Friday 19 July 2019

Clearing the decks: how to prepare a persuasive pitch to investors

Startup diary

Show of appreciation: You need to sell your team’s strengths, the quality of your market hypothesis and the eventual market’s size to would-be investors
Show of appreciation: You need to sell your team’s strengths, the quality of your market hypothesis and the eventual market’s size to would-be investors

Richard Rodger founder, voxgig

We're raising money! Yes, it's that point in the life of every startup where you need external investors to take things to the next level. I've used my own resources from a previous exit to fund things to date. It would be unfair to call it bootstrapping, as we are fairly substantial team of about 10 staff in total between employees and contractors.

Traditional bootstrapping (which I have also done) is learning to live on thin air - it's not exactly fun, but it's what you have to do for your first startup. But don't think that having a bit of startup capital makes everything easy. It's impossible to waste money when you don't have it to spend.

Why am I raising now? We've spent about 11 months on market validation. That means we've gone out and spoken to people.

We've launched various forms of content marketing (the speakers newsletter).

We've launched a Minimum Viable Product (MVP). And we've started private trials with a small group of early customers (out first one just completed successfully - a big win). At each stage of the validation work (which you've been following in this column since this time last year), I've been able to justify putting a bit more money into voxgig each month.

We now know that there is a market, and definite pain point, and a need that we can meet. Now we need to find that mythical state known as 'product-market fit'.

Don't we have it already? Isn't that the point of all this validation work and money spent?

No. All we've done is verified that product-market fit is possible. What we need to do next is open the shop doors, get some customers through our planned acquisition channels (ie not through our network), and then refine our product based on their feedback.

We need to demonstrate that the inbound marketing strategy of building community trust through newsletters, podcasts, and events can generate sufficient numbers of early adopters.

Then we need to demonstrate that these early adopters will invite more users, in a virtuous viral feedback loop.

We need to design our system so that we give our customers value very early, and so that they are incentivised to invite others. Since one of our strategic differentiators is making is much easier to collaborate with other stakeholders in an event, invites should fall naturally out of our fundamental usage model.

That's the theory. In practice, it takes a lot of iterating on the details to make this work, and when it does, that's product-market fit.

There's a Silicon Valley cliché that if you have to ask what product-market fit is, then you don't have it. I've seen it before, and it is truly magical. Everything starts breaking because you just can't handle the volume of growth.

For voxgig, we should hit product-market fit in mid-2019 - as always you'll get a blow-by-blow account (with numbers), as the year unfolds.

We need to raise money to find product-market fit - not to scale because we have it already.

This is a very important distinction, and the main reason why seed-stage investment is such high-risk.

The investor is trying to gauge the strength of the team, the soundness of the market hypothesis, the size of the eventual market, and a host of secondary factors, and bring this altogether into a decision to invest.

And all they have to go on is a 'pitch deck' - a few PowerPoint slides that try to communicate the entire concept in an easy digestible format.

As an aside, if you already have product-market fit (like Google did), then you don't really need the deck. Your numbers speak for themselves, and you get to pass go and collect a term sheet straight away.

But we're only trying to build a billion-dollar company here, not a trillion-dollar one, so we won't feel too discouraged (joking, not joking).

I do need a deck, so that is my number one job this week. Although I'll have the first cut done in a few days, I'm going to take the next few weeks to really dig into the various slides in the deck and explain our thinking.

I should be able to discuss most things, although you'll have to forgive me for keeping some things confidential - as a company director you have what are known as fiduciary duties to the company, independent of your interests as a shareholder, and they include respecting the confidentiality clauses in your agreements with the company.

Don't even consider approaching investors unless you're very clear on the basics of company law - you are not your company, and it's a big red flag if you don't get that.

What goes into a 'pitch deck'? How do you persuade sophisticated investors (who've probably built and sold multiple companies) to invest in your crazy seed-stage idea?

If you search for advice on pitch decks, the slides you should have, and how you should present, you will be inundated with advice, much of conflicting.

There is no perfect pitch deck. One of the best things you can do is look for historical pitch decks that have been made public. This is fascinating, and encouraging - some of them are truly awful, and they still got funded.

Search Google for '30 Legendary Startup Pitch Decks' and you'll get a great list written up in a blog post. Remember when Facebook was called 'thefacebook'? - you'll see their deck from that era.

I'm not going to offer you any specific advice on how you should build a deck. Rather, I'll take you through the process of building my own, and we'll see where we end up. I'll also note changes based on investor feedback.

I do already have a deck. It started out as a pitch deck, but became more of a concept deck.

It's far too long at 28 slides. In the angel investor and Venture Capital (VC) pitch meeting that I've been in for previous companies, we had to explain ourselves in 15 minutes max, and allow 45 minutes for discussion an questions.

That means 10 slides at most. The problem is that you need to explain so much, and provide supporting material.

The reason my initial deck is so long is that it is more about brain-dumping the idea than selling it. But now that I have a first cut I have somewhere to start.

Just writing it all down on as many slides as you need worked for me as a way to get started.

What I plan to do for the real deck is have my 10 pitch slides, and then follow that up with a lot of reference slides.

You will use these - they make it much easy to answer specific questions, and demonstrate that you've thought through all the details and numbers.

Don't be struck dumb when you're asked how your unit pricing works. You have to be able to show that you know how to sell each apple for more than you it costs you to buy.

Stay tuned next week as I start to walk you through my thinking on the deck.

(Newsletter update: 3770 subscribers, and an open rate of 12.8pc.)

Richard Rodger is the founder of voxgig. He is a former co-founder of Nearform, a technology consultancy in Waterford.

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