Get Investor Funding in 30-Minutes or Less With This Pitch Deck Format
One of the major benefits of going through an accelerator like Y Combinator is that you have experienced advisors helping you with every aspect of your business including fundraising. This week, I watched over a hundred companies take the stage at Y Combinator’s Demo Day to each deliver a 150-second pitch to hundreds of investors and founders.
Most of these companies will succeed in raising money so I wanted to share with you how to do the same. The most effective presentation format used by top startups is as follows:
1) Title Slide
By default, everyone adds their business name and logo. One secret to maximizing the value of this slide is to also add a short phrase which explains what you business does.
For Example: Book rooms with locals, rather than hotels.; or
Pro Tip: this is the 1-liner that investors will use to describe your company to others, so make sure to validate your description.
Although you understand your space incredibly well, others may not.
Recently, I listened to a founder pitch their company and explain their product by its features rather than explaining their origin story. This was difficult for the listener to follow because the human brain is wired to understand stories. (If you want to learn about the studies done around the psychology behind this, I highly recommend reading Thinking, Fast and Slow by Daniel Kahneman.) Needless to say, when pitching anything, it’s important to let the listener empathize with you about why you decided to solve your business problem.
Example: “I was broke and didn’t have enough money to pay my apartment rent for the next month. So, I came up with a farfetched idea! There was a conference in town and there were no more spaces left in the affordable hotels nearby so I post on Craigslist: $60 for a 1-night stay on an air mattress PLUS breakfast in my living room. 3 people ended up staying in my apartment and I collected enough money for rent that month. This led to the beginning of what is now AirBnB.”
Pro Tip: investors are assessing whether the problem you presented is legitimate. They automatically start thinking about whether this is a problem they (or people they know) have come across.
One of the most effective ways to present your solution is to compare it to antiquated solutions that people are currently using to solve the problem today.
Pro Tip: B2B solutions enable users to: 1) make more money 2) save a lot of resources (time and money)
Example #1: Scott Cook, the founder of Intuit, believed that (someday) people would use a computer to pay bills and track expenses. His biggest competitor was pen and paper so he set out to build a solution that:
- saves time (filling out and submitting taxes)
- saves money (by suggesting tax deductions)
- reduces tax errors (by auto-calculating fields)
Example #2: before “cloud” was established, founders had to explain to businesses why they should move to the cloud over on-premise solutions, they explained their solutions like this:
4) Target Addressable Market (TAM)
The next question an investor needs answered is “how big is this space?” You could be acquiring 100 new customers per week, but that’s useless if there’s only 1,000 people in the world that can use your product.
The way to measure this is TAM. Depending on your investor type (e.g. angel vs. VC), most VC (Venture Capital) firms will not invest in anything less than $1 billion, though angel investors may invest in companies with an addressable market lower than this.
The bottoms-up approach for calculating TAM is:
average revenue (per customer) * maximum number of customers (for the targeted market)
Pro Tip: investors want you to use a bottoms-up approach for calculating addressable market (rather than a top-down).
5) Business Model
Investors need to know your business model to understand if you’re a safe or risky “bet”. They want to know who you’re specifically targeting, how much you can make from each customer and how you’re going to acquire these customers.
Some things to think about when making this slide:
- how do you make money? e.g. 10% of each transaction
- are there one time fees that customers pay upfront? e.g. setup fees
- are there ongoing fees that customers pay periodically? e.g. monthly/yearly
- can you cross-sell customers in the future? e.g. you have multiple product lines
- does the customer LTV (long-term value) grow with time? e.g. usage based pricing
- can you make money from services? e.g. support contracts
Now that you have framed the problem and solution, the next step is to WOW the investor into believing that your solution will quickly become the next “unicorn” (i.e. a company valued at over $1 Billion).
This is the time to brag. Convince investors of your potential by showing that you’re growing exponentially (i.e. hockey stick growth). If you’re not able to highlight well-known companies or influencer testimonials about your product, then be absolutely sure to wow investors with your growth numbers. If you’re an early stage company raising seed money, you’ll want to showcase at least 5% growth each week in the main metric for your business (e.g. revenue, number of customers, DAU, etc.).
Note: Hockey stick growth means a graph with growth that looks like a hockey stick. e.g.:
Pro Tip: some things you can showcase are (if applicable):
- low CAC (Customer Acquisition Cost) e.g. zero marketing spend with good revenue
- high margins
- product virality (i.e. each user convinces other users to use your product)
- recurring revenue (as opposed to single sales)
- low churn rates
Note: if your traction is amazing (e.g. over 10% growth week over week), you may want to move this before your TAM slide.
In a majority of pitch presentations, the product slide comes after the problem, solution and TAM slides because investors need to understand the context of your business before determining if your product has the potential to win in the space. If you prematurely present your product, your audience won’t be able to understand what problems you’re solving and who your prospective customers are.
When you share your product slides, interactive walkthroughs are the most effective e.g.:
- demo your product live; or
- add a video walkthrough of your product
Also, when possible, tailor your demo depending on your audience. For example, if you’re speaking with an investment firm like a16z, they are highly technical investors and will dive deep into the details of your tech.
Pro Tip: you need to showcase how your product is 10x easier to use or better than established products in the space.
Many founders want to say that they have no competitors but this is usually bad from the investors’ perspective. Competitors validate that this problem actually exists and that there’s a short window to take advantage of the opportunity you found. Investors also want to know that you’ve done the research around the industry and that you’re aware of the looming threats that could kill your startup. These are some tips for building a good competitive landscape graph:
Picking Axis Labels: It can be tricky at first to pick the labels for the axis but think about the top 2 competitive advantages are for you and why your startup exists. Typically, one of the axis is how much resource someone saves (in time or money) and the second is the gap that you see in the market (e.g. moving towards a mobile wallet, cloud vs on-premise, etc.).
Placement: if you’re using a 4 quadrant graph, make sure to label the x and y axis in such a way that your company ends up on the top right quadrant. (We have a bias that top right is the best position.) Also, it can be bad for you if there are too many big companies in your quadrant (either you need to rethink your business or you’ve labeled the axes incorrectly). Here’s an example slide:
Pro Tip: typically investors want to see that there’s money in this space by having a few large competitors. They also want to know that your related (but not direct) competitors are being acquired for large sums of money (i.e. $100+ Million).
Pro Tip #2: if some of your large companies can pivot into your space or easily add a feature in their product that will cannibalize your market, this will have a negative effect on your pitch.
9) Competitive Advantage
Investors are looking for your “moats”. Moats are a business’ ongoing ability to maintain its lead over its competitors as it grows.
Example: Uber has network effects: the more drivers that are on Uber means shorter wait times for riders, and the more paying riders means more drivers will want to join Uber. If someone else wanted to join the ride sharing space, they would need significant capital to build up their supply of drivers before they could try competing with Uber.
Other competitive advantages that you might want to mention:
- control of the supply
- control of customer acquisition channel
- optimized manufacturing costs
- patents/intellectual property
- secret recipes/process
Pro Tip: VC investors care more about moats than angel investors.
The slides above explain the unmet need you’ve discovered, solution you’ve come up with and current growth. Now, investors need to understand if your team will be able to outcompete any emerging startups in the space.
Because of this, you need to showcase that your team can focus and win, a lot! Think of the things that set you and your team apart from others e.g.:
- selling a previous company
- early employee at a well-known startup
- graduating from top schools like Harvard
- working for top companies like Google
- master’s degrees or PhDs
- deep knowledge of the industry (e.g. you’ve been a developer at banks like Wellsfargo for 10+ years)
- unique skills or networks
Pro Tip #1: investors will assess your team throughout your pitch by paying attention to your enthusiasm, ability to explain (i.e. communication skills), body language, tone, etc.
11) Social Proof
If you have notable companies (and influential people) using your product, get some testimonials/logos and include it in your pitch. When investors see numerous companies in a specific vertical and/or top influencers in an industry all loving your product, it’ll open up the opportunity to explain your top customer case studies. This is where investors could be convinced to invest even if they don’t understand your product.
12) The Financial Ask
The time has come, the moment you’ve been waiting for: asking the investor to fund your dream.
Clearly outline how much you need, and what you’ll be using that money for. Ideally, you should be using that money to:
- scale your engineering team to outpace competitors
- scale your marketing effort to discover and win new customers
Assuming you had the money, you should outline the goals you expect to hit prior to the next round of funding and also estimate when you will raise that round.
Pro Tip: think about how to answer investors if they ask, “if you don’t hit your goal for the investment round, how does that affect your roadmap?”
If you want additional information about fundraising, I highly recommend these books:
- If you want to learn about how to pitch based on neuroeconomics (i.e. how the brain works).
- If you want to gain valuable insights on how (angel) investors think and act during fundraising.
- If you want to know about the legal aspects of fundraising e.g. dilution, options, pre/post-money valuation, etc.
- If you want to know more about how startup funding works and get coaching from a VC firm's founder.
- If you want to inspire investors, this book teaches you how to communicate your “why” first.
- If you want to learn about a more effective way to speak with investors and get funding (through story telling, rather than ideas).
- Title Slide
- TAM (Target Addressable Market)
- Business Model
- Competitive Advantage
- Social Proof
- The Financial Ask
I noticed that a lot of founders use sample decks (e.g. AirBnB or Sequoia) as a starting point but have problems finding information about the why (i.e. from an investor perspective) of each slide.
I spent countless hours researching about pitch decks and asking investors/mentors for help. I put this post together as a complete guide to help others put together a 30-minute investor pitch (especially for seed/Series A rounds) which has the highest chance of raising money. If you’re raising money or have any questions, feel free to leave a comment below.