How to read Pitch Deck. Part One

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Everyone who has heard the word startup has definitely listened to another word: pitch deck. To choose among the variety of beautiful slides that are really worthwhile, an investor should learn to understand the enticing numbers and words on his screen.

Risks we are struggling with

Venture investments are fraught with high risks. So, we want to make sure that:

• The startup team is experienced and professional (team risk).
• The team has found a customer need and a solution to that need (product risk).
• The team can build the intended product (innovation risk).
• The team has a clear strategy and plan for scalability (launch risk).
• Customers will like the product and be willing to pay money for it (go-to-market risk).

Next, we'll look at these points in more detail.?

Pitch deck structure

In the early stages, it consists of the following slides:?

1. Problem
2. Its solution
3. Team
4. Market
5. Competitors
6. Traction (optional)
7. Strategy
8. Where the money will go

The list is not exhaustive and may include additional material. The order of the slides is not crucial. For pre-seed, the absence of traction is forgiven. Everything else is mandatory.?

Let's start with the basics.

Problem

The startup must show the existence of demand. It's a mistake to believe that the difficulty we personally encountered is widespread. Perhaps it is widespread, a solution has long been found, but we simply haven’t noticed it.

What should an investor pay attention to? Storytelling and proof of demand. The startup either has data from public sources or independent research – customer development. The better a startup thinks through the first stage, the better all the others will be.

Storytelling is another good indication of a founder's involvement in a product. A startup built on mercantile considerations will lose to a startup based on a personal problem.?

Don't discount the personal attitude of the founders toward their child. This is especially important in the early stages. We'll talk about the team, though.

Solution

This is a voluminous block, which we will break down into three parts: the technical side, unit economics, and the business model.

The point about technology is noteworthy because it is here that startups start to fudge their brains, substituting “innovation” for business. Pay attention to the concentration of such information in the pitch deck. If you can't see any business behind that wall, that's a cause for concern.

Unit economics is a set of metrics and indicators of the economic feasibility of a product. In other words, what costs does a startup incurs, and how much does it earn per unit, where a unit means goods. There should be unit economics. We understand your bewilderment, but startups do pretty well without it in their pitching decks. That's a massive mistake for the young prodigies.

And finally, we come to business models. The business model tells precisely how the startup is going to make money. In the local lingo, that sounds like monetization. Each startup can have its separate business model, even in the same category.?

Team

In the early stages, the team is the principal capital of the startup because besides itself, hypotheses and MVPs, there is nothing else to offer. In turn, management does not play such a significant role at later stages. The management of a young startup, on the other hand, has to build the foundation from scratch, which means there are corresponding requirements. When viewing the slide with the team, pay attention to the staff, past jobs, competencies, and shares.

The size of the team means the ability to handle a complex and complicated product. Instead of numbers, look at the composition. Suppose no one else is on the slide except the CEO and the sales department. In that case, it's worth asking a logical question: who does the product development??

A separate case is top management. Ask tops if the presented project is the only one they lead. Founders may work in several startups at the same time, which reduces their involvement.?

Let's finish this part with the question of shares. Two or three people would be the optimal solution. Investors are attracted to a strong leader.

Market

We are only interested in two characteristics of the market: the volume and the share that the startup plans to capture. The bigger the market, the better. More specifically, aim for the minimum figure of $1 billion. However, there may be exceptions.

It is important to note that market size affects a company's valuation and scalability. The larger the market, the higher the company's valuation and the more likely it is to make an exit.

A startup's share is linked to the size of the market. Venture capitalists appreciate small but unoccupied and new niches that are just gaining momentum. Think of the hype dedicated to metaverses, NFT, and other fads.

As a rule, be skeptical of projects that prophesy to break into the market and take large shares. But if they have insider information and reliable data, it's worth considering. Profitable markets are likely already occupied by competitors, which can't be dealt with at once. And now that we're talking about competitors.

Competitors

The slide begins, as usual, with the manifesto – our product has no analogs. As an alternative – we have no competitors. This is terrible news for the investor because the lack of competitors indicates one of two things. The startup either hasn't done its niche research homework or created a product no one wants.?

Investors expect from a slide about competitors above all honesty. A startup doesn't have to be different in everything. A few killer features and working monetization are enough.?

Traction

Traction refers to the money the startup has earned or is earning. At the pre-seed stage, there may be no such slide due to the age of the startup. Starting at the seed stage, it is mandatory. The traction answers the central question of the investor – where is the money?

This is an excellent time to talk about investments and prospects.

Strategy

The slide about strategy talks about the startup's plans to enter new markets. This is called scaling. Scaling is one of the most important characteristics of startups because their products are created with global application in mind.

Where the money will go

As with the team, look at the balance of spending. Spending items should include both development and promotion. A strong bias in one direction can be alarming.

To sum up

In conclusion, any pitch deck slide is a test of trust. You, as an investor, cannot find out and control absolutely everything. Eventually, you have to trust the team. And if that's the case, track down reliable people first, and then look for technology.

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