Written by: Malcolm Lewis
There are many factors that can make your pitch deck more or less attractive to investors. But there are three in particular that can swing the odds significantly in your favor if you get them right. Acing just one of these swing factors will seriously help you get funded. Acing two or all three will put you head and shoulders above most other pitch decks. Those three key swing factors are:
Before we look at these swing factors, let’s recap what drives technology investment decisions. Most investors are looking for startups that offer a significant return on their investment (typically 10-20x) while minimizing the risks that might limit that return. Those investment risks include Market risk (there’s no market or customers for a product like yours), Product risk (there is a market for a product like yours, but customers don’t find your product compelling or competitive) and Execution risk (you have a compelling, competitive product for a large market, but your team is unable to acquire and retain new customers at scale).
Let’s look at each of our three swing factors in turn and see what you can do to minimize perceived investment risk.
The team swing factor speaks to execution risk. This is the risk that your team fails to acquire and retain new customers at scale in a startup environment. You can reduce execution risk by showing that your team has experience and expertise in one or more of the following: 1) Startups (Ie: Key members of your team have founded or worked for other startups. You’ll score bonus points if those startups were market leaders and/or achieved successful exits); 2) Similar products and technologies (Ie: Key members of your team have built a similar product to your current product, using similar technology, for another company or startup; and 3) Similar markets (Ie: Key members of your team have successfully marketed and sold products into your current target market or a closely related market).
Investors are also looking for teams that include both a business founder (who drives the company and product visions) and a technology founder (who drives product delivery). You’ll score bonus points for team members with brand names on their resume. And you’ll score more bonus points if several key members of your team have worked together in the past. Note that your extended team includes founders and key employees plus advisors and investors (if any). Make sure you list them all to get full credit for the total breadth and depth of experience and expertise on your team.
The technology swing factor speaks to product risk. This is the risk that you cannot build and maintain a product that your target customers find compelling and competitive. Investors are looking for startups that solve big, painful problems with unique products that enjoy a sustainable competitive advantage. You must clearly explain how people solve their problem today without your solution, the issues they have with those current solutions, and how your solution resolves those issues for them. If current solutions to the problem you solve are difficult to use, slow and expensive, then your solution should be easier to use, faster and more affordable.
The technology that underlies your product is also important. Many startups develop relatively simple technology platforms that are easy to copy. Think Uber and AirBnB. These two great companies have executed extraordinarily well with solutions that are relatively easy for others to replicate. Investors will love your technology if it is hard for your competitors to replicate or, better, impossible for your competitors to copy thanks to patent protection. Patents for core aspects of your customer value proposition, pending or granted, are more valuable to investors than patents for peripheral aspects.
The traction swing factor speaks to all three risk drivers (market, product and execution). By definition, if you are acquiring customers, there must be a market (customer) for your product, you must have a competitive product that customers prefer to other similar products, and you have demonstrated enough operational expertise to market and sell your product to at least some of the customers in your target market. You have achieved “product/market fit,” you’re making money and you’re ready to scale your business.
Traction is typically measured and reported using acquisition, engagement, retention and revenue numbers (often referred to as key metrics) that you should share as early as possible in your pitch deck. Common traction metrics include customer acquisition cost, lifetime value of customer, total customer count, daily and monthly active users, monthly recurring revenue, average revenue per user, monthly churn rate, and so on. Showing that your key metrics are trending up and to the right will really help you. Showing that your lifetime value of customer is several multiples of your customer acquisition cost will help you even more because it is a basic prerequisite for a profitable business.
Investors want to maximize returns while minimizing risk. A proven team reduces execution risk. A competitive product built using hard to replicate or patent protected technology reduces product risk. Traction, in the form of accelerating customer adoption and revenue growth, reduces market, product and execution risk. Demonstrate that you have aced one or more of these swing factors in your pitch deck will greatly increase your chances of getting funded.
About the Author: Malcolm Lewis is a serial entrepreneur, startup mentor and pitch deck coach. Learn more at here.
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