Startup Fundraising Tips: 11 most common pitch deck red flags to Avoid
Startups have to pitch investors to raise financing. Many entrepreneurs from earlier-stage companies make common mistakes that could be avoided. Whether you’re raising your first pre-seed, seed stage round or you’re ready for the larger series A funding round or venture capital.
It may not always seem like it, but Venture Capital investors are actively looking to trust you with money to build your startup. It’s the founder’s job to derisk that decision for them by building their confidence that they will return the capital (and then some).
Enter the pitch deck — a single document or slide deck pdf where founders need to explain their entire business. investors see hundreds each month, but founders only get one shot each.
Some elements of pitching your startup will include:
- Your business idea
- The market opportunity
- Your startup’s business model
- Why your team is the best one to execute
- The company’s track record
The VC funding landscape in 2022 has seen a sharp market downturn due to the fed raising rates to fight inflation and the cost of capital going up substantially. The economic downturn means that investors becoming more selective about their investment portfolios. These tough conditions will also forge resilient startups with efficient operations, sound scenario planning, and strong business models.
There’s a lot of (sometimes conflicting) advice about what you should do with your pitch deck, but that can vary. it’s more helpful to call out some red flags you should avoid at all costs. I came across a tweet thread from Michael Houck, a cofounder of Launchhouse where he listed the red flags he sees after reviewing hundreds of pitch decks from startups.
1 early stage financial projections
Here’s a secret — investors and venture capitalists know you made them up and that they won’t be accurate or relevant in a few months. They’ll know things will go wrong.
They’ll know you might need to pivot the whole business at some point.
What they don’t know is if “YOU” know that.
They’ll be concerned if they think you believe everything will go as planned.
What you can share instead is some idea of your business model.
It’s ok if you expect it to change. but you should have at least done napkin math to arrive at your market size, because they will.
2 no competitors listed
A competitive landscape analysis should always be part of your presentation.
Recently funded competitors = validation.
It’s validation that other investors are excited about the space you’re building in, which is a good sign for being able to secure more funding when the business grows.
highlight your differentiation to stand out. An investor will want to know why your product or technology is better than or different from what is already out there.
3 an overly designed deck
There’s a whole class of consultants out there who help make your deck look “professional” but Mr Houck says that some of the best decks he has seen have a plain white background and black text.
Most of the time, the only thing having a “well-designed” deck proves is that you have someone on your team (or paid someone) who knows design. Unless your brand — be honest — is your primary moat, you don’t need a professionally designed deck.
Now some investors such as First Round Capital think it does make sense to have a professionally designed pitch deck so this one might be up for debate.
Spend time making your message coherent and concise instead.
4 too much info on each slide
Investors spend under 3 minutes on most decks.
Each slide should make 1 point that should be immediately apparent.
The rest of the slide should be supporting evidence.
If you can’t get your point across quickly, you won’t.
5 the deck is more than ~15 slides
Your deck is a sales document.
Its only goal is to get investors interested in meeting.
It doesn’t need to answer every possible objection.
Keep it to 1 slide per section and use sequoia capital’s deck template. Now, having a clear distribution strategy is more important than ever, so i’d add a Go To Market slide to their list.
6 no listed credentials
Y Combinator’s admissions team told Mr Houck that “the best indicator of someone doing exceptional things in the future is whether they’ve done exceptional things in the past”
Everyone has unique experiences — highlight them.
7 walking through the deck in a pitch
Investors want to leave a meeting with all their questions answered.
If they have the deck beforehand, they’ll know what to ask and you’ll have a more productive call.
Don’t use the deck as a crutch — open yourself up to their questions.
8 no narrative structure
Storytelling isn’t just for your pitch — slide order matters.
There’s no silver bullet and some investors have unique, silent preferences.
Prioritize clarity. Share your deck with friends and see what questions they ask. make adjustments.
9 focusing on the solution
Don’t fall in love with your solution.
Great decks have 3 things:
– a painful, urgent problem
– a big, growing market
– a proven team with relevant experience
The best decks also talk about distribution strategy.
10 Mentioning “Exit Strategies” in the deck
Referring to “exit strategies” or exit plans anywhere in the deck.
No entrepreneur should be thinking about exits for a business they want a VC to invest in.
11 not sending it to investors before a meeting
This is not about sending the deck unsolicited or in a cold email outreach. This is meant if you already have a warm intro from a referral from someone in your networks such as an advisor, founder, or a lawyer that referred you to have a meeting with an investor.
Why did jeff Bezos institute a rule at amazon where meetings couldn’t begin until everyone had read a memo with context?
If everyone has context ahead of time, attendees will ask higher-quality questions and discussions will make more progress.
Remember that it’s not necessary to answer every question in the first meeting. Your initial pitch to investors is about instilling confidence in your team and your business potential. Good investors will do their due diligence. Focus on selling your business idea so that investors will want to continue the conversation after your first presentation. Now it is especially important if you are going to raise a Series A round, you should be thinking about preparing due diligence materials which include financial documents such as P&L statements, business plans, financial cash flow forecasts, tax computations, proof of tax compliance, your cap table and more. Of course, we suggest working with an experienced startup-focused accounting firm, like Huckabee CPA, well before your startup is in the due diligence phase of an important fundraising or M&A transaction.