Startup founders who have navigated (or are currently undergoing) a fundraising round are well aware of all the advice available on what to include in your pitch deck. From tips straight from VCs to done-for-you templates and step-by-step guides written by their peers, founders are well-resourced when it comes to making their pitch deck stand out.
However, what’s less discussed – yet equally important – is how fund managers can craft a stellar pitch deck for pitching LPs. Dropbox DocSend recently teamed up with Coolwater Capital, an organization that builds and scales emerging fund managers, to host a demo day as part of Coolwater’s fourth cohort of emerging VCs.
Coolwater’s demo day brought together 30 VC teams who presented to more than 70 LPs.
The event’s main goal was to provide guidance to emerging fund managers straight from LPs. The LPs weighed in after each pitch, and Docsend & Coolwater analyzed this qualitative feedback.
Here’s what we learned:
Define whether you’re a generalist or a specialist
Generalist VC firms don’t specialize in a particular industry or technology. Their counterpart, specialist VC firms, are marked by their dedication to only investing in a specific industry or technology. Traditionally, LPs have invested in generalist funds because they offer flexibility and diversification; for example, if a certain sector is not performing well, then a generalist fund has the mandate to change its focus looking for the highest potential companies. As the VC market has become larger, more specialist firms – those for example targeting a specific geography, industry, or technology – have emerged. If LPs believe these specialist firms have a distinct advantage sourcing, evaluating, and accessing companies that fall into the specialized mandate, then there may be a spot in an LP’s portfolio.
Amongst the VCs presenting at Coolwater’s demo day, there were a mix of both.
Based on which category the fund fell into – generalist or specialist – the LPs had unique judging criteria. This means there are different standards at play depending on fund strategy for LPs evaluating VC pitches and pitch decks. So what did we learn about these different standards?
Generalists, focus on your “edge”
Generalist fund managers were mainly judged on the following:
- Track record. Include a detailed overview of past performance for companies you’ve invested in.
- Case studies. Bring your track record to life with real-life stories about the companies you’ve worked with.
- “Edge”. State what makes you stand out, and demonstrate how your “edge” gets you and your fund managers the ability to gain access to early-stage startups.
These three pitch deck components work together to create a compelling narrative about how the VC invests. LP feedback showed that if the generalist funds weren’t clear about multiple wins in the track record, for example, the GPs were less interesting and the pitch likely wouldn’t result in a follow-up discussion.
When providing feedback, LPs stressed the importance of an impressive track record and case studies:
One family office who invests in emerging managers noted, “I need to better understand the connection between past deals and the deals they will do. The top value drivers of their past track record seem to be different from their current focus.”
Another institutional LP added when assessing another generalist fund, “Impressive group…but I did not get a great sense of what types of companies they invest in and how they are differentiated.”
Specialists, highlight your domain expertise
Specialist managers were judged on the following:
- Domain expertise. Include both your domain and technical expertise. If your space requires technical diligence, then explain how you conduct this diligence.
- Strategic positioning. Share how your specialist expertise gives you the ‘edge’ needed to stand out and be able to partner with early-stage startups. After demonstrating your domain expertise, explain how that expertise positions you above your competition and gains you investment access into great companies.
- Market opportunity. Define what opportunity exists in your market, and how you plan to use this with your strategic positioning to win deals. LPs may have difficulty understanding the market opportunity if it’s new and not yet adequately defined.
If the specialist didn’t quickly articulate domain expertise during their pitch, LP feedback reflected less interest and less likelihood that there would be a follow-up discussion.
Several LPs shared the importance of including these three components in pitch decks. For example, when evaluating a biotech-focused manager, several family office and other institutional LPs remarked, “I did not get a good enough sense of his technical background to assess these companies.”
Another LP quipped when assessing web3, “We’re getting up to speed and developing a house view so understanding this fast-changing market is essential to us developing an investment case. This fund is too small at the moment for me, but I would like to learn more about this fund’s thesis and where they sit strategically in the market over the longer run.”
Good storytelling matters more than ever
In this new fundraising climate, managing an emerging fund is challenging and requires increased effort to stand out from the crowd. From the perspective of LPs, fund products are risky in general, and just checking off the list of things to include in your pitch deck isn’t enough to capture their attention.
What is said in your pitch deck actually matters and should be unique based on your overall strategy and whether you’re a generalist or specialist. LPs want to understand your intentionality behind this decision, especially how it’s emphasized within your deck and how it fits into the overarching narrative of your investment thesis.
During this shift in the market, it’s more important than ever to consider how you can improve articulating what you do, how you do it, and what your “edge” and “expertise” are, regardless of whether you’re a generalist or specialist.