic stories is one of the ways we help our portfolio companies further along the road.
We would rather see the effort going into sweating the details of what to put in the deck than how it is presented. It doesn’t need to be a thing of slick beauty (although if you like to channel your inner creativity through Powerpoint, that’s fine too). Going to an external professional to design your deck feels, to us, like a wrong priority and might suggest a tendency to spend money unnecessarily.
To sum up, your pitch deck is how you get a foothold with a VC firm. It’s about putting across the ‘what, why, how and who’ as succinctly as possible with the right evidence to underpin it all. Success means getting to the next stage, in which the deck becomes the framework for a deeper, two-way conversation that can explore the more detailed aspects of your business and allow us to get the measure of you and your team.
And, by the way, try to reach us direct. Needing an intermediary to reach us isn’t a good signal.
In the next post, we will talk about what you can expect from Episode 1 at that next stage and what we like to see when we meet entrepreneurs face to face.