Garage Ventures has a great piece outlining some of the blunders they have experienced in startup pitchbooks. While some of what is included there seems a bit contrarian–either to make a point or to stir a conversation–many of the points are especially poignant as it relates to startups, but meaningless for a business performing sell-side M&A (a.k.a selling their business). Additionally, some of the points, while relevant to some startups are not as relevant as it relates to others. Finally, not all startups will have the same CIM for the same audience. For instance, we have helped some businesses looking for growth capital to create separate decks: one for individual accredited investors and one for the institutions.
How Investors Read Decks
Most investors instinctively navigate to the financials within the first 30 seconds of scanning a deck. And, believe me, they scan. Financials tell 90% of the story. They also help to showcase whether or not there is bologna in the model the issuer has compiled. They’re very indicative of history (in the case of a sell-side deal) and potential (in the case of a capital raise). If the deal is a capital raise, profoma financial statements are always taken with an extreme grain of salt.
Company sellers are best served by making adjustments to earnings that are both reasonable, but which boost the valuation enough to tell a good story. Startups need to make sure their model assumptions are reasonable.
History vs. Potential
Investing in startups is like hiring a young Harvard grad because he has potential. Investing in private equity is like hiring a 60+ year old seasoned exec as your CFO because he has “experience.” It’s not that startups do not have seasoned professionals in them. In fact, the most successful ones already do. When it comes to selling a deal, venture investors look at deals much differently than their private equity counterparts. Private equity looks at history.
No two deals are the same. Pitchdeck prep should consider the following:
Investing in startups is like hiring a young Harvard grad because he has potential. Investing in private equity is like hiring a 60+ year old seasoned exec as your CFO because he has “experience.” It’s not that startups do not have seasoned professionals in them. In fact, the most successful ones already do. When it comes to selling a deal, venture investors look at deals much differently than their private equity counterparts. Private equity looks at history. Their greatest chance at capital preservation combined with capital returns is when a deal has history that is recurring and likely to continue into the future.
VCs are after traction, size of the market and ultimately potential of a deal. History is important, but in such deals it is often short.
The pitchbook in these varying cases will reflect the difference in the audience and type of deal.
Because no two deals are the same, pitchdeck prep should consider the following:
Audience. Is it a Angel, VC, Private Equity or Strategic deal?
Is it a capital raise? If so, are the investors individuals? Institutions?
What is the size of the deal?
What type of timing are you looking at? How quickly will you need it complete?
How much readily-available data is there on the industry trends? Will extensive research be required to obtain more?
Startup and capital raise pitchbooks are often shorter, more sexy and ultimately more visually-appealing. Most sell-side decks are longer, go into more detail and are uglier as a general rule (I like to think differently about ours, but it’s a good general rule).