If you are planning to present your venture to an investor, below are the 19 most recurring mistakes.
MISTAKES IN THE PITCH DECK
1. UNREALISTIC GROWTH PROJECTIONS
Founders and investors know that financial projections of early stage companies do not make sense. There are too many variables, unknowns and future events that make the projection inaccurate 99% of the time. That said, a projection helps an investor understand how you think about your business and what are the assumptions that need to hold true for the proposed venture to grow. If you project a revenue growth that is completely out of sync with other startups in the industry, it brings out your lack of understanding of the space.
2. UNREASONABLE TAM
It is important to understand the difference between the Market Size and the Total Addressable Market. Investors are reasonably aware whether a market is large enough or not. If you present a TAM that is unreasonable for the industry, it can boomerang and showcase your lack of experience.
3. TOP DOWN APPROACH TO MARKET SIZING
Assume that, as per Nielsen, ‘delivering breakfast to the office’ has a market size of $100 MM. While Nielsen could be correct in their calculation, you cannot use this as the only measure of market size.
Bottoms up is a better approach to paint the picture of sizable opportunity. “If there are 1 million office goers in the city and you can attract 5% of them, you will profit $1,000 a month and if you deliver breakfast 20 days a month, that is $20,000.” This bottoms up approach to market sizing is what makes the cut and shows the true potential of your market.
4. A LOT OF LOGOS WITH NO REVENUE
Having Fortune 500 companies listed as customers, makes investors assume that the company is generating meaningful revenue. But if the financials are not representative of the claims, it can mean either the company’s definition of ‘customer’ is very loose and includes non-paying ‘customers,’ or the company can’t charge enough for the product. Both options are equally bad.
5. FAKE PRECISION FOR EARLY STAGE COMPANIES
As an early stage company, please admit if you don’t have enough data to measure metrics like CAC, LTV, % Churn. Don’t try to convince investors with amazing metrics, for example 20X CAC to LTV ratio.
6. WRITING THE EXPECTED VALUATION
It’s OK to quote your expected valuation in a meeting. It’s not OK to write the same in your deck. It is naïve and takes away your leverage in the negotiation. That is, don't write something akin to "raising $4mn at $16mn pre."
7. CALCULATING INVESTORS’ EXPECTED RETURNS
It’s almost impossible for you & investors to calculate the ROI the investor can expect so early in the life of a startup. Quoting a small number would turn off the investors and a huge number will make them ask more questions about your assumptions. This is definitely not where you should be spending your time.
Your job as an entrepreneur is to build a huge company. That is what you should be obsessively focussed on — and that's what you should present.
8. NO COMPETITION
Saying that you have no competition generally means either you have not done your homework or you are going after a tiny market that doesn’t matter. Odds are you have not done a good assessment of competition in your industry. Think strategically and broaden your horizon.
9. ‘HARD CODED’ FINANCIALS IN YOUR PRESENTATION
Hard coding numbers in your presentation is a rookie mistake. Linking your sheets with formulae and assumptions allows investors to play with various financial inputs to see how your business model will survive in changing conditions. Don't do this.
10. TEAM SLIDE IS SIMPLY A BRIEF BIO
This is one of the key slides of your presentation. Investors are bidding for your team and their biggest worry is if you would be able to execute. Make sure you talk about the chemistry, domain experience, past achievements. Mention the complimentary skills of your cofounders and if you have worked together before. Do not create a sub-standard presentation of your headshots and degrees only. The team slide is one of the most important slides.
11. UNINTERESTING OR UNREALISTIC PROJECTIONS
Projecting $5 MM revenue in 5 years will not excite any investor. Also, projecting $500 MM in 3 years will get you laughed out of the room if you are at zero revenue today. Avoid assumptions that you won’t be able to justify, like 500% growth in revenue with only 30% increase in operating & marketing costs.
12. LACK OF UNDERSTANDING OF CAC AND LTV OF YOUR CUSTOMER
Be ready for questions on your user acquisition costs like what channels will you use to acquire a customer, what costs will you incur, what will be their likely lifetime value. Which areas show most promise with marketing, what is your typical sales cycle duration. Lack of answers for these questions mean that you have not thought through your business plan.
13. NOT PAYING ATTENTION TO DETAIL
For your legal protection, put a copyright notice at the bottom and add the phrase “Private & Confidential.” Include page numbers on each slide so that the investors can easily reference a specific page. Make sure your presentation is a visual treat, not text heavy and does not contain typos or inconsistencies.
14. NOT BEING ABLE TO EXPLAIN THE KEY ASSUMPTIONS IN YOUR PROJECTIONS
It feels you don’t have a real handle on your business if you can’t explain your financial assumptions and projections. If you go unprepared, you will not get a second meeting with the investors.
15. NOT ARTICULATING WHY YOUR PRODUCT OR TECHNOLOGY IS DIFFERENT FROM A COMPETITOR
You will have to explain why your product is different and 10X better than your competitor. You can assume that investors know about the competitive landscape. Don’t shoot yourself in the foot with sloppy response. Also, if your product is 1.5X, 2X, or 3X better, most times that is not good enough. 10X better or 10X less costly is a great goal to hit.
16. NOT BEING ABLE TO TELL HOW YOU WILL USE THE INVESTMENT CAPITAL AND HOW LONG IT WILL LAST
Investors want to know how you will use the raised funds and your burn rate (so that they know when you will need the next round of financing). It will also confirm that you know your costs for hiring, marketing, support & admin etc, given their experience with other startups.
17. NOT CAPITALIZING YOUR INTELLECTUAL PROPERTY
Investors put heavy premium on intellectual property. Be ready for questions on what IP does your company have and how was it developed, whether any previous employer of your cofounders can have a claim on your IP.
18. LACK OF DIRECTION AND LONG TERM STRATEGY
You need to have a clear strategy of where your company will be in 5 years and how you are going to get there. Unrealistic expectations, naïve assumptions will not help you in closing this round.
19. NOT UNDERSTANDING THE DIFFERENCE BETWEEN A STAND ALONE DECK AND A PRESENTATION
The stand alone deck tends to be text heavy because you are not there to explain it. It explains certain graphs and other assumptions & ideas. Your presentation deck should be visually appealing, with maximum 5 words per slide if possible. This will help you make a great presentation as you will not be reading out from your slides (which is the fastest way to put a room to sleep). Use your stand alone deck only when you can’t be there.
Written by: Paritosh Nath, advisor at FounderCEO.io