Philip Specht
At Speedinvest we see thousands of pitch decks each year from truly exceptional founders with fantastic and innovative business ideas. Over the years, we have noticed several key areas where founders could really make a difference in the quality and impact of their pitch. These include:
- Market sizing
- Competitive analysis
- Sources & market research
- Customer and expert insights
- UX and product validation
- Defensibility
- Forecasts
- Measurable KPIs
We decided to dive into these points to help you up your chances of acing your pre-Seed fundraise, with added perspectives of investors from across different sectors. Separately, we also share perspectives on how to be strategic about the form and function of your pitch deck at any stage of fundraising.
But now it’s time to dive into the detailed measurables and market info that will make you stand out from the pack!
Be clear about your monetization potential (and show your math!)
When investors think about market sizes, they are ultimately interested in the monetization potential of your startup. How much revenue can be earned in your market and what is the margin potential. Marketplace founders, in particular, sometimes report gross merchandise value (GMV) potential. This is an interesting figure but can be highly misleading, particularly in commodity markets in which the take rates of marketplaces are comparatively slim.
So if you are a marketplace founder, for example, start with GMV, but then also show the percentage of GMV your startup can monetize to derive net revenue potential. To make the potential of your business even more comparable across marketplaces and other types of business, you can make an estimate of your gross margin as a percentage and then derive the gross margin potential of your business.
A healthy rule of thumb is that if the gross margin figure is above $1 billion, the monetization potential will be sufficiently attractive from an early-stage investor perspective.
Be thorough in your competitive analysis
We tend to see a lot of charts presenting how a startup differentiates itself along two axes or criteria. While this is a nice way to structure a competitive landscape, it is not a comprehensive competitive analysis. Ideally, founders create a due diligence document that compares their startup to others using multiple criteria, including number of users, geography, total funding, and target group characteristics. Furthermore, it’s always great to include your key USPs, why your approach is superior, and why you will beat the competition.
Provide sources & market research
To prove your startup is solving a problem, many founders quote facts, figures, and study results in their pitches. However, what is commonly left out is a list of sources. Our recommendation is to provide investors with access to a data room. It should contain any relevant materials that will help them better understand the market and problem you are solving, such as studies, articles, and research papers. You can even go one step beyond this and provide a short summary of the most important points.
Since we first want to understand the market dynamics, it is helpful to describe the market structure. Taking again the example of a marketplace, you can show how fragmented the market is. How many buyers and suppliers exist? What is the role of any go-betweens or brokers?
Gather customer & expert insights
Surprisingly few of the startups we speak to have conducted first-hand, in-depth market research by talking directly with customers or experts in the field. We highly recommend, when you start your business, that you conduct a significant double-digit number of interviews with experts and prospective customers and suppliers. This will provide insights and (hopefully) evidence that backs up your claims about customer/supplier pain points.
One of the best ways we’ve seen this presented by a startup was through a data room containing interview highlights plus transcribed texts and audio files. A great tool you can use for audio transcription is otter.ai. If you have limited time or want to reach more respondents, you can also work with service providers that help you speed up the interview process.
Go beyond screenshots of your MVP
When talking about UX and product validation, it’s common practice at the pre-Seed stage to include some screenshots of the MVP in the pitch deck. That is fine. However, it’s even better if you can demonstrate how users actually interact with your product and how you approach product development and testing (ideally in a systematic, user-centric way!). There are some great tools and service providers that can help you test your UX – a list of recommendations in this blog post from Neil Patel.
Don’t forget defensibility
It’s important to highlight some levers of defensibility of your startup. Sticking with the marketplace use case, network effects are a particularly important lever of defensibility. In light of this, it’s surprising to see how many marketplace founders leave network effects out of their pitch. We always recommend that marketplace founders underline how they have structured the business in order to develop strong network effects and, therefore, are more defensible.
Create a detailed budget plan
When it comes to financial forecasts at the pre-Seed stage, we often see incredible hockey stick curves predicting phenomenal revenue growth. However, we all know that this is like reading from a crystal ball: while it’s great to be ambitious, it’s more useful to provide a detailed budget plan for the next 12 to 18 months. This demonstrates knowledge and understanding of the key drivers and levers of your business, such as the ramp-up of supply and demand, monetization, and planned hires.
Include all your measurable KPIs
Though businesses at the pre-Seed stage are usually still in development mode and typically pre-revenue, there are usually a couple of KPIs that you can (and we encourage you to) report. For example:
- Number of sign-ups or wait-listed users
- Engagement metrics and repeat rates of beta users
- Any pilot agreements (if it’s a B2B product)
- Pipeline of advanced customer conversations
- Number of supplier profiles created
What do different investors in different industries look for?
While the magic ingredients for a successful startup across different industries will vary, there are a few fundamentals that investors look for that seem to be constant. This is especially true in the pre-Seed stage.
Markus Lang, Partner, SaaS & Infra: The earlier we invest, the more important the team is. With this in mind, the main question is: Do the founders bring all skills to the table that are necessary to make this company successful? The way we measure this is usually by examining a mix of factors like experience with other startups and the industry, references, and the quality of their materials – such as their deck and landing page. Of course, there is also the ‘gut feeling’ we get during our interactions. Are they to the point? Do they come across as 110% dedicated? Are they clearly all on the same page regarding their vision? etc.
Philip Specht, Principal, Marketplaces & Consumer: Apart from the obvious focus on the strength of the team, we aim to get a very good understanding of the market. Is the market structure suitable for a marketplace, i.e. is it fragmented enough so that a marketplace can create true value for buyers and suppliers? Do we believe that strong network effects can be created? Are the potential take rates high enough for a multi-billion dollar revenue potential?
Andreas Schwarzenbrunner, Partner, Industrial Tech: In really early deals we are looking for strong teams that want to build something meaningful in an exciting, growing market segment. Teams should bring a high EQ, market, and product understanding within the sector they are tackling. Additionally, speed, leadership skills, a willingness to adapt and learn from failures, and they should be able to communicate and sell their vision!”
Olga Shikhantsova, Principal, Fintech: In pre-Seed, it’s all about people. We look for ambitious and hungry teams addressing trillion-dollar problems, changing the status quo, and creating new categories. Teams at this stage should be focused on ongoing customer development, have an obsession with finding product-market fit, and be constantly iterating on their product. Fintech is complicated and highly regulated, so teams that have an intuitive understanding of the specifics of the market will be more able to iterate quickly while navigating compliance issues. And speed is key.”
Take the time to build excellent fundraising material – it’s worth it
Having gone through all the recommendations above you might think, “That’s a lot of work – sounds like quite a spoiled investor who would be asking for all of this.”
First, nobody benefits more from going through those exercises than founders. They get to understand the market better and can make more informed plans. Second, investors often evaluate several startups in parallel and have certain time constraints. So the better information you provide, the easier it is to influence the investor’s opinion. You also steer them clear of outdated research, uninformed experts, and, ultimately, incorrect conclusions.
Want to see if you’re on the right track? Speedinvest accepts pre-Seed pitches on their website and would be happy to give you feedback – speedinvest.com/pitch!