What makes a pitch deck successful? What do investors want to hear? Is “problem-solution-traction-team-future” structure still game? Find answers to these and some other questions in the article below.
Googling up “pitch deck template” will probably yield over 10 mln results (depending on your language and location). It’s quite a pond to fish from, isn’t it? If you’ve had an experience of being interviewed by investors or of actual pitching to them, you probably won’t see the task of writing a descent pitch deck so challenging. But if you’re a novice and getting down to your first investor’s pitch, you’ll certainly feel as frustrated as I had couple of years ago. On the other hand, even if you have already successfully raised a round or two, you might feel prompted to find out are there any new trends. Or the same old “problem-solution-traction-team-future” structure is still your best bet?
Problem -Solution Dilemma
What exactly are we talking here about? Well, the “problem-solution-traction-team-future” structure was considered to be the winning (if not compulsory) structure for a perfect pitch deck for many years. Meaning, firstly, you had to introduce your problem. For example, this is how AirBnB stated the Problem in its legendary Pitch Deck.
Secondly, you were supposed to get straight to the Solution, as in this use case graciously provided by Front – a shared inbox software company. If you’re not familiar with it, I advise you to go and check it out. Front is considered to be one of the most successful startups in terms of raising, and their first Pitch Deck for Series A round is widely discussed at various entrepreneurship courses.
To sum up, the solution for the problem you had presented in the first slide, was supposed to be straightforward, easy to understand and give a glimpse on your technology or/and the market.
Next was the Traction part. Sure enough, for early stage startups it is one of the most tricky slides to compose. What traction can you show if you have not gone far from the ideation stage? Anticipating this particular problem and its importance, we’ll still have to postpone the discussion on the subject for later articles. However, let’s stress that it was supposed to be the right place to put your customers reviews or at least through in some recognizable names. Like, for example, in this Front’s slide.
There used to be a heated argument about the Team slide: should it go first, even before the Solution. Or is it better to place Team slides after the Traction part? The general understanding was: if you have a really strong team to showcase, – like, for instance, YCombinator/ Stanford/MIT alumnae, co-founders with multiple exits, or Elon Musk as a chief advisor, – than go for it with a full blast and put in on your “book cover’. Perhaps, investors will not even look through the next 20-29 slides. On the other hand, if your team consists of passionate, talented, bright but not yet recognizable people, put the Team slide in the middle and try to highlight the history of your interconnections (for example, the projects you’ve done together) instead of personal achievements.
Going in the “green zone”
Finally, the Future. Slides describing your startup’s future were supposed to be the most details-rich ones, describing your financial growth and plans to scale in the nearest 5 years. Here, the most important messages for the founders were the following:
- Investors are not interested in businesses they won’t be able to exit with profit in 3 to 5 years. Meaning, show considerable growth in this time range.
- Investors are looking for companies that can grow into something really huuuge.
There is a general understanding that the “green zone” for the US-based VCs spreads from $50 mln to $100 mln in 5 years. It might be slightly lower for Europe, UK, Canada and Australia. But what if you can’t see how you possibly can get to these numbers? It still doesn’t mean that your startup is doomed. It only means that you’re not ready for VC’s money yet.
Actually, you might never be. VC funding is quite rare and most startups don’t even get to the stage where VC start paying attention at them. Some, do very well with bootstrapping, 3F or angel investors, added up to bank loans or/and grants.
Building up strategy
However, let’s presume you’re planning something really big. One important question that first-time founders usually ask: if you “draw” revenue numbers to get in the green zone, does it mean that you’re lying? No. And Yes. If you’re able to show in the next slides how exactly you’re going to get there (how many sales you’d actually need, what your marketing funnel will be, what kind of expenses including hiring will be necessary to achieve these numbers) it will be the best proof for investors that you know what you’re doing. That you have your both feet on the ground and feel the market. There are also “expected averages” VCs will be looking for in your expenses related slide. But the good news is that even if you don’t know what these averages are, this information is very easy to obtain through public channels. Simply browsing your industry leader’s annual reports. Like this one from LinkedIn. That shows what’s the expected averages for Sales and marketing, R&D and Administrative expenses are.
However, up to now we’ve been referring to the past in this article, saying “it used to work”, “this was expected”, etc. Does it mean that the game rule have changed, that you can’t use paid for Pitch Deck templates as before and that investors don’t expect to see your financial any more to be in the “green zone”?
You have to understand that the game rules had been created in early 2000 when startups were rare. Nowadays, average VC receive over 100 applications a day. They have about 10 meetings and review at least 200 companies. Your only chance not to get lost in this noise is to stand out. Meaning, everything in your application (from the introductory letter to the Pitch Deck) should be different from what this hypothetical VC receives daily. On one hand. And on the other, built with the familiar bricks of “problem-solution-team-traction and future”.
Great stories for great people
The good news is that there’s a number of ways to approach this challenge. Fist one is to follow the advice given by Ira Jeffrey Glass in one of his radio shows: “Great stories happen to people who can tell them”. The same idea has been recently widely publicized in Twitter by Morning Brew founder Austin Rief. “Startups should hire a chief storyteller” – he says. – Their entire job should be to tell the story of the founding team. No one cares about your business in the early days, nut people love passionate entrepreneurs. If you get people to love you, they will love your business”.
Befriending an investor
Another popular way to stand out for VCs is to make your introduction as warm as you possibly can. “How these guys in Silicon Valley get millions in their first round?” – one of the most popular question in startup community on Reddit. And the most common answer? Because, they are connected. Well, if you’re not connected you’re lucky: Twitter, LinkedIn, Facebook and other social media platforms as well as AngelList make the modern world much smaller, in a sense. Even if you live on the other side of the Earth you still can reach out to important persons in your industry. Become a follower or a friend. Join discussions and leave your comments. Make yourself visible and stand out: first, in virtual world. Then, in the real.
“Whom do you think I’m going to pay more attention”,
asks Naeem Zafar, author of “Get Funded”, chief advisor and shareholder in companies like Oracle, and Telesense.
“To a person who writes me a cold email, saying “hi, please check out my Pitch Deck”. Or someone whom I’d seen among my followers in LinkedIn, who’d commented on my posts, approached me personally at numerous conferences and had shown respect and interest in what I’m doing?”
With all social media availability, websites like Meetup and Eventbrite you, as a founder, actually has limitless opportunities to establish connections that used to be accessible to Ivy league alumnae alone, just a few years ago. Use these tools wisely to build an impression and a network you’ll need to launch your startup and to move it further.
Knowing your customer
And the last, but not the least. Paul Graham from YCombinator says. “If I had to decide whether to fund startups based on a single question, it would be “How do you know people want this?” Make sure your “pitch deck story” evolves around this question. That is a hard standard to meet, though. The best way to show that people really want what you have, is to say that you’ve already built a prototype, and even though it’s very crude, your friends are using it, and it’s spreading by word of mouth.
The Secret Sauce
But if you can’t say exactly these words, don’t get discouraged. Airbnb, for instance, couldn’t do it. They had the first part. They had made something they themselves wanted. But it wasn’t spreading. The idea is to show that you have a deep understanding of your users’ needs. If you’re building a service for travelers, you should know from the first-hand experience what motivates guests and hosts. If you’re creating a Shopify competitor you should explain in details what empowers entrepreneurs and make them want to start online business. Be a part of your users. Get under their skin. And open their secrets in your pitch deck story.