In today’s uncertain market climate, VCs are looking for an excuse to pass on a deal. Instead of evaluating investments based on the possibility of large upside potential, they’re requiring more analyzable proof in the form of data, such as team and traction. They’re also focused on the ongoing issues and capital needs of their existing portfolio companies much more as well.
So how do you convince a VC to invest today? As the founder of investor readiness firm Lyonshare, here are the strategies we’re implementing in our pitch decks right now.
TRACTION.
Grab investors’ attention by putting traction metrics upfront.
Traction derisks your pitch by proving you’re building a solution that your customer actually needs. In times of lesser risk appetite, traction should be the showcase piece of your deck.
Summarize it on one to two slides and consider putting it early on in your deck to get investors hooked right from the beginning. This allows them to pay more attention to the rest of your pitch without worrying that your business model might not be legit.
If you’re pre-revenue, include metrics that indicate product market fit, such as number of waitlist signups or active users, engagement, partnerships, and sales pipeline. If you’re post-revenue you can highlight growth in revenue, average contract size, improvement in net retention and sales efficiency, and any company-specific “north star” metrics.
Don’t think you’re stuck having to show year-over-year metrics, look at the data monthly and decide what presentation implies the strongest momentum.
WHY NOW.
Recreate a FOMO-sensation with a “Why Now” slide.
VCs hate missing out on hot deals and FOMO can be a powerful motivator for them. Today there are way less of these momentum deals, as investors are taking a “wait and see” approach. An effective “why now more than ever” slide can make them second guess sleeping on your deal.
Convince VCs that this is an investment they don’t want to miss out on because of the timing of the macro environment (regulation, dislocation, changing competitive dynamics) or within the company (like a key inflection point that’s right around the corner). Use data to support your claim for urgency: a recent upswing in a certain metric, a massive shift in public sentiment, or the downfall of a competitor. Pull headlines from news coverage showing the amount of attention being brought to a certain issue.
Our pre-2023 decks included a “Why Now” slide, don’t forget that today you need to make the case even stronger: “Why Now (more than ever)”
TEAM.
Be a repeat founder, or make a case for being repeat founder-adjacent.
A common thread across many of the deals getting funded today is that the companies are founded by repeat founders. Similar to traction, a repeat founder derisks an investment, as they bring to the table their many prior successes and failures as learning experiences.
If you’re not a repeat founder, what can you do? One large move could be to bring on an experienced co-founder who also has the functional expertise you’re missing, though that isn’t always an option. Another solution is to build a strong advisory board that includes hands-on mentorship from successful founders. Don’t simply put their name and smiling face on a slide, tell investors exactly what kind of guidance they’re giving and the frequency of it.
At the least, make sure to position your background to convey that your work experience has the highest possible relevance for your startup. Identify what the ideal characteristics and experiences would be for the founder of your company and point to your experience as support for you having this. If, for example, you’re coming from finance, you’ll need to make a case for your “operational leadership” by highlighting the in-house operational activities that you led.
Your goal is to maximize the opportunity to show that you’re the ideal founder to run your company.
STORYTELLING.
VCs sometimes make emotional decisions. Use this to your advantage.
Not all VCs are trained financial professionals; many are visionaries and builders. Make sure to combine facts and performance with compelling narrative and ordering that includes emotion and story arc.
A great pitch deck tells a captivating story that clearly showcases the problem you’re solving and the uniqueness and viability of your solution. A palpable grand vision gets investors excited about the potential for large scale value creation. The right information delivered at the right time, in the right sequence, allows them to follow your logic.
RESILIENCE.
Re-evaluate your fundraising timing and investor pipeline.
This might go without saying, but if you don’t need to raise right now, you shouldn’t. Even if your company is doing great, you may receive a lesser valuation and more investor-friendly terms.
If you haven’t already re-evaluated your current cash burn for cost savings, do that and see if those cuts will allow you to meaningfully increase runway. If do decide to raise, consider going to existing investors first for a “top off” ahead of a later priced round. And if you’re seed stage, start by meeting with angels and strategics to fill the round. No matter what, be proud that you’ve built something from nothing and don’t give up. You may receive tons of no’s, but it only takes one yes to turn the momentum around.
In conclusion, investors are under pressure to heavily scrutinize deals. If your financial performance is strong, make it the key selling point. If it’s not, consider other ways of proving product market fit, derisking the deal, and forcing investors to act now. Either way, strategic storytelling that understands which elements of the pitch to highlight and which risks to defuse will go a long way in making or breaking the success of your round in today’s climate.
This piece originally appeared on Medium and was published here with permission.
