Investors see a lot of pitches, maybe even thousands, over the course of their careers. And while picking winners gets easier with experience, it can be challenging to know how to choose the right investment when you’re just starting out. Knowing what questions to ask and how to translate startup lingo is a challenge all investors face.
So how do you know what kind of traction is good traction? And how do you spot a great go-to-market strategy? VC Catalyst lead instructor, Pedram Mokrian takes us through how he decodes his pitch decks.
The pitch and the opportunity
1. First and foremost, a good pitch demonstrates clarity of thought. If you come away from a pitch a little confused, don’t invest.
2. The company’s vision should appear early in the pitch and immediately give you a clear idea of the business; the problem it’s dealing with and solution it offers.
3. Next, comes the market opportunity, which should provide a description of the business opportunity and the market, including pain points and trends. Crucially, you need consider if their timing is right. Too early and they’ll burn resources explaining themselves to the market; too late and the opportunity will have been lost to a competitor.
The team and the idea
4. You need to walk away with a good sense of the team; who they are, their strengths and whether they work well together. If you invest, you’re going to be working together a lot, so you need to feel confident your partnership will work. Look out for red flags like the CEO not leading the presentation or any signs of disunity.
5. The pitch should give you a good understanding of the product and ideally include a demonstration. You should feel confident there is a strong product-market fit and have a good understanding of the product’s current and future roadmap.
6. The company should articulate its achievements to date. What traction have they gained in-market so far? You’re looking for evidence that their solution is fulfilling a genuine need. For more established companies this might be data on customers, users, revenue or engagement. For newer companies, it might survey data, beta trials or customer interviews. Pre-sales or signed memorandum of agreements with customers are a great sign.
What’s the landscape and how are they planning to launch?
7. The pitch should give you a good understanding of the competitive landscape and how this company differentiates itself.
8. The go-to-market strategy should be articulated, including the company’s business model. Essentially, it should be really clear how they’re going to make money and attract new customers. Business models vary widely and include subscription (Netflix), commission (PayPal) and advertising (traditional media).
Time to talk money
9. The pitch should outline current revenue and 2 – 5 year projections. This should include the company’s path to profitability and operating projections. Watch-out for overly optimistic projections.
10. The company should be clear about how much financing they are looking for and why. What’s the valuation? How much investment is required to hit the milestones within this round?
11. Ideally the pitch will articulate the unit economics (the sale price, the cost of a sale and its gross profit), and the customer acquisition costs (the approximate total cost of acquiring a new customer), so you can quickly wrap your head around the financials.
As with anything else, practice makes perfect. It can be useful to think of the early pitches you hear as an apprenticeship; working with more experienced investors will help you learn the nuances of investment decision-making and how to spot red flags. The more pitches you look at, the better! So get out there and start decoding.
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