The average venture capital investor will look at a pitch deck for 3 minutes and 44 seconds before deciding whether to meet with a new startup. For founders, the message is clear: Your pitch deck needs to show a cohesive and streamlined narrative that covers the essentials of your business. But what makes a successful pitch deck? Which slides get the most attention from investors? How many investors should you contact at the seed stage? Fenwick corporate partner Sam Angus teamed up with Russ Heddleston, CEO of document analytics startup DocSend, for an in-depth Q&A breaking down seed-round funding decisions, pitch deck best practices, and do’s and don’ts for courting investors.
What should you think about before you put your deck together and start fundraising?
Russ: Timing is something that can really affect your ability to fundraise. While most people will tell you that VCs are all traveling in August, we found that December was actually the worst month for fundraising. In fact, our data show that March, October and November are the months when the highest number of VCs are looking at the largest number of decks. But what we found interesting was the activity in January and February. While there were fewer decks in circulation, VCs were spending more time looking at them. This could be a byproduct of the fact that it’s slow, so the VCs have more time to spend on each pitch. My advice to startups would be to spend the holidays perfecting your deck and be ready to hit the ground running in January.
You also need to be clear on your goals for your business and your round. Having a clear deck that explains why you’re the right person to build your company, and why now is the right time to be successful, goes a long way to getting you a meeting. And you need to be clear up front about how much money you need and what type of investors you’re looking for. This can help you hone in on the meetings that will be the most important to you, and it can help you make decisions if you’re fortunate enough to have an oversubscribed round.
Before creating your deck, I’d also recommend getting your narrative down first and then writing out your deck as bullet points where each line is the title of a slide. This will ensure the final product flows smoothly. Keep in mind, investors flip through your deck very quickly.
Sam: I think it is important to understand which investors and partners you will be pitching, and their background. The background of these investors and the companies they have previously invested in (or passed on) will be extremely helpful in crafting your deck. It can also help if you have spoken with the investors you are targeting and have an idea of what information/issues they are interested in.
There is certain required information that your deck should reflect. These include company background, market, traction/key metrics, team and so on. Try to think about what elements will set your company apart from the others in the space.
Russ: The most important thing we’ve found in our research is the importance of a clean narrative. The average VC will look at a deck for 3 minutes and 44 seconds. That’s actually on the long side. Our DocSend deck was viewed on average for just over 2 minutes. This seems logical when you think about it. When you’re reading something that makes sense and resonates, you flip through at a steady pace. The narrative flows and everything you’re looking at feels obvious. VCs have seen thousands of pitch decks. And the goal of your pitch deck isn’t to tell the VC every single detail about your business or the market. It’s to give them enough information to want to meet with you. So, if you think of a successful pitch deck as holding someone’s attention for only 2 minutes, you really realize how much you need to streamline.
We saw that the average successful pitch deck—meaning one that enabled the company to raise money—was about 19 pages long. When you’re constructing your pages, you need to be really clever about your narrative and removing things that don’t fit. You can always have an appendix for an in-person meeting for things you think might come up in a discussion. But for the pitch deck you need to tell a cohesive story. Interestingly, the team slide was the only slide we found to appear in every successful pitch deck. And VCs spent a lot of time on that slide. So, highlighting your team in the best possible way is important. Make sure you link to everyone’s LinkedIn profile and just generally make it easy for a VC to make the connection between your team and the company you’re trying to build.
Sam: Remember, most investors are inundated with pitch decks and need to run through them quickly. Keeping your deck concise and to the point is important, as is covering the essential information about your company. The purpose of the deck is to get you to the next stage in the process: a meeting or call with the investor. It’s rare that a deck alone will lead to an investment.
What if my business is completely unique and doesn’t fit into any template?
Russ: Just because there’s a standard way a lot of businesses go about their fundraising doesn’t mean that’s going to work for you. While you should try to follow the best practices, if your business is unique, you should feel free to break the mold. One of the easiest ways to do that is to see how your pitch is being consumed. We used our page-by-page analytics to identify any hot spots in our deck. Contrary to what you might think, the longer a VC spends on one page, the worse it is. If your deck has a clear narrative and makes sense, they tend to flip through at a steady pace. When something is off or confusing, they tend to stop to try to digest that information. Anytime there’s more time spent on a page, you may want to adjust it. If you find VCs are flipping quickly through your deck to find one specific page, you may want to move that page to the beginning. If there’s some piece of info they’re specifically looking for, it’s probably prohibiting them from paying attention to the rest of your deck.
One way I recommend perfecting your pitch is to speak to a Series A VC and see if they will give you some of their time. They obviously won’t invest in a seed company, but that means they’re more likely to give you honest feedback about your pitch deck. It’s actually a benefit to them as well. If you raise a successful seed round, you’re likely to come to them when it’s time to raise for your Series A.
Sam: If your business is unique, try to think about translating the pitch into information/metrics that the investor can relate to. Usually a business is unique in how it attempts to address a given market problem. With such businesses, I find a top-down approach can be effective—focus on the high-level problem your business is addressing and the total available market (TAM) on which it is focused, and then get into the product or technology and go-to-market strategies. As mentioned above, it will still be important to keep the deck simple and clear.
How do I handle financials when I’m pitching for seed?
Russ: When you’re going into your seed round you likely won’t have many financials to show for your efforts. And if you do, it’s probably a graph that just shows you spending money. In our research we found that only 58 percent of founders who successfully raised a seed round included financial slides in their pitch deck. And when they did, they included roughly 2.3 pages dedicated to those financials. It’s important to note that we grouped traction slides and user numbers into the category of financials.
We also found that when you include financial slides in your pitch deck, they will be by far the most viewed. This can be a liability if you don’t have great financials or traction numbers. It’s clear you don’t have to include these slides to be successful. The narrative of your pitch is far more important than financials. Focus on telling your story in a way the VC will understand. Tell them why your company is important, why it’s you who should be building it, and why now is the best time to be successful.
Sam: Most seed companies will have limited financial information, though most have prepared projections for the business. Most investors will not put much credence in projections for early-stage companies, so I would not devote much space to them. In many cases investors will be more interested in key actual operating metrics (vs. financials), such as user and revenue growth, customer acquisition costs (CAC), lifetime value of a customer (LTV), and your sale and pipeline metrics.
Russ: From our fundraising research we found that founders closed their seed rounds in 11-15 weeks. There are obviously exceptions. You hear of people raising $5 million in just a few days. But that’s definitely the exception and not the rule. If you’re going to raise money for your seed round, I suggest you give yourself six months of runway. That gives you three months while you’re fundraising and another three months in case you don’t get funding and you need to figure out your next steps. The last thing you want is to run out of money before you’ve secured your next round.
I also recommend that you try and schedule all your investor meetings into a two- to three-week timespan. If you spread them out over the entire 11-15 weeks you can lose the sense of urgency with the VCs. But when they know you have more investor meetings, it can encourage them to act quickly. It also means you have to take less time away from running your business. While two weeks seems like a lot, you can plan to step away and focus solely on fundraising. When you’re trying to slot meetings into your regular workday it can be far more distracting. And possibly the most important thing about concentrating all of your pitching into a two-week timespan is that you’ll get really good at pitching. You’ll get into the groove and start to anticipate questions, and you can build from one meeting to the next. The last thing you want is to not get funded because your pitch is rusty.
Sam: Founders spend by far the most time in the process speaking and meeting with and responding to investors (pre-term sheet). The length of this period is unpredictable. It can drag on for months or last only a few weeks—depending on the company or the founders. Additionally, you should be prepared for the fundraising process to take you and the team away from the business. The more organized you are with the process the better—it also helps to involve trusted advisors (business advisors, other founders/investors, lawyers, etc.) to help with introductions.
Once a term sheet has been served up, the process accelerates and becomes more predictable. Negotiating a term sheet typically runs from a few days to a couple of weeks. Negotiation of the definitive financing documents for a typical seed/Series A round will run about three to four weeks, depending on terms, negotiation style of the investors, legal counsel involved and the state of the company’s recordkeeping. If the company seeking funding does not have well-organized corporate and legal documentation and/or its papers require some cleanup, then the financing will involve more time and be more expensive in terms of transaction costs.
How many investors should I contact, and where do I find them?
Russ: We found that the average founder contacted 58 investors and took 40 meetings. That’s 40 meetings, not 40 investors. Most founders meet with a VC multiple times. We did find a correlation in the number of investors contacted and the number of meetings they had, up to a point. But the number of investors contacted had absolutely no correlation to the amount of money a founder received, which I think is good news. There’s a fallacy when it comes to raising money that if you just work harder, contact more people and hustle, you can get where you need to go. But the numbers just don’t support that. It really is about working smarter and not harder. I spoke to a founder who contacted 500 investors. He hired an intern just for that purpose. I asked him if he would recommend other people do the same, and he said, “Absolutely not. It was a lot of extra and unnecessary effort.” While fundraising is difficult and can be grueling, it shouldn’t be something you’re putting 20 hours a day into.
The best place to find investors is to reach out to other founders and ask them to introduce you to their investors. Most VCs don’t expect a ton of due diligence on the part of their founders, so you don’t have to worry about damaging your relationship if you send them a contact for a business they don’t want to invest in. But a warm intro will get you a lot further than pitching a VC cold.
Sam: This is a tricky question, as it will depend on the company’s realistic prospects for funding. It can be extremely helpful if you have developed relationships with some investors before you start contemplating fundraising. It can be very helpful to have brief calls or meetings with investors just to update them on the company’s progress. Not only will you get insights into what these investors are looking for, but also, when you decide to raise capital, these investors will already be familiar with you and the company.
It is best to keep the number of investors limited to those you believe will be most interested in the company. For seed rounds, I think it is fine to reach out to a larger number of investors since these rounds tend to involve smaller investments from more individual investors. For later or larger rounds, care should be taken about a broad outreach to many investors—investors do speak with each other about companies that are pitching, and if a few decline to proceed with an investment, it can influence other investors.
As mentioned earlier, it can be important to try to get introductions to investors from your supporters (other founders/investors, advisors, legal counsel, etc.).
Russ: This is a great question, and we actually have research that shows that angel rounds took longer to put together and generally brought in less money than rounds using seed investors. We also know that if you get your funding from a seed VC it will be easier for you to get your Series A. This is because your investors will know most of the Series A investors, so you’ll have to take fewer meetings and the whole process will take you less time.
Some founders prefer angel investors, as they don’t have a board or as much oversight when running their company. If you just need some working capital, this can be great. But having a board can be a strategic advantage, especially when seeking further funding.
I recommend including some angels in your two weeks of funding meetings. You can start with angels to hone in on your messaging and your pitch, and to prepare yourself for the kinds of questions you’re going to get. You can then move to seed investors when you’re warmed up.
Sam: Investors can be different in the way they approach an investment. Seed funds are more institutional in their approach and typically will have more capital to deploy—many such funds set aside capital for future investments. Seed funds will also engage in a more formal funding process, with due diligence.
The advantage of angel investors is that they can move fast and generally do not require as much in terms of due diligence and investor-related rights. The downside is they will invest smaller amounts, so you will need more angels in the round and some (not all) can be relatively unsophisticated in the terms they do ask for.
Russ: I’ve seen people do it multiple ways. For DocSend we only used one deck. We constructed it in a way that it was able to stand alone without us actually standing there and narrating it. However, some people like to have separate decks—one that you send ahead and one that you can actually speak to in a meeting. I think a good meeting with an investor should be a debate, or at the very least a conversation. You shouldn’t go through your deck page by page and speak to every slide. Based on their viewing behavior you can most likely figure out what they’re going to want to talk about in your meeting. You can even put together an appendix to address any questions that might come up. But you definitely don’t need to stand in front of the room and read your slides. Whether or not you make multiple decks is up to you, but we went with the easier option of just having one deck. Fundraising is hard enough as it is.
Sam: Your pitch deck should be tailored to the investors you are pitching and their background and focus. This very well can mean that you will want to use multiple decks with different elements. Of course, each deck should be consistent with the others—the differences would typically be in the areas, topics and facts that are emphasized and de-emphasized.
Should I take all the money I’m offered?
Russ: This is something that’s happening more frequently as seed rounds get larger. Many founders are reporting that their rounds are oversubscribed. The basic answer is to always raise more than you need but pay attention to your post-money valuation. If you’re offered a bunch of money but it’s going to be extremely dilutive and you think you already have enough to get you to your next milestone, don’t take the extra investment. But I say that, and there are founders that don’t want to give up any equity. You shouldn’t be too worried about the equity. You need to be focused on how much money you need to get to the next round. Ask yourself, if a competitor comes along and raises twice what you have, will you be upset? Take $4 at a $20 post-money valuation, and take $2 at a $10 post-money valuation, but don’t take $4 at a $10 post-money valuation.
Sam: You need to decide at the onset of the fundraising process how much capital you want to raise. This should be consistent with the operating plan you are going to present to investors. Think carefully about the amount you want to raise, as it will be difficult to reduce the target amount if you are not getting sufficient investor interest. Investors can become concerned that the company doesn’t have enough capital to execute on its plan. It is easier to increase the size of the round to accommodate overdemand and, as a general matter, it can be advantageous to raise more capital—given the uncertainty of the capital markets and the fact that it is late into a strong fundraising environment.
What happens if I don’t get funding?
Russ: This is always a possibility. When you go into your fundraising round you should have extra runway in case you don’t get the funding you’re looking for. You can always pitch to angels or try to raise money from friends and family to keep the lights on. But the best thing to do when you don’t get your funding is to take 12 weeks, work on your business, update your pitch deck and then try again. You’ll be amazed at the feedback you get from VCs. Just seeing your deck again, even if it’s roughly the same, will make them see you as making progress over the last few months. Sometimes trying again at a different time is the key.
Sam: Of course, many companies have tried and failed to raise funding when they wanted. If you are not able to raise capital, an important benefit can be the lessons learned about the company, product, market and competition from going through the process. I would try to get direct and accurate feedback from investors who passed on the investment (many will not provide negative feedback, thinking it will damage their reputation). I would also say that many successful companies have been unsuccessful in raising capital during their early stages, but they have used the experience to modify or reposition their pitch, their product or their focus for the better.