Dr. Patrick Flesner, Director of our LeadX Capital Partners investment fund gives insight on how to create a great venture capital pitch deck. In the first part of two, he shares a personal view on how to approach venture capital investors, and what they look for – in our next post he dives deeper into each section of the pitch deck and how it should be presented to an investor.
As a venture capital investor, I am often asked by founders how a compelling venture capital pitch deck should look like. Surprisingly, I am not only asked this question by first-time founders but also by well-experienced management teams looking for growth capital. The answer to this question certainly differs from investor to investor and also depends on the financing round a startup is going through. A pitch deck of an early stage startup with only a product idea or a minimum viable product and little traction will certainly look different than a pitch deck of a later stage company that has already achieved product-market-fit, product-channel-fit and seeks funding in order to internationalize the business.
There are however overarching aspects that a founder should consider when establishing a venture capital pitch deck. In this article, I want to share – as stage-agnostic as possible – my personal view on what may be reflected in a compelling venture capital pitch deck so that the content is relevant for all founders.
At the same time, I believe this article can also help prospective entrepreneurs better assess venture opportunities.
“I am often confronted with pitch decks that are very product or customer-focused.”
While customer centricity is of paramount importance for establishing a successful and sustainable business and although the products and services the company offers are important means to fulfil a customer need, founders should bear in mind that the pitch deck is not meant to convince customers to buy the company’s products or services, but rather meant to convince venture capital investors to invest a significant amount of money into the company.
Against this background, founders are well-advised if they put themselves into the shoes of a venture capital investor and ask themselves what such venture capital investors would probably like to know about the business and the corresponding investment opportunity. The short generic answer to this question is that venture capital investors want to know how they can make abnormal financial returns by investing into the company. The pitch deck is thus supposed to convey why an investor should invest into this specific company and especially why and how this investment will yield the desired financial returns.
As regards the return expectations, they depend on the investment stage and the corresponding investment risk (the earlier the investment stage the higher the failure risk and the higher the return expectation).
“It is probably fair to say that venture capital investors look for internal rates of return between 30% and 50% and investments that return 3 to 8 times their money invested.”
Hence, if founders establish their pitch deck, they should always ask themselves what kind of return the relevant venture capital investors need to make if they invest into the company at this stage and whether the pitch deck reasonably reflects how such returns can be achieved.
Credibility and Trust
Lastly, while the pitch deck should describe in a compelling way how the venture capital investors can generate the expected returns, founders should likewise keep in mind that venture capital investors look for founders they can trust and build a long and fruitful relationship with. Founders should thus refrain from overstating important business aspects and focus on establishing credibility by providing a visionary, but authentic, transparent, true and fair view of their business.
“Establish credibility by providing a visionary but authentic, transparent, true and fair view of the business”