Writing a Presentation to Raise Venture CapitalAn Illustrated Example

Venture Pitch Title SlideMany new ventures require large amounts of capital in order to reach profitability (but not all). Over the last ten years I’ve raised approximately $230M in venture capital for my own companies and helped many other founding teams (most recently Pancetera) with pitches which have resulted in their successful raises. Over the years I’ve evolved the template I use for seed round venture capital pitches and I thought it might be interesting for me to share this with the reader.

There have of course been many articles written on raising venture capital and how to write a plan or pitch but few of these (actually none as far as I’m aware) have an actual example of a successful presentation included as an illustrative example. There are many possible reasons for this. Maybe the pitch contains company confidential information or possibly the ultimate company product or financials deviated by quite a long margin from the original vision.

I’d like to walk you through the original Data Robotics (originally called Storage OS[1]) seed round venture pitch and explain the thinking behind the slides. Fortunately this pitch doesn’t contain any information that isn’t in the public domain and the company is reasonably well know so it makes a good illustrative example. This pitch was also successful (I’ve been lucky enough to have had a 100% success rate so far) and valued Data Robotics at an approximate initial valuation of $12M with nothing more in assets than this pitch and our initial patent.

The sections of my current seed template are as follows –

  • The Team
  • The Opportunity
  • The Solution
  • How Does It Work?
  • Paths To Market
  • Business Model
  • Summary

In the coming weeks I’ll walk through the slides in the various sections dealing with one or two sections per post but in the meantime here is a very short summary what what each section should and shouldn’t contain.

The Team
This section establishes the credibility of the founders who will be giving the presentation and introduces team members not present to show the overall strength of the founding team. Keep the names discussed to just the core founding team members.

The Opportunity
This section of the presentation shows an attractive and hopefully growing market, then outlines some kind of pain the customers in that market have (or possibly some completely missed opportunity) which would allow market share to be captured.

The Solution
This section of the pitch outlines a solution (not technology) that resolves the pain experienced by the customer. I like a story based walkthrough of a real world situation if possible showing what the customer experiences contrasted against what they have to do currently.

How Does It Work?
This section shows the technology underlying the solution and shows why it’s involved, defensible and has long term value. This description should be kept short and high level for your initial pitch meeting as you’ll be quizzed later by more technical folks and you can whiteboard with them on the details. It’s extremely unlikely that the venture folks you’re pitching will be subject matter experts on the details of the technology.

Paths To Market
One of the most important parts of the presentation, this section shows how you expect to reach, educate the customer and ultimately fulfill the resulting demand. Alternative sales strategies might be a channel based model or direct sales force. Marketing strategies might include online, viral or traditional (or more likely in the modern world some blended strategy). The mood on the best go to market models tends to change fairly rapidly here in Silicon Valley so it’s also a reasonable fundraising strategy to outline several options, discuss your preferred model but keep the matter open for resolution in the future.

Business Model
This section shows a very simple layout of the company fundamentals to demonstrate how the company can provide a great return within a sustainable business model. A five year income statement example and cash flow should be enough. Sometimes I’ve just used graphs (with numbered tables held as reserve slides) as these are easy to quickly digest. Currently it’s possible to get a new media or social media company founded with little to no idea of where or when income will materialize but I’m a traditionalist and shy away from this kind of venture.

Summary
No more than three or four one sentence bullets outlining why the target market is great, what the current problem is, how the new venture solves it and how much can be made doing that.

 

Here are a couple of final points to consider –

  • Focus your presentation on telling a story. This will resonate with your audience much more than any technology or business details.
  • Don’t allow yourself to get sidetracked. Several times a member of the audience has asked me to just tell the story without a structured presentation or has dived straight into detailed questions. Once the narrative flow is lost it’s very difficult to get your audience to the right conclusion so instead insist that the presentation will cover their questions later and get right back on track. You will of course need to be open to discussion and longer questions following the conclusion of the pitch.
  • I often hear talk about the number of slides being important. That’s not key but the pace and duration certainly is. Try to keep the length of the presentation to 30 minutes or so as a maximum. Venture folks see a lot of pitches and it’s tricky to hold their attention for much longer than this. Much better to use any extra time for discussion.

 


Footnotes

[1] Yes, I do know that this abbreviates to SOS!

Don’t Ask, Test

It’s probably controversial to say but I’m not a huge fan of asking customers what products you should build to meet their needs. Truly disruptive products are based on the correlation of a multitude of points of customer pain and market opportunity and putting them all together is a big task. That’s your job not the customers.

This kind of thinking is generally contrary to the behavior inside of product companies which often look to product marketing for feedback from customers in terms of what should be built next. An analogy I use to show how this often works out is: If you went back 100 years and asked a traveller who made frequent transatlantic trips how to improve those trips you’d get answers like “A Better Stateroom”, “Faster Boat” and so forth. Only a lunatic (read visionary or entrepreneur here) would have suggested “Flying Across the Ocean”.

Apple is the canonical example here of course. Steve Jobs has said publicly many times that they design the products they’d like to use rather than designing based on customer feedback. Contrast this with Microsoft’s “I designed Windows 7 campaign” where they claim (I suspect somewhat erroneously) that their customers feedback determined all of the key features in their product.

However, I am strongly in favor of asking customers questions that enable you to determine the correct product to build. Whilst most people would agree with this, it turns out that asking the right questions is an extremely skilled task. Almost everything I learned on this subject I learned from a man named Mark Fuccio.

I’ve had the good fortune of working with Mark for over 10 years now. We first met when I hired his firm (Tactics) in the early days of BlueArc. Prior to BlueArc I’d been building data centers for a living and had generally been making good money displacing UNIX systems and replacing them with the simpler, more modern and much less expensive Windows NT systems. This had lead to several biases on my part. When Mark was brought in to analyze BlueArc’s initial market opportunity we were only engineering Windows protocols (SMB/CIFS) into the first Silicon Server and ignoring UNIX entirely (crazy in hindsight). Mark knew it would be extremely unpopular to tell the team that we needed to engineer the UNIX file serving protocol NFS into the product but after performing customer testing he did just that. Mark has never been afraid to deliver the bad news very directly. There’s an old adage that a consultant is a person who borrows your own watch to tell you what the time is. There’s also a lesser known and often more accurate adage (unsurprisingly told to me by a consultant) that a consultant is the guy who pulls the watch out of your a*s to show you what the time is. On that day Mark removed the watch for me and without that vital feedback BlueArc probably wouldn’t be in existence today.

Mark was one of my first hires at Data Robotics and his analysis lead to the accurate targeting of our initial markets and many of the attributes of our product when launched. He’s a master at creating online studies that walk the questionee through a series of paths based on their earlier feedback. These complex studies also often are self reenforcing allowing the results to be quickly validated to determine respondents who clicked aimlessly vs. those who applied some thought to the questions. 

The most important thing I learned from Mark over the years is –

The Way You Ask Questions is Critical

One illustrative example that sticks out clearly in my mind was in regards to the initial pricing for Data Robotics first product, the Drobo, which we could supply with a range of different storage capacities based on the number and size of hard disk drives we included. If we just asked customers which price was best for each capacity then they’d clearly select the lowest price. A common tactic in studies is to ask customers to rate a price range for a product as cheap, about right or expensive but even this is limited. In the study Mark crafted he first asked customers how much storage they wanted in the product and then determined price ranges based on their answer whilst keeping them isolated from the alternative choices and prices. I was amazed by the results….

Drobo Initial Capacity Expected Price
250GB $125
350GB $200
500GB $400
No Disks $520

amounts are illustrative only and not the actual numbers from the testing

Our testing showed clearly that customers were willing to pay more for an empty Drobo than one containing storage, even though the empty Drobo was of course much cheaper and simpler for us to build. This was an example of a result that you never would have guessed but was very explicable once you could see the data. Prior to Data Robotics all sub $1000 storage systems contained storage and were priced at a very small premium to that storage. Thus a 500GB system was priced more or less at the same level as a 500GB hard drive. The industry had trained customers to think only about the price of the storage and the product’s actual feature set (which was more or less identical in every other system) was ignored. Once initial capacity was removed from the question about the price of a Drobo then the customer taking the survey focused instead on the revolutionary features of the product and priced based on that value instead.

This data ended up driving our whole strategy to launch Drobo as a diskless system and allowed us to set a price based on it’s value, rather than the alternative of having to compete in a low margin market priced on the storage in the system as did our competitors (who were mostly disk drive vendors and thus at an advantage in this area). We also did some price banding at launch to further test this assumption but I’ll discuss that in a later post.

In summary –

  • Don’t ask your customer what product you should build but instead survey them about their pain, challenges and opportunities, then design and suggest varying solutions to determine their receptivity to them.
  • Think carefully about every product decision. It is driven by data or internal assumptions?
  • Be thoughtful in how you ask questions and test assumptions. Even the slightest context can bias the results but correctly performed testing can be very valuable indeed.