If you're fundraising for the first time, here's a brain dump of what I learned raising our round for Meeteor, and working with two different VC funds in evaluating deals. (Albeit briefly). This is a brief guide of what we learned investors generally want (based on what they asked us), and a template that you may find helpful.
How Investors See The World:
Investors want to de risk their investment. They want to make sure that the problem is huge, that you're the perfect team, that your solution is the right solution for the problem, and that you're going to be responsible with their money. It's simple: from their lens, all they see is risk, and it's your job to make them feel like you're the least risky investment possible.
Pitch Deck Checklist:
Market Opportunity.
- Define the Pain Point
- Estimate how many people feel the pain point, and how big the market is
- Evaluate the competitive landscape
Your Product/Service
- Define why your product solves the pain point
- Product / Service Demo if you can
- Small roadmap around where you're headed
Team
- Who is working on the product
- Define who does what, how you divide responsibility
- Why is your team uniquely suited to tackle this problem
Deep Dive:
1) What the world looks like today (Market Opportunity / Pain Point)
Risk 1: The pain point isn't a hair on fire problem. Sure, the world kinda sucks without your solution, but it kinda works just fine.
Risk 2: A tiny percentage of the population feels it. So you found that iguana owners have a really hard time cleaning their cages, because iguanas smell really bad, so you came up with a air filter for iguana cages. There aren't enough iguana owners who feel this pain point to justify a VC investment.
How to De-Risk:
All investors generally wanted to know what the pain point we were solving was, and whether that was a pain point that many people faced. The idea here is that the more painful the problem you're solving is, and the more universally it's felt, the more monetizeable your service is.
They then wanted to know who our competitors were, and how well they were doing at solving that pain point. In our case, we believed LinkedIn had done a great job of getting users, but hadn't truly addressed the pain point of networking and professional introductions. (The way people networked offline wasn't truly recreated online).
We were careful not to overstate our numbers. We just wanted to pain a picture in our investors heads that every professional person, at some point, needs to network, and that they're having a hard time doing it online. Despite this difficulty, services were already making money - meaning that if we did it better, we should be able to monetize our service as well. Don't get too ambitious here, as overstating your numbers can be significantly worse than admitting you're not sure.
3) How you solve it? Is your product better?
Risk: You identified the right pain point, but you're unable to come up with the right product solution.
How to De-Risk:
Traction. If you've launched a product, and it has solid growth and/or engagement numbers behind it, then that's strong signal that the world wants what you've built.
Short of traction, you have to prove that you're going to be able to come up with the right solution through a good process. How many users have you talked to this week? How many of the people you show your wireframes to in coffee shops, give you their number and ask you to call when you launch? Get your potential investors excited about the signal you're getting, and prove to them that you're not scared to go to your customers early, and test your ideas and products. Having a solid iteration cycle in place, where you're perpetually building product, testing assumptions, and adapting, makes for a really compelling case, even if you don't have product to market fit yet.
4) Why your team?
Risk 1: The team falls apart after they invest.
Risk 2: The team doesn't have the skills needed to execute the vision
So you've found a large, universally felt pain point, and your solution is plausible. Is your team the right team to execute against that vision? Chances are, you might be one of 10 teams pursuing the same market opportunity in this fundraising environment. As Gady Nemirovsky from Inspiration Ventures put it when I met with him: "You're the 10th person to pitch me this idea in 2 months, why should I invest in you?"
How to De-Risk:
For the first one, the longer a team has worked together, the better. This helps ensure that they know how to work together, that they've been through a few storms, and that they know what they're getting into. I've adopted Matt Shobe's founder filter by asking founders two questions: Do they laugh at each other's jokes, and how they divide responsibility. It's key that founders know how to work together, and that they have clear demarcation in product responsibilities, or else they'll spend a lot of time arguing over petty things.
Secondly, it's important you tie the skills of the founders to the problem you're solving. Are you building this badass natural language search XYZ? Make sure that when you're talking about the team, you're demonstrating a core competency in the solution you're pitching.
5) Bonus: What are you doing with the money
Risk: You spend it on things that don't make you swim faster upstream.
I don't see this one often, but I really liked including it in our pitch decks. It gave investors a clear idea of what we wanted to do with our money, and what our roadmap looked like. It's usually a giant red flag when I see companies budgeting inordinate amounts of money on marketing or patents.
Our Deck:
1) What do we do?
2) Team
3) What the world looks like today (Competitor Overview)
4) Pain Point (Why it's not enough)
5) The Story, why we're better.
6) Product Demo
7) Market Opportunity (How big the market is)
8) How We're Going to Acquire Users
9) How we're going to make money
10) How we're going to use your money.
You can view the whole deck on slideshare or down at the bottom of this post.
Hope this helps, and if you ever need someone to soundboard your deck, happy to help! Feel free to ping me at philip dot cortes at gmail or via twitter @philipcortes.
Goodluck!