Why I chose to write this article
In March 2016 I joined Allectus Capital as an analyst and over the past four years I have examined my fair share of investor decks. I decided to write this article because I am passionate about helping start-up founders create high-quality and informative investor decks that will help them attract the attention of potential investors, secure institutional capital, and scale their business. I also hope this article will provide founders with a checklist of everything they need to include in their investor decks. Before I started to write this article, I reviewed the strongest investor decks I have seen during my time at Allectus and unsurprisingly these were often the companies Allectus chose to invest in. In contrast, the lower-quality investor decks failed to include valuable information investors need to make a decision about taking an opportunity forward, whether to a meeting or DD.
If you are serious about obtaining investment capital from institutional investors, you need to create a powerful, attractive and well thought out message that contains all the data a prospective investor needs to make a decision about your company. The quality of your investor deck can be the difference between whether an investor chooses to contact you and commence DD on your company, or alternatively decline the opportunity to invest. Below are some thoughts and ideas on how to make your deck stand out – I will discuss some of these ideas with examples based on a real-life company called FloodMapp that Allectus invested in last year.
1) Presentation is important
The appearance of your investor deck is as important as the information it contains. Your investor deck should be generally pleasing to look at, and it should be well formatted and clearly set out. When you send your deck to investors, choose PDF format and don’t send it in PowerPoint format or via any type of weblink unless you are really conscious about the confidentiality of your idea.
The best investor decks I have reviewed all contained relevant graphs, images and screenshots to complement the written information on each slide instead of lots of all text slides.The founders did not try to cram large amounts of information on each slide in a small font (which is the most common presentation mistake I see).Instead, they took the time to ‘block out the noise’ and include the most important information in a large, clear font.In addition, the founders chose to use a specific colour scheme consistently throughout the entire deck. Formatting is also a good sign, especially for D2C or consumer products, if the founders are advertising attention to detail in UX this should come through in the quality of their investor presentation.
Above: FloodMapp’s title page. FloodMapp’s blue and green colour scheme remains consistent throughout the entire investor deck.
2) Begin with the basics
Unfortunately, founders often forget to include important, basic information about their company such as when their company was established and where their company is based. It is important to include the date your company was founded, because it helps investors assess your company’s traction relative to the number of years it has been operating. Following this, I recommend explaining the problem your company is trying to solve in an easily communicated way e.g. so simple that you could explain it to a child. From experience, the investor decks that communicated the problem in the most compelling way chose to do it visually. For example FloodMapp CEO Juliette Murphy included images of flood damage from floods which had previously occurred in Australia. I still remember one slide that showed images of houses that were nearly underwater. These images were a powerful way for Juliette to convey why she founded FloodMapp and the problem FloodMapp was trying to solve. Statistics are another effective way to communicate the extent of the problem for example ‘flooding is the costliest natural disaster costing $50B per year’ and ‘1200 lives were lost to flooding in 2018.’
Once you have communicated the problem you are trying to solve, try to clearly explain why you think your company can solve this problem. For example after numerous slides, images and statistics that conveyed the severity of flood damage in Australia and around the world, Juliette explained FloodMapp’s solution is a rapid flood model which ‘predicts flood inundation area with our proprietary rapid flood model, generates location-specific data and alerts, improves safety and prevents damage and provides risk data for insurance underwriting.’
Above: A slide from FloodMapp’s investor deck, which conveys the severity of the problem they are trying to solve.
This can lead into a description of your product and its features. You should include information about your product’s advantages, strengths, features and its point of differentiation to its competitors. When you are writing this section, please remember that as a founder you probably have a very strong knowledge of your product and industry, and prospective investors might not know the industry as well as you do. You can also include information about how your product earns revenue, who your customers are, and how much your charge your customers.
Above: A slide from FloodMapp’s investor deck which explains their product and its features.
3) Your market
After communicating the existence of a genuine problem and your company’s ability to solve this problem, you should focus on providing investors with information about the size of your market (both local and global). This might comprise statistics about the size of the market, the market’s CAGR growth, and the sources of the statistics. If there are any emerging trends in the market, which make it an excellent time for your company to enter the market and scale, you should include these here. For example if you have built an app that rivals the banks, and consumer dissatisfaction with banks is currently high you should communicate this to investors. Or alternatively if you have built a buy now, pay later product, you could include some information about the decrease in credit card spend compared to debit spend. Or in the case of Juliette, she included information about the failure of the US Government’s federal insurance program leading to regulatory reform which would enable private insurers to enter the market and underwrite flood insurance. For example, when Juliette was seeking to raise her seed round, US private flood insurance was growing at a rate of 100% each year.
Above: A slide from FloodMapp’s investor deck, which communicates that current market conditions are optimal for FloodMapp to enter the US market.
4) Your traction
Now you have demonstrated your company can solve a genuine problem and has a large addressable market, you should highlight the traction your company has achieved to date. This demonstrate to investors the existence of excellent product market fit and strong demand for your product. Fortunately, there are numerous ways to demonstrate the traction your company has achieved which gives you the opportunity to be selective about the information you include in this section. Examples of information you can include are:
The number of customers you have.
Any impressive unit economics you have achieved e.g. 75% gross margin.
Any customers, merchants and partnerships you have secured.
The percentage of customers you retain each year.
The size of your pipeline or alternatively the companies that are currently in your pipeline.
Any positive PR your company has received / any accelerators it has been accepted into.
The different regions you have expanded into.
Case studies of companies or customers that have chosen to use your product and the outcomes they have achieved from using your product. For example, company X used our payment solution for six months and they found their sales revenue increased by 15% and their basket size rose by 10% over the period. By including case studies, you demonstrate your company’s solution works and adds value to the people that choose to use it.
5) How much you are seeking to raise and your valuation
Many founders do not include the pre money valuation of their company in their investor deck and it is a bit of a sticking point amongst investors. The pre money valuation of your company is one of the major things a VC analyst will consider when they decide whether or not to progress to DD or take the deal to the wider team. This is because analysts are always on the lookout for value i.e. they want to invest in excellent start-ups at a reasonable valuation. They will not bring high-quality start-ups to the wider team if they believe the valuation is too high or they don’t have the basic terms of the deal.
There is a school of thought, particularly when there is a “hot” round that founders don’t include the valuation or the amount raised in order to make investors bid higher, or so they don’t immediately turn down the meeting if the valuation is high. While in some small percentage of the time that may work, most companies (especially in the time of COVID19), are going to be better off including the valuation in their deck so that expectations are aligned on Day 1. If a VC thinks the valuation is too high, you are unlikely to be able to convince them otherwise and are probably better off concentrating on firms and people that share your vision.
Another piece of advice on valuation is to be very clear about the reasons you have chosen to value your company at this price and be prepared to justify your valuation e.g. based on your prior funding rounds, other funding rounds that have occurred in the same space, or recent M+A activity in the sector. Try to have some objective historical data that validates why your company should be valued at X. In the majority of meetings, founders struggle to explain why their company’s pre money valuation is X and usually base it upon what they are prepared to give up percentage wise of the company rather than any methodology, which usually causes some element of tension. It is better for all parties to be upfront and reasonable about expectations so interested parties can proceed actively and on an informed basis.
In this section of your investor deck I would also confirm the nature of the funding round. For example, is it a seed round? Is it a bridging round? Is it your Series A funding round? Other important pieces of information are the type of share capital you’re issuing – for example ordinary shares versus preference shares as well as the share price of the funding round. I would also indicate when you’re looking to close your funding round and include some information about who currently owns your share capital, for example how much do the founders own? How much do institutional investors own? Finally, you should include some information about your funding history, for example 'two years ago we raised an angel round at a pre money valuation of X and a share price of Y.’ Making this information available upfront and in summary format, gives founders the best chance of weeding out inappropriate capital partners and finding aligned partners.
6) How you are planning to spend the funds raised
Investors are also very interested in how you’re planning to spend the money invested in your company. For example if you are aiming to raise $1.5M of share capital, use a graph or table that clearly indicates how you’re planning to spend the funds raised. Another importance piece of information to include is how much runway you believe this funding round will give you. For example if you raise $1.5M of seed capital, you expect this to give you 18 months of runway and at the 10 month mark you will start trying to raise your Series A round. If you have a data room and financial model available, make this clear and if a significant investment will give the investor the right to a board seat you can also add this into your investor deck. VCs often like the idea of investing a significant amount in return for a board seat, as it gives them the opportunity to join the company’s board and help to add value.
Another positive thing we like to see is founders stating what they are aiming to achieve after they spend the money raised in the current funding round. For example following this funding round in twelve months time, we would like to have 8,000 active customers using our app. This helps anchor expectations and sets out a shared vision.
7) Your competitors
I often see founders struggle to answer questions about their competitors in meetings or state they don’t have competitors. You can almost guarantee that during meetings with institutional investors, they will ask you numerous information about your competitors and your competitive landscape, some of which they may have already invested in! I am always impressed when I see an investor deck that contains a competitor matrix which clearly demonstrates who their competitors are and how their solution is different to their competitors. For example, some companies might offer a more expensive premium service and other companies might offer a cheaper, more affordable service. Some competitors might offer a high-volume, lower value service whereas other competitors might offer a lower volume, high value service.
Last year our fund looked at a lot of different opportunities, but we only ended up investing in a few companies. I clearly remember the founder of one company we ended up investing in being able to talk at length about the original players in the space, what they did well, the mistakes they made, the first mover, the second movers and what the original companies are doing now. I remember leaving the meeting being extremely impressed with his knowledge and honesty.
8) Your team
When a VC invests in a company, they invest in what they believe is a strong product, however they’re also investing in the founders and their team – especially in the early rounds. This means investors will spend time considering the strength of the company’s team, advisors, investors and board. Therefore it’s a good idea to take the time and effort to dedicate 1-2 slides in your deck that contains information about the background, experience and achievements of your team, advisors, investors, and board with photos of everyone in your team. Specifically, we are looking for domain expertise and relevant know-how which is directly related to the industry you are tackling e.g. four years in financial products at RBS. If anyone in your team / board / advisory group has been involved in a successful exit, I would include this information because it highlights to potential investors there are people in your team who know what it takes to succeed (especially as working in the start-up industry involves very long days and can also be extremely stressful).
Above: A slide from FloodMapp’s investor deck, which provides information about the experience and qualifications of its team.
9) Your unit economics and metrics
Unit economics and financial metrics are often at the core of the investment decision (whether actual or expected depending on the stage). These metrics can look intimidating, but there is plenty of information available on the internet that explains what they are, why they’re important and how to calculate them – just search Google for “David Skok SaaS Metrics”. Some of the most relevant metrics you should include in this section are below. Again, a lot of founders don’t include a metrics or financials slide in the first version of the deck. At the Seed / Series A stage, and especially in a tough fundraising environment, we recommend you do, mainly because your metrics can generate a lot of interest in your company or immediately weed out uninterested parties.
LTV – this is the total amount of contribution margin i.e. revenue less COGS you expect to earn from one customer over the entire time they use your product or service. LTV sometimes also is seen as the total amount of revenue earned from one customer during their lifetime, but it’s usually used for contribution margin i.e. how much do you make from someone post delivery of your service.
Your CAC – this is the total amount you spend to acquire one customer. You can calculate this by working out the total amount you spent on sales and marketing in one year (this is called your total cost of sales) and dividing this amount by the total amount of customers you acquired over the same period. For example, if your total cost of sales was $1.38M and you onboarded 32 new customers over the same period, your CAC would equal $1.38M/32 = $43K. Companies that are already revenue generating might break this down into separate CAC per channel or direct (FB / Google) versus indirect (your marketing team’s salaries etc).
LTV/CAC – This is your LTV divided by CAC. For example, if your LTV was $129K and your CAC was $43K your LTV/CAC would be 3.0X. Usually investors like to see this at 3X and above and hopefully have the company’s CAC paid back in the first year of the customer.
Cash burn – Your gross burn is the total amount of cash you spend each month and your net burn is the total amount of cash you earn for the month minus the total amount of cash you spend for the month. During COVID19, everyone is very focused on steady state and growth state burn (i.e. what amount of revenue do you need to be a cashflow positive business).
Number of customers / users – more customers = more revenue! Variants of this metric include “active members” e.g. the total amount of members that have logged onto your app or service within the last month.
Your monthly churn rate – this is the number of customers that choose to leave your platform or stop using your product, as a % of your total customers.
12-month forward revenue or earnings – this is the amount of revenue or earnings (EBITDA) you expect to earn over the next twelve months.
Revenue and gross margin % - this is your gross margin. It equals (revenue – COGS) / revenue.
EBITDA and EBITDA margin% - EBITDA margin is calculated as EBITDA/revenue.
MRR versus Total Revenue - this is your monthly recurring revenue (or ARR being annualised recurring monthly revenue) which is the total amount of recurring revenue you earn each month (as opposed to one-off revenue like professional services).
ARPA/U - This is your average revenue per account or user which equals your total MRR in one month (or ARR) divided by your number of customers.
10) Financial Forecast
Largely the same as unit economics, your financial results and financial forecast are another important piece of information investors will use to assess your company. I would recommend including a three-year P+L financial forecast in your deck. Also make sure you’re well prepared for questions such as when you expect to achieve breakeven.
11) Risks and mitigants
I am always impressed when I see a founder include a table that outlines the risks faced by their company and the mitigants they are using to address these risks. Even if you don’t include a section on risks and mitigants in your investor deck, you should be prepared to answer questions about the risks your company faces and the mitigants you are using to address these risks e.g. funding risk, key person risk, competitor risk etc.
12) Your future expansion plans
Your expansion plans are another important section of your investor deck, as this section will help investors understand your future vision of your company and its future potential. What you include in this section depends on your company and your specific expansion plans but it can include things like:
New countries you would like to expand into
Additional products you would like to start offering
New markets you would like to expand into
Additional features you would like to build into your solution
Companies you would like to partner with
Companies you would like to integrate with
Your marketing plan
The new people you would like to hire e.g. a new marketing lead, four new sales people, and a relationships lead
Your product and technology roadmap including the features you’re planning on building or exploring
Your customer or merchant acquisition strategy
13) End game (optional)
An additional slide could be about your company’s potential future – this is obviously dependant on what stage your company is operating in as it might be highly speculative. It’s often a good idea to highlight you’re prepared to take the time to build something of value, but you also want to demonstrate you have considered the paths for potential liquidity for all shareholders that may be available to your company i.e. IPO, trade sale, or a sale to a major customer / competitor. Also if a company that offers a similar solution to you or alternatively operates in your space has recently completed a successful exit, it is worth including information about the company and the revenue or EBITDA multiple it was sold at. Recently we invested in a company that provided a list of 14 different companies operating in the same industry that were either listed on the Australian and global stock exchanges, the share price the companies were currently trading at, and the revenue and EBITDA multiples they were currently trading at. This helps prove valuation and expansion theses as well as demonstrate there is market demand for this type of product.
14) Pre-empting questions
Now you have taken the time to compile an investor deck, it is worth reviewing the information and trying to identify the potential disadvantages of investing in your company. Then you should try and include information that attempts to reduce the weakness or eliminate it all together. For example, if you are concerned your valuation is too high, try and make it clear why you have chosen to value your company at this valuation. Or if you are concerned you have an inexperienced team, try highlighting the prior achievements of your team. For example your CTO might be relatively young, however prior to joining your company, he completed a successful exit or he worked at two different start-ups.
The above article contains a reasonably long list of things you can and should include, but by the same token it might be the only chance you get to showcase your company to someone and affect whether or not they decide to take a meeting. As the economy slows, investors are spending significant amounts of time and capital on their existing companies so the bar for relevance and fit has increased. That might not be the worst outcome for founders, as it should streamline whether or not there is market appetite for your product, and gets to a decision more quickly so you can move on and find the right capital partner.
Before sending your investor deck widely, it is worth showing your pitch to other founders and if possible, some other start-up / early stage investors and asking them for feedback. It’s obviously also worth trying to get warm introductions to investors if you can (LinkedIn intros are better than nothing but the best would obviously be by someone with a personal email or phone call etc.), and then sending it to people who you know already invest in the space or have a particular expertise in the area.
In closing, an investor deck is a first impression - an attractive, colourful, well designed deck that contains all of the relevant information goes a long way towards maximising securing the right investors and capital for your business. In this uncertain economic environment, taking the time and thought to identify and present the most relevant metrics and information leverages all the hard work that founders do every day, and allows them to highlight their vision, ambition and resilience.
A huge thank you to FloodMapp for generously allowing us to use some of their slides from their pitch in this article.
Above: FloodMapp’s concluding slide which contains their company slogan, company logo and a powerful image.