Today Russ Heddleston was joined on stage at TechCrunch Disrupt by pre-seed investor Charles Hudson of Precursor Ventures and early-stage investor Annie Kadavy of Redpoint Ventures to talk about navigating the waters of early stage funding.
As we’ve talked about before, many things go into a successful seed or even pre-seed round. In fact, when you send your deck to a VC hoping to get a meeting, you only have 3 minutes and 44 seconds to sell them on the idea of your business. By talking to thousands of founders and analyzing hundreds of pitch decks (from startup founders who opted into our research) we found some key things founders can do to help increase their chances of success.
Optimizing your pitch deck
When we analyzed pitch decks that received funding and compared them to those that were unable to successfully raise, we found that there really is more to a successful pitch deck than just a good product. In fact, leading with your product can actually hurt your chances of getting funded.
All failed pitch decks that we analyzed started with the product. Investors spend 4x more time on product slides in failed pitch decks than they do in successful pitch decks. This means it’s an area you have to get right. And your best chances of doing that are to move it to the middle of your pitch deck after you’ve established your narrative.
So what should be at the beginning of your deck? The “why”. Every successful pitch deck we looked at started with their company purpose, followed by why this team, and why the timing is right for this particular product. In successful decks, investors spend around 27 seconds on “why now” and “why you” slides but in failed decks, they spend 62 seconds on these slides. That may seem backwards, but if your “why now” and “why me” slides don’t makes sense, they’re likely to stop to figure out why.
All of this should culminate in your using your deck to tell a cohesive narrative about your company. Start with the company purpose, the big problem you’re trying to solve, why now is the right time, and why you have the right team to solve it. This gives you an intuitive narrative to use to get the VC to bring you in for a face-to-face meeting.
When you send your pitch deck makes a difference
There are a few things most people will tell you about raising money. Don’t try to raise in August because everyone is on vacation. And January is the best time because VCs are looking to make a deal. But when we dug into the data we found a slightly different story. There are two spikes during the year when VCs review a bunch of pitch decks: October – November, and March. Things definitely cool off during the summer, but August isn’t actually the dead zone people have made it out to be. But December is way worse than anyone has told you.
Most founders are going to spend around 3 months fundraising, so knowing when the peak times are can help you get a headstart. Our data shows that VC visits to pitch decks start low in August at the end of the summer low season and steadily build to their annual peak in November before falling off sharply in December. Entrepreneurs sending decks starts low and steadily builds to a peak in October, which makes sense because you need to send your decks in advance of VCs being able to view them. This means you really need to start raising in September if you want to get in on the end of year action. And you need to come out of the gate early in January to take advantage of the peak in March.
Oversubscribed rounds are forcing VCs to be more aggressive
As Russ mentioned onstage, we’ve even uncovered data that tells us that VCs may have to alter their behavior when rounds are oversubscribed. In fact, the more oversubscribed a round is, the more founders choose their VCs based on some specific criteria.
For founders whose rounds were more than 20 percent oversubscribed, 60 percent of them chose their VC because they came in first with a term sheet. But that drops to 50 percent for founders that were only slightly oversubscribed and all the way to 38 percent for those founders that weren’t oversubscribed at all.
While you could potentially attribute that to top tier VCs moving quickly and investing large sums could cause rounds to be oversubscribed, we found that not to be the case. In both oversubscribed and non-oversubscribed rounds 28 percent of founders reported that a name brand factored into their decision. And for those who did pick a name brand investor, only 33 percent of those founders reported that their lead VC moved first.
To find out more about how founders choose their VCs when fundraising, you can read Russ’s piece on TechCrunch here.
More at TechCrunch Disrupt
Russ will be on stage again at 1pm today for the Pitch Pitch Teardown with Anu Duggal (Female Founders Fund), Russ Heddleston (DocSend) and Charles Hudson (Precursor Ventures) in the breakout room.