Tip #69: Showing you run out of cash

Tip 69: Running out of cash. Do not show a set of projections where you run out of cash. A negative number in the “cash position” or “ending cash” line is not going to work.

This one sounds, and is, obvious. Just to recap, as investors our primary concern is losing all our investment, which happens when the company runs out of cash. Presenting slides showing you running out of cash should be, and usually is, termination of your pitching opportunity.

And yet, we frequently see decks showing negative cash balances. Here’s one from an otherwise strong pitch. It was a brave move.

As we said last time, there is only one single “minimum cash position”, so show it as a number. But make that number MORE THAN ZERO!

Tip #68: Minimum cash position

Tip 68: Minimum cash balance. Remember the last tip where we noted our sensitivity to running out of cash? Good. Now take a guess at how many presentations tell us what their minimum cash position is during their projections if they complete this fundraising?

If you guessed less than 2%, you would be right. In fact, searching all the pitch decks we received last year, not one included the phrase "minimum cash position." Every single one of our due diligence reports does.

So tip #68: tell us (as a datapoint – a number in a circle) the minimum cash position and when it happens in your projection model.

Tip #67: Breakeven

Tip 67: Breakeven. One of the most frequently answered questions during Q&A on financials is “what is your breakeven point in terms of customers and when do you project that will occur?”

Why is that the most frequently asked question? Because presenters almost never tell us that unprompted – and because projection tables don't make it clear. Tell us!

Why is it important? At the stage angels invest, companies frequently go out of business. They do this because they burn cash and run out of it before they become self-sustaining. Therefore, we are highly sensitive to how much success you need to achieve to be sustainable.

If you think it's 3 customers and next week, it will probably 10 customers and next month – but as you’re raising enough capital to cover six months we might invest.

If you think it's 30,000 consumers and 2 years, and you’re raising just enough money to get there if the stars align, we probably won’t.

So tell us clearly (as a datapoint – a number in a circle again) what that point is and when.

Here's one example. Good thinking to state the breakeven point; poor execution in creating more questions (How can the breakeven point be a range? Why such a wide range? Did these guys come up with this on their way over here?)

Tip #66: Unit economics

Tip 66: Unit economics. Your projections don't depend on what might happen in the future. I know that sounds counter-intuitive: we are interested in what could happen to this business over time, but we’re just as interested in what you know right now about the current economics of your business.

This is good news, because hopefully you do know something right now about your business. (The bad news is that a projection table is a hopeless way to present what you know about now.)

Let’s take a Saas business, for example. We can only hope to guess at what could happen if we know some key information on what is happening. What is the monthly revenue per user; what is the churn / retention rate so far; what is the cost of delivering the service; what is the cost of acquiring a new customer; what is the ratio between this cost of acquisition and likely revenue from that customer?

Each of these requires a single data-point – a “number in a circle.” $100/mo, 1% churn per month, $20 COGS; $50 to acquire a customer; 10.6x cost/revenue per customer. It doesn’t require a projection table.

Something like this tells us what we need to know, with no projection table in sight.

Tip #65: The projections table

Tip 65: The financial projection table. If you copy and paste your full P&L, balance sheet, and cash flow statement from excel into your powerpoint slide, you won’t get funded. Don’t do it.

As we mentioned in tip #21 about tables, just dumping in a table and saying "these are our projections" shows no awareness of the implications of saying you don't care about your financials. So if you insist on a table, make sure they are, at an absolute minimum, legible, good looking, and consistent with the format of the rest of your pitch.

That sounds like a pretty mediocre tip so far. Well, below are some example of actually-used projections tables: tell me if you think they're likely to impress you enough to write an investment check.

Not meaning to pick on these ones particularly, because we have many, many, more examples, but I'd say the pitches would have been better showing a blank slide.

You have two options: provide the same info without a table or chart (see next few tips), or provide a good table or chart (tips to come later).

At least that one tried to match the overall formatting of the deck.

At least that one tried to match the overall formatting of the deck.

And a real cracker:

Note: We see this format of P&L (and an accompanying cash flow statement) from SC-based companies. This is the format SCRA / SC Launch request for their pitches. If you're doing your homework, you probably understand why this is useful for them.

But it is not useful for us. It is impossible to read on a screen, covers detail that we don't care about, and proves you are not doing your homework on us. It's fine to use the same underlying model, but change the output table please!

Tip #64: Conservative financials

Tip 64: Financials – “conservative projections”. OK, the dreaded financial projections. The financials slides are almost always the weakest part of a pitch. Why?

Perhaps it's because financials are hard and not core to most people's training. (This is also why in due diligence our average score for "cash flow" is the lowest.) But this is an opportunity to outshine your competitors, so here are some tips.

Overall, bear in mind that you know – and we know – and you know we know – that these projections are a fantasy. Your job in the financials section is to MAINTAIN CREDIBILITY. It isn't to get us excited about the gradient of a curve or the number of zeros at on a number in year 5. It's much more modest: don't do anything that makes us question your understanding of your business, market, or sanity.

First tip: “these projections are conservative”. Stated in 90% of pitches; true in 0% of pitches. Don’t say it – it’s instant credibility whiteout.

Even the most optimistic investors say achieving projections takes “twice as long and twice as much money as presented.” And in reality, even our most successful investments very rarely come close to hitting their original projections. Projections are, by definition, wildly optimistic.

Just saying they're “conservative” doesn’t make that true. You need to provide material so that we can believe these projections are sane. We’ll share a few tips on how to do that.

Tip #63: Competitive matrix

Tip 63: Competitive matrix. Competition slides fall into two categories: logos and bullets, or the matrix.  

Something like these: capabilities down the side, competitors along the top, crosses / blanks in most columns, check marks in “your” column.

This can be pretty effective and efficient. But bear in mind a few things.

It looks very familiar. Could there be a better or more effective way?

(Obviously, make sure they’re legible from the back of the room.)

We know you chose the criteria and selected the check marks, so we know how you’re manipulating this. (As one member recently asked, "have we ever seen a matrix that had a single "No" in the pitching company’s column?" I couldn’t find one.)

You are also making some big claims that might not be accurate. The expert in the audience will quickly be able to tell if you’re telling the truth, and you don’t want to be called on it during the pitch – especially if it’s a check or cross that really isn’t that important to have included in a pitch.

And presenters often let the slide down by

  • duplicating what's already been covered: you already told us about your unique product features back on the product overview slide
  • "reading" it allowed: "competitor Q offers features a, b, c, and d, but not e, f, and g". Thanks, we can read that ourselves.
  • giving lots of detail on the competitors’ history, capabilities, or something else not relevant.

But used well, this can be a winning slide.

Tip #62: Poor competition analysis

Tip 62: Poor competition analysis. Assuming you’ve taken the “credible” route of discussing some competition, be aware that we probably won’t dig too far into competitors during the pitch itself – and therefore you don’t need to give us exhaustive detail on them.

What you present firstly has to be accurate - because we will examine this thoroughly in due diligence. Make sure you show every relevant competitor – and characterize their capabilities and interests correctly. If you say your direct competitor’s product takes twice as long to set up as yours, but we find out later it doesn’t then you’re toast – even if your product is better.

But don't exhaustively go through a list of near-competitors and differentiate yourself from each of them. Aggregate - these competitors are more expensive; these are less feature rich; these are run by idiots. Cover the general categories of differentiation, but go through each of Companies A to N to show how. Takes too long and doesn't add anything to the general categories.

And finally beware: for most of the companies we see, someone in the audience is going to be intimately familiar with your industry and your competitors. Trying to bluff them through this part is a deal killer.

Tip #61: No competition

Tip 61: No competition. No-one has no competition – so don’t start your competition slide saying so.

At the very least, inertia is competition: why aren’t potential customers already using your product today? How are they surviving without it?

Even this best-case scenario is exceedingly rare. Almost every company has direct competition today. And if somehow they don’t today, they probably will tomorrow – and definitely will as soon you prove this business makes any money. Your competition slides needs to account for this.

But starting out by saying you have no competition just ruined your well-maintained credibility.

Perfecting Your Pitch - The Tips

So far we’ve outlined what we won’t fund and probably won’t fund, given you in-person “how to pitch” sessions, and outlined our five key philosophies for angel investment pitching – “Pitching is a Process”, “Do your Homework”, “Maintain Credibility”, “Keep it Simple”, and “Practice, Practice, Practice”.

So far, so obvious, right? Maybe, but strangely so rarely seen in companies seeking funding. Nonetheless, some companies do deliver on at least some of these principles – and almost all of the 3% of companies that we fund deliver on most of them.

So over 2017 we’ll be sharing some shorter tips on how to beat your competition by pitching more effectively.

Of course, there is no single “right way” to pitch. Some of our tips disagree with others (including some other early-stage investors) and very likely disagree with how you think you should present it. That’s fine: take what you find useful, ignore the rest, and give us your best shot. Proof comes when you get funded. Or not.

We’ve tried to arrange these tips thematically, starting with the format, high-level content, and delivery, and ending in specific tips on detailed content for each subject area and slide. Still, we jump around a bit: if you want a logical and coherent list, better come to a workshop or better still get the guide.

Philosophy #5: Practice, Practice, Practice

You would think this is obvious and everyone embarking on a fundraising process would be well prepared and practiced. But you would be wrong.

If the first time you’re delivering your slides to a live audience is at our funding cycle meeting, we guarantee you won’t get funded by us. If you confess “I’ve never had that question before” (particularly if it’s an elementary question), you’re toast. If you can’t deliver your pitch without your slide deck as a crutch, you won’t beat the next presenter – who can.

Practice, practice, practice!

Philosophy #4: Keep it Simple

There is a lot to learn about a business in a 30 minute pitch session. Hundreds of potential subjects to address, areas to consider, thoughts to encourage (or avoid), questions to answer. How can you hope to cover everything a potential investor “needs” to know?

You can’t. But fortunately you don't need to. All you have to do at each stage in the investment process is get to the next stage of the process. Provide just enough to make that happen.

How? Always keep things as simple as possible.

Generalist investors can’t “learn” your industry and its problems in two minutes, understand all 15 of your innovative product design features in one minute, or digest your five previous management positions in thirty seconds.

The best we can do is learn you have found a big and genuine problem, you have a solution, and you can build a company worth $25 million in five years by providing that solution. That's enough for us to move you into due diligence.

Investors can’t be expected to evaluate these key foundations while we are trying to understand your jargon, read 10,000 words of text on your slides, and ask you questions all at the same time. You have to make what you are doing easy enough for anyone to understand – immediately.

Philosophy #4: in everything you present to investors, keep it simple.

Philosophy #3: Maintain Credibility

There are lots of discussions about why people invest in early stage companies. Fear of missing out? Emotional gut reaction? Sensible diversified portfolio? For fun?

All of those discussions are interesting, but perhaps more important is why people don’t invest: because they don’t believe you can do what you’re proposing. Somewhere along the pitching process you have lost credibility.

People evaluating your early-stage business have very little material to evaluate. We don't have five years of historical financials, years of customer behavior data, or often much scientific data proving that your product even works. Minor things can therefore take on disproportionate importance.

Has this individual been 100% truthful and clear? Did they charge a $6 Starbucks to the startup or did they have a $2 filter coffee on their personal card? Are they shady, eccentric, scatterbrained, organized, thoughtful, considered?

Some of these first impressions might be entirely unfair, but they happen. Your defense is to present a credible picture in everything you do when fundraising – and, in fact, any time, because we will learn what you are like when you are not just in “pitching” mode.

Underlying philosophy #3: maintain credibility throughout your fundraising process.

Philosophy #2: Do Your Homework

No authors write well without knowing their audience; no salespeople sell well without knowing their customers; no companies pitch well without knowing their potential funders. You can only know your funders by doing your homework.

What is the right kind of investor for my business? Where are those investors? Do I fit VentureSouth’s investment criteria, or Wells Fargo’s funding criteria, or SCORE’s advising criteria?

What kind of return are they seeking, and when, and who am I competing against for their attention? How can I differentiate myself from the other companies raising money?

What kind of deal should I offer? How do I prove my traction effectively? How painful is this process going to be? What can go wrong?

You need to have good answers to these questions before you even approach a funding source. Connecting then learning is not the way to go. “Hi, I’m not sure if I’m a good fit but I was wondering if you would fund my company” is a certain way to get to "you're not a good fit."

But that’s why you’re reading these posts, right? And why you’ve already read this page.

Philosophy #1: Pitching is a Process

We start out with five “philosophies” of angel investment pitching – meta-guidance that underlies many of the future tips.

1)      Pitching is a process.

The “pitch” is one part of raising capital. It isn’t the first or last step. The entire “pitching process” is deliberately a series of hurdles and challenges to test different business characteristics and presenter qualities – understandability, sell-ability, fundability, credibility, resilience. You need to understand the whole process in order to be successful in any given part.

This diagram summarizes the steps of our investment process. Pitching is important, but note how few companies actually make it to the pitch: the chances are the pitch has failed even before you reach the "Pitch Deck" (stage 5). You need to be a high quality candidate at every stage of the process in order to get funded - starting with the opening email!


Perfecting Your Pitch - Introduction

Every few weeks, we run an educational workshop to share the insights we have gained from seeing many hundreds of companies pitch to angel investors. The most recent, in Greenville last month, was a packed house of entrepreneurs looking for advice.

These events are popular. We’re going to try to bring this workshop to all the locations with a VentureSouth angel membership group, but it is hard to do that while running angel groups. We also pack a lot of material into 90 minutes – as you will see if you attend. (Subscribe to our newsletter to hear details of future events.)

So we have decided to add this repository of tips and suggestions. This post kicks off a regular feature where we share a quick idea on how to improve your pitch, or how to avoid a pothole along the way.

Some of these suggestions are specific to angel groups, but most apply to any form of capital raising. Our goal is at least one a week until all our candidate companies have the "perfect pitch."

Why are we qualified to do this? We're not really. We are not a general “pitch practice” company, sales training consultancy, or public speaking trainer. But over the course of the nearly 2,000 business plans we have reviewed and nearly 200 companies we have seen pitch to our groups, we have learned what works in our groups – and what doesn't.

We hope you find them useful, and welcome your feedback, debate, criticism, and suggestions for improvement.