Startup Guide to Building a Pitch Deck and Financial Model

As you prepare for your fundraising effort, you need to get the basic tools of the trade completed before you start the process.

In part one of this startup series we covered traction and the executive summary. In this post, we will dive into pitch decks that will raise capital and financial models.

The goal is to create competitive term sheets, from multiple investors, for your growth capital.

Pitch Decks That Raise Capital

Guy Kawasaki has written about his 10/20/30 Rule in the Art of the Start. I highly recommend that resource. The idea is 10 slides, 20 minutes and 30 point font. My 10 slides differ slightly, but I’ve found it to work for me.

Design matters here as well. Spend some money on design. Sorry to offend the engineer here, but your design is like looking at a plumbing schematic. That’s not design. Make sure it’s consistent with your overall site design, color scheme, and logo.

If you print it out, make sure you’re not consuming a massive amount of ink in the process.

The feedback you will get in each pitch will provide directional changes to the pitch – some will be major, some will be tweaking and anticipating the questions. You’ll know you have the deck dialed in when you get a question that is answered on the next slide. 

Components of the Pitch Deck

Overview

You should start your deck with an overview of the company, problem, solution, etc. You need to do this for two reasons.

First, investors are looking for early context – “is this the type of investment that I like or have made money in before” is likely one of the thoughts going through their head. So answer the question.

You also will face circumstances in delivering a pitch deck where you will only have time for one slide – so be prepared. If this is the case, that slide may be the only slide you get to present. I have literally taken an elevator to a parking garage with an investor that was double booked for a meeting – that one slide was all I had a chance to pitch, yes, in an elevator.

Problem

What is the problem that your product or service is really solving? Is it really a problem? Be ready for the painkiller vs vitamin question here. Have you talked to enough potential customers through customer development interviews to really validate the problem? What will they pay for the solution?

Solution

What’s your solution to the problem? Is it a website, a mobile app, a brick and mortar store? Get out of your head and be very clear about the solution.

Think about the drill bit and the hole analogy here. No one wants a drill bit, they want a hole.

What is the solution you are delivering, how will it make the customer feel or what result will it give them? What is your secret sauce? What makes your solution novel?

Why A Great Executive Summary Can Help You Get Investor Meetings

Target Market

How big is the market? What is the TAM, SAM, SOM and Launch Addressable Market or LAM? You need to show that this is a big market that places value on your solution. Rich target markets are better than poor target markets. Do they have money to spend? Answer the question: How will you get to them? This is the marketing and sales component.

Traction

Have you shipped an MVP or prototype? Do you have revenue and customers? Traction will be required before you raise capital. The days of “back of the napkin” ideas getting funded are over in all of the cities I’ve visited. Your need for funding and your ability to get funding are directly connected to traction. Traction is a priority in your presentation – it changes the discussion from a theory to reality – keep it near the top of your presentation.

Economics

What are your unit economics? Have you built out a spreadsheet with both revenue and expense growth for a three-year (not five) model?

Everyone knows the model is wrong, that’s OK, investors want to see that you’ve taken the time and the discipline to actually do the work to understand the model (Venture Ready Model Template here).

You’ll need to understand your Customer Acquisition Cost (CAC) as well as Lifetime Value (LTV). You can put a chart here if you’d like, but the unit economic discussion is more valuable.

Investors know that this is going to be wrong. The question is just how wrong – see below in financial models.

Competition

Every startup has competition, even if the competition is to keep doing what the customer is doing without your product. What is the competitive product map?

Having no competition is a major red flag.

Team

What makes your team the right team for this challenge? How long have you known each other? Investors like to see you have a track record of working together. Do you have complimentary skill sets? Overlapping skills sets are generally bad unless it’s in engineering.

Ask

What do you want? In the venture world asking for cash usually gets you advice and asking for advice will occasionally get you cash. Do you want introductions to potential customers?

If you are asking for cash, don’t simply explain that it will pay yours and your co-founder’s salary for a year. That is not what the investor is interested in, tell them what it will actually get the investor – raising $500K will get us through MVP launch and the first 100 customers. Pick real (believable) milestones you can hit with the capital requested.

Summary

What do you want them to remember. Keep in mind that you are likely to pitch a Junior Associate. Their career at the firm is based on their ability to pitch your idea to their partner (without sounding stupid).

If you summarize for them, they should be able to make your pitch. If you don’t summarize – you risk them doing it (or not doing it if they feel like they can’t repeat your “concept”). Don’t forget your call to action – is your contact information on the deck?

advantage, big data, business

Financial Models for Startups

Investors know your financial model is going to be wrong – the question is how wrong?

Financial models are difficult if you don’t have experience or training building a model from scratch. I’ve written about this extensively on Venture Ready Models. Don’t start from scratch if you don’t have to!

There are standard formats and GAAP language that needs to be used in your financials. Like the design comment above, this is another place you should spend some cash to get it right from the start. You will still need to “own” the document, even if you’re not a finance person.

At some point, some investor is going to ask a question that will drive you to the spreadsheet.

You need to know where to find the formula.

The 7 Biggest Downsides to Bootstrapping and How to Overcome Them

You need one tab with all of your assumptions. That way, the investor can clearly find your unit economic assumptions that are in both your deck and summary. Keep these synced over time, it’s easy to tweak one document without doing the others and have numbers that don’t match. Don’t make rookie mistakes.

Again, the investors know that you are likely wrong at this point. However, you are showing that you have the discipline to engage in this process, you’ve put numbers into fields that require a hypothesis and you’ve spent time thinking through your core assumptions.

Tracking Your Sales Process

Remember, at the start, I called this an enterprise sales process. That means you’re going to need to implement a tracking process for your funnel. Most founders don’t do one pitch and get one check. Track your process just like you track your customer process:

  • Create a Google Sheet to track your contacts
  • Research the contacts first
    • Use Crunchbase to review their recent investments – do they invest in:
      • Your stage of the company?
      • Your vertical market?
      • If not, move along, they aren’t likely to invest in you.
  • Track companies, names, emails, add links for Crunchbase as well as links to LinkedIn profiles.
  • Get introductions via LinkedIn – cold calls are not preferred by investors, but that’s not a reason to write them off. When you can use warm introductions, do so.
  • Track notes of what you discussed – they will likely remember and you will likely forget.
  • Have your documents ready to send.
  • Build an email list with Mailchimp.
    • Ask for permission to send regular updates

You’ll find your groove in this process, but remember, you’re in it for the long haul. Someone who says no today might say yes next year on your next venture.

Read more startup advice on finance at TechCo

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Written by:
#Entrepreneur, #Founder, Board Member @CodeFellows @Guidant @AudiencePoint. My best gig is as a Husband, Dad, #UWHuskies, #SSW2016 Lead Organizer
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