The Art and Science of Early Stage Fundraising: Practical Tips for Pre-Seed Deck Design
By: Olga Maslikhova
Tags: Entrepreneurship, Venture Capital, Startup, Early Stage, Fundraising

The Art and Science of Early Stage Fundraising: Practical Tips for Pre-Seed Deck Design

Or how to build a base for long-term partnership with venture investors from ground zero.

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Previously I talked about several important concepts around pitch deck design including the role of narrative, valuation multiples expectations, the ‘flywheel effect’, market timing and the founders’ personal story. Now I want to discuss the practical details of deck structure.

As I mentioned here, the attention span of a VC is very short so it makes sense to bring mission critical information upfront. What qualifies as ‘mission critical’ depends on the stage of your business. I will dig into the specifics of the pre-seed fundraising deck and go through other stages later on.

Why pre-seed? COVID-19 pandemic apart, pre-seed funding is gaining momentum as many VCs go downstream both to gain super early access to companies with high-growth potential and to improve unit economics that suffer as early stage financing becomes fiercely competitive. As a result, valuations of pre-product companies are going up and pre-seed has become a category of its own.

What is pre-seed? This is pre-product, pre-revenue company that has yet to establish product / market fit and is typically run by a team of 1–3 passionate, sleep-deprived multitasking founders. They raise money to develop the MVP of the product and test various assumptions around market opportunity, business model, and customer acquisition strategy.

It’s very cheap to start an internet startup and even to bootstrap it to revenue if you figure out the bottom-up adoption and virality. It’s much harder to do if you’re building a capital intensive business in, say, military and defense or bio-tech. The ability to secure long-term capital early is essential for such a company to thrive.

What are stage-specific mission critical parts of the narrative?

Team. Eight out of 10 ventures fail within the first 18 months. Risks in the form of unvalidated idea, the absence of product on the market, the lack of proof of viability, scalability, and monetization, and poor understanding of business model force VCs to prioritize the founders’ profile. Why are you the best people in the world to build and scale your product? What is your unique skill set? What interpersonal traits will help you succeed? What is your personal story and relationship to the problem? How long have you known each other and what are your prior business relationships?

Don’t be shy about highlighting non trivial aspects of your background. One of the founders I backed was a nuclear, biological, and chemical warfare specialist and helicopter pilot in the Indian navy. That’s more impressive than a business degree.

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Market / industry. There are two ways to think about the market: top down, which entails analyzing market research data in both dollar and CAGR terms, and “back of the envelope” or ‘bottom up’ which focuses on the number of customers and their willingness to pay. You want to do both in order to show how you think about the market opportunity and present a comprehensive picture. While it makes sense to show global market data, I suggest you focus on the geographic region you are planning to target in the course of the next 10–12 months post-closing and demonstrate that you know this market really well. Define your customer niche very clearly by answering the question: who will benefit the most from using your product? Shouldn’t be both SMBs and mid market and large enterprise and everything in between. At least not at this stage.

Why now? Timing has an outsized impact on startup outcomes. Be very specific in identifying free riding opportunities. Are there rapidly developing technologies and trends? Changes in the tax landscape? Any major shift in consumer behavior that could lead to social acceptance and awareness? Any economic factors and conditions that directly affect market readiness and viability? A great example here is the widespread adoption of the e-commerce marketplace in the Asia-Pacific region, which accounts for the largest share of the world’s business-to-consumer e-commerce market. E-commerce opportunities in that region build on the access, availability, and affordability of ICT infrastructure and services and, most recently, the accelerated adoption of secure online payment methods. The quality and speed of delivery have recently improved dramatically and will be an important factor contributing to mass adoption going forward.

What’s your product and how is it different? Be sure to make it clear that you are a ‘pain killer’ rather than a ‘vitamin’. Present the grand vision of what you want to be if everything goes right stressing critical need of your offering and then drill down to a very specific product development action plan. Until the technology is fully deployed, you might want to focus on why you are different instead of why you are superior.

Business model. Don’t worry if you haven’t figured this out yet, but make sure you have a few potential revenue sources and customer acquisition channels you want to test. Don’t spread yourself too thin though. Having more than two potential revenue channels is alarming and signals lack of focus and understanding of what your are doing.

Pre-MVP traction metrics. It’s never too early to start gaining traction. Showcasing metrics such as pre-registrations, survey and customer interview results, and landing page analytics can prove customer demand and existing painpoints and help sharpen the value proposition and competitive advantage. It will also position you as pro-active data-driven founders, which will never hurt if you deal with VCs.

Business plan and use of proceeds. What are your goals for this investment round and how are you going to achieve them? How much money are you going to spend? How are you going to build the product? How are you going to incorporate customer feedback into your product development roadmap? What are the assumptions you want to test? How will you attract your aspiration customers, the early adopters?

That’s it. Up to 10 slides, with a sharp and crisp narrative.

Here are some other tips that will help your story resonate with VCs:

Let your headers tell the story. Don’t settle for an “Our team”, “Our product”, “Our market” kind of message. Make the narrative flow through short and crisp sentences that emphasize the data on the slides.

Keep it simple and exclude any words that don’t contribute to your narrative.

Once you are done with the deck, step back from your thinking and check if you’ve preemptively addressed all the concerns that would inevitably arise as VCs consider investing in your team. Some of the most obvious ones: team ability and character, lack of focus and differentiation and poorly designed post-fundraising action-plan.