31 August 2022
Startups and Investing

Crafting the Perfect Pitch Deck (from a VCs Point of View)

As a newly minted Venture Partner I’ve seen a few hundred pitches and pitch decks the past 12 months. While this is nothing compared with some of my peers, I’ve noticed a few clear patterns start to emerge. Patterns which, if founders were better prepared, would significantly increase their chances of securing investment.

It's worth pointing out that none of the advice I’m about to give is new. In fact there are tons of articles out there listing all the things that should go in a successful pitch. However, coming from a user-centered background, I thought it could be helpful to explain what’s going through an investor's mind when reviewing your pitch. Because if you’re able to understand the narrative that’s building up in their heads, and can address their questions and concerns before they’ve been expressed, you’ll have a much higher chance of making the right impression. 

Setting the Context

Before we jump into the pitch itself, it’s worth setting a bit of context. First off, the most active Partners might see a dozen pitches a week, while their associates — the ones who are tasked with selecting which start-ups get to pitch — are likely to review many more. In fact it wouldn’t be uncommon for a Venture Fund to receive over 3,000 pitch decks a year, of which 150 would be invited in to pitch and maybe 30 make the cut. That’s a lot of pitch decks to sift through. 

As a result, Partners and Associates learn to make decisions very quickly. In fact a recent study by Docsend suggested that the average VC will spend just 3 minutes and 20 seconds looking at your pitch deck. In order to be able to assess a start-up that quickly, VCs will often fall back on a set of personal (and often subconscious) heuristics. Essentially patterns they look for in order to quickly evaluate potential. As such, understanding the key heuristics VCs use to assess deals can be super helpful.

First Impressions Count

As I come from a design background, I’m obviously primed to appreciate a nice looking deck. This is the first experience your investors are likely to have with your brand, so what does it communicate about you? Is the message clear? Does the structure make sense? Are you showing attention to detail? Or is everything a bit of a mess?

The design of the deck doesn't need to wow people. In fact I think an overly designed deck can be just as bad as a poorly designed one. It’s also probably not going to make or break your pitch; especially if everything else lines up. However your deck is context sensitive, so if you’re pitching a product based on superior design, marketing or customer experience, you better make sure that your deck clearly shows that you’re competent in this area. I’ve personally passed on several companies because of a mismatch between what they were claiming they were experts at, and what the design of their deck communicated they could actually do. 

With those caveats out of the way, let’s jump into the mind of the person reviewing your deck. 

What is this Thing I’m Looking At?

If I’m experiencing your deck for the first time, I probably know nothing about who you are or what you’re doing. Even if you've come through a warm recommendation or have pitched to another member of the team, there’s a good chance I'll have minimal context. As such the first thing I’m trying to figure out is “what exactly am I being pitched here”?

At the start of a pitch I’ll have an open and curious mind, which means there’s a short window for capturing my attention. Don’t squander this with an overly elaborate set-up or a long and detailed career history. Instead, set about quickly but effectively explaining what the problem is, what unique insight you had about the problem, and how that led you to this amazing and impressive solution. 

This leads to the first heuristic which I call The Comparison Heuristic.

Oh, It’s a Little Like X (for Y)

As people start to make sense of your product, they’ll have a natural tendency to want to frame your product in terms of something they already know and understand. If they’re familiar with your sector, they might jump immediately to a competitor. This is risky as it can often open up unfavorable comparisons; especially if the competitor is much better established. So you need to expect these comparisons and have a clear answer to how you're different. 

If they don’t understand the market, or if you're building something entirely new, they may start looking for examples in other sectors. “Oh, so you’re a bit like X but for Y”. These sorts of examples can be a useful shortcut to understanding, so many founders like to proffer up their analogies. However these can also open up unfavorable comparisons. For instance if you position yourself as “Figma for video creation” don’t be surprised if the VCs immediately jump into all the reasons why the design industry and the film industry are different. So tread carefully here.

One thing you probably won’t know is what other companies this VC has seen in the past, and what potentially negative comparisons they’re making. While you probably think that your particular solution is unique, there’s a good chance they’ve already had similar ideas pitched to them before. Maybe 6 years ago. Maybe last week. As such you’ve going to have to deal with a whole range of positive and negative comparisons, many of which are outside of your control. 

This leads us to investors comparing your company to similar companies and asking themselves “Could this company blow up like company X?” Or alternatively “I saw company Y struggle in a similar space. How are these folks going to be different?”

Who Has This Problem?

Now I understand what the product is I want to know who has this particular problem? This helps me start to build an understanding of the market, as well as assessing the start-ups' “go to market strategy”. So do I agree with the market they are targeting? Do I think this team can access this market? If so, can they sell to this market, and will this market be willing to buy? I’ll also start thinking about the people I know in this market which leads me to the next heuristic; can I see these customers paying for a product like this?

This can be problematic for founders if the investor doesn’t have a good handle on the size of the market or its willingness to buy. If investors start asking questions around who else might be interested in your product, it's a good indication that they might not believe the market is big enough. It then becomes your job to either convince them that it is, or explain how you’re going to expand into other areas. 

How are People Currently Solving this Problem?

Another question investors will be asking themselves is “how are people currently solving this problem?” Sometimes the answer to this question will be direct competitors (which we’ll come onto shortly). This might be older legacy competitors who you're trying to topple, or it might be a raft of up-and-coming tech companies. However there’s an equally good chance that your customers have hacked together their own inefficient system. Maybe they’re doing it on paper or via email. Maybe they’re using Excel or Google Docs? Maybe they’re having to jump through 3 different systems and wasting a ton of time? Understanding how customers currently get this work down—and how efficient, costly and painful that is—can really paint a picture of the opportunity space for your product. 

Is this a Good Solution?

Now I know what I’m looking at, the next thing I’m trying to understand is whether it’s any good? Sometimes this will come from my personal understanding or experience of the market. Sometimes this will come from evidence the founders show. The research they’ve done. The feedback they’ve received. Often investors will ask to see a product demo to better understand what the product is, what it does and whether they believe it solves the problem in an intersecting, novel or impactful way. 

As such the next heuristic is simply is this any good? Sometimes this question is framed in terms of whether the product “is a vitamin or a painkiller?” This generally refers to whether the product is solving an important and meaningful problem for customers or is really just a nice to have. While “nice to have” products can still be super successful (nobody really NEEDS Netflix*), they also tend to be things that people cut back on during economic downturns. So at the moment there’s a tendency to prioritize painkillers over other types of products. Other times this question is framed as “what unique insight has this team had that nobody else in the market has had?” These are all trying to get to an understanding of what makes this product different or special to what’s already out there?

(*Netflix arguably started off as a painkiller when people had to go to physical rental places but has become more discretionary as other streaming services have appeared.)

Is the Market Big Enough?

Now I’ve got an understanding of what the product is, who it’s for and whether it’s any good, I’m going to want to know whether the market for your product is going to be big enough? I say “big enough” because the venture model works by betting a large amount of money on a number of start-ups, under the realization that many of them will fail. However the ones that succeed  need to succeed in a big way, not only to cover the losses from the rest of the portfolio, but also to return their investors money at least 3 fold. To do this, most VC firms need to have one or two portfolio companies per fund doing $100m a year in revenue and hitting $700m+ in valuation. This is why funds are essentially looking to build unicorn companies, and this is what they’re going to be asking themselves about you.

“Can I see this company become a $1billon business in the next 10 years?” and “Is the market large enough to support a business of this size?” This might seem like a crazy thing to ask of a small founding team with a pitch deck and a dream, but it’s nevertheless the outcome that the fund needs and will be betting on. 

A lot of pitch decks attempt to answer this question by showing a slide featuring an unfeasibly large TAM (Total Addressable Market), an incredibly large SAM (Serviceable Addressable Market) and an often laughably ambitious SOM (Serviceable Obtainable Market). When I see these slides I almost always ignore them as they rarely communicate anything meaningful beyond the founders ability to make up big numbers. 

This is a personal preference but I generally prefer bottom up market sizing, which essentially means explaining how much you're going to charge, how many customers you realistically think you’d be able to get, and what this means in terms of revenue. When I see these sorts of calculations I’m essentially asking myself “does this make sense” and “if everything goes to plan, can I see a world where this could potentially happen?”

The heuristic here is simple. “Is it a big market” and “can I imagine this becoming a $100m a year business in 10 years time?”

Who Else is Doing this?

Unless you’ve come up with something genuinely novel, there’s a good chance somebody else is already serving your market. As such investors often like to understand who this is and see whether the founders have a good grasp of the competitive landscape. 

Showing off competitors can feel super risky to founders. Especially if those competitors are bigger, better funded or more established players. As such there’s an unfortunate tendency to either miss larger companies off the list entirely or try to diminish them somehow. This is often done by showing some sort of 2x2 chart with just the pitching company in the top right hand quadrant. This says “we’re the only people who do X and Y in this space”. 

If that’s true, and both X and Y are meaningful comparisons, this is obviously a powerful thing to demonstrate. However I can’t tell you the number of pitches I’ve seen where major competitors who also do X and Y have been mysteriously left off. Doing so comes across as either ill informed or intellectually dishonest, and is probably one of my biggest pet peeves.  

By comparison I really like founders who are honest about their closest competitors but can also tell a credible story around why they can also thrive in that space. Often it’s because they’re going after a different type of customer, a different geography or a different price point. Other times it’s a realisation that the market is huge and if their biggest competitor only has 5% of the market, there’s room for multiple different products to exist. 

Sometimes having a big, successful competitor might be seen as a positive if it can help the investor understand the scale of the problem. It might also trigger a bit of FOMO if they think you’ve got a credible chance of getting to a similar scale. It can trigger investors into thinking “I would have loved to have invested in X. Maybe this is going to be the new X”. I suspect this is one of the reasons why there were so many well funded 30 minute delivery apps kicking around last year. VCs were betting on at least a couple of them gaining dominance, so if they found themselves passing on one previously that subsequently started gaining traction, they weren’t going to let the next opportunity slip past them as easily. 

Why Are You the Best People to Solve This Problem?

If you’ve kept the investors engaged thus far there’s a good chance they’ve bought into your thesis. As such the final question they are going to be asking themselves is “why you”?

It’s entirely possible that you have a great idea, but I’m going to want to understand why you are the best people to solve it. Do you have a background in this space already? Do you have insights or connections that other people don't have? Have you built a company before, or at the very least have a proven track record of taking a product from zero to one. Do you have the right sales and marketing ability on the team? What about the right technical ability? Do I invest in this team or do I wait for a more capable team to come along? 

This isn’t a question I’m going to be asking myself once. Instead it’s something I’m going to be assessing throughout the pitch. I’m going to be doing this by listening carefully to what you say, and what you don’t say. I’m also going to be listening to how you say it. Do you sound confident? Have you thought deeply about the problem and can come up with credible answers to my questions? What gaps in the team have you identified and what are you doing about them? Will the team stick together for the long haul or will the founders get bored or split up?

A lot of first time founders over-index on how important the “idea” is, and don’t understand why VCs pass on such an obviously brilliant concept. However for early stage start-ups the idea is much less important than the team's ability to not only deliver the idea (i.e. ship a working product), but to build a thriving company and business around said product.

It’s safe to say that for early stage start-ups, the team is super important. Probably more so than what they think about the product. As such the biggest heuristic is around the potential of the team

VCs often have a slightly related heuristic with maps to both the team and the product, when they talk about the team's unfair advantage. This essentially means “what skills, connections and insights does this team have that’s going to help improve their chances of success.” 

Wrapping it all up

If you're in the process of putting together a pitch deck, I highly recommend you look through the desk with a “beginners mind” and try to understand how somebody who hasn't been working on the idea for the last 6 months interprets what you're presenting. In designer terms we might describe this as performing a “cognitive walk-through” of the deck. 

This is really hard to do—to separate yourself from what you’re reviewing—so the next best thing is to find a friendly investor to take a look at your deck and provide some feedback. And if you get stuck, you can always drop me a line and I’ll see what I can do.