STARTUP PITCH DECK COURSE

Healy Jones:

Hello, and welcome to the Kruze Consulting free venture capital and startup pitch deck creation course. This course or guide is designed to help founders put together the perfect pitch deck to raise venture capital funding. I'm Healy Jones and I'm joined by Haje Kamps. I am the leader of FP&A here at Kruze Consulting. Kruze is one of the leading CPAs focused on venture capital-backed startups. Our clients have raised over $6 billion in venture capital funding, and it's my job to help them get ready to raise funding, with a particular focus around making sure their numbers are telling the story.

To get the other way to tell the story, which is through the presentation, I've brought on one of the leading pitch deck consultants in Silicon Valley, Haje Kamps. Haje, do you want to quickly tell us about yourself?

Haje Jan Kamps:

Yes, hello. My name is Haje, and I have had all sorts of weird career moves over the years. I'm a multiple startup founder. I've raised a bunch of capital. I was in venture capital for a bit, and I am now a reporter at TechCrunch. So I've kind of seen the venture capital world from lots of different angles. After I left venture capital, I discovered that the most fun things I know how to do is to help founders tell their stories.

So I started blogging about that, started consulting, and actually ended up writing a book about that called Pitch Perfect. It came out last year. It looks an awful lot like this, and basically it's a guide for how to think about building a perfect pitch and how to get a really good story behind the mechanics and the storytelling of getting across what your startup does to a venture capitalist.

Healy Jones:

Excellent, Haje. Well, you are the best person in Silicon Valley to help us with this. Your clients have raised hundreds of millions of dollars. I've been fortunate enough to work with founders who have raised probably over a billion dollars at this point. And additionally, I was a venture capitalist in the past with Summit and Atlas and have been at startups that have raised quite a bit of money, including one that went public. So I definitely have the battle scars to have proven that I've done this before, and I really enjoy working individually with founders and startups as they're getting ready to raise capital, but I think this is a great way for us to help many founders all at once.

This is designed to be an entire course which we're going to offer for free on kruzeconsulting.com/pitch-deck. That's kruzeconsulting.com/pitch-deck. And we also will have two free templates, which are a B2C company and a B2B company that you're free to grab their Google Slides, and we'll also link out to some other pitch decks that we really love, Airbnb, Uber, Mattermark. We have quite a few that we've seen that have been great, and they're wonderful resources for you to take a look at as you think through.

During this course, we're going to go through each slide and talk to you about what the strategy is behind the slide, how it tells the story, how you weave the story together between the slides. I'll talk about some of the common mistakes we've seen when we were investors and things that trip you up in the process or could make the VC pause. And so, you'll be able to access all of these as videos on YouTube, and we tend to do it as podcasts. And again, it will also all be available in written content on the Kruze Consulting website.

Before we actually walk through the order of the slides and talk a little bit about what should go in each slide, I want to kick it over to Haje to talk about the story that you're trying to tell and how you weave that into the narrative.

Haje Jan Kamps:

Yeah, absolutely. So I think there's a really fun thing that happens when you sit across from somebody and you have to paint a picture of the world you want to live in. You are sitting across from somebody who might potentially give you millions of dollars to help that reality become real, and it means that you have to have a little bit of pizazz behind the story you're telling.

Now, when I say storytelling, it doesn't mean make stuff up. It means having a structured narrative that can help pull all the different parts of your presentation together. What that typically means is having examples that can be used as you work your way through to various slides. It's like a red thread that runs through everything. It also means that you can use storytelling techniques to set something up and then pick it up later or, later on, refer back to something in your story, and thinking about your story like a multidimensional being like that is really helpful.

So that's all fun and fancy and all, but really what all of this is in aid of is to make sure that the venture capitalist remembers you and that they walk away with the salient points about why your company might be worth investing in. And the things you are really telling the story about is, why is this venture scale? Why is this investable? Why is this a good idea? Why now? What is the macroeconomic system around all of this? Why are you the perfect founder to actually go and do this? And why this? Why is it important to do exactly what you're doing right now and why is this such a good opportunity?

And all of these pieces will come up again and again as we go through this course and talk about the various slides and how to tie them all together. And it's one of my favorite things, so I can't wait to share all of this with you.

Healy Jones:

Yeah. It's definitely one of the things that I've appreciated as we're preparing this course, is the importance of story and how you could be strategic as a founder. To double-click on that, one of the things that I remember as a VC being really impactful are when a founder can mention particular clients and their pain points and how their solutions solve them, how they've retained the client for a long time, how the client has started to spend more money with them as they're growing, how the client chose them over the competition. These are very specific examples of a client's success that can be mentioned on multiple pages in the pitch deck and can really help the VC be able to repeat that story, and that leads into what's the purpose of the pitch deck.

So the first purpose of the pitch deck is to get a meeting. It's often that the VC is going to ask for the deck via email generally before even wanting to take a meeting. So it's got to be able to stand on its own when it's just an attachment in an email coming in kind of cold. Okay? So that's the first thing it needs to do. The second thing that it needs to do is, it's got to get them focused and get their attention and keep their attention during the meeting. Right? So you want them to be engaged. You got to get them to put down their phone and focus on you, ask you important questions. You guide them and keep them focused with the pitch deck.

And then the third thing is, I think, where that story really comes in. You have to remember, most venture capital firms are partnerships. And so, you have different investment partners or maybe even junior associates and investors who interact with each other. Now, pre-COVID, it used to be in the hallway. I can specifically remember in the hallway by the coffee pot. There was a particular investor I used to spend a lot of time with because we both loved espresso, so we'd be talking there together.

And so, if the deck has helped tell a story and helped drive a story into that investor's mind, when they are talking with one of their partners or investing partners or one of their investors called limited partners, they can repeat that story back and it can really drive the message home and help them remember you and remember why your company is exciting and why they want to invest. Right?

Haje Jan Kamps:

Yeah. There's a really good parallel here too. It's like the difference between brand and branding. Branding is the information you put out there and the brand is what others say about you. So in effect, the deck is your branding. This is your chance to tell your part of the story. But the thing that sinks in and the phrases people use and the way they describe you, that becomes your brand within this fundraising cycle. And so, at the coffee pot, they go, "Oh yeah, that company that does the thing." What they say there, this is your chance to plant that seed and make your story part of the way they talk about your company.

Healy Jones:

Exactly. And I've definitely seen moments where, particularly if you have a client that the investor knows of or is a brand name, if Uber is using your technology or if a major hospital is using your technology, those are little mentions that if you drive it through your narrative really well, it could definitely stick in the investor's mind and they can be very impressed and they can say, "Oh my gosh, we just talked to this company that's selling to Coca-Cola and Uber and they're doing this and I'm very excited about them." You have to try to, Inception-style, plant the awesomeness of your company inside their mind, and the deck is a vehicle that helps you do that. It helps you tell the story and get those things across.

Haje Jan Kamps:

Yeah, absolutely.

Healy Jones:

Great.

Haje Jan Kamps:

I love that.

Healy Jones:

Wonderful. So we just talked about, you've got to get their attention with the deck and you've got to use it in the meeting and you've got to tell the story. Now, the venture capital industry is interesting. There's particular dances that happen in the VC industry, and it's probably partially the reason why it's such a sort of exclusive industry in a bad way where certain groups have more challenges getting into it just because there's a particular way that VCs are used to interacting. And your slide deck, your pitch deck, and the order of the slides and the topics that you present are... That's part of the dance. Right? And so, we're here trying to help you understand the dance.

And so, what we're going to do is we're going to show you a standard list of the slides that go into your pitch deck and a standard order. Now, there's going to be caveats where you change the order up and we're going to talk about how and why you do that. Okay? But first, let's show the order here. Now, as we've mentioned, we have created sample pitch decks that you can get on our website. And again, these are four companies that we made up. We're actually not trying to raise money for these companies. They're intended to be slightly funny. So don't judge us on what the companies are. We want you to look at the content and the order and how the story is presented.

Okay. So I'm going to share with you the very standard order or list of slides now, because we are... You can certainly read this if you're looking on YouTube, because we're also going to release this in a podcast format. I'm going to do the thing we don't recommend during a presentation. I'm going to read the slide, because visuals are not great for podcasts. So the order of slides that we recommend are a cover slide, the problem slide, the solution and/or product slide, a market or market size slide, a team slide, a traction slide, a go-to-market slide, which can be potentially summarized, be merged with the traction, but not always, competition slide, and operating plan, financial projections, and a closing slide. Okay?

So those are the typical slides that we recommend. What we'd love to do is dive into a specific example that we put together. It's called a company called 4Ps. Again, you can get this free pitch deck template off of our website. And what this company is doing... Haje, do you want to quickly talk about what this company is just to set the table there for that?

Haje Jan Kamps:

Yeah. So we made up a company that is essentially a plumbing SaaS platform to help plumbers get more business and to run their businesses. The slogan for it is, "Less admin, more plumbing." And the idea is to essentially show what a story could be for a company like this.

Healy Jones:

Exactly. So I'm going to jump back and forth between a visual of the slides and their order and then the actual slides. And in this part of the course, we're going to briefly touch on each slide. Again, we have entire 20-minute to hour-long discussions that we've recorded and we're releasing on each individual slide. So if you really want to dive in on an individual slide or you have the time and interest, you can watch all of them in order. We'd love it if you did that. We'd love to get your feedback on it as well. But again, here is the order for the 4Ps and the intro slide. So, Haje, let's talk about the intro slide. It is a missed opportunity, I would say, for many founders.

Haje Jan Kamps:

Yeah. A lot of the time, remember the context. Right? So people show up to a meeting. They're waiting for things to start. This is your chance to set the theme. Explain what kind of industry you're in, summarize what you're doing, or pull people in somehow. If it just says a logo of your company, you're missing an opportunity there.

So it's a really good idea to set the scenes, set up the narrative and stuff like that, and it's a good idea to explain what you're doing. Are you B2B? Are you B2C? Are you a SaaS company? What stage are you? How much revenue do you have? Anything that can help position this in time and space is really valuable on this slide.

Healy Jones:

So I love the one-liner that we have on here, which is Salesforce for plumbing, Uber for X. These types of taglines that are pretty easy for the investor to understand your business model and who you're trying to service are really powerful. So I strongly, strongly recommend them. And just the biggest problem, I would say, I see early in the presentations is that you reach the third slide and nobody knows what you do yet.

Haje Jan Kamps:

Yup.

Healy Jones:

Right? So this is your opportunity to hopefully make it pretty clear, at least at a high level, what your business model is and who you're targeting.

Haje Jan Kamps:

Yup. And I think that's what that slide is really helpful for.

Healy Jones:

Exactly. So the next slide is the problem slide. Okay? And on the 4Ps here, the problem that is trying to be addressed is the admin overhead that plumbers have. Again, it's less important what this company is actually doing and more important to talk about the strategy behind the slide. Haje, you want a different-

Haje Jan Kamps:

Yeah. I mean, here's your chance to really explain why this is a problem worth solving, and hopefully this is a problem that people are willing to pay money to solve. Right? It has to be compelling and interesting enough so the VCs understand, "Hey, there's a real market here. This is a problem that is worth solving and I should take a closer look." A lot of the time, especially if you're deep in an industry, it might be tempting here to get a little bit too inside baseball, and I think it's a little challenging if you make it non-obvious what the problem is. So spell it out, don't make any assumptions, and make it as easy as possible to understand, A, that this is a problem worth solving and, B, that this is a problem that a lot of people experience.

Healy Jones:

Right. So think about the purpose of your deck. Again, it's been emailed to a venture capitalist. If they're going to open it, hopefully, and they're going to look at the first slide and then this is the second slide, now this is the moment where you've got to make sure they're still going to pay attention here. Okay? So this slide needs to be compelling enough for them to want to take a meeting. They've got to get it. It can't be too confusing, too jargony, as you said, too inside baseball.

Haje Jan Kamps:

Yeah.

Healy Jones:

And then when you think about when you're actually in the meeting with the venture capitalist, what does your startup need to get across here? You've got to get the excitement going about why this is a legit problem and that there's real customers out there who have this and it's a big enough market. Okay?

Haje Jan Kamps:

Yup.

Healy Jones:

So again, the biggest issue, too inside baseball or not making it obvious or crystal clear. So next, we recommend a solution slide which, if you think about it through your narrative, you're just talking about a problem and then a solution.

Haje Jan Kamps:

Yup.

Healy Jones:

So we'll take a quick look at the solution slide.

Haje Jan Kamps:

Yeah. The solution slide really is pretty straightforward, right? So I wouldn't spend too much time here. It's very tempting to dive into this. As a founder, you spend a lot of time on your solution. It's your product. It's whatever you're doing. But really, you just need to show that you have a solution to the problem you have outlined. Remember that really high-quality founders are also able to pivot. So I wouldn't get too married to your specific solution, but what you're really saying is like, "Hey, this is the problem space and here's what we're doing so far to give a solution to our customers."

Now, there's a few different ways of solving this. Some people use a solution slide. Some people use a product slide. You can use either. You can use both. It's just kind of, whatever flows best for your narrative.

Healy Jones:

Right. And so, in this particular example, we actually have dedicated a few slides to this. We dive into a specific thing that this app is doing that is unique to this industry.

Haje Jan Kamps:

Yup.

Healy Jones:

It definitely has a buzzword in here, which is AI. People still like investing in AI companies. And then we actually have a demo as well. I would say that the biggest issue I see on this slide is it becomes a list of features.

Haje Jan Kamps:

Yeah.

Healy Jones:

And then the second biggest issue I see is that this demo can become way too in-depth. "Hey, then you click here, then you click here." Just remember the purpose. This is not a sales call where you're trying to sell your product. Okay? This is, you are trying to excite an investor to purchase a piece of your business and to come along with you for an eight- to ten-year journey. So don't sell. Don't list features. List the benefits. And that additionally, the other thing that's really important here is that this slide will vary by the stage of your company. So you could be pre-developing your product. So this will talk about how you anticipate fixing the client's needs.

However, if you're a Series B, Series C, it's going to get a little more tactical around what you've actually done and where you're going and product roadmap, but again, focusing on why it matters and how it's helping solve customer pain points, unlocking revenue potential, and things like that.

Haje Jan Kamps:

Yup. Absolutely.

Healy Jones:

Perfect. So after the demo... And again, your demo better be super tight if you're doing a demo. And if you're spending more than five minutes in a demo, you're doing something very wrong.

Haje Jan Kamps:

Yeah. I mean, in general, I would recommend not doing demos during the first pitch.

Healy Jones:

I agree with that.

Haje Jan Kamps:

If the product is very unique, especially if you do something with hardware, it's really nice. You'll just be able to hold it up so people can see it's a real thing. That's often enough, like, "Hey, here's the thing. I can show more to you later, but it exists." Right? If you're doing a SaaS solution, just having a screenshot is often enough so people get a little bit of a vibe for what it looks like, what kind of features you can deliver, and the kind of things you do. That's often enough in the first pitch. And then later on, they'll probably double-click deep on both the financials and the product itself in subsequent meetings, but you don't have to spend time with it on the first one too much.

Healy Jones:

If your startup pitch is compelling enough, there'll be plenty of time to go into demos.

Haje Jan Kamps:

Yup.

Healy Jones:

So don't over-rotate on that.

Haje Jan Kamps:

Yeah.

Healy Jones:

So in this slide, the next thing we have is the market size slide.

Haje Jan Kamps:

Yup.

Healy Jones:

And I actually like the way we've done this slide. There are many different ways to do it. The design on this one though actually is something that I like quite a bit. Haje, let's talk about what the purpose of this slide is.

Haje Jan Kamps:

Yeah. The market size and the market trajectory are like... In this particular example, I've lumped those two together. But basically, I think the importance of this is showing that there is a big enough market to sustain a business that's big enough to be worth investing in. It's really that simple.

Healy Jones:

Yeah.

Haje Jan Kamps:

Often, it's done as a TAM, SAM, SOM. We talk about this in great detail in the market portion of this course. But it's a really powerful way to show that, "Hey, you might not have thought about this market so much, but it's huge and it's worth addressing." If you manage to ram that home and just basically say, "Hey, there is space for a multi-billion dollar company in this space and we think it's going to be us," that's really the only point you have to get across here, I think.

Healy Jones:

Yeah. Is this a venture scale business?

Haje Jan Kamps:

Yeah.

Healy Jones:

The other point that I think you should constantly be making incredibly clear to the investor is that you understand the market dynamics and you understand the customer pain points, and this is another opportunity to make it super obvious how you understand this market, perhaps help the VC shift their thinking a little bit to realize like, "Hey, I thought this was already being solved," or "I had never thought about this, but while there's definitely a lot of individuals, companies, corporations, whatever, out there who are having this problem, this is a legit market. This is pretty interesting to me." Right? So again, capturing their attention, telling the story about how you really understand the market and the clients. That's what this slide is trying to do.

Haje Jan Kamps:

Yup.

Healy Jones:

So next, in this deck, we have a business model slide. Now, this is not the order that we just recommended to you and, in fact, when we are done walking through these slides, we're going to compare the order of the different slides so you can understand some of the strategy behind how they're different. But in this 4Ps, we're going to the business model slide next. Haje, what is this slide?

Haje Jan Kamps:

So I think there's an interesting... It's actually a-

Healy Jones:

Oops.

Haje Jan Kamps:

... narrative device in this particular case, because if you look at the next slide, if we go slightly forward, yeah, the next one is the sales and go-to-market slide. But in the narrative for this particular startup, I was like, "Wait a minute. We can start talking about how we do sales and how we'd go to market, but unless the investor understands what the business model is that underpins all of this, this doesn't make as much sense."

And I think this is a really good way of illustrating that sometimes there is this standard 10- or 11-slide deck that everybody knows about and that we recommend. But in addition, you are kind of in service to your story. And if your story doesn't make sense with the standard order of slides, you can change it. And in this particular case, what we did was that before we'd go and talk about sales and go-to-market, we had to talk about the business model, because there are some complexities here about the different tiers in the SaaS model, about the additional revenue streams, and that kind of thing.

And in order to really explain what the go-to-market is and how we do market expansions and that kind of thing, it is helpful to explain this part of it. Now, in some businesses, you don't have to do that. In other businesses, you can just roll it into either your market or your product where you say, on the product slide, "Oh yeah, we do this and that, and it costs $20 per month." Super straightforward. If it gets a little bit more complex, spend a little bit more time on it. That's perfectly fine.

Healy Jones:

Exactly. Perfect. So here, we've got the business model and then the sales and go-to-market. The go-to-market slide is, I would say, pretty important for companies that are in the SaaS space, crypto space, hardware space. Much less important for biotech companies, because the go-to-market is just not how you think about it. But for a company that you're going to be generating sales soon or you're already generating sales, this is an incredibly important slide.

Haje Jan Kamps:

Yup.

Healy Jones:

And the whole thing you're trying to talk about here is, where are your customers going to come from? Right? And the corollary with the previous slide is how you're going to make money. So again, on some presentations, you can kind of... Where your customers come from and how you make money are tied together. And in this particular instance, we decided to break it apart just to provide a little bit more detail.

Haje Jan Kamps:

The thing people often get wrong here is not having a clear enough vision of how they're actually going to reach their customers. Right? And that makes a lot of sense, because in the early days of a company, you're probably really focused on building the product, and you haven't necessarily thought that much about the specific mechanics for how to go to market and how to get sales. That's going to be a problem by the time you talk to a venture capitalist, because they want to know that not only can you build the product, you can also market it and get people to pay for it.

And so, that's really the part of the story that this tells. If you have a reasonably believable story here where you say, "Hey, we know what it costs us to acquire a customer, we know the channels we're going to use, and we know how we're going to balance all of that," and it works from a financial point of view, that makes the whole problem go away, then you just go, "Okay. Tick the box, we know how to do this, move on."

Healy Jones:

So this slide becomes a lot more numbers-oriented and perhaps even tactical as your company advances in stages, becomes more mature.

Haje Jan Kamps:

Yeah.

Healy Jones:

So when you are a more mature company and you have sales and marketing channels that are working and you have customer acquisition costs that you can calculate, you'll put those things on here, and what you're basically doing is, you're telling the VC, "I know what I'm doing. Here's what we're doing. Here's how we're going to grow it." So at the later-stage companies, more detail. Earlier-stage companies, particularly ones that haven't launched yet, what the venture capitalists are trying to do is they're trying to evaluate the credibility or how realistic you are in how you're going to acquire customers.

A great way to talk about that prior to actually having launched or started your traction is to understand what other companies have done that are either competitors or who have similar business models that target similar clients and talk about how you're going to discover it. Right? So this page becomes less of, "Here's what we've done and what's working," and more of, "This is our process or our strategy for figuring this out."

Haje Jan Kamps:

Yeah. So again, this becomes a place where you say either, "This is how we've done it and we're just going to do more of it," or "This is our playbook and we know how to do it." The one thing you don't get away with is like, "We have a great product. If you build it, people will come," because you'll be laughed out of the room, and that's the end of the conversation.

Healy Jones:

Right. Exactly. So if you don't know, then talk about how you're going to have a process to get there.

Haje Jan Kamps:

Yeah.

Healy Jones:

So that's probably the biggest issue that I have seen. The second biggest issue is where you have something that's just not realistic or doesn't mesh or isn't a coherent strategy. Right? So if everything you've sold has had to be, you have to get on the phone or go in-person meeting and close the deal yourself, that probably means you need to have a sales team as you grow. Right? So you shouldn't anticipate what's called product-led marketing where people just click and sell if everything to date has had to actually have a salesperson involved or yourself as a salesperson. Right?

So just make sure you're being consistent with what you think is going to happen, with what has happened, or if there's going to be a big difference. There needs to be a strategy. You need to be able to articulate why that's going to change.

Haje Jan Kamps:

Yup.

Healy Jones:

Great. All right. Now, let's go to the competition slide, one of my ultimate favorite slides. I love competition slides. I love it when companies have competition. Haje, what is the deal with the competition slide?

Haje Jan Kamps:

Ah, this is one of my favorite slides, relatively recently. It actually happened during the course of making this course for people. Competition slide is your chance to say how you fit in the market. It gives you a chance to show both that you understand the playing field. That is crucial. If there's a major obvious competitor here that isn't on this list, it shows that you're not a believable founder. The other piece is that you can really explain. This is your chance to set yourself into a market against your competitors. And if you have a good, compelling narrative here, that really helps set the tone for the rest of the conversation.

If you have a very strong competitor, for example, in this particular case, Salesforce, right? We're saying, "We're Salesforce for plumbing." Well, Salesforce is kind of a competitor. You can build a plumber tool around Salesforce. Perfectly doable. But the value-add, the thing that 4P adds is so specific and so helpful to this business that that alone is a competitive advantage. And using your competitive landscape slide to talk about that and to explain what the strengths and weaknesses are of your competitors and how you are different is just such a beautiful way to tell part of your story. It also invites, really, a lively conversation a lot of the time.

Healy Jones:

So the biggest mistake I see is where a company doesn't think they have competitors.

Haje Jan Kamps:

Right. Right. Yeah. I mean, we talk about this at great length in the actual competition slide.

Healy Jones:

Yeah. Yeah. Again, this is one of our best discussions. I would highly recommend you check out the competition slide recording that we have put together for this course.

Haje Jan Kamps:

Yeah. That one was really fun.

Healy Jones:

This is a great slide. You need to have this slide. It's an important slide. You show the VC, "There's a real market. There's real competitors out here." And hey, Salesforce, SAP, those companies are acquisitive. Who doesn't want to have someone as a possible acquirer that could spend billions of dollars on your startup? Holy cow. That's amazing. Right? So this is a strong, strong slide to do really, really well.

Haje Jan Kamps:

Yup.

Healy Jones:

Okay. Again, the order in this deck is, particularly we've got the team slide almost buried a little bit, and when we talk about how to adjust the order, we'll talk about why that's the case. But here's the team slide. What is the purpose of the team slide?

Haje Jan Kamps:

The team slide basically shows that... It depends a little bit on the size of the company. Right? But if you are an early-stage company, the question becomes, are the founders believable? Do I believe that the people who are about to go and build this company can pull it off and make something magic happen? And so, really, it's just, do you have a competitive advantage in some way? If you have a PhD in this field and you're cutting edge there, great. If you own patents, fantastic. If there's something about you and your network, for example, you've been in this industry for 25 years, you know every mover and shaker here and they love you, that all becomes super important advantages to you as a business.

And this is your chance to tell that story. Why is your team the right people to do this particular company? And in my mind, the other side of that is, if you were to give this slide deck to founders who are not you and they can go build the company, then that's a little worrying. Right? There has to be something special about you and how you think and how you work and who you are to make you a really good founding team. In later-stage companies, it becomes more about, are you good at hiring? Can you surround yourself with the right people to build this company in a way that nobody else could do? And can you attract the right talent?

Healy Jones:

And this slide is definitely one of the slides that you move around in the slide deck based on how powerful your slide is, or your team is.

Haje Jan Kamps:

Yup.

Healy Jones:

So again, we'll talk a little bit more about when to move these around. But this is definitely the slide that I think gets moved around the most in the deck depending on who the people are.

Haje Jan Kamps:

Yup.

Healy Jones:

Perfect. Okay. And then here we have an operating plan slide, which is a fun slide, particularly for Kruze Consulting because we help our clients put together these projections quite a bit, another one I like. One of the big things that this slide is doing is, you can see that it's... Basically, that's 18 to 24 months of what you expect the company to do in terms of performance, both financially and from other key performance indicators, other KPIs. Right? This slide helps you justify how much you're raising, because you say where you're spending it and you say what you're going to look like when you're done.

Haje Jan Kamps:

Yeah.

Healy Jones:

So every VC is going to look at your deck or look at your company, and we've talked about this a lot, and we're going to talk about the financial model. They want to know, if they give you $5 million, $20 million, what does the company look like when you're next raising money? Have you created something that's dramatically more valuable? Are you going to be able to attract capital? So for this slide, you're trying to make sure that you understand what metrics you need to look like in order to be successful in unlocking that next fundraise. You need to understand what your valuation or value creation milestones are that you're going to basically unlock as you spend this money and grow, and you're justifying the round size. You're explaining why you need $8 million or $20 million. That's what this slide is doing here. Right?

I think the biggest issue that Haje and I have seen here is where there's just not enough progress or traction as the company runs out of money. So sometimes, that's because founders don't feel like they can raise a lot, so they say they only want to raise two million when they really need eight, or sometimes it's just because the clients are being... The startups are being too conservative.

Haje Jan Kamps:

Yeah. I think the thing this really needs to answer is, when you get to the end of this particular slide or the end of this particular timeline, if you do everything that you promise on this thing, can you raise your next round? And there's two sides to that, right? Is it realistic that you can do all those things? And two, if you do all those things, can you raise money? If either of those aren't clearly answered on this slide, you're probably going to struggle to raise money, because it shows that you haven't thought ahead far enough to know what happens when you raise your next round of funding.

And so, really, what you're putting in front of somebody is like, "Okay. We're going to raise so-and-so many millions of dollars. At the end of this, we will have $3.6 million of annual recurring revenue. Our team size will be 45, and we have two and a half thousand customers. Does that sound like a place where we can raise 15 million?" Those numbers sound pretty good to me, so you'll probably get two thumbs up, and that is the end of this conversation essentially. So it's a really good place to tell that part of the story through numbers.

Healy Jones:

Exactly. Got to remember again, venture capitalist is constantly thinking, "What does this company look like when it runs out of money? Will it be able to raise the next round?" You're proving to them here that you've got a plan and you're going to be very attractive to the next round of investments. Haje?

Haje Jan Kamps:

And not to state the super obvious here, the only thing that will kill your company is running out of money. Everything else, you can work with. If the market shifts, fine. If a massive competitor comes in, great. If your product is wobbly and doesn't launch properly, that's okay too. You can fix that. If you run out of money, it's game over. And so, really, you're showing here that as the CEO of this company and as the founder and as somebody who's financially savvy, you're not going to let that happen.

Healy Jones:

Excellent. And so, the next slide that I love is the financial projection slide. Now, sometimes a company doesn't need this if they've got the operating plan. But the big reason I love this financial projection slide is because it goes out three to five years, and you're proving to the VC that you're playing the game. You're trying to go big. And so, you can see this company has quite a bit of revenue in the out-years. VCs need to invest in companies that can return their portfolio. Any individual investment needs to be potentially successful enough that it is worth all of the money their investors have given them for all of the companies that they've invested in. Okay?

Haje Jan Kamps:

Yup.

Healy Jones:

That is the game here. So they're not trying to have you just grow slowly and be small and be successful but not huge. They would actually prefer that you'd be risky and try to be huge. And so, this is part of the dance that I talked about earlier. And so, you are helping the VC understand that you know what the game is. You're trying to go big. You have the chance to be that really big company for them.

Haje Jan Kamps:

Yeah. And if this is your first time raising money, it's worth double-clicking on that too. VCs are not a bank. If you are a sure bet and you can definitely give a return, you can go to a bank, get a bank loan, and you can go build your businesses. That's not the industry VCs are in. They're doing super high-risk, super interesting investments, and with those interesting investments, they want huge returns. And that's why this slide is super, super important to show that you're in the right lane. You're at least understanding that this is the game you are in. Yeah.

Healy Jones:

So I think the biggest issue that I've seen here is, first of all, companies are not projecting to be very large. So you're a software-as-a-service business and you think you'll have five million in revenue after five years, but you need to raise $20 million to get there. Nobody wants to invest in that business. It's not going to return their fund. It's not going to be worth enough at the end. That's a common mistake that I see, and that's why I really love this slide because it's forcing you to think big and forcing you to help articulate to the venture capitalist that you're playing the game and you're going to try to be big.

Now, in this course, we have an operating... We talk about the operating slide in one presentation, we talk about the financial projections in another, and then we actually have a third one where we talk about the financial model and what goes into it, and then we have a template model that we're providing as well that you can download. So if you're interested in this, please check out those three recordings and that part of the course, and hopefully it can help your startup.

Haje Jan Kamps:

Yup.

Healy Jones:

Great. And then now, in the 4Ps here, we have the traction. We're ending on the traction slide for 4Ps pretty much because it is a relatively strong slide.

Haje Jan Kamps:

Because... Yeah. Yeah.

Healy Jones:

And what is this one, Haje? What is the traction slide?

Haje Jan Kamps:

So the traction slide really is just what you have done so far. Right? I often like to combine it with milestones. It's like, "Hey, we launched..." So this is kind of looking back, like what have we done to date? So revenue, number of customers, product launches. And so, it's like, it's a timeline, essentially, that gives you the chance to talk about what you've done so far and it pairs with the rest of the deck because the rest of the deck is about the future, like what are you planning to do going forward?

And the cool thing is, by doing it this way, you're able to set yourself up for a really interesting conversation. Now, typically, I would say, if you have really strong traction, I would put it at the top of the deck. Now, because of the narrative idea I had here, it was like, "Hey, let's end with really strong traction so we can go straight into Q&A next." And then you've basically woken people up, shaken them away. It's like, "Hey, look at this amazing amount of user growth we've had, look at this fantastic amount of ARR growth, and look at how we are improving at customer acquisition. Now let's talk."

And the way you would do the transition there is like, "Okay. If we had $15 million, we could grow this thing at this clip for the foreseeable future." So you really... It's a storytelling device to help people think about what is about to happen next, which is the Q&A slide.

Healy Jones:

So a pretty typical joke in the venture capital community is the up-and-to-the-right slide, the hockey stick chart. That's what this is here.

Haje Jan Kamps:

Yup.

Healy Jones:

But what you're doing is you're visually helping the venture capitalist imagine how fast you've grown, and they like to connect the dots. They want to think big. And so, they want to see this up and to the right continuing, so to the extent that you have valid metrics around traction of your business. So here, we've got revenue and customers, which are pretty much as valid as you get going up and to the right. Have the up-and-to-the-right chart. It's really very powerful.

Haje Jan Kamps:

Yup.

Healy Jones:

I think the issue that some startups have is that they're at too early a stage. They don't have traction yet. In which case, you probably wouldn't really have this slide. You wouldn't need it.

Haje Jan Kamps:

Yeah.

Healy Jones:

Okay?

Haje Jan Kamps:

Totally.

Healy Jones:

And then just going to jump to the final slide that we have, which this the... This is the slide that... is the one that kind of pops up after you finish your presentation and the VCs start to ask questions. Now, in a good pitch, the VCs will have asked a lot of questions along the way. Okay?

Haje Jan Kamps:

Yeah.

Healy Jones:

But putting that aside, this is the slide that you're going to have up when you start to kick off the Q&A. And, Haje, this is one of the things that I think I've taken away from working with you on this, is the importance of this slide. You want to talk a little bit about this?

Haje Jan Kamps:

Yeah. I love having something up that helps guide the conversation. Right? And a lot of the time, what ends up happening is that you kind of try and bury the bad news. So the slide before this may be your weakest slide. If you have a weak team and you're just like, "Oh yeah, and we have a team," you're not really talking about that.

The last thing you want is for your weakest slide to stay up while you start Q&A, because guess what you're going to get grilled on, right? So it's a good idea to throw something else up and have a pretty picture to look at or recap like, "Hey, we're Salesforce for plumbers," or something like that just to kind of... It's the narrative piece. It's the one thing people take away with them when they walk away. Remind them. Remind them why they're there. Remind them what you're doing.

Healy Jones:

Set the tone for the Q&A with this slide.

Haje Jan Kamps:

Absolutely. Yup.

Healy Jones:

Awesome. So that is the order of slides and list of slides. We're going to talk a little bit about comparison of the order of slides. I think we should do a quick detour through into an appendix.

Haje Jan Kamps:

Yeah.

Healy Jones:

An appendix is a useful tool that I like to have because if a venture capitalist has, to a startup founder, detailed questions that would be a little distracting to have in the main part of the pitch, you could put that information in the appendix so that you could just jump to that slide and use it to both visually and sort of... Basically, it's to guide you on answering that hard question. Right? So stuff that I think really goes well in the appendix are detailed financials, detailed marketing, or go-to-market plans, staffing growth.

Haje Jan Kamps:

Yeah.

Healy Jones:

Some other things that are helpful is if there are source materials you have around the market sizing. If you think you might get some feedback around people who don't believe the market size, they don't quite understand how you're calculating it, great place to put that.

Haje Jan Kamps:

Or additional product screenshots, additional photographs, additional graphs, data. If you have a complex business model, make maybe a breakdown of the different parts of it. If you have a complex sales funnel, a breakdown of the different sales funnels. If you have a very complex blended customer acquisition cost formula, you can break that too. It's like, "Hey, some of our channels are expensive. Some of them are cheap. Some scale better. Some scale worse."

You don't really want to get into that in the middle of a normal pitch, and there's a very good chance that you'll get a question about it. And if you do, it's very helpful to be able to throw the numbers up because, two things, one, you probably can't remember the numbers off the top of your head. I certainly can't. And I don't want to misinform someone, but I also want to be able to give a good answer.

So what I typically have when I pitch for companies and when I work with clients, we typically end up with a slide deck that is around 15 slides long and probably another 15 slides or so in the appendix. Now, if you send ahead the slide deck, you wouldn't include the appendix, but it's just there. So you don't have to switch to another deck. You don't have to switch to another piece of software. You just go, "Boop, boop, boop, boop, boop," and you're right there to show off the bit you need to show off.

Healy Jones:

It's very powerful for when the VC asks the drill-down question or the double-click question on one of the topics that you're presenting to be able to say, "Wow, that's a really good question. I've thought a lot about that." And then to be able to jump to an appendix slide where we can show them more detail. It's really powerful. It shows that you're very thoughtful.

Haje Jan Kamps:

Yeah.

Healy Jones:

Couple other-

Haje Jan Kamps:

And you don't have to beat yourself up. If you get a question that you don't have an appendix slide for, at the end of that pitch, go home and make one. Right? The next time it comes up, you're ready for it. And that's often how these things evolve. Right? You get a couple of questions that a lot of people ask? Great. Make a better answer for it. Make a slide if you have to.

Healy Jones:

Certainly.

Haje Jan Kamps:

But it's an iterative process. You don't make the slide deck once and then never touch it again.

Healy Jones:

Okay. Great. Now that we've talked about the appendix, let's go back to talking about the order of slides. Again, it's a really important topic. I'm going to share the order of slides for the presentation that we looked through, the 4Ps, BeerSub, which is the other example, a startup pitch deck template that we've created, and then the suggested startup pitch deck template, table of contents or order of slides as well. So you can take a quick look and compare them.

Haje, they definitely deviated with the 4Ps a little bit from the suggested order, and I think, in particular, we put the team slide back quite a bit and the traction slide back. I want to talk a little bit about the thought process on how the story and why you move those slides around a little bit.

Haje Jan Kamps:

Yeah. I think, a lot of the time, when I work with founders the first time, they've downloaded the template somewhere and they've just crammed all of their information into the template. That is great if your story lends itself to that particular order of slides. But what I also learned is that a lot of the time, if you have a particular strength or a particular weakness, no two businesses are the same, and you do need all of this information in a slide. Right? If you're trying to do a pitch and you don't say anything about your team or your competition, it's not a good pitch deck, but you don't have to say it in that particular order.

And so, sometimes, there's two slides in particular that get moved around a lot. It's team and traction. So with the team slide, if you have the most incredible team in the world, if you have three PhDs and a bunch of people who have deep industry knowledge, lift it up. That becomes a really good part of your story. You can say, "Hey, we are the only team who could possibly deliver this." If that is true for you, then tell that part of the story.

Same thing with traction. If you have incredible traction, honestly, nothing else matters. That's your second slide right there, just like, "Hey, we're growing rapidly. We are delivering. We are growing. The only reason we need to raise money is that we can go faster." At that point, it doesn't matter how good or bad your team is or what your competition is doing, because you are executing the ever-living crap out of it. And I think that's the way to think about it. What are the specific strengths and weaknesses for your team, for your company, for your product, for your market, for everything that's happening here? And that's how you tell your story, and that's why the order of these various slide decks are slightly different.

Healy Jones:

So again, you should feel free to move these around based on how it works for your narrative and your story. It doesn't hurt as you're putting together your presentation to just take one of the templates we have here and just follow that order, and then to think about it. Talk through it in your mind. Talk through it with your co-founders. Talk through it with your existing investors. Take the top things and pull them up. But again, remember, team and traction, in particular, move around quite a bit.

Haje Jan Kamps:

Yeah.

Healy Jones:

And then also be thoughtful around the product and demo slides, how much time you need to allocate to those. You can often go through those relatively quickly depending on the stage.

Haje Jan Kamps:

Yeah.

Healy Jones:

And then the other big piece of advice that I want to make sure you take away from this is that make sure you've got an operating plan that's showing what you're producing with the money that you're getting, that you're going to be more valuable, that you're credible. I just definitely think that's incredibly important, and I highly recommend that.

Haje Jan Kamps:

Yup. So the cool thing about these different slide decks is that you realize that there's a different number of slides for one thing, and they have a few little differences. Right? The BeerSub slide deck actually has two slides-

Healy Jones:

Yeah. I'll show that.

Haje Jan Kamps:

... that don't exist in either of the other two. So in this case, the "why us", slide six, and "why now", slide 11, are different. You also note that in the suggested, you have financial projections in both the suggested and 4P, but BeerSub doesn't have any financial projections. So there's slight differences there. In the BeerSub story, the ops plan actually takes the place of financial projections, and in others, you might need both. So it varies a little bit.

Healy Jones:

Right.

Haje Jan Kamps:

The "why now" slide is particularly interesting to me because it's really trying to place it in time. So what we're doing here is we're saying, "Hey, there's been a macroeconomic shift that is happening, and within this macroeconomic shift, it's really important to keep in mind that this company could not have existed 20 years ago, and it shouldn't exist five years from now. Now is the time." And for some companies, that is super obvious and not important. And for other companies, you have to help set the stage for that.

The other one is the "why us". So in this case, it's about the moat. It's like, what are we doing here that makes us special? So in this particular story, what I've done is, I'm telling a story narrative around why this team is unique and really well-positioned to run this company, and then later, I'm talking about the specific people in the company and why that is true.

Again, they're just little storytelling techniques, but you get to have a little bit of fun with this. You get to have a little bit of wiggle room for how you tell each part of the story. So I guess the overarching point I'm trying to make here is, don't get too hung up on the templates or the order. Think about what the story is. Think about it, do you need to spend more or less time on something? And if you start getting a lot of pushback for a particular part of your pitch, think about, would an additional slide help or would moving it around help?

A while back, I worked on a company that was all about virtual events. And this was right at the beginning of the pandemic, and so there was a god awful amount of competitors. We had so much pushback on competitors by every investor we talked to, but we were still like, "No, we have a really solid reason why it still makes sense for us to start this company. We're not being outcompeted from every angle. This deserves to exist." And as a result, I ended up with two different slides about the competition. One was just this big slide taking the entire market of 45 competitors and saying, "Hey, the vast majority of these you can ignore because they sound like competitors, but they are not. Zoom, yes, you have pictures of humans on the screen and they're talking to each other, but it's not a virtual events platform. It's different, and here's why."

So basically, we did this scorched-earth thing where we took, out of the 45 competitors... where we reduced the actual competitive field down to about five and then had a second slide that talked about those five specific competitors and how we were different. It was really clunky and, in the end, it was the only way I was able to tell that part of the story because it was such a frothy, competitive landscape. And so, again, you have to somehow get a little bit creative about how to tell the parts of the stories, especially when you get a lot of pushback.

Healy Jones:

Yup. So I think the key takeaway there is, listen and take that feedback and use it to craft how you're telling your story.

Haje Jan Kamps:

Absolutely.

Healy Jones:

We highly recommend starting with the template. And again, we've got a couple that you can grab, just to get the ball rolling, but then go ahead and make changes after you've done that.

Haje Jan Kamps:

Absolutely.

Healy Jones:

Another important topic to think through as you're crafting your deck is that there are a couple different axes in how your deck might be different, and one of those is based around your stage. So later-stage companies will have slightly different order and emphasis on the slides, and particularly leaning more into numbers, whereas the earlier-stage companies will likely talk more about the story and the plan about how you're trying to figure things out and where you're trying to get to and to prove you've reached the various proof points around product-market fits and understanding your sales and marketing channels.

So that's one thing to think through. Now, we talk about how to think differently about your slides based on stage in the individual conversations. So please check out the individual videos or recordings to go more in-depth on each slide to see how they differ.

Haje Jan Kamps:

Yup.

Healy Jones:

There's another way or another matrix to think differently about how your deck comes together. Haje, do you want to talk about that?

Haje Jan Kamps:

Yeah. I often recommend that people actually create two different versions of their slide deck. So you have to... I mean, that takes more time to keep in sync and to keep everything up to date. So I would build one first. Build your pitch deck, like the actual one you're going to be used for pitching. But then remember, a lot of the time, when you build a really good Keynote or PowerPoint, it's about... The slides back up what you're saying. Right? But if you're not doing a voice-over, if you're not talking, it might actually not land as well.

So build that deck first, but then think about if you were to do a send-home deck, whether before or after the meeting, is there additional context or information or links or all that kind of stuff you would add to really help the story stand on its own? And I like to... What I typically recommend to my customers or to my clients is to have two different decks. One is the presentation deck that you use when you tell your story, and one is the send-home deck. Now, the send-home deck can have a little bit more words because people are not going to be distracted by the words while you are talking, and you can add links, you can add a little bit of extra context, and it's really helpful to be able to send one and then present from one that looks really similar but is better for showmanship.

And so, think about the medium and the recipient, right? The send-home deck, people will have a quick skim through and look at the things they're interested in. For the presentation deck, it really is just there to support you in telling your story. So they're subtly different. You don't always need two different ones, but I typically recommend having two slightly different versions of it just so you don't lose something in translation when you're sending it to someone.

Healy Jones:

Yeah. I think that particularly makes sense if you're going to be doing a lot of prospecting, which is the initial reach-outs. You want to make sure that the deck... That someone opens up and their email attachment can stand alone and that there's no important context that's lost. When you're presenting, of course, less text on the screen can really be helpful. So just think through what your presentation style is. And remember that if you're putting something on the board that could be read, a lot of the time, people are going to stop and read it, and they may not be listening. So just think through the ratio of how much you want to be delivering verbally versus via text.

Haje Jan Kamps:

Yeah. And the most value you get out of your slides is if you do stuff that you can't do with words. Graphs, pictures, illustrations, charts, any sort of thing that you can't really do as easily in words really makes sure that the slide deck does the heavy lifting there, because it means that when somebody is looking at it, you can do the voice-over, you can explain why this is important, why this is relevant, and it's just good multimedia storytelling.

Healy Jones:

Thank you for listening to the first episode of the Kruze Consulting startup Pitch Deck Course. Again, we have gone through every single slide with its own unique episode and recording. We have free templates available, and we also have a free financial model that you can download. All of this is on kruzeconsulting.com/pitch-deck. We hope you found this enjoyable. We'd love to hear your feedback. After you've raised your money, of course, please come to Kruze Consulting if you want to get the best accounting, bookkeeping, tax, and financial advice available to you venture-backed companies. And Haje, folks would like some help putting together their presentations. How can they reach you?

Haje Jan Kamps:

I would be absolutely delighted to help. I'm super easy to find. You'd find me on Haje.me, so my name dot M-E. It has some information about what I do. And there's also a book, so it's available in all good and some terrible bookstores. Go to haje.me/book for that. It's a pretty quick read. It covers a lot of the stuff that you need to know in order to really pull together a good pitch deck.

Healy Jones:

Thank you everyone for joining us for this episode, and please check out all the other episodes that we've recorded on every single startup pitch deck slide. Thank you so much.

Healy Jones:

Hello, and welcome to the Kruze Consulting Venture Capital Pitch Deck Course. We are going to present our top 10 venture capital pitch deck fails. These are the 10 most common mistakes founders make when pitching to VCs.

I am joined, as always, by Haje Kamps, who is the well-known venture capital pitch deck consultant based out of Silicon Valley. He's an author for TechCrunch, former venture capitalist, former founder of several startups. Haje, how are you doing today?

Haje Jan Kamps:

I'm doing great. I'm super looking forward to this one. I always end up talking about all the fun stuff that people get wrong, and it's one of my favorite topics. So let's get into this. This is going to be fun.

Healy Jones:

Yeah. It's fun, but I hope that we can help folks avoid mistakes that can legitimately torpedo your entire meeting. For all of the things that we're listing in here, I have seen fails that basically shut a meeting down. Or after the founder leaves, the partners all look at each other and say, no. End of story. Let's dive in on this. One of the things that I think we should actually mention before we dive in is that a lot of times VCs are not good at providing feedback about why they're passing on an investment.

Haje Jan Kamps:

Yes.

Healy Jones:

In fact, it never really helps a venture capitalist to be honest with you, which I found out when I was a VC. My partners always recommended a pretty calm-like thanks not right now. And then something pretty generic as a reason why, without trying to get into the specifics. I didn't feel that was right. I was like, I want to give some real pointers here. I'm going to collect the feedback from the partners and share it with the founders.

A few of the times it went really well, and I think the founders really internalized it. But a lot of the times it went very poorly. I think it's hard sometimes to take feedback, and the natural instinct is to want to rebut or argue. It's usually too late by the time you're getting the no. And so because of that, VCs are not very good at providing feedback.

You're unlikely to actually get the direct feedback from a venture capitalist about what you're doing wrong in your pitch. We're going to try to help you with these top 10 fails, understand where common mistakes are, so you can think about it objectively before you go in and present and avoid these mistakes. All right.

Haje Jan Kamps:

Yeah. Absolutely. I think it's a really funny point, because if you think about it, just to layer something into what you just said, there's no incentive for the VCs to make you a better pitcher. If they decided to pass, why would they care if somebody else invests? The VCs only care about the companies that are really in their portfolio, most of the time. And so you'll get a soft no a lot of the time, which is like, come back later, come back this.

Occasionally, I talk to founders that I work with who said, "Oh yeah, I talked to this venture firm that I really know really well, and they said this and this." I was like, okay. I guarantee that wasn't the reason they turned you down, because you are smack bang in the middle of their target zone. Let's talk about the pitch. Let's figure it out. And it turns out to usually be something related but different.

It goes to your point, and it's always something that is like, it is opaque to the founders because there's so deep in it and there's no incentive to actually give any real feedback.

Healy Jones:

Exactly. Hopefully you've been following along. We have a free venture capital pitch deck course available on kruzeconsulting.com/pitch-deck. That's K-R-U-Z-Econsulting.com/pitch-deck. We're releasing the whole series of informational courses and downloadable templates around helping you as a founder to prepare your pitch deck. But if you haven't found that, just go find it now and let's do it. Let's actually dive into this top 10 fails. Fail number one. Haje, what do you got?

Haje Jan Kamps:

Love it. Well, actually I wanted to make a quick general point, which is the one thing that actually isn't a pitch deck fail per se, but is the number one thing that people fall short on, which is being belligerent or arguing. I think if you think about it, what is the VC looking for? They're looking for a return on their investment, but they're also looking for whether you are nice to work with.

If they make an investment, they're probably going to be on your board for the foreseeable future. And if you are a horrible person or if you're really difficult, or if you don't listen, that is really, really hard. So they may say something that is wrong, but picking a fight at that point, especially in the early stages, is not the right way to go about it. I think being firm but humble is a good idea.

Healy Jones:

That's right. The venture capitalists want to be around someone that they like, and the problem is some of the VCs are difficult. Some can be know-it-alls, so you might want to argue with them. It then generally doesn't end well. It's tempting to have an open mind and say, "Well, I appreciate your point. My experience has been X, but I'm going to try to think carefully about what you said and I'm going to internalize that. Thank you." That type of thing.

It's sometimes hard to do that, particularly when you do have a difficult person you're talking with, who is maybe saying something that is possibly wrong. But that could also just be a sign that you're not dealing with the right person.

Haje Jan Kamps:

Well, this goes two ways. The venture capitalist wants to work with you on your board and knows that you're work withable, but that goes the other way, too. If you think about, hey, am I going to be okay talking to this person several times a month for the rest of the duration of this company? And have them on my board, and take their advice and potentially have them argue against me? If the answer is no, don't take their money.

Healy Jones:

Exactly. Exactly. Okay.

Haje Jan Kamps:

Anyway, should we talk pitch text?

Healy Jones:

Let's do this. The third time's the charm. We are legitimately diving in now. Major fails. I'm going to present because Haje has created some silly examples here of some mistakes, mistakes that we've seen. And this is definitely one of the number one mistakes, just completely biffing the team slide.

Haje Jan Kamps:

Yeah. There's two ways of doing that. For one thing, there's probably way too much information on this slide. You probably don't need a full org chart. Typically, only the founders and a little bit about the key members. You don't need your controllers and bookkeepers listed. But more importantly, and this is the really big fail here, which is, this is a veggie box delivery startup.

I see a CEO, I see a technical team, and I see a financial team. I don't see operations. I don't see the supply chain. I don't see all the things that you really expect from this startup. It looks like an org chart. If this is their full org chart, my immediate question would be, where the hell is your team? How are you going to deliver this product? So yeah, be very careful about what your team actually looks like and make sure you have the right team for the right startup.

Healy Jones:

For sure. Just in terms of the design of this, an org chart is never going to help you out, at least at the early stage. It just doesn't help you. In fact, what it probably does is it puts you in the, oh, this guy's probably an executive out of a big company, which is possibly a bad thing to flash when you're trying to go raise money. I would never present an org chart. It is a really bad idea for a venture capital pitch.

Haje Jan Kamps:

And none of … Go on.

Healy Jones:

Well, there's other times that it makes sense. If you're doing a partnership with a massive conglomerate, an org chart helps you understand who the key stakeholders are. So you know who you have to sell and get on board for a project. But that's not what you're doing here. Okay. You are a startup and you're trying to wow the founders with why you are the right team to attack this problem.

Haje Jan Kamps:

Yeah. And names don't do that. Woodrow Writer and Ronny Reader over here, I don't know why they're good. If you have a world-class CTO, I expect to see some logos here. I expect to see some accomplishments. Did they exit a company? Have they done a startup before? Why are they the perfect people to run a veggie box delivery startup? That is the info I want. Names? They're not helpful, unless you have, I don't know, Zuckerberg on there. But then in that case, you're probably not watching this video anyway.

Healy Jones:

Right. Right. Yeah. The purpose of this slide is so that when the VC has that question in their mind, like why can't somebody else walk in with this idea and do this, they want to think, oh wow, you are the team. This is the team that can do it. A team might be part of your moat as well. Oh, we have three of the leading artificial intelligence specialists in X, Y, Z, and there's only six of those people in the world. It's like, oh, well that's a mote. You want to dive like that.

Oh, I founded this because I was a product manager at a large Fortune 500 and I kept having the same problem. So gosh, darn it, I'm going to solve that problem here. That is like, boom, get that out there. Make this slide sell. Do not make this slide a list of names. In fact, even just a list of logos can't be bad unless they're perfectly on target or highly correlated with what you're trying to get done here.

Haje Jan Kamps:

Yeah. We covered this in great depth in the team slide, so go ahead and watch that one if you're worried about your team slide. But yeah, I've seen that a lot of people screw this up. Don't be one of them.

Healy Jones:

Yeah. It can be pretty bad. Oh my goodness. All right. Well, the next one is the market size.

Haje Jan Kamps:

Yes.

Healy Jones:

Let me advance to the market. Yeah. Go ahead. Let's talk about this one. Goodness.

Haje Jan Kamps:

We have a whole market size and market opportunity segments, so listen to that separately. But the thing people sometimes get wrong is that they try and pitch something in a market that is way too small. If the market is way too small, then the best case scenario for the VC doesn't show a return. At that point, there's nothing. Right?

Healy Jones:

Exactly.

Haje Jan Kamps:

So be very careful with making sure that your addressable market and your serviceable markets are big enough that this could potentially be a venture scale company.

Healy Jones:

Right. This slide is supposed to be silly. Everything about it is supposed to be silly. But basically what we're showing here is that this is a super tiny market of venture capitalists. There's no way they would ever put millions of dollars into a company if it captures 100% of the market, get half a million in revenue. That is a ridiculous trade. You would never ever make that. You don't want to show over a $10 billion market generally. Or sorry, over a billion-dollar market at a minimum, but 10 billion is actually pointed in the right direction.

The other thing that I think this slide is doing, which besides being silly, is that it's basically compounding the total addressable market and the actual service addressable market. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

Sure, there's a lot of pet owners in San Francisco. Maybe there's half a million pets, which I actually would believe. But if you're doing a thing for dogs, that's not the right number. You have to shrink it down to the dogs. In fact, what the VC's going to be doing in their mind is, well, how many people can afford this? Don't confuse the total addressable market and the serviceable market, unless you're doing it on purpose. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

I've seen beautiful examples of companies doing that on purpose, where they're starting with something small and niche so they can get the foothold, they can get the customer base. Work on the product, get their sales and marketing down. And then they have a plan to expand into the rest of the market. Or they have a plan to expand into adjacent markets. That's a slide that I think is incredibly powerful.

I think that it's very incredible. VCs love to start in one market and move into adjacent markets or expand through the market pitch. That is great. That is a great way to do it. This slide is a fail. The market's got to be huge, and it's got to be clear that what you're addressing, what your solution or proposed solutions as you iterate, is going to be able to address the number that you're showing up here.

Haje Jan Kamps:

Yeah. I want to make a quick mention here. If you are a sole trader in a half million-dollar market that you can actually sell to, you're doing something great if you're watching this and that is you. But you're not venture investible, and that's the important point here. There's a difference between something that is operating at venture scale and something that could be a good lifestyle business. I applaud lifestyle businesses, but that's not what we're here to talk about.

Healy Jones:

Exactly. Great.

Haje Jan Kamps:

Cool.

Healy Jones:

Okay. Next major fail is on the projection slide.

Haje Jan Kamps:

Yeah. We see a lot of this kind of thing. This is probably the worst slide I've ever designed, but I just wanted to have something here. But the point we're making here is that, look, if you are showing slow, steady growth that just keeps on going forever and goes nowhere, that is not helpful. Yes, you have growth, but this needs to be venture scaled. It's the flip side of the previous one. If your projection shows that you're unambitious and can't get there, that is awful.

The flip side is also true. If you have a curve that goes just almost straight up, businesses like that do exist, but almost always, there's something that happens before that massive upswing happens. We see this on slides all the time and it's just not believable. I don't believe you when you put this in front of me, unless you're halfway up that curve already and you have a way of growing that further.

Healy Jones:

My job at Kruze Consulting is to help clients put together their projections or their budgets, particularly as they approach a fundraise. And I see these problems all the time. I see founders who are, oh, I'm trying to be conservative. So they have very slow growth. Well, guess what? You've just modeled yourself out of a transaction. The growth is not exciting enough to be attractive to a venture capitalist.

In fact, if you do think you're going to have modest growth, you probably are not fishing in the right pond for your fundraise. You don't want to raise venture capital funding because you're not going to produce the tremendous growth that the VC is looking for. You should probably be considering another type of financing, like a debt loan or something like that. That's the way to go. Venture capital's not for you.

And then just like you said, here on the other side, so ridiculous growth. We have clients who achieve ridiculous growth, and some of them have had a curve like this. Okay. But if you're going to present a curve like this, you better be in it. Okay. From the left here the head should be historical. You should be somewhere around here so that the VC can actually extend the line up without having to do this curve. Okay.

If you're in it okay, present something crazy. All right. That's fine. However, eventually things do want to probably level off like that. That would be more realistic. The other correlated to this is a lot of times, founders show their revenue going up in some sort of way like this. Maybe not this steep, but pretty aggressively. And they don't increase their expenses at all.

It's going to be really hard to have a company that has, let's say a billion dollars in recurring revenue on the same expense base that it had when it was just starting out. You're going to have to have customer service. I'm sure there'll be all sorts of developers, QA, VP, sales and marketing, et cetera, et cetera. If your company is approaching some ridiculous profitability margin, and by ridiculous, I mean a 50% profitability margin is pretty insane.

I want you to take a hard look at it, because the VCs maybe won't laugh in your face, but in their mind, they could be saying, "Ah, this person is just-"

Haje Jan Kamps:

[inaudible 00:15:10].

Healy Jones:

"This person is not a good business person." That's what their thought process might be. All right.

Haje Jan Kamps:

Yep.

Healy Jones:

On this slide, you're trying to prove to the VC that you're thinking on a venture scale. So you want to show something big. But when you hit that crazy hockey stick curve, you probably ought to be in it to present it. Now, the one exception would be at the seed stage or pre-seed where you have no revenue. You want to show some sort of, hey, I think I can get to $100 million revenue in five years. But you may not necessarily need to present it something like this.

Just keep in mind your audience. Venture investors, theoretically, are numbers people. You want to make sure you're talking in their numbers. All right. Now, we are going to provide examples. We have examples of what we think looks good. You just get that from our pitch deck course. Just don't make this common mistake, because it is a really common mistake.

Haje Jan Kamps:

Yep.

Healy Jones:

All right. Number four, traction. The traction slide.

Haje Jan Kamps:

Right.

Healy Jones:

Oh, man. We could definitely tell some stories about this one. Haje, go ahead and talk about it a little bit of what you see that's bad here.

Haje Jan Kamps:

There's two things. Traction has to be real and it has to mean something. It should point to that you know what you're doing, and you're pointed in the right direction. Now, in very early-stage companies, you may not have traction. There may not be anything happening underneath at all. That is okay. But then don't have a traction slide. I see this thing kind of all the time.

Press coverage. Well, press coverage needs to translate into something. If it translates into sales, great. But then report to sales. Whenever I see press coverage, I'm like, okay, well, you didn't get the sales, so the press coverage was unsuccessful. Awareness isn't something that's easy to measure. Even companies like Coca-Cola who do care about awareness, spend so much money tracking it that as a startup, it's just futile.

Same thing with things like product testing. I see this all the time, where we have started making our product and we have lots of internal testing. We have 100% automated test coverage. Well, automated test coverage is something the VP of engineering cares about. Your startup investor wouldn't give two craps. It doesn't matter to them. I have seen this on slides. It's irrelevant. It's important to you as a company, but it doesn't show traction.

The final one is interest. It's like, oh, we are doing a brand new electric car and we have 100,000 people on our newsletter. Great. This is why, even people like Elon Musk for Tesla, they charge $100 for you to reserve your place in the queue. They know that some people will cancel, but at least you've put some real money down to prove that you're actually interested. Real interest is really hard to gauge.

Healy Jones:

That's right. Unless you're doing something like a content play or a social media type of a play, the best type of traction has got to be money coming to you somehow.

Haje Jan Kamps:

Yep.

Healy Jones:

Okay. But it is okay not to have a traction slide. If you don't have a traction slide, you're going to want to use your product slide. If you're not at the point where you've got traction, don't force it. You'll look like an idiot. I've seen really crazy stuff on here where someone's saying, oh, I'm picking a different celebrity, but it's like Kim Kardashian liked our company's tweet. It's like okay, that was not traction. That might be an interesting story that you somehow weave in here for some reason, but you don't put it on the traction slide. You cannot claim that as traction.

Traction should be in a … for the best companies, it is customers giving you some kind of money. Okay. Or customers actually in your funnel. Adjust this slide or pull it out depending on the stage of your business, and do not try to force fit a traction slide into a business that doesn't yet have traction. You're not helping yourself out.

Haje Jan Kamps:

Yep. Totally.

Healy Jones:

Okay. Perfect. All right. Now, the next big fail that we see pretty regularly is where companies don't have a coherent story. Haje, you're definitely an expert at helping founders craft their story and weave it through their deck. Explain a little bit more about the fail you've seen with this.

Haje Jan Kamps:

Yeah. I think a lot of the time, what happens is that people lose vision of why they're doing what they're doing, which is, forget the boogle. Because as a startup founder, you are so deep in your universe that you forget who you're talking to here. You're talking to a venture investor. The product you are selling them is shares in your company. If your pitch isn't that, if your pitch isn't about, "Hey, this is why this company is going to be valuable," you're telling the wrong story. It's so easy to do, because you spend all day in, day out talking to customers and making sales, and doing marketing and hiring, recruiting, all that kind of stuff. But what you're really selling is the vision of the future and the value of your company.

So not having a narrative around there, you're not selling your product to them. It's so often I sit through an entire pitch and I'm like, "I want to buy your product, but I really don't want to invest in your company," which might get you one customer, but that's not what you're doing here. Think very carefully about what your end goal is and make sure that the story actually supports that end goal.

Healy Jones:

An example that you put together here, and actually it ties into our pitch deck course. If you haven't seen the welcome slide part or piece of our course, now you want to check that out. But the welcome slide is a way for you to start to weave that story in here a little bit. You've created this silly example where MilliCorp is … We're going to blow your mind. It doesn't make any sense.

Haje Jan Kamps:

Right. Right.

Healy Jones:

It's nonsense.

Haje Jan Kamps:

Unless you have mind blowing as your specific industry, but even then, I don't know if they're B2B or B2C. I don't know if it's a multimillion-dollar company or an idea on the back of a napkin. I don't know how big the team is. I don't know what they're raising. This says nothing. This is worse than having no slide at all. Make sure you actually tell the story.

What are you setting up here? What are you trying to achieve? What are you trying to get across? Your first slide is, as we talk about on this part of the course, your first slide is probably going to sit up on the screen for a while, while everybody gets their coffees and thinks about their day and introduces themselves to you. Make it count. Make it part of the story.

Healy Jones:

Exactly. Yeah. That's another important thing to think about with the first slide, setting up the story. There's always this awkward, "Hello, my name is," and the VCs give their background for five minutes when you kick off your pitch. This is the slide that's going to be up there, so make sure this slide is starting to tease the story here. You're wanting the venture capitalist to put down their phones and start to focus.

Haje Jan Kamps:

Yeah. The other way I see an incoherent story is too many examples. If you are constantly bouncing back and forth between different examples for different customer segments, different this, this often comes up because I work with a lot of B2C customers. And they're like, "Oh yeah, we have a distribution strategy. We have a direct-to-consumer strategy. We have a B2B strategy. We have this strategy and that strategy." I'm just like, okay, where's your focus?

This is the thing to remember about a pitch. You don't have to explain the full depth of everything about your company. It is much better to actually take a red thread and pull that all the way through. And then at the end you can say, well, we're doing really well in our B2B, sorry, B2C subscription market. Actually, we thought about other market extensions too, and we've done some experiments, yada, yada, yada. That's where you talk about that.

Don't try and clump it all together, because this story gets so messy and so confusing. In the end they sit back and go, okay, what do you actually do? Are you a B2B? Are you a B2C? Are you a subscription company? Do you do distribution? I've sat in meetings where that happens and at the end they go, "Oh no, no, no. We're not doing any of that. We're just doing B2C." And the VC just sits there and goes, "Well, I was benchmarking you against all the SaaS companies I've invested in, and now the whole pitch doesn't make sense."

Be tight, be focused, and keep it together, because we get it. I'm excited for you. You are excited about your company, but you have to have a tight narrative to really explain what you're doing.

Healy Jones:

That's right. Exactly. All right. The next major fail, number six, which is all too common unfortunately, is missing important slides.

Haje Jan Kamps:

Right. I had some fun here making a slide about a slide that doesn't exist, but again, this is about the story and about how you do this. What are the slides that are often missing, Healy?

Healy Jones:

Competition slide, I find, is missing a lot, and that is a mistake. Competition is generally good, and you want to see competition. Ideally, you're seeing the old slow-moving incumbents as competition in a big market, proving people are willing to spend money, a lot of money for the thing you're trying to solve. Don't miss the competition slide, people. It's a natural question. All VCs are going to have that question, so you want to be able to guide them to who the right competition is.

Very bad things can happen when you don't have a competition slide. The investors can think there's not a market there, not a solution. The investors can think that you don't know the market, you're not smart enough to know who the competition is. The investors can imagine that you are the worst competitor in the market, and therefore are going to fail. So set the stage and tell the story about who the right competition is for the thing you're trying to get done. Do not forget your competition slide.

Haje Jan Kamps:

Well, and we covered this in our competition slide quite in depth, but it's worth repeating. When we said earlier, if you don't have traction, don't put a traction slide in, not having competition is not an option. That is almost impossible. It doesn't exist.

Because either, if nobody's willing to pay to have this problem solved, you don't have a business. It's really that simple. In some way, people are solving this problem currently, that is your competition slide. Whatever the solution is currently, put it on there and show it. And expect to see some pushback and some challenges there

Healy Jones:

That's right. We think back to historical examples, Henry Ford, his competition really wasn't other cars. It was horses. So you want to talk about the general horse transportation market if you were him. There are people, companies, whoever your target customer is, has to try to be scratching this itch somehow, and so you need to be able to talk about that.

Haje Jan Kamps:

Yeah. 100%.

Healy Jones:

Great. All right. Now, the next slide that I see missing a lot or needing a lot of help is, either the operational plan or the financial slide, the projection slide. Yeah. A lot of times, I don't see that. Even for a small-stage company, I strongly recommend some sort of a projection slide or operational projection slide, because the investor's going to want to know what they get with the money that they put in. Hey, you're raising a $2 million seed. What do you look like when you run out of the $2 million? How long does that last? These are very common, important questions.

Just make it pretty easy. Like, "Hey, listen, with the $3 million in 18 months, we're going to have these many customers, this much revenue. Or we will have developed the product in this way, or we will have reached the following features. Or we'll have built our sales team out as X, Y, Z." What the heck do you look like while this money gets used up? And are you building something, a company that is worth more money at the end that it can raise funding again?

Haje Jan Kamps:

Yeah. It's surprising. Well, maybe not. But a lot of the time, I talk to founders who are like yeah, I just want to extend my runway. They say, "We've been working. We've been doing really well. We just need to extend our runway." That is a terrible thing to say. Because really yeah, great, you can run for longer, but what are you actually going to accomplish? If I'm the investor and I say I'm going to give you $5 million, how is the company different at the end of those $5 million as it is now?

Tell that story. And one way of telling that story is through numbers and projections and your operations and that kind of stuff. Show how many people you're hiring. Show what the product milestones are. Show all those pieces. Because if you don't explain that, then VCs don't want to just pour money into a hole. That's really what you're saying if you forget this slide. So it's super, super important.

Healy Jones:

Perfect. Another slide that I think founders are sometimes afraid to put in here, if they're first-time founders or they're really young is the team slide. Where you position the team slide in the deck can help mitigate that a little bit. If you have a very strong team, you're going to want to put it right up at the front, or sometimes at the end, because you want to end on a high note or you want to start with a strong note.

But if you're really young or a first-time founder and you have imposter syndrome essentially like, oh my gosh, why do I deserve to run this company or whatever, that's baloney. You've got the passion. You must have some sort of market insight. You still need a team slide. Don't forget about the team slide.

Haje Jan Kamps:

Yeah. Yeah. I think by leaving it out, you're really saying we're not the right team. I don't have faith in my team. And if you don't have faith in your team, what are you doing starting this company? So yeah, be upfront about it. There's always transferable skills. If you are fresh out of university, explain, or fresh out of college, explain why you are still the right person to do this company. If you can't explain that and you have any doubts about you being the right person, don't start a company.

Go and do something else for a while, while you figure out where your expertise is, and then start a company. You see so many people come through who think it's going to be super fun to be the next Bezos or the next Zuckerberg. I agree, that does sound very fun. But the people who reach those echelons are so rare that explain what your path is going to be to where you're going, and that's what the team slide is for.

Healy Jones:

Definitely. All right. Any other slides that we missed? Those are the main ones that I can think of.

Haje Jan Kamps:

Yeah. No, I think those are the main ones. There's a couple of people who occasionally don't talk too much about the product or don't talk too much about the challenge. Sometimes you can get away with not talking too much about that if you are very early, but you should still have some sort of conversation about what you're trying to build and how you're solving a problem. But it's very unlikely that you'll forget to add that to your slide deck, because as a founder, you spend a lot of time in that space.

Healy Jones:

It is true, but you do want to make sure you pull your head up. And this goes back a few points to the setting the table and explaining your story, explaining what you do. I can't think of specific instances where a partner has turned on me after the founders left and says, "I actually don't understand what they do." That is a mistake. It's not that the product was too technical, it's that the founder really never explained what the heck they do very well. It's like, make sure what you're talking is somehow in here. Okay.

Haje Jan Kamps:

Remember the other piece. Having slide decks, it is natural to be nervous. You're sitting across from multi-billionaires who are so used to talking to founders, who do a lot of board work, who know their stuff. If you have a little bit of imposter syndrome, that's an extra good reason to put the slides in. They'll keep you on track. They'll make sure you don't forget anything. They help you remind you of the points you're trying to make, and they can be used as a crutch. Make a deck, rehearse with it, and it just makes it really easy to keep you on track.

Healy Jones:

Perfect. Awesome. All right. Next major fail we see is, I think, a critical one that even people with a beautiful deck can make, which is not being able to deliver the pitch in different amounts of time. Man, this is such a big … I've seen this problem. Oh my gosh. To the extent that there's a problem with the coffee pot at a VC firm, this could totally derail the amount of time you have to pitch. I'm talking from actual examples. I have been in situations where there's a problem with the coffee pot and the fricking meeting couldn't start. And so the founder only gets 20 minutes. It is crushing.

Haje Jan Kamps:

Yeah. Or a VC turns up late because people. You cannot understand how crazy the calendar of a blue chip VC is. If you are a partner at a blue chip VC firm, you are the busiest person in the universe. It means that your entire calendar is planned into five-minute blocks. It also means that things go horribly awry. You're on the board of a company, something explodes. They call you and you take the call, because this is a multimillion-dollar investment. You need to have that conversation.

Sometimes people turn up 20 minutes late to a 30-minute meeting. You can say, well, you were 20 minutes late and I’m not talking to you. Well, that says a lot about you as a founder. Or you can say, you know what? I've got 10 minutes. Let's do this. Let me talk to you for 10 minutes. Let me explain why what I'm doing is important. At that point, the only goal of the meeting is to get it rescheduled. If in 10 minutes you manage to screw the pooch and they all just go shrug, I don't want to talk to you, in effect, you've torpedoed your thing.

Think about it. How would you tell your story in five minutes? How would you tell your story in 10 minutes? What is your elevator pitch? If you stand next to Marc Andreessen in an elevator, literally, and he says, "What do you do," and you go, "Well, I'm a founder," you get 10 seconds to tell the story. In those 10 seconds, you either get a business card or you don't. Think about that. Well, how do you condense your entire story down to two sentences? Or in a meeting that goes really, really well, I've been in those meetings too, you sit with an associate and a partner and the partner gets so excited.

Somebody else walks by and goes, "Hey, James. Walk in here. You've got to see this." It's rare, but it does happen. You've got to be prepared, but people will cancel meetings to sit with you for longer. It happens sometimes. You don't really have control over how long you talk. That is up to the people around you. But what you do have control over is making sure that you nail the story, you tell the important bits first, on the assumption that you get cut off later. You don't bury the lead, as they say in journalism. It's just a really powerful way of making sure that you really get to make your points.

And then from there, you flex up and down. Your operations plan, if the meeting's running short, you say, "Look, I've got a really good ops plan, but let's talk about the other stuff first." If you have a lot of time, okay, let's go in deep. Let's dig in. Let's explain when you give me $5 million, how I'm going to spend the $5 million to get to where we need to go. It gets really interesting. If you are able to be flexible about that, your meetings will run much, much, much better.

Healy Jones:

I totally agree with you. It is so important to have the ability to hit the important points in your deck in a very short period of time. In fact, I recommend being able to do it in five minutes and in 10 minutes. I know you've got 15 minutes on here, but there may be a situation where you get a chance to talk to a venture capitalist and you only have five minutes. You can imagine, at the airport-

Haje Jan Kamps:

At a cocktail party.

Healy Jones:

… at a conference, at a cocktail party. Even then, have that tight five-minute pitch in your mind. If you're doing it in your mind, although I do recommend having a deck click, have the outline. Make sure you're not missing anything. There are key important points you want to get through. You don't want to miss it. Again, be ready to deliver this really quickly or over the course of the standard half hour, hour pitch meeting. In a partner meeting, it could be two hours. However, there's going to be a lot of questions, hopefully if you're doing a good job. Just be ready. Just be ready.

And then the other thing that you have on here that we've touched on a little bit is the appendix slide for deep questions. These are slides that you don't necessarily want to have in the core deck, because it could slow down the conversation or take you down a rabbit hole that you're not interested in going into. But if you do have a partner that is picking on a particular issue, having these in the appendix shows that you're prepared and then gives you the structure to be able to walk through it really cleanly. Great advice there.

Haje Jan Kamps:

Yep. Yep. I guess the final point that I'd like to make here is that I, for a while, ran a company called Triggertrap. What the company did was it created really interesting high-speed triggers for photography. I actually had MOO Cards. Moo.com, you can make business cards where every card is a different picture. Well, we got a bunch of our customer pictures and put them on the cards. When I was presenting the company, I would get a handful of those cards out and I would actually show the pictures that people had taken with the product.

Now, if that is an alien way relevant to what you're doing, if you have a visual storytelling part of the thing where the visuals really help, then you can use that as a trick. What I ended up doing is I'd show people the pictures and the one they reacted most to, they're like, "Oh, that's really cool," that's the business card you give them. They will never forget you. Do that. It's a gimmick, it's a trick, but it works. If that applies to you in any way, feel free to do that. It's all about the storytelling and making sure that you can condense the story into a small amount of time.

Healy Jones:

That's an awesome example. That's really cool. All right. Let us move on being able to make the story adaptable. We're moving quickly. Next biggest fail is definitely missing competitors. Haje, you've created a hilarious slide to do an example of this.

Haje Jan Kamps:

Yeah.

Healy Jones:

All right.

Haje Jan Kamps:

In this particular slide, the company is revolutionizing internet search and say, meet our competitors. Now, honestly, I don't see anything wrong with this slide, Healy. So we can just move on to the next one, actually. These are the only competitors I can think of in internet search.

Healy Jones:

Right. If you want to search for something, you would definitely Bing it. That's what it is.

Haje Jan Kamps:

Yeah. Totally. Famously, that's what people say now.

Healy Jones:

Exactly. It's so … Yeah. I can't tell you how many times I've seen this. It's horrible to miss major competitors. You never want to be in a meeting where the VC is suddenly questioning how well you know the market. I can think of an example. It was a very long time ago. A founder was presenting, this was some sort of pitch competition thing, was presenting an idea where there would be a website that you would go to, where you could see the times of TV programming.

Haje Jan Kamps:

That sounds like a really good idea. Let's launch that.

Healy Jones:

I thought it was a great idea, but he'd never heard of TV guides. He didn't realize that when you have your cable provider, you push the little guide button and it shows the times of the program. Basically, it seemed like he never actually used a television before. Don't leave out important competitors. Just don't.

Haje Jan Kamps:

Yeah. We talked about this in some detail on the competitor slide detail as well, where I was talking to somebody who was launching an exercise bike with a screen on it. I was like, "Oh, I like Peloton?" And bless his soul, he'd never heard of the company Peloton. I was like, "Okay. Well, that's really bad news." Those are extreme examples, and that relatively rarely happens, to be fair. But know your market. It is so important. Spend an afternoon Googling. It'll get you all the information you need.

Make a spreadsheet. Make a presentation. Do whatever you need to do for yourself and talk to your customers. Your customers, one of the good questions you can ask them is, how do you currently solve this problem? Or who do you think my competitors will be? They will tell you, and at that point, you can analyze whether that's correct. And then in that case, what are you going to do to mitigate that as a risk? Or if they're wrong, great. Don't worry about it.

Healy Jones:

By the time you're pitching to a venture capitalist, you should have talked to potential customers.

Haje Jan Kamps:

Yeah.

Healy Jones:

Okay.

Haje Jan Kamps:

Yeah.

Healy Jones:

One of the questions should be, how are you solving this problem? They should be giving you names of companies or solutions that they're using. You want to make sure you know who those companies are. Just don't leave them out. If your particular product competes in a small segment of the market, or at least initially, and you only want to show those really Uber Direct competitors, it's okay to have a slide with that. But then you better have an appendix where you go deeper if someone questions your knowledge.

You want to jump to something where you do have a more robust list, so it doesn't look like you missed everything. It's okay to say for sure, I know about that. Here's how I've mapped the market. Show a quick slide and say these people are not what I would consider a direct competitor because of X. However, I'm aware that they're in the market. That's an okay way to try to get around it. But if you're doing an internet search, you have to have the Google logo on the slide. That one is so important.

Haje Jan Kamps:

Oh, yeah. That's the one I left off. Yeah.

Healy Jones:

There you go. There you go. All right. All right. Now, the next major pitch deck fail is just the amount of, well, text on a slide.

Haje Jan Kamps:

Yeah. Yeah. Yeah. This is an extreme example, but there's a temptation to put too much text on your slides. My rule of thumb is, if you are tempted to make the text smaller than I think 20 points, maybe think about why. Why is there so much text on this slide? Now, there's a difference here, which we'll talk about in a different episode, which is about the send-home deck versus a presentation deck. The send-home deck, maybe there's space for a little bit more text, because you want to add context that otherwise, you would've given through a voiceover.

But what you don't want is for this slide to show up in a pitch presentation. Because what will happen, they completely stop listening to you and they diligently start reading, because that's what people do. Or they tune you out, whatever. For the next few minutes, you may as well sit there singing songs. Nobody's listening to you. They're just analyzing the slide and trying to poke holes in it, or think of questions, or see how this fits into their mental map. Just don't fall for that temptation. It's a waste of everybody's time.

Healy Jones:

Yeah. On a slide, any slide, you have to assume simultaneously that the viewer is only going to read the title, or that the viewer is going to read every single darn piece of text on there. In the same slide, you could have two partners in a meeting with you, one doing that, and then one doing the other thing. Just make sure the slide is going to work in both scenarios.

Haje Jan Kamps:

Yeah. It's a storytelling thing. Think about the user experience. That's what you do as a founder. You think about user experience. What is the user experience of somebody looking at this slide? If it's awful, don't do it that way.

Healy Jones:

I haven't seen this in a long time, but I have occasionally seen folks present where they're literally reading the slide.

Haje Jan Kamps:

Reading from the slide. Yeah.

Healy Jones:

Too much text is almost a temptation to do that. I know it's a very boring meeting. You're going to lose your audience. I don't think that merits to the level of a fail. I haven't seen a founder do that in a long time, but that is a thing that folks do sometimes when they're presenting.

Haje Jan Kamps:

I see that occasionally. The way I work with my pitch coach clients is that they often, the first session is pitch whatever you have. I want to see where they're at, how good they're pitching and all that kind of stuff. Granted, it's pretty under-rehearsed at that point, but they also spend a lot of time going over stuff that they are just reading off the slide. The reason you are there as a founder is to add context and color, and magic and passion, and all that kind of stuff. Reading off a slide never ends that way. Again, it's a user experience thing. Nobody wants to watch that.

Healy Jones:

Exactly. Exactly. Okay. Perfect. Now, to our pen … This is ultimate? Ultimate. Ultimate pitch deck fail. Definitely see this a lot in a hot market. You would be tempted to do this if you're raising your series A or series B. Do not do it. Do not merely reuse the previous deck with minimal text changes. Hopefully, your company has advanced in any amount of time between your last fundraiser. Now, you want to tell the story. What the heck happened? Where are you? Why are you bigger and better than you were before? You can't just change the amount of money you're raising and make it go from pre-seed to seed, or seed to series A. That is a fail.

Haje Jan Kamps:

Well, and I think the reason, there's two fails there. One is laziness and storytelling, but the most important thing is you have, as a founder, learned a tremendous amount about your market in the last 18 months. That better be true. Because if it isn't, what have you been doing for the last 18 months? If you're just heads down building a product and you haven't learned anything, you're doing it wrong. It's not a good idea.

Really, it's about getting to a place where the story starts to make more sense. Your understanding of the market and your customers makes more sense. Your product sense is more strong. Realistically, that means you start from scratch. There's nothing left on the deck that is the same. Maybe your vision, but even that probably has been refined. I would say, don't edit. Start over. Start from scratch.

Healy Jones:

Yeah. It's a great idea. A lot of times, you're going to pitch a venture capitalist for a seed, and they're going to say, "It's super interesting. I'm more of a series A investor. Why don't we connect in 12 months?" In 12 or 18 months when you're actually raising that series A, you don't want to present the exact same deck. Now, it's good to have something in there so they can jog their memory and help them tie. But the real thing you're trying to show them is, "Hey, I told you I was going to get 100 customers," or, "I told you I had a successful product that was in the insurance market. I was moving into the banking market, and I did that. And look what happened." Prove to them you did what you said you were going to do, so that they believe that you're a solid operator who can get stuff done.

Haje Jan Kamps:

Well. Even if you didn't, that is fine, too. He's like, I said I was going to get 30 insurance customers, but it turns out that wasn't really the market that this product was great for. Instead, we got 50, I don't know, banking customers. Actually, the revenue was higher and this is all the stuff we learned. This is the process.

Being able to roll with the punches, you don't have to keep your promises. But you do have to perform well and be able to back up with what you're doing. I think it's an opportunity to really have those conversations with your investors as your understanding of the market evolves and develops.

Healy Jones:

Yeah. Think about what the investors want to say. The venture capitalist wants to be able to tell their limited partners, their investors, "Hey, I made this investment in a very cool series A company. I have known that company for 24 months or 18 months. Over that time, I've seen the founder execute and do X or Y or Z." They want to have that long term relationship with you.

Because one, it helps them get more comfortable, and two, it helps them sell how awesome they are to their investors. Make this change. Help deepen the relationship. Prove that you're doing this stuff you said you were going to do, or that you're learning, that you can execute. Don't just reuse the previous pitch. That doesn't get you there.

Haje Jan Kamps:

Yep. Totally. I like this. I think we made some really good progress on all these slides. I think the thing I would like to highlight is that it's so much cheaper to learn from somebody else's mistake than to make your own. So use this. Really think about it, am I making these mistakes? Hopefully some of this was funny and hopefully some of this was helpful, but take it to heart because you wouldn't believe how many of these I see weak in, week out. It's just sad.

Healy Jones:

Yeah. Well, now that we've walked through the top 10 pitch deck fails, why don't we leave with a few, just tips, a few helpful things that-

Haje Jan Kamps:

Yeah. I like that.

Healy Jones:

… should be useful to pretty much anybody putting together a venture capital pitch deck. The very first tip that I have is you got to practice.

Haje Jan Kamps:

100%.

Healy Jones:

You have to practice. Treat this how you treated the presentations you did in high school or college or sales pitches. Just practice this. Really practice it. Practice being able to deliver it in a short five, 10 minutes or 40 minutes or an hour. Practice the different lengths. Make sure that you can actually walk through it. You've got smooth transitions, the story's tight.

Also, that you're essentially unflappable. There's going to be questions coming at you. If you're doing a good job, you're going to get questions. You're going to go off track. The practice will help you have that outline in your mind, so that you can bring the story back and make sure you hit all your important points.

Haje Jan Kamps:

Yeah. Absolutely. There's going to be people around you. If you're an entrepreneur, ask other entrepreneurs. People have done this before. Pitch to your friends. Not any friend, pitch to friends who understand how this works. If you have any friends who are VCs or angel investors or fellow entrepreneurs, ask for advice. Get them to help you, or at least give some feedback on this.

What I often do is my whole coaching program is five weeks long. This is pretty intense. But sometimes, I actually say, look, just pitch at me, I'll record it, and I will do a voiceover afterwards for the stuff that worked and didn't work. It takes an hour, but you get so much really good feedback. Find some people you trust and ask them to do that for you. It is really valuable.

Healy Jones:

Yeah. Asking for advice, asking for help, is really important. Again, an advantage of being in Silicon Valley is that there are a lot of people around here who have raised, to the extent that you have friends or connections who have just raised a similar round or a little bit ahead of you in the fundraising game. Ask if you could buy them a coffee and then go through your deck and get some candid feedback on it. It's always going to be friendlier and nicer to get it from someone who's not actually trying to give you money, right?

Haje Jan Kamps:

Yeah.

Healy Jones:

They can give you more candid feedback. They don't have any ulterior motives of trying to angle to get in there. Get help. Ask for advice. Again, that is a major thing that I do here at Kruze as well. I listen to a lot of pitches, because we want our clients to be successful. We want them to raise money, so they keep being clients and grow their business and take care of the problem that they're trying to solve. Having the right advisors can help you out there.

The other folks that are great for asking for advice are your existing investors. Now, you know your existing investors, hopefully pretty well, but particularly the ones who are very experienced should be extremely helpful as you get ready for whatever your next round is.

Haje Jan Kamps:

Yeah. Love it.

Healy Jones:

Great. All right. Now, this problem I know is a little bit specific to me, but a tip is not to talk fast when you don't have a lot of time. That is definitely something I do, particularly when I'm caffeinated and I feel time crunched. I talk very quickly. I have seen other founders do this. It actually makes it a lot harder for the investor to understand what the heck you're trying to get to say. It just doesn't come across as credible or professional. Talking fast is not the answer in a time crunch. If you've got a time crunch, you want to hit the important points without going into as much detail, unless you really need to. That's how you get stuff done in a short timeframe.

Haje Jan Kamps:

Yeah. Totally. In a dark past, I dabbled in standup company for a bit.

Healy Jones:

Possibly.

Haje Jan Kamps:

It is a very specific piece there where you talk about story gates. In a story, it's like you have to give them a piece of information that you then do a call back to later. From a storytelling point of view, you say something early on and you work your way through the story. And then you refer back to it. That is really what this pitching is about, too. You need to be able to make some points along the way, and then you pull it together in a neat bow at the end. Or throughout, you'd be able to pick up those things, whether that is through examples, whether that is through context and all that kind of stuff. But you have to make sure that those points land.

Because if you set up a joke early on, or you set up a point early on and you try and tell the punchline later, but you are speaking so fast or somebody coughed or somebody was briefly inattentive, you lose people. Same as with the slide deck. Make sure you make the points. And after you make a really important point, pause for a bit. See if it sinks in. See if they get it. Now, okay. Cool. Move on, because you know you're going to refer back to it later. This is where the practice and the rehearsal comes in.

In a long pitch, in the hour version of this, you have a little bit more space to play with it. But in the short versions, you still need to hit those points because otherwise, your story doesn't make sense.

Healy Jones:

That's right. Yeah. Wonderful. Other tips?

Haje Jan Kamps:

Well, what you said about earlier is like having an ongoing conversation. If you're raising money right now, that can be a little bit tricky. But remember that investors typically don't invest in the snapshot. They're not just going to look at your deck once and then give you a check. Does happen, but what happens much more often is that they say, "Hey, this is interesting. We're interested in this space. You're pretty cool, but maybe a little bit later." Keep them in the loop. Now, instead of having a single snapshot, they can see you trending. They can see you operating. They know what you're like as a person and as a founder and how you treat people. All of those data points become really important to invest in later.

In the pitches I've seen and when I was in venture capital, you often see somebody get a soft no, or a check back later, and they will come back later. Sometimes third, fourth, fifth time around, that's when the investment happens, because the investor wants to see tenacity. They want to see that you're never going to give up no matter what. As long as you don't get a hard no, keep coming back, because if they want to have nothing to do with you, they don't want to waste their time. They will tell you no. So keep going at that.

Healy Jones:

That's right. Yep. Exactly. Investors really do want to have that relationship. They want to see the trend, and that is an awesome way to tell the story. Say, "Hey, six months ago, I told you I was going to do this, and here's what I learned." It gets back a little bit to that story gate thing you just mentioned there. Bring them along, make them feel like they're a part of the journey there. That can actually really help you get them more excited to invest.

Haje Jan Kamps:

100%.

Healy Jones:

All right. The final tip I want to bring up, and probably two examples I want to talk about with this one is that you want to use your deck as an outline or reminder, or even a crutch, so that you don't forget really important points. Specifically, I can remember when I was a VC, I met with a founder several times and brought them in for the final partner meeting. For whatever reason, the partners were asking a lot of questions, and we just didn't do the competition slide. We just double clicked over it. Didn't do the competition slide.

In the partners meeting, one of the partners said, "You know what? He didn't talk about the competition. I don't think he knows the market." I was like, "Wait. No, he totally knows the market. I've talked with him many times about it." He said, "He didn't talk about it. I just don't think he gets it." We were checked at the investment because we didn't talk about the competition side. That is because the founder got distracted by all the questions coming in and just blew through it.

It was probably just a double click type error, but you want to make sure you're hitting all the important points. Because the pitch deck outline that we're recommending and that you see pretty much everyone's recommending online, it's the stuff the VCs want to see.

Haje Jan Kamps:

Yeah. Remember, and I think there's something interesting there too, even if you have told the same story to an associate, then associate and a partner, and then associates and a bigger partner meeting, you don't get to skip stuff. You have to bring people along. You can't just trust that the associate and the original partner you spoke with are going to … As you just said, Healy, you stood up for this company and still, they got passed by. It's not that they don't trust your judgment, but it's like no, this is part of what it takes to be a founder. You have to be able to tell the whole story every time in order to really land.

Healy Jones:

Yep. Exactly.

Haje Jan Kamps:

Yeah.

Healy Jones:

The other part of this that I have seen, one of the best investors that I worked directly with, who will remain anonymous, but he had many superpowers. But one of the superpowers was, he's very friendly and really engaging. He's actually some of the best reporters that have interviewed me. Just gets the founder talking. Just gets them talking, gets them going all over the place, answering questions in a dialogue.

At the end of the pitch, I didn't really go through the slides. It was just a conversation. What the partner was really doing was trying to see, how organized is this person? How do they deal with things coming at them from different angles? Can they still be coherent, organized, thoughtful, tell a story, get their message across, even when I'm maybe distracting them a little bit?

If you couldn't get through your important points when he was having this conversation with you gen, they were hour-long conversations, but again, if you missed important points, that was a negative. Now, he didn't necessarily not invest based on that. But his very standard strategy was to just get the person at ease, start throwing a bunch of questions at them, and there is where he thought he would actually see the true mettle of that investor.

Again, the deck is a crutch. It helps you not forget important points, because your deck is organized to tell the story and to sell the business to that VC. So you don't want to miss those important points. Just refer back to the deck or the outline. Even if you're having that conversation, hopefully you've practiced enough so that you can check off in your mind. Wait, did we talk about competition? Oh yeah, we did.

Oh, did we talk about the operational plan? Like, what are we doing with this money? How much are you raising? Oh yeah, we did. Just make sure that you're getting through all the important points. And again, the deck is a beautiful outline crutch agenda item for you to do that.

Haje Jan Kamps:

Yeah. Love it.

Healy Jones:

All right. Well, that is our top 10 venture capital pitch deck fails. Again, we have-

Haje Jan Kamps:

Are we having no bonus tips?

Healy Jones:

Free bonus tips at the end. We have a whole free course, if you like this. We're going through every single slide that you need. Kruzeconsulting.com/pitch-deck, we have two free downloadable templates and more. Please, go there, find it, follow along. If you need help on this particular slide, find that particular slide and enjoy the content. We hope it's helpful.

Haje Jan Kamps:

Thank you so much for listening.

Healy Jones:

Take care.

Haje Jan Kamps:

Hello and welcome back to our Pitch Deck Course from Kruze Consulting. You can find out the entire course on kruzeconsulting.com/pitch-deck. That is Kruze with a K, K-R-U-Z-E, consulting.com/pitch-deck. I'm Haje and I am a pitch coach, and I'm helping people with all sorts of magical things around how to tell the stories of their startups and I'm joined here from Kruze Consulting with Healy.

Healy Jones:

Hi, I'm Healy Jones. I'm with Kruze Consulting. We're one of the leading finance and accounting consulting firms serving venture capital X startups. Our clients raise well over a billion dollars a year. I'm formerly a venture capitalist with a couple venture capital firms and an exec at startups that have raised quite a bit of funding. So I have a lot of experience, both evaluating and assisting companies, making these types of decks and also giving them. So really happy to have everybody here joining us to talk about these solution slides.

Haje Jan Kamps:

Love it. Yeah, and my background is I've done a bunch of work in this space, both in venture capital, as a journalist at, among other places, Tech Crunch, and I've founded a bunch of companies myself. So I've seen this from every angle and I've worked with at least a couple of 100 startups on how to tell their stories and I wrote a book. It's called Pitch Perfect and it basically contains everything you need to know about how to build a pitch deck. So here, we're actually double clicking on a lot of the info that's in the book and a bunch of stuff that isn't.

Healy Jones:

It's great. Haje's book is available on Amazon, if you want to check it out, and we are also releasing all of these for free on our website and on YouTube. So we are talking about the solution slide. So in general, we recommend this as the slide that comes right after the problem, which is the first slide. However, I do think before we, say, talk about a specific order here, there's one other… Or as we talk about the specific order, there's one other pretty important point, which is that some companies may want to put a traction slide as the number two slide. Haje, do you want to talk about why?

Haje Jan Kamps:

Yeah, absolutely. Traction is king. If you have incredible traction, you can essentially get away with only having a traction slide.

Healy Jones:

That's true.

Haje Jan Kamps:

But basically, what this does is if you've set the stage for what the problem space is, if you've done incredible and you have explosive growth and lots of customers and almost no churn, highlight that before you talk about how you did it. If you don't have that yet, shove it towards the end of the deck and let's talk about the solution slide.

Healy Jones:

Perfect. All right. So why is the solution slide so important? Also, you've just talked about the problem and there are obviously a lot of ways to solve the problem. So hopefully, you sold the problem in a way that the venture capitalist is agreeing like, "Wow, this is a real issue. People are willing to pay for it. How are you going to fix that problem?" So this is your solution. This is it. This is how you can get it done, and keep in mind that the different stages of companies will have different slides here. So if you're a seed or you're trying to raise a seed round in an MVP versus a series B that's got a lot of paying customers, this slide will look very different.

Haje Jan Kamps:

Yeah. If you're raising a growth round, essentially, your product is going to be pretty static at this point. You've solved the problem, you have paying customers, and now, it becomes more of a, "How do we take this problem and how do we grow it?" Or, "How do we take this solution, this product that we've built and grow that to as many customers and regions", and however you slice that market. If you're a very early stage company, this can actually be a pretty challenging part of the story to tell well, and the way I like to think about it is for early stage companies, this actually is… It's not really a set in stone solution, it's more of an MVP. And the way I like to tell that story is like, "Hey, our hypothesis is this, this and this. We know what the problem is. I think our idea is to solve this problem in these ways. Hopefully we are right and we can continue working on that, but there's some wiggle room here."

Healy Jones:

And so I think the thing you really want to sell if it's an MVP is, "We have a process to figure out how to solve this. We are thoughtful people who've talked to a lot of customers, potential customers and we know how to build stuff. So here's what we're going to start with and here's how we're going to learn from it. Here's our process for improving what we're trying to do." So again, now, at this point, you're not selling the actual solution, you're selling that you guys are the team to figure it out. Some slides, maybe you want to die on the battlefield. This is not the slide to die on the battlefield if you have an MVP around a particular feature. You don't want to fight the venture capitalist around a particular feature that hasn't been built, hasn't been tested. You want to actually prove that you're going to be able to ingest data from customers and figure out if that is the feature that's working and how it needs to be tweaked, et cetera.

Haje Jan Kamps:

Yeah. MVP is the dumbest word in the dictionary. It's not minimum, it's not viable and it's not a product. Still, it's called a minimum viable product and really, it's the smallest amount of work you can do to answer a question. And in that, you have to know what the question is and I think that actually comes from the problem slide. So, "Hey, there is a problem here worth solving. We think there's a solution here. What is the smallest amount of work we can do to see if that is really a good way to solve it?" For some really early stage companies, the MVP is actually a video where you can do a bunch of conversations with customers.

Dropbox famously raised a bunch of money without having it written a line of code. They went out with a video and a, "Hey, would you use this if this existed?" And everybody went like, "What? Yes." And so they were able to raise money because they had a bunch of feedback and it was a really good way of doing that. So in the earliest stages, the investor doesn't have a lot to go on if there's no traction, so they have to have faith in your team, they have to have faith in your process, as you just said, Healy, and you need to have faith in, I guess, the humbleness. Are you able to discard ideas that don't work quickly enough that you have enough runway to try two or three different solutions?

Healy Jones:

Great, good. Excellent. And so let's talk more about if you're a company with legit traction. So now we're going to the other extreme, you're more of a series B company. I do want to push back one thing, Haje. I think that a lot of series B companies are still working on their product and they've got a lot of product extensions that they want to get into. So it is true that hopefully by the time you're a series B company, you've got a product that has a lot of traction, but you're probably not done building a product.

And I think the problem that can happen on this slide, the solution slide, where you can mess up as a later stage company, is this can become an entire product roadmap slide or you get really in depth and really into the weeds and you can spend forever talking about it, because you probably have a product team or leader, or maybe that's you as the founder and you probably think about this every day. You don't want to spend forever on this slide. You got to keep things moving. Don't go too crazy or spend too much time on this slide. If you have a lot of traction, list out the key benefits and whatnot. So we'll get into a second about what actually goes onto this slide, but just keep that in mind if you're at a later stage.

Haje Jan Kamps:

You typically only have 30 minutes to 45 minutes to deliver this entire presentation. You spend 10 minutes on the problem and 20 minutes on the solution because you, as a founder, are so excited about what you've built. You're actually shooting yourself in the foot because one thing I see people get wrong again and again and again on this slide is that they're treating it as if it's a sales pitch. It is, but you're not selling what you think you're selling. You're not trying to sell this product to the VC. You're trying to sell shares in your company to the VC. There's a really important difference. So don't rabbit hole too far into what your product actually does and focus instead on just summarizing why this is important to your customers. We'll talk about what that means in just a moment, but from there, that becomes the springboard to explaining to your VC why it makes sense to give you a couple of million dollars to buy shares in the company and that's what you're really selling.

Healy Jones:

Great. So let's talk about what to watch out for. So first of all, you're not selling the product to the venture capitalist. You're selling shares in your company to the venture capitalist. So this is not a sales deck in terms of, "Please purchase my product at the end of the conversation." One. Two, you don't want to spend too much time on the slide and it's very common. I see this a lot. When I was a venture capitalist, founders were passionate about their product and the solution and they spent way too much time on this slide. The VC is not going to log into your product and use it regularly in most likelihood, unless it's maybe a consumer thing. It's just not something they're going to do. So you don't want to spend 45 minutes on this slide. You don't have the time. You got to keep things moving on.

Haje Jan Kamps:

And there's an interesting thing to think about there, too. Maybe you do this pitch 20 times and every single time, your VC will come from a different context. You've been doing this longer than I have, Healy. Do you have any examples around how that shows up for people? How can you get pushback here when the VC has a different context?

Healy Jones:

So you gotta watch out for the venture capitalist who wants to argue with you about your features or your view on what the product needs to go. This could be a really long conversation and it could get pretty argumentative, particularly if you're really passionate about your product, so just take a deep breath. If they start to push back on what's wrong with your feature set, or, "I don't like this thing", or, "Why would someone do that? Why would someone use that?" Take a deep breath, okay? So secondly, the VCs generally have different backgrounds, so first of all, know who the venture capitalist is before your meeting with them, where an executive who was a designer focused executive or marketing executive or they're a engineer by training. Make sure you know who they are so that you can just understand that when they start asking you a particular line of questions, you know what level of depth to go in and [inaudible 00:09:59] knows what the context is for.

Now, you shouldn't try to argue with the VC around this. Places where I've seen VC's push back on this is if, for example, I had a venture capitalist who is an amazing designer and he was always asking questions around, "Why is this button here?" Or, "How does this particular feature impact behavior?" And so you want to just be careful that you're not going down a rabbit hole and spending 20 minutes talking about how you picked a particular font or something like that. That's not helpful. Again, we're going to talk about it and say what you're putting the key benefits to the customer on this slide. It's probably best to say that you're excited to test these things. You're excited to have the VCB part of the conversations around how you figure out how you're testing either design or the architecture of the product if they're an engineer or the virality, or how you get things to go viral if they used to be a marketing person.

So what you're trying to do is prove to the VC that you're willing to take their feedback and you're curious to hear what they have to say. You're trying to prove that you have a process to answer the question they're asking, because you probably don't have the answer right there and the way that you really prove that you have a process for most venture capitalists is you talk about bringing in customer feedback, understanding what the customers looking for, talking to the customer, pulling out data from use, interaction with customer, customer data, et cetera.

And then finally, and I think this is a really important thing that, Haje, we talked about a lot is if they're really asking about your go-to market strategy on this slide, you have a choice here. The wrong answer is to try to explain your code to market strategy on the solution slide. That is the wrong thing to do. This slide is not built for that. So you should either politely say, "I would like to discuss that in two slides. I have a whole slide around that. That's a great question. I'm really psyched to talk about it. Let's just get to it because I believe I'll answer your questions." Or two, actually go to that slide, use the slide that answers the question, has the charts or the design to actually get you there. Don't try to answer a tough question on the solution slide when you have it on a different slide.

And again, the two best answers are, "Can we please talk about that in a moment? I have the answer for you", or "I have a slide about that." Or actually go to the slide. Make a decision about what your presentation style is and how you work best, particularly under pressure, but if it's a really hard question, particularly a go-to market question or something like that, don't try to answer it on this slide. It's just not built for that and it won't be as powerful if you actually go through it in the place where you've built the deck to do that.

Haje Jan Kamps:

Yeah, absolutely. The one other VC profile that's worth mentioning is investors with a finance background. Sometimes, they'll get a little excited about the product and the business model and that kind of thing. And again, this is where even VCs sometimes fall into the trap of rabbit-holing on the wrong thing. You might have a slide about business models later. This is not the slide to talk about that. And ultimately, you're not even talking about the business model of this company. You're talking about the business model for this investment, ultimately. That's where the real conversation happens. So as Healy was just saying, a really good, polite, "Hey, awesome question. I'd love to talk to you about it. It's coming up. Are you okay to wait?" Most of the time you get a, "Yeah, no problem. Thumbs up. Let's keep going", because they also know that it's really helpful to get a good context of what your company is before you really double click on the things that seem like they don't work or some more discussion is needed.

Healy Jones:

Exactly. The market's pretty hot right now, so this isn't happening as much, but let's look back two years ago. If you're a later stage company raising a lot of money, $5,000 million, and there are a lot of product questions, I think the right thing to do is to say, "Hey, let's have a whole discussion around that. I have a product team. I spend all day some days just thinking and talking, working through products. Let's have a whole hour long discussion around the product. Let's not get too under the weeds on it here." Again, you can't spend 45 minutes on this slide, regardless of the stage of the company that you have. You cannot spend 45 minutes here. Arguing-

Haje Jan Kamps:

That's such a good-

Healy Jones:

Is not going to be helpful either. Arguing with the VC, all you're going to do is upset them and upset yourself. That's not what you're trying to do. You're not trying to win a high school debate club. You're trying to convince someone that you're smart enough to figure out how to offer a solution to this market.

Haje Jan Kamps:

Yeah. And a lot of VCs are looking for coachable founders. They're VCs for a reason.

Healy Jones:

Exactly.

Haje Jan Kamps:

They have some in-depth information here. And so one way of dealing with this could be like, "Hey, this is why I'm here talking to you. You're asking all the right questions. Some of this, I have answers for, some of it, I would love your help with. This is why we came to you. I want you on my board. I want you to help me, but can I give you the best understanding I have right now?"

The other thing you can do when you're slightly further down the line and if people start rabbit holing, you're probably going to be the only person in the room. So you can actually say, "Hey, I have a whole product team. Can we do another meeting and drag in my Head of Product and we can really go as deep as you possibly want?" And it would be a very silly VC to push back on that because they know there's a better resource to have this. So use those tools you have available to you to try and keep the conversation a little bit on track, especially in the first meetings, because otherwise, if the 45 minutes is up, they will get up and walk out of the room and if you haven't made it to the end of the presentation, well, you've failed. That's your job, to keep people on track.

Healy Jones:

Exactly. Exactly. Couple of things to watch out for, if you're doing something consumer, everybody thinks they're an expert because, "I'm a consumer." Everybody's going to think that. So just be prepared for people coming with a lot of opinions. And how do you answer that stuff? You're bringing customer feedback. It's different based on the stage, so if it's a pre-product, that's a lot harder to do, but it has to do with conversations. If you actually have a product in the market that's doing well, you can bring in actual conversations from real customers or you can bring in data showing how they interact with the product. And the other thing is how do you want to have a process. Proving that you have a process to figure this stuff out and to improve the product, that is actually the winning thing that you want to get through here. I do want to talk about another type of VC which is a former founder or executive in the specific industry or vertical that you're working or that you're pitching. Those executives can come with a lot of baggage. So they did something 10 years ago and they have all that knowledge with them, but all the baggage. All right. So again, how do you interact with them? Arguing is not the way to go.

Haje Jan Kamps:

No. I see this happen with actually one of my previous clients who was building a warehouse robot and he was pitching something to a VC who very specifically had done a warehouse robot company about 15 years ago. And he actually thought he was going to have a really easy conversation but didn't, and the VC said to him, "What you're trying to do is impossible." And the founder was like, "Well, this puts me in a really hard position. You're saying it's not possible. We've literally done it." Now, on the one hand, you don't want to be too rude, but on the other hand, this is a VC who's world renowned for this space, but hasn't kept up to date over the last 15 years. I think it is perfectly okay to say, "Hey, you know what? I can totally see where you're coming from, but there's been some really interesting developments you may not be aware of. So we sold it in these three ways and I actually think it is possible and I'd love to show you in a demo later, or I'd love to show you with this video", or whatever. So pushback gently, but remember that out of date information is still information and you can't fight people on facts, especially if they've built companies in this space before. It just may be that their information is out of date.

Healy Jones:

Exactly. Right. And actually, there's a book called The Challenger Sale, which is a great sales book, and the whole plot of the book is, "Hey, the world has changed. Here's what you need to do. Here's why our product or our solution or feature, et cetera takes advantage of, that makes your life better, et cetera." So keep that in mind. That's a high beta move, prefer an exec who's been in an industry for a while, but maybe what you have to do, again, be careful, read the room. And then the other thing, though, is flattery and flattery works great. Saying something like, "Hey, this is why I want to work with you. This is why I'm pitching you." You are raising [inaudible 00:18:13] talk to a dozen VCs. You're the only one raising this. Now, "I think I've got a process for figuring it out," or, "I think the world has changed because of this but I want to work with you because you're the one who knows about this stuff." So keep in mind, flattery often works on this slide.

Haje Jan Kamps:

Yeah, no, absolutely.

Healy Jones:

All right. Let's keep moving here. So what is this slide for?

Haje Jan Kamps:

So what it boils down to, you're not selling the product. What you're selling is showing what the customer gets out of it and to me, what it often boils down to is like, "Hey, the product costs $20, but they get $40 worth of value." That's really what it boils down to. So how can you show that your customer is getting a tremendous amount of value out of this and really what that boils down to is your unique selling points or the thing that… We've mentioned this before, but the whole vitamins versus painkillers thing. We are painkillers. We make pain go away. We make your life easier. Everything is going to be awesome and it's going to cost less than any other solution. And I think that's really what you're trying to outline on this solution slide. You're showing that this is the best solution, great value for money. And again, great value for money doesn't mean cheap. It just means that the value is much bigger than the amount of money they pay.

Healy Jones:

Right. So remember, you're not trying to get the VC to purchase this product. You're trying to get them to think that you are the company to create the right solution or get the right solution put together. So you're showing the value that the customer's getting, you're proving that you know the customer base really well. If you're really early, you're going to prove that you've got a process to figure out and you get the customers. You could figure out how to get the solution set right and if you do have traction, you're basically doubling down on, "We know so well what the customer wants. We're giving it to them. This is what they want." So again, you're not selling this product to the VC in this meeting, you're selling your company to them.

Haje Jan Kamps:

Now we've repeated that five or six times, but it's worth repeating because it is such a common mistake.

Healy Jones:

Yep, exactly.

Haje Jan Kamps:

Yeah. Let's avoid that because it's just wasted time.

Healy Jones:

Great. So now, why don't we actually show a couple of template slides we've created. These are-

Haje Jan Kamps:

Let's do it. Yeah.

Healy Jones:

Available to download on kruzeconsulting.com/pitch-deck. They're free. Google Slides are free to use. We created a B2B one and a B2C one. Again, these are supposed to be silly. We're not trying to actually pitch these products. We're just trying to help you see what the architecture of a slide deck should be, okay? So I am going to present.

Haje Jan Kamps:

Yeah.

Healy Jones:

Okay. Great. All right. Perfect. So this is the-

Haje Jan Kamps:

This one is actually… Oh yeah, go for it. Sorry.

Healy Jones:

Oh, this is the B2B one and this is the B2C one, but go ahead, Haje.

Haje Jan Kamps:

So for the B2B one, it's worth noticing that on this one, pat ourselves on the back, we've done really well. Nowhere here are we talking about features. So the feature is it works on your smartphone, it is an app, but the thing we're really selling is it's everywhere with you. It's always in your pocket. Same thing, automatic reminders is a feature, but nothing gets missed is the benefit to the customer. Too busy or not busy enough, that's the problem. We solve it. The real value to the customer is low balancing a little bit. "When you're busy, you are still generating new leads in the background. If you're not busy, you're getting more companies coming through." Now, the last one is actually an example of what not to do. An AI assistant in itself doesn't mean anything to a customer, so it's a, "Eh." So I included that one as a what not to do.

Healy Jones:

Perfect. I've seen a lot of AI companies getting funded recently. Sometimes people seem to get funded just on that.

Haje Jan Kamps:

Yeah, get the buzzwords in.

Healy Jones:

Exactly. Although I do have a joke about AI is really just people, but anyway. So again, this is not a list of features. It's the benefits. It's the reason that the customer's going to stop the way that they're doing stuff now and switch to your product and give you money, okay? And I think that-

Haje Jan Kamps:

I know that we're not going into too much detail here. We're not actually showing any screenshots or anything like that. We can do a demo later or anything like that, but really, we're really just giving a big overview over what we think for this 4P company. What is the solution that the customer will engage with? And so keeping that super simple, super high level, we're not going into any detail, this means that the VC is much less likely to go down a rabbit hole. And if they say, "well, this is not detailed enough", it's like, "No problem. We can do a demo. We can talk about the product until you get blue in the eyes or blue in the face, but let's keep this going."

Healy Jones:

Exactly. Right. So again, you want each bullet point to essentially have a straight line to some critical advantage that the customer has. Each piece in here is something that is going to make the customer's life better, save them money, et cetera. In fact, generally, it's cost advantage, convenience advantage, saving time, more efficiency, or I think most of the best pitches are tied to either fear or greed, the two primary drivers of human purchasing decision, I would say.

Haje Jan Kamps:

Yeah. I think some people sometimes buy stuff for joy or other things, but sure. Negative motivators are incredibly powerful.

Healy Jones:

Haje, you're probably right, but let's talk-

Haje Jan Kamps:

Netflix is a great example. You could do it two ways. Either it is to avoid boredom or it is to inspire joy and people buy it for both reasons.

Healy Jones:

It's great. Yeah.

Haje Jan Kamps:

You can use both in your marketing.

Healy Jones:

Perfect. Yeah. And again, as you're explaining this here, let's use an analogy, which is probably easy for most people to understand, which would be a high MPG car, so a car that has great fuel efficiency. Now, if you're selling that car to someone, you could just use the numbers about high MPG, but you should probably say something like, "Hey, this is going to save you $1000 a year in fuel costs," or, "It's going to save you a lot of time because you don't have to stop very often." Or, "Hey, you can make it all the way from Sacramento to Los Angeles without having to stop for gas." You're selling that benefit as opposed to, "Hey, it gets 62 miles to the gallon."

Haje Jan Kamps:

Yeah, totally. And then depending on the market segmentation, you could do, "It's good for the environment", or "It has extra loading capacity", or whatever, but those become marketing questions. I think, again, shy away from the features and work towards the benefits and generally, you can't go wrong.

Healy Jones:

Right. And ideally, you're talking about the stuff that makes somebody make the purchase, makes repeat purchase, not churn or be really sticky, or probably even best recommended to somebody else. And if you can bring data, it's even more powerful now. Again, you don't want to get too far into the weeds, but, "Hey, when we added this feature, our churn rate dropped by 50%."

Haje Jan Kamps:

Yeah. Or, "Net promotion score went up", or any number of measurable metrics

Healy Jones:

Or, "Virality increased by X." Right. So that type of data gets the VC to be like, "Whoa, they unlocked something and these guys have a process for understanding when they're making improvements that are good." So if you have the data, gently sprinkle it in here, but again, don't overdo it. You're not trying to spend 45 minutes on the slide. You're just trying to prove to them that you know the customer base really well and that you got the process to keep figuring it out.

Haje Jan Kamps:

Yeah. And an interesting thing is if the VC gives you a suggestion that you've tried before but didn't work, that is a really good way to have a conversation too and say, "Hey, great idea. That's what we thought, too, so we tried it and it went a little bit sideways because churn went up or, virality went down", or whatever, and you could say something like, "It might be worth introducing it again later, but we have some data. If you want to go deep, let me talk to my product guy." But it's really wonderful if they come up with an idea that you've already tried out because it shows exactly that, that you've also tried stuff that didn't work that is almost as valuable as trying stuff that did work.

Healy Jones:

Exactly. Exactly. And so I've just jumped over to the pitch deck. That is the B2C example of the pitch deck [inaudible 00:26:29]-

Haje Jan Kamps:

So on this one, what I want to say is… Go

Healy Jones:

Again, it's a silly example so don't over rotate on the business idea, which we're just trying to see [inaudible 00:26:36] slide.

Haje Jan Kamps:

On this one I've actually done something unusual because there's actually two here. There's a solution slide and the product slide. The next one is a product slide. And I don't generally recommend doing that, but the reason is in this slide deck, that in the book I'm actually talking to the advantage of talking of it as a solution that typically works really well for very early stage companies when you are doing very early product iterations and you don't really know what the right solution is yet. So you don't know what the right product is yet, but you have a gut sense for what the solution is. Now, there is a difference. So the solution is we think that somewhere in this space, there is a solution to this problem. A product is a very specific implementation of that solution. So again, you can look at what works the best for your company in this particular thing. I don't recommend having both the solution and the product slide, but think about how the story flows the best and if you want to rabbit hole on product, great, use a product slide. If you want to keep it a little bit more vague and a little bit more zoomed out, a solution slide works really well to set the tone for the rest of the conversation.

Healy Jones:

Wonderful. That's awesome. All right. I'm going to stop sharing here. So let's wrap this up. Let's summarize it for everybody. First of all, keep this slide brief, okay? You're not selling this product to this VC. You're selling your company to the VC. You can't spend 45 minutes on this slide. You got to keep things moving on. Secondly, if the VC's asking questions that are answered on a different slide, try to either defer them, ask them to wait until you get to that slide, or if you're a really great pitch person, flip to that slide and then make sure you come back and get back into your order, but don't try to answer every question that can happen on the slide. The slide really is the Genesis for a lot of questions so don't get bogged down on it. Keep things moving, okay? Next-

Haje Jan Kamps:

Yeah. There's two quick points worth making there, actually. One is, don't use builds in your slides for this exact reason. If you have to flick back and forth in the deck and you have to watch every slide build, you're going to drive yourself crazy. So keep it simple, no builds, no animations, no silliness. Just keep it as simple as possible. But two, if you do have to skip back and forth in the slide deck, remember you've probably rehearsed it in order and it's very easy to confuse yourself. Remember that the pitch itself is a high pressure situation. You're going to be a little bit nervous, you're going to be a little bit thrown off your game, so if at all possible, try and keep to the order of slides you've rehearsed and practiced and answer the question when they come up in the various slides. It makes everything so much easier. And remember that the VC is there to get an overview of your company. So if they really want to go deep, that is encouraging because clearly they're interested and they have some knowledge in this space, but it may actually backfire if you decide to go down a rabbit hole too deep.

Healy Jones:

Right. Exactly. Okay. So again, for the slide, it's the benefits, it's not the actual list of features. Let's say that's a common mistake. Don't make that mistake. You adjust the slide depending on how much traction you have and if it's an MVP, you're selling the VC on your ability to figure it out, understand what the customer wants. If you have a lot of traction, you sprinkle a little bit of data in there to prove that, "Hey, we're really paying attention to the customer and when we added this feature, X, Y, Z happened", and what you're helping them do is you're helping them imagine like, "Oh, they're going to find another thing that improves virality 25%. I know they are." You're trying to help them get excited about this team that's got the wherewithal to keep improving the product and keep moving the metrics forward.

So again, very important slide. And in general, it's the second slide in the deck, but on the flip side, you don't want to spend too long on it. Keep the things moving.

Haje Jan Kamps:

You're building a solid foundation and from there, you're going to build the rest of the narrative on top of that.

Healy Jones:

Perfect. All right, everybody. Well, I think that's it so thank you so much. Again, you go to kruzeconsulting.com/pitch-deck to find the templates that we outlined, and then the whole course will be available there. Thank you very much and until next time, happy pitching!

Haje Jan Kamps:

See you next time!

Healy Jones:

Hello, everyone. Welcome to the continuation of the Kruze Consulting Venture Capital Pitch Deck Course. This is our free online course available on YouTube and our website at kruzeconsulting.com/pitch/deck kruzeconsulting.com/pitch-deck. We're going to be talking about the traction slide here. As always, I am with my wonderful co-pilot and partner Haje, who is a well known pitch deck consultant and tech crunch journalist, and also, he's founded multiple startups. He's raised venture funding. He's been a venture capitalist. So I've been a VC. I advise a lot of companies raising money. I've worked for startups. So we're not going to go through the details of who we are. We've done that in previous parts of this course. You can loop back to any of those to see who we are and why we're here, but let's dive in. Let's talk about traction.

Haje Jan Kamps:

Love it.

Healy Jones:

So let's just slide forward.

Haje Jan Kamps:

Good hands. So, yeah, I think the traction slide is actually super interesting. I talk to all of the people I work with, all my clients, about the traction slide. And kind of the rule of thumb is if your traction is amazing, front load it. In this kind of universe, if you have traction, you need nothing else. Because every other weakness in your company, if your team is kind of so so, if everything, if your product is so so, doesn't matter. If you have incredible revenue metrics and incredible traction, clearly, it doesn't matter that these things don't work. The reverse is also true. If you have the best team in the world and you have the best product in the world, but you can't get traction, it's a hard argument to invest in you, because clearly, something isn't working. The right kind of traction is a beautiful proof for whether or not you have found your product market fit. And so, that's where this slide is so important.

Healy Jones:

That's right. And so, this slide makes up for a lot of problems. And in fact, with this slide, you can probably fundraise, to the extent your traction is legitimate and amazing and growing. So I was talking about the up and to the right chart. The VCs like to see the up and to the right chart, because then, in their mind, they can extrapolate that up, even further. Every company is going to have different, or not every company, but different industries have different KPIs that will go into this. We're going to get into that. But one of the things that I want to make sure we emphasize here is that there are going to be companies that are fundraising that don't yet have traction.

It's not unusual for a pre-seed in angel rounds, maybe some seed companies, to not really have a lot of traction. So if that is the case, you may not even have a traction slide. And in particular, I advise just not having this, and instead you're putting the product slide, so you can talk about what you're building and what the market needs are there and how you're going to solve it. So you're helping the VC imagine what the solution will be. So again, if you don't have traction or your traction is weak, you don't want to hide it, but you don't want to pull the slide up to the front and spend a lot of time cheering about it.

Haje Jan Kamps:

Yeah. I think traction is important for growth rounds. If you're doing a serious A, B, C, beyond, like you say, essentially what you're saying is like, "Hey, we figured out our product market fits. We know how we're going to sell this thing. Look, this is the proof." Some early stage companies have that. But some don't. The interesting piece is there are some companies that don't necessarily have a measurable or a traction that can be measured in dollars or in users or something like that, but they may still have real progress. So I think what you're really talking about here is whether you really fully understand your industry and what the important milestones are within that industry. And if you have traction, if you have revenue traction, then do you understand your business model? And I think it is such a useful slide, to be able to poke into the various aspects of what you're building and to really kind of get to the meat of things, I think.

Healy Jones:

That's right. And so, let's talk about how the slide might be different, depending on the industry that you're in. So this is your moment to prove to the venture capitalists that you understand your industry, you understand the KPIs that are important to your industry, and you're basically making it clear that you're going to talk the same language as that venture capitalist is. The VC thinks about how a… Theoretically, you're pitching to somebody who knows something about your industry, or at least about your business model. There are particular words that they use as they talk about how companies are growing and how companies are hot or exciting, et cetera, et cetera.

Haje Jan Kamps:

Yeah.

Healy Jones:

You want to kind of tap into that and make sure everybody's on the same wavelength. And to the extent that you have a KPI that's a little different, you're going to want to highlight it here, so that you're not talking past each other. So your purpose here is obviously showing traction, proving to the VC, you understand what's important in the industry and you're avoiding vanity metrics, which we'll talk about in a little bit. So let's talk a little bit about how this varies by stage of the company. So, Haje, what about a seed stage or pre-seed even?

Haje Jan Kamps:

Yeah, I think in the pre and seed stage, as you mentioned, if you have no traction, don't show traction. I feel like traction is kind of the most operational slide in this deck. And I think when you're thinking about your board meetings, further down the line, the KPIs you report to your board are probably the KPIs you're going to want in this. So in the super early stages, if you're building a, you mentioned a suggestion before this call, we're going to steal it from you.

If you're building a med tech company and you need approval for regulatory reasons, for example, the progress through that path may actually be a reportable metric. If you are a company that really has a huge breakthrough that needs extensive FDA approval, then you're going to be in that loop for a while. And you're not going to make any revenue. And that doesn't mean that your company isn't showing incredible traction and being successful. So I think those are the kind of things, the type of stuff you would report to show real measurable success is the kind of stuff that shows up on this slide, even if that doesn't mean dollar signs.

Healy Jones:

And so, I used to work for a venture firm that had a big biotech arm. I was not a biotech investor, but I was always fascinated when I got to sit in some of the pitches just to try to see. And even at the very early stage there, so as the company is developing a drug, it starts to talk about how they're approaching regulatory approvals, which are very clear gates or milestones, in terms of traction for a biotech company. But at the very early stage, the traction was not around that at all. It was around what the molecules are and the thesis behind how those molecules might drive the clinical outcome that's desired and discussion around where the research was along the path. So that's kind of an extreme example of a company that doesn't necessarily have the sort of traction that we would think of, in terms of revenue growth, or user growth, et cetera, et cetera.

But each industry is going to have their particular flavors. For a software to service company, which I spend a lot of time with, or marketplace company, a traction is potentially going to have some numbers at the seed stage, but it's also possible they're very dinky. And if they're super tiny and it's too early to tell, and it just doesn't sell the company at all, you don't want to hide anything, but you could just mention it somewhere else in the deck, but not toward the front, not kind of really upfront. And we are sharing outlines of what we think the ideal pitch deck structure will be. So you'll want to look for our outline or intro podcast or YouTube videos around that to try to see kind of how we recommend you outline your pitch deck, but just at the seed stage, there may not be a ton going on here.

Haje Jan Kamps:

And you can get a little bit creative. So we'll talk about vanity metrics in just a moment, but I've worked with one company that does self-driving car technology and they were going through a regulatory process and then, an OEM process. Now the regulatory process is probably going to be years. And OEM, so getting the technology into production cars is anything from five to 10 years. And it is a huge amount of journey towards that. So this particular company had two metrics that I kept reporting. One was, how fast can we get this self-driving car around a particular track? And so, their goal was to shave off a couple of minutes every time. And basically, that was a proxy for them to show that their technology was improving. It's a pretty fair proxy, right? It stands to reason that if the car goes faster around a track, safely, that is improving.

The other thing they kept showing was like, okay, how far along are we in these discussions and conversations with our OEM partners? And so, is there a letter of intent? Is there a proof of concept? Is there a MVP type thing being tested somewhere? And they'd kind of mapped out the process from, at which point does this get shipped with, say, BMW? And what are the steps to get there? And so, those two things combined were actually really helpful as proxy metrics, because if you start falling behind your plan on those, then that has a real impact on the business.

Healy Jones:

Great. To the extent, you're an industry that has users or paying customers, those are the types of metrics you want to talk about at the seed stage. Again, there may not be much there, so you may not want to pull this slide forward. But I do pretty regularly see seed stage companies that do have legit traction and it makes sense to show them. And so, the other thing to think through here, and we're going to talk about this a little more in a second, but the VCs also want to feel confident that you know what numbers you need to have to raise your next round. When they put the money in, they want you to get somewhere. And that somewhere is to the next round. So you want to be able to extrapolate up to what that next round is.

And you want to kind of prove that you know what metrics you need for your next round, which leads me to an increasingly popular fundraising round that I'm seeing, which is the seed extension round. So this is after a seed round, and before a series A, I'm seeing a lot of founders start to do this now. And most of the ones that are doing this are ones that have some of the traction figured out, but not all. And in particular, a place where I see companies raise a seed extension is they have often figured out the customer acquisition side, but they have a churn issue for a softwares or service product.

And so, they're coming in and they show the positives and you've got these exciting up and to the right type diagrams or charts, but they also do mention, "Hey, this here is why we're raising a seed extension at A. This is the problem we have to figure out." And there may be a whole slide that talks about how they're going to figure it out. But the goal of that part or that pitch is to show, "Hey, I am sequentially knocking down the pins that I need to knock down to get to the next stage. And so, I've knocked down these few and you should feel very good about me. Because I figured that out. Here's the next ones. I know what they are. And I'm making progress toward them. And I've got a plan."

Haje Jan Kamps:

And I love that you use that as an example, because I'm working with a startup right now that has the exact opposite problem. They have incredible lifetime value, but they can't figure out their customer acquisition cost. And so, what they're doing is they're saying, "Okay, what we're going to do is we're going to raise 3 million dollars to extend that seed extension piece." And it's like, "Okay, we know that once we have our customers, they generally don't churn. We make a lot of money. Now we just need to crack the nut of finding new customers." And both of those sides, it's kind of two sides of the same coin, two sides of the [inaudible 00:11:48] LTV arbitration piece. But if you manage to get to that, if you solve one half of the metric, you don't have a repeatable business model. So you're not ready for a growth round, but you've definitely found something.

There's one important piece of the puzzle that's clicked into place. And if you manage to crack the customer acquisition cost nuts, and then, you'd better have some slides in that deck about how you're going to do about that, what your theories are. And it could be like, "Oh, are we going to do PR? Are we going to do a payback? Are we going to hire a sales team?" Whatever the solution is, you need to have some things and then say, "Give me 3 million dollars and I'll go and crack this nut." And if you have a compelling argument there, then that's actually a really good pitch.

Healy Jones:

Venture capitalists are used to taking risks. Are used to taking risks. What they don't like is they don't like it when a founder doesn't understand that there's risk. And then, when a founder doesn't have a credible plan to fix that problem or to not take care of that risk, to address the risk. So trust me, if you're hiding something, the smart investors are going to figure it out, although maybe not at the seed round. There's a lot of pretty unsophisticated money from the seed round. But the A, which is the next one we're going to talk about, the series A.

Haje Jan Kamps:

Yeah.

Healy Jones:

And for particular industries, particularly software as a service and a lot of the crypto companies I'm seeing, a lot of the hardware companies, you're going to have to start to have some traction here. And the traction metrics that you want to show have to be up and to the right. You've got to be able to defend the important KPIs that matter for your business. So software as a service, it's going to be user growth, customer acquisition cost, LTV, which is also part of your churn rate, your LTV to CAC, your revenue payback. Those are the metrics that are going to matter there. And again, it's going to vary by industry, but I'm just drawing one out…

Haje Jan Kamps:

And bear in mind that all of this is benchmarkable. If you're doing a hardware company, you have certain benchmarks in place. And companies like Kruze are really good for being able to help you there, because you guys work with 30, 40 companies in each of these verticals. Which means that if I'm running a SaaS company and I say, "Hey, how am I doing?" You could actually go, "Well, Haje, you need to do a little bit of extra work" or "you're best in class, so make sure you put that on your slide deck."

And I think it's actually really helpful to work with companies like Kruze or other kinds of advisors who can help you benchmark. If you have, especially as a first time founder, you may look at your numbers and you don't know how good or bad it is you have it, this is a good place to shout about it. Because you can bet that your VC will know. If you put a set of numbers in front of them, they will go, "Holy crap, this is amazing." Or "Ehh, go and fix this, because otherwise we can't invest." Getting that benchmarking in place and knowing whether or not you have good or bad numbers is crucial in order to be able to tell the story properly.

Healy Jones:

Amazing. So that leads into the next point about why the slide is important. So from my perspective, when I was an investor, we always wanted to make sure the company was building a bridge to somewhere is what we would say. So basically we're putting money into the business and when the money's running out, the company needs to be awesome enough to raise a successful next round, which means the founder needs to know what KPIs or traction they need to raise the next round and they have to be marching toward it. And so, the purpose of this slide, it's very important for you to know what you need to look like at the next round. You may not put it on this slide, but if an investor starts to ask you about, "I see what you have now, what will you look like in 12 months?"

Or "what will you look like when you have to hit your next fund raise?" This is where you prove to them that you've got your head screwed on straight, you know your industry, you know your KPIs, and you know what you need to look like. Now, how do you figure out what those metrics are? So one, thank you, Haje, is working with someone like Kruze Consulting. We have a ton of clients who are raising money all the time. So we have some ideas here. Two, ask VCs. Don't necessarily ask the VC you're about to pitch. Ask your friendly VCs, your existing investors. And then, the third thing that I think is really powerful that the best founders do, the best founders do this so well, is they find other founders in a similar industry or similar vertical, who they periodically meet with and ask for advice.

So they find somebody who's just a little further down the road than them, or maybe a couple stages or a few years ahead, in terms of growth. And they just ask them all sorts of questions like, "Hey, when you raised your A, what were your metrics? When you raised your B, what were your metrics?" Get to know those other founders, because they can really help you be very credible, so that when you're talking to the venture capitalist and you say, "Hey, listen, for my series B, I'm looking to have 8 million dollars in ARR with a turn rate of sub 5% annually, because my friend, who's got an enterprise SaaS company and this other enterprise SaaS company, all had metrics around that.

And I'm pretty sure I can get there. And I feel like that's the market for B." The VC will kind of say "Yes, that makes sense." Now, as we're recording this, in January of 2022, the market for B is actually even hotter than that. We're not going to get into the specific metrics here, but just knowing what's common in your industry and having relationships with founders who are just a little ahead of the game with you, who can help you think through this and articulate what the KPIs are, is a really smart idea.

Haje Jan Kamps:

Yeah. And there's a super good insider tip in there, which is worth highlighting. You didn't quite go there, but if you make sure you have two or three founders that you talk to regularly, remember, they have a board, they have investors. They're out there talking to their investors. And if they see that you're doing something very special, that's an incredibly powerful way to get in front of investors. If an existing portfolio company jumps ahead and says, "Hey, have you talked to these guys over there, because they're doing something super interesting and those numbers are impressive?" You bet you're going to get a call from that VC. So I wouldn't do it for that reason, but it is a fantastic side effect to building out your network. And for the sake of spending three hours a month talking to people, 100% worth every second of your time.

Healy Jones:

Agreed. That is the best way to get introduced to a venture capitalist is serve somebody they've already backed.

Haje Jan Kamps:

Yep.

Healy Jones:

Beautiful. Why is this slide important? So we just mentioned that you're proving to the VC what you need to look like now and that you speak the right language and you know where you're supposed to go, what your KPIs need to be. Too, traction really is everything, particularly as you get further and further down the stages. So if you've got amazing traction, you don't need anything else, besides what you need to fundraise with, right? So this is it. And you probably want to make sure that you've structured your FinTech stack and your marketing stack, or if you're running clinical trials, you've structured yourself internally, that it's easy for you to produce these numbers, so that when you go into a pitch meeting, you have up to date numbers and the most accurate ones. No one wants to look at numbers from three months ago. You want to try to get the really accurate ones, set yourself up to be able to be successful with this slide internally, in terms of how you collect your KPIs.

Haje Jan Kamps:

Yeah. And a small kind of asterisk on that. Absolutely, 100%, make sure that this reporting cadence you have is absolutely solid. Because if you say something at this point that it was slightly fudged or slightly kind of jiggled about or whatever, it does happen. They're going to do due diligence. They will find out. And at that point, you get nailed to the wall. Be super careful that the numbers you use are the real numbers and you don't get to lie. You don't get to exaggerate. These are hard numbers, measurables that need to be real and correct.

Healy Jones:

Exactly. That's right. And then, the other reason this is important is, what does the VC do with these numbers? Well, they have an internal rubric. They may have models that they're in Excel or some other type of models that they've developed. They're going to drop your KPIs into those. So it's either mentally, they're clicking them into place, just based on their pattern recognition or more formally, they have actual models that they put them into. And they're going to evaluate you around how you're comparing to the types of companies that they think are successful. So this is a really very, very important slide, particularly in the later stage. So let's get to the meat of this.

Haje Jan Kamps:

And that's doubly true for the blue chip investors who have huge portfolios and have seen companies grow through multiple stages of investments and that kind of stuff. They have an army of analysts and associates who look at this stuff. And the more institutional the investor becomes and the more assets they have under management, the more professional the organization becomes, the more these numbers actually do a lot of the talking for you.

Healy Jones:

Perfect.

Haje Jan Kamps:

Or against you. So there's that.

Healy Jones:

True. All right. Well, let's actually get into this now. Let's share. So we have two example venture capital pitch deck templates available on our website, kruzeconsulting.com/pitch/deck. We have two businesses that we invented, please don't judge us on the businesses. They were supposed to be slightly silly. We're not starting these companies. We have a consumer focused business and we have an enterprise focused business. I'm going to share the screen for these two. And we feel like one of these is actually a pretty good looking slide. And the other one is actually on the weaker side. So the enterprise one, which is our, we call the Four Ps Company, has a good-looking traction slide. The traction slide for the consumer facing business, which is a beer delivery service, is actually kind of weak. So, Haje, let's compare these two and talk about them and talk about what you would do with these companies.

Haje Jan Kamps:

Totally, let's start with the weak one. So this is the one for BeerSub, which is a super, super early stage company, right? It started in the first half of 2018, and it's been running to the second half of 2020. So it's a relatively short run for a company and they only have 30 paying customers. If you look along the bottom here, in all of 2018, they had no paying customers. They only raised 300 K friends and family round. So really this is less of a traction slide and more of a milestone slide. And this particular thing, what they've shown is that essentially they're building a concierge MDP. Now, concierge MVPs are super helpful to learn about your industry, right? So the founding is in there, you raised a friends and family round. That's at the top. Then they hired a team from Netflix and launched in a second city.

So you show that there is real progress and you can use this slide to kind of tell a linear kind of temporal story of what happens here. And there's nothing really here. Paying customers just 30, nothing about this slide says a number of dollars. And it is nice explosive growth from nine to 15 to 30, but those numbers are so small and there's so much noise to signal ratio there, that essentially this entire slide is worthless, which is a painful thing for me to say, given that I made it. But it's garbage. I wouldn't suggest for a founder to go out and build with this.

Healy Jones:

So this was a made up company. You should just make these numbers grow really big, really fast.

Haje Jan Kamps:

Well, it's interesting. So I feel like when I was working with a lot of startup companies, once you have a bunch of traction, this slide becomes so easy. And a question I kept, and I covered this in my book, why this slide is so bad, but once you have your metrics and you understand how to tell that story, this slide becomes easy. Where it becomes really hard is for super early stage companies. And they keep downloading templates that have a traction slide on it and go, "what do I put on the traction slide?" Well, we've just covered that, which is don't. Delete it, get rid of it. And I think that this is actually a funny side effect of writing this book, essentially for first time founders, who run into this problem. By the time you do raise a growth round, you probably know how to do a traction slide, because you're doing your board decks.

Healy Jones:

True. True. Yeah. And as I think about this as an early stage business, particularly the consumer side, I'm not sure these numbers are even that impressive. I don't think the doubling over a quarter is really impressive.

Haje Jan Kamps:

No, it really isn't. And it's not even a quarter, it's a half.

Healy Jones:

Oh gosh. Yeah. So this business is…

Haje Jan Kamps:

They're awful.

Healy Jones:

Okay, perfect. So now, it makes sense to talk about the enterprise slide. Enterprise is different than consumer. So let us share this one. This is for our example company, our Four Ps Company that sells to the plumbing industry enterprise sale, like small business enterprise sale, and to customers. And Haje, let's talk about what we got on here. So first of all, I love having an ARR up and to the right. It's amazing. We've got users as well. This is really attractive. Talk about it from a design perspective. What's the thought process? Why does the slide look like this?

Haje Jan Kamps:

Yeah. So what I really wanted to do here was to kind of cram several pieces of information into one slide. For one thing, the stock image in the background makes it look plummery. So I like that. But from the data point of view, the ARR, the annual recurring revenue, is really one of the big driving forces behind any sort of SaaS company. So in this particular case, you can see that the spend per customer has gone up. So I'm calling that out here as a part of the number. So it's growing from 240 to 290 per month. Now, in a later slide, we'll be talking about what the business model is. And we're actually about to do a price change, which is a really exciting thing. But because this is looking back in time, it shows what the company has done so far, and it looks like it was charging $20 per customer.

And that gradually started going up throughout the year. The other thing we're showing is the user growth. So that's the blue number with the buyer on the right. They have grown on average 9% user growth week on week. Now 9% user growth week on week is really impressive. That is really high exponential growth, when you're talking about a weekly level. I know that in the early days of Y Combinator, they were saying that in the course of Y Combinator, they wanted to see 15% growth week on week. That is pretty ambitious, but it does happen in super high growth startups. And so, what that means, in terms of actual hard numbers here, is that they grew from 20 to 530 customers in a year. That is pretty impressive growth.

Healy Jones:

It's amazing. So there's a couple things going on here that I want to talk about from a design perspective. So first of all, I love up and to the right charts. Venture capitalists tend to be very visual with these types of charts. These are the charts that catch people's attention. Having something like this front in your pitch deck, and one of the first few slides, will make everyone put down their phones, stop doing emails or whatever, and start focusing. So this chart is a chart that you use to get everyone to just focus on you. And you're going to have everyone's attention when you're showing a slide like this. It's really important.

Haje Jan Kamps:

I've seen that happen literally, which is amazing. A founder who throws up a slide like this, and people literally lean in and put their phones away. They're like, "Oh."

Healy Jones:

They put their phones down. People just…

Haje Jan Kamps:

Like, "Oh, wait a minute." It is amazing. And I think, if you think about what the VCs are doing, they're trying to invest their money to make a lot more money for their LPs. This is the kind of thing where they go, "Wait a minute. If this is what they've done so far, imagine what they can do with more money and our help."

Healy Jones:

Sure. There's two pieces of a story on here. Well, actually there's multiple pieces of story. So you could spend a long time on this slide. So I'm actually going to kind of double click on the ARR growth and I'm going to slightly contradict Haje, in terms of what's happening with this company, because I'm kind of thinking back to the early… Remember, this is a made up company, right? So it's not like, if you're an executive, you really ought to know what's going on here. We invented this company for fun a few months ago. So I think what's actually happening with the ARR growth is the company has introduced higher pricing tiers. So the reason this is marching up is because they're selling into larger and larger enterprises. It's a really nice story. You have a moment to talk about how your traction is improving and because you're executing and your product is getting better, you're moving up market.

So the newer customers you're bringing on, you're able to sell to bigger entities and therefore, charge them more. It's a story that you have here. And there's also a story around the CAC, which I think is really amazing. The CAC is coming down, so you could spend a while talking about that. Haje, when you're presenting this, do you want to tease the story here? Or do you want to tell the story? Or do you want to flip to another slide? Because there are going to be questions they can have, like, "Why is your CAC coming down?" The VC's going to be like, "Whoa, it's a great improvement. You cut it by a third, how?"

Haje Jan Kamps:

Yeah, totally. And I think blended CAC is an interesting one, right? So blended CAC, in case you're not familiar with that, means the customer acquisition costs across all channels. So all your marketing spend, all your advertising spend, all your everything you add up and then, you divide it by the number of customers. And then, you get a number. Now you typically break that down further. Paid acquisition costs tend to be very high. Earned media and word of mouth tend to be almost nothing. So the blended CAC is a really good approximation for this. But if you really start talking about how you're going to improve your CAC further, which is, I'm literally putting it on the slide here, "more improvements to come," you'll want to see a separate slide for, "Okay, what's the plan here? Which channels did you find where the customer acquisition cost is surprisingly low or particularly low at least?

And then, from that point of view, how are you going to start amplifying those channels specifically?" And I think you would definitely flick to another slide specifically about your go to market or about your customer acquisition cost or something like that. But on this traction slide, your blended CAC going down is important traction, same as ARR growth, same as per customers spend. And of course, your user growth. So I think all of these four metrics are each individually impressive, but together, they tell a story of a company that has found something that really works in its own market.

Healy Jones:

Yeah. This slide is showing execution. And again, in terms of managing the meeting, any of these bullets could make the venture capitalists start to try to dive in and go deep to figure out what's going on there, because it'll be exciting to them. And so, just keep in mind that you want to make sure that, as you're presenting this slide, they know the most important things, that up and to the right revenue, up and to the right user growth. So if they cut you off on this 9%, like "oh, 9% is great. How are you doing that?"

And you're like, "Well, hey, first of all, I'm proud of that, because our ARR per customer is also going up. So revenue, ARR growth is huge and our CAC is even getting better. So it sounds like you want to learn about things like, how's the sales and marketing engine firing so well? Should we just jump to that slide right now?" But as you answer their question, and don't forget to answer the question, as you answer their question and potentially go to another slide, don't forget to do the humble brag around the revenue growth part. So if they latch onto that, just don't forget, because you want them to come away with that revenue growth number after the meeting as well.

Haje Jan Kamps:

Yeah. And the thing that I might suggest is worth highlighting in particular, because there's two numbers here that show change over the course of the year, right? So the blended CAC started at $300 and the average ARR spend per customer started at 240, which means, at that point in one year, in the first year, you're losing money on a customer. Towards the end of the year, the numbers are 220 for acquisition and 290 for spend. And the story you're really telling there is like, "Hey, those lines have crossed over. We went from losing money in the first year on the average customer to making money on the average customer."

That, I think, is the real highlight of this particular slide. And that's something that you can point out or what is really amazing for storytelling, if the investor actually notices and tells you, you can sit there and smile and nod, and go like, "Yep, that's what we did." It's a really good storytelling point. And with these kind of things, a lot of investors are incredibly finance-forward. That's what they do day in, day out. They will notice. And if they point it out to you, you've scored yourself a bunch of points there.

Healy Jones:

Yeah. So that does speak to understanding what metrics you need to know. So for SaaS companies, revenue payback. So how long it takes you… Sorry, sales and marketing payback. So the CAC payback period matters quite a bit. And so, essentially, what that is is you spend a certain amount on sales and marketing to acquire a new customer. How many months of revenue do you need to pay it back? Now I could get pretty deep in the philosophy here where I'm seeing a lot of VCs make mistakes with that number, because some VCs are investing in services, businesses that may have subscriptions, but have low gross margins. I think those VCs should not be using revenue. They should be doing a gross profit payback period, but hey, it's not my money. But anyway, I do think a lot of VCs, in a year or two, are going to be a little disappointed when they realize that they didn't do very good math there.

Haje Jan Kamps:

Well, and I think it is also worth pointing out that there is an important number missing from this slide. It doesn't say anything about churn and it doesn't say anything about lifetime value, right? So those two are very closely related. So all of these numbers could be true. But if you are losing customers faster than you're making them, then your customer acquisition costs suddenly become really important. Now, if this business turns out to be super sticky, so once they sign up, they're not going to leave for 10 years, then at that point, you have a really important and really powerful business here. Now, the truth is that a lot in these early stage businesses, you just don't know how long your customers are going to stay around. The early churn will start happening. But if your business has only been around for one year, you can't project much further into the future than that, because you just don't know.

Healy Jones:

So let's, for a second, talk about the different metrics that can be on this page. But I do want to throw a little tidbit out here. If you are an early stage company and you've only had a few customers churn, I suggest… I don't suggest. I strongly tell the founder that they need to know the names of the folks that churned and the reason why. So if your customer, if your client, your company is relatively new and you've only had five clients churn, know who those people are and know why. So for this business, if I had churned, I would say, "Listen, we've had 10 companies churn. Four of them went out of business. One of them, the founder lost his phone and decided he didn't want to use it. Three of them were missing these features. So we've got that at our roadmap and then, two others…" I don't know what that would be, but basically, I would literally know every single one. I would know their names and I would have a really good reason to explain why they churned.

Haje Jan Kamps:

And that is so, so… I'm just saying the same as you now, but that is so important, especially in enterprise businesses with relatively low numbers of customers. If Instagram churn some customers, they may throw a survey your way, but they don't really care about the individuals. But here, especially in the early days of this, we have less than a hundred customers. There's no excuse for not knowing your customers pretty well.

Healy Jones:

Exactly. And for a consumer business, it has a lot of users. You should say, "Hey, I've talked to X and we've done surveys. Here's why people are leaving." 100%. So you need to know this. Other metrics that you could put onto the slide. So obviously, revenue's king, which again, does not matter for a biotech company or maybe some hardware companies that have yet to launch a product, cause they're still producing it. But revenue, deposits, or pre-orders, subscriptions. People committing dollars, like actually dollars coming into your business, that is the ultimate form of traction. Other things are like user acquisition metrics. And then, Haje, you like to talk about leading indicators for a business and this helps you prove that you know what the KPIs are for your business and you understand whatever funnel drives to the right traction. Do you want to talk about some of those?

Haje Jan Kamps:

Yeah. A lot of the challenges you have with traction is that it's, "Oh, you're standing where you're standing, you're looking back." And the hope is, can you figure out a metric that actually helps you look forward? So can you predict the future using some of these metrics? Those are called leading metrics. And the idea, looking at this graph, and I see what's happening here where customers and revenue are going up pretty much in lockstep. It isn't completely unreasonable to overlay another graph on this, which is marketing spend. And if your marketing spend actually goes up in a similar kind of graph as this, then you can very realistically say to an investor like, "Hey, our marketing spend goes up the same pace as our user growth, which means if we 10 X our marketing spend, our user growth will probably 10 X as well.

We did an experiment. We tried for a couple of weeks to spend a little bit extra. And it looks like that is true." That makes for a really compelling argument that you have a tap that you can turn on for rapid user growth and turn it back down when you need to kind of focus on product or whatever. And then, you could have a conversation with your investors about, "Hey, where do you think is most strategically important right now? Should we go for hyper growth with customers? In which case, give us 10 million dollars and we'll spend it on ads and we'll get those customers. Or are we building something else here? Are we building products? Are we building a team? Where do we focus?" And that makes for a really interesting strategic conversation with your board, but it also means that you have a few levers you can pull that have a direct impact on how your business grows.

Healy Jones:

Exactly. That's right. And so, thinking about other metrics that you could use, depending on an industry, like you mentioned the CAC, LTV, sales pipeline, potentially, if you're selling into large enterprises.

Haje Jan Kamps:

Well, and some them of them… Go on.

Healy Jones:

I want to think about, you mentioned a sale, I think it was some sort of self-driving car technology. So like logos of, let's say, you hadn't finished your product yet, but Toyota and BMW and Ford had paid you a hundred thousand dollars each, for some sort of development contract or something, just putting those logos on there. Like, "Hey, we haven't finished our product, but basically the biggest companies in the world that could be our customers are already paying us money, because they're so bought into what we're doing." That is a traction slide that actually works for a company that doesn't have that hardcore product revenue traction yet.

Haje Jan Kamps:

Yeah. And you can think about macro metrics too, so things that are happening outside of your business. Now, for example, if you are Netflix and suddenly the unemployment rate spikes, because, say, there's a pandemic or something, there's a pretty good chance that if you're running a cinema, that's a leading indicator for you having a very bad time. If you are Netflix, that's a leading indicator for you having a great time, because people still need to fill their time with something. And Netflix is a lot cheaper than going to the cinema, for example, also lower infection risk. So you can have some of those things. Or if you are a company that is operating in the EV charger space and you see EVs increasing rapidly, that's probably a sign that there will be a little lag while people figure out how they want their charging situation to be.

There's a pretty good chance that your market is about to grow exponentially, when EV sales go up exponentially. And if you're able to prove that. Like, "Hey, we've studied this over the five years, there's a six month lag. But when there's a spike in sales, there's also a spike in chargers. So we think that becomes a really good leading indicator for where you think your business is going to go." You can back it up with real data. That doesn't mean you've made any sales yet. But over time, as your sales start mirroring that, then you can use that as a leading indicator for where you're going. And later funding rounds in particular, you can get more aggressive about how much money you raised, because you can say with a certain amount of certainty, like, "Hey, we see this happening. We think that is going to mean X, Y, Zed."

Healy Jones:

Sounds great. And then, I just want to make sure we're listing a couple other metrics that might make sense. Downloads may make sense. Installs may make sense. Monthly or daily active users may make sense, depending on your industry. But then, that gets us to our next point, which is you do want to avoid vanity metrics, metrics that are just big enough and to the right that mean nothing for your business.

Haje Jan Kamps:

Yeah. There's a lot of those. And I always think that if your metric doesn't have a direct impact on your bottom line or on one of your indicators you do care about, they're vanity metrics. It doesn't matter that your website suddenly has a 10 X spike in traffic. If it doesn't equate to some sort of extra amount of sales, it's just a cost to you. It doesn't matter if you get inquiries, for example, for sales, if you suddenly get 30 times more inquiries, that's a real cost. Somebody has to sit there and reply to all those emails. But at the same time, if that doesn't convert it to sales, it doesn't matter. Same thing. We can get super meta here. This very podcast, this very video series, costs us time and money to make.

And if that doesn't convert into, say, sales for Kruze or book sales for me, then it's a waste of time all around. Now I really believe that it will do both of those things. So that's great. But you have to measure the right thing and hand on heart, be honest with yourself. It feels great to get press coverage. It feels fantastic to get a bunch of customer inquiries. If those things don't convert into business metrics you care about, you're focusing on the wrong thing and I've seen a lot of founders do this. They report, "Oh look, we got coverage here and coverage there." It looks sexy. And it's fun to share on LinkedIn, but it's not actually going to move your business along. So avoid those if you can.

Healy Jones:

Other things are to not ignore problem areas in the business, like high churn rates, problems you're having with your scientific discovery. You want to, again, during diligence, good VCs should figure this stuff out. So don't ignore those issues. Make sure you're ready to address them. Make sure you have a plan to fix them. Just be ready.

Haje Jan Kamps:

Yep.

Healy Jones:

Oh, well I think we've done a nice job talking through this slide, Haje. Anything you think we missed?

Haje Jan Kamps:

I think that seems pretty comprehensive.

Healy Jones:

That's great. That's good. Well, then, let's wrap this up here. So the traction slide is quite possibly the most important slide. If you have good traction, you should be able to raise. Hopefully, you're developed the internal controls and systems and operating procedures you need to easily collect the KPIs you're going to put onto this slide. If you're doing well, don't bury the lead. This is the lead. Get it up near the front of your deck. Get ready to talk about it. Get excited, know the KPIs in your industry, so that you're not talking about the wrong stuff or look like an idiot.

Know what you need to look like in the next round with these KPIs, so that the VC has faith that you know where you're supposed to be pointed. And just be excited. This is a really great slide. Now, if you don't have the traction yet, this is not the slide you want to highlight. You're going to want to go with a product slide or market slide upfront, and then, you'll definitely want to have a plan to address any of the issues or knock down the milestones you need to get to. Any other thoughts here, Haje? I feel like…

Haje Jan Kamps:

I think that's pretty much it. There's like a hierarchy here, right? If you have revenue traction, that is everything. If you have other important traction, that is everything. If you have nothing, don't use the slide.

Healy Jones:

Awesome. Well, thanks so much. Again, kruzeconsulting.com/pitch-deck for our free templates and we are doing a series here. So stay tuned for the next one. Thank you.

Haje Jan Kamps:

Thank you for tuning in.

Healy Jones:

Hello, everybody. Welcome to the Cruise Consulting free Pitch Deck creation course designed to help people raising venture capital put together their pitch decks. This particular video and podcast is on the market size, which is one of the most important slides that the venture capitalists will be looking at. For those of you who have been following along with this free course, skip ahead about 30 seconds or so, while I do the intro that you've heard a few times.

Healy Jones:

I am Healy Jones. I am the VP of FP&A at Cruise Consulting, former venture capitalist, and have been at startups that have raised a lot of money, and have gone public. And my day job is advising companies as they get ready to raise funding. I am joined by Haje Kamps who is not only a well known venture capital pitch deck consultant, he is a reporter with TechCrunch. He has written a book on how to build a venture capital pitch deck called Pitch Perfect, which you can get on Amazon. And he's also been a startup founder and has raised money and has been a venture investor with the Accelerator Group. So he is very qualified. Hi, how you doing?

Haje Jan Kamps:

I'm doing great. How are you?

Healy Jones:

I'm great. Thanks for joining us. Let's talk about the market size slide, which is a bit of a tongue twister, but what is this for?

Haje Jan Kamps:

Well, it's actually pretty straightforward. The market size is a really important thing to prove, because if there's no market for what you're doing, you're never going to make sales. We don't make sales, there's no chance of raising money. So for some markets it's super obvious because everybody goes, "Yeah, duh, of course this is a market," but especially if you're doing something quirky, proving that your market exists and that there's a big enough market to be worth investing in may actually take up a chunk of the investment pitch.

Healy Jones:

That's right. And this is a place where VCs are going to spend time if they don't already know the market really well. Of course, if they do already know the market really well, then you need to be careful because they may ask you some pretty intense questions and you're going to want to either have a point of view or you're going to be humble enough to try to learn from them and understand what their point of view is and what their experience is.

Healy Jones:

Now, I say in general, you need at least a billion dollar market for the most part. And that's at the bare minimum, that is barely, barely clearing the hurdle. Ideally, your market is several billion dollars in size so that there's a lot of TAM to go out there and get. That's not to say that you can't be creating a new market, but your pitch is going to be a heck of a lot harder if you have to convince somebody that you've got to startup with an unproven business model, with a team of founders who may or may not be experienced, who was creating a new market. That's really hard.

Haje Jan Kamps:

Well, a famous company that really struggled with that was Airbnb, right? They went around all the investors trying to find somebody who would believe them when they said, "Hey, people actually want to pay to stay," well in the beginning on an air bed in your living room, right? And get breakfast. That was the whole name, air bed, and breakfast. And I know they've spent a long time trying to change that name because that's not what they do anymore but in the grand scheme of things, nobody believed it. It was like, "Yeah, sharing economy, whatever, but really inviting people into your home?" Of course now it's very obvious that there was a market there, but they had to fight hard to let people believe that this was a thing that people would do.

Healy Jones:

Exactly, yep. And we're actually going to show that as an example and we'll discuss what they did there, which was smart. And there are ways to show that you have a big market, even if your particular solution is not sort of the cookie cutter thing that people in that market want. So we'll talk about that in a little bit here. So there's a few terms that VCs will throw around that it's pretty important for founders to know. There's TAM, SAM, SOM, what the heck are these things? Can you define them for folks?

Haje Jan Kamps:

Yeah. So TAM, SAM, SOM is a quick trio that gets thrown around a lot. And the TAM is a total addressable market. That is basically when you think about market size, that is probably what you're thinking of. It's worth being careful here because your total addressable market or total available market, sometimes people call it that, it needs to be what the actual business does. So if you're creating tax software, your total addressable market isn't the total value of all taxes collected in the US. It's very tempting to use that enormous number, but that is not where you're going after, you're going after the tax software slice of the tax market.

Haje Jan Kamps:

The next one is the SAM, so that's the serviceable available market. Now you've taken your entire market and you're saying, "Hey, these are the customers that I can actually serve with my industry." To use the tax example again, if you do corporate tax software, then the small businesses and individuals are just out of the picture, you can't serve them. So the entire available market might very well be every taxpayer, but there's different types of taxpayers that are served in different ways. Similarly, if you're looking at fitness equipment, for example, all of fitness, and then as a subset of that, you have all bikes and as a subset of that you have all road bikes. If you make road bikes, you can't make a claim to all fitness equipment. So you have to be pretty careful about what it is you're going after.

Haje Jan Kamps:

And then the final term that gets thrown around a lot is SOM, that is a serviceable obtainable market. And sometimes it's SOM within a certain timeframe, so serviceable obtainable market within the first year. Now you've really drilled down to this is the size of the market, this is the part we address and this is the part that we are going to address first, right? So your TAM might actually be a global market, but your SOM might be okay, we're starting just in the Bay Area or we're starting just in San Francisco or just the US. And so you're actually restricting the amount of market you're going after to begin with. And that really helps with the planning when it comes to marketing, sales and all these kinds of things. But it also shows even in the smaller market that you're going after, there still needs to be a billion dollar plus market there, right? Because if not, it doesn't make sense to invest.

Healy Jones:

That's right. So think about your revenues will be whatever percent of the market you can actually capture. So if there is only a billion dollars worth of revenue in your market available, in order to be a venture scale business, you basically need to get 10% of that, which is hard. It is very hard to get 10% of a market. Now, be very careful because there are companies that have done this, like Google, Google has, what, 92% of the search market share in the United States. That is really rare. So just be prepared for an eye roll by a venture capitalist if you say you can get 100% of a market or 90% of a market. That is really, really hard to do. So best case scenario, you have, let's say a 10 billion market and you get 5% of that. Oh my gosh, you have a huge revenue line item, that is amazing.

Haje Jan Kamps:

Totally. And it has to be realistic, right? So if you're talking here about, if you're go-to-market strategy doesn't reflect what you're doing here. So that's a different slide, but you've got to pay attention to the two of them connecting. There's this saying like, "Oh, sell something to 1% of other people in China," yes, but how are you going to reach them? How is that actually going to happen? So if your SOM is very disconnected from your go-to-market strategy, you're going to get some very difficult questions.

Healy Jones:

I think we're probably going to mention that five or 10 times during this particular slide, like your go-to-market strategy needs to very tightly overlap with what the addressable market is and how those people want to purchase a product, full stop. Just remember that. Be prepared on this slide for people to question your go-to-market strategy and your sales and marketing. So just be ready. That is very likely, I would say that's probably going to happen at least 25% of the time that you talk about this slide.

Haje Jan Kamps:

Yeah. And there's another important thing that I like to talk to my customers about or my clients about, which is sometimes you have an incredibly niche business that can be fantastically successful, so enormously profitable. But if your SOM is very small, you're very simply not venture investible. That doesn't mean it's a terrible business, but it means that when a venture capitalist looks at your numbers and sees, "Well, actually there's no way I can get a 10x return out of this," then you're dead in the water. So you really have to pay attention here that this slide should shout: This is an enormous opportunity. Because if it doesn't, you're going to have a bad time.

Healy Jones:

You've got to make it a no brainer. The VC should not have to do any math or have any cognitive thought process to understand that big number. Now I want to put a nuance in here and we're probably going to talk about this again as well, but it is totally normal and actually it's often an excellent strategy for a startup to start in a particular niche. So using your tax software example, perhaps your company starts by making tax software for small businesses, and then that's a certain size market. And then next to that is tax software for enterprises, that's your next step that increases your market. And then the next item is, oh, we're going to make tax software for small accounting firms and then for large accounting firms and then for personal taxes. And eventually you get to this huge market.

Healy Jones:

Most venture capitalists understand and actually like the concept of a niche strategy at first expanding. And I've seen concentric circles used for this to make a really big TAM number and help the VC kind of understand your progression. It's a lot easier on the sales and marketing side to start in a niche and to grow from there. Many, many companies have done that successfully. So don't be afraid to do that, just make sure you're showing those layers of onions I like to call it or concentric circles of a bigger and bigger market that you're going to step into as you kind of get that beach head into the first one. So don't be afraid to start with a niche market just make sure on this slide, it's a no brainer for the VC to see like, "Hey, there's actually billions of dollars of market out here. I'm just starting right here, but I'm going to go there."

Haje Jan Kamps:

Yeah, and from a go-to-market strategy point of view, this is actually a really good strategy to get a foothold in the market in the first place, right? Doing something very niche and making sure you serve that audience incredibly well. For example, there are some really good CRMs or customer relationship management systems, right? But the more niche they are, the better they do. So you have a CRM specifically for dentists, you have a CRM specifically for hairdressers, you have one for beauty salons and because they're so focused on the thing they do the best, they have a really good sales strategy there. They can go to every beauty salon and say, "Hey, this is exactly what you need, has exactly everything you need."

Haje Jan Kamps:

And then from there they can do brand extensions, they can do product variations, which is like, "This one is for beauty salons, this one is for hairdressers, this one is for another type of beauty product." But because they started focusing, you can build out that way. If you say, "Hey, we're going to take on Salesforce," nobody's going to believe you, even though they're also a CRM system that could be used for hairdressers. So think about it that way as well.

Healy Jones:

So a lot of times for the slides we've been talking about, like our traction slide, they change as a company matures by stage. How does the slide potentially change, Haje, at all, for the stage of the company? Does it change?

Haje Jan Kamps:

I think the actual market size itself is probably pretty stable unless the market itself is evolving. But as you become a more mature company, you actually have other opportunities that become possible, right? When Google started, they started as a search engine and now they do everything, right? Calendars, email, all the other things. But if you come to a VC and say, "I'm going to take on Google on every front," you're going to have a pretty bad conversation there.

Haje Jan Kamps:

The thing is eventually if you're an extremely successful company, you're just going to grow so big that you've essentially gobbled up the whole market in theory, right? And so in order to grow further, you have to think about where you can still find growth. And you can do that by thinking about the market differently. I know we briefly talked about Uber in previous episodes, but I'd like to mention them again, because they're actually really good at this kind of thing, right? They started out kind of taking on the taxi industry head on with their own taxis, then they kind of borrowed Lyft's drive your own car model, but now they're doing so much more stuff, right? They're doing parcel delivery in some markets, they're doing food delivery and those are huge extensions into all sorts of directions.

Healy Jones:

Let's share that pitch deck slide, actually, we've got an example. So let me go ahead and share that right now. So this is in theory, Uber cabs either series A or seed deck. They were very early. And they are claiming the overall market is essentially the amount of taxi spend and limousine spend in the United States. So a $4.2 billion market.

Haje Jan Kamps:

Which is a big market, it's more than a billion.

Healy Jones:

Yeah, and basically they're pointing out there's not a lot of concentration here. And so they're basically saying like, "Hey, listen, big market, it's growing, it's highly fragmented," and this was attractive to VCs, this worked, they raised a ton of money. Now I do want to point out that Uber's revenue, I think in 2021 was almost 15 billion. So they have grown wild.

Haje Jan Kamps:

Clearly it isn't growing there.

Healy Jones:

They have grown the pie. It's dangerous as a founder to claim that you're going to grow the pie that aggressively. You can say that you expect to grow the pie, it might be something you want to show verbally to prove to the VC that you're thinking big and that there's a lot of opportunity here to get them excited. I wouldn't necessarily put that on your slide though, because you can induce a little bit of eye rolls if you're not careful.

Haje Jan Kamps:

Yeah, totally. And even Uber's baby brother or sister Lyft, they're running $2.3 billion now. So Lyft is now doing half the market that Uber thought was the size of the market. And this is a beautiful dynamic about seeing these types of companies, as you say they, they grew the market. People use Ubers and Lyfts now in ways that they wouldn't dream of using taxis. And I don't think they predicted that when they started out on this journey, but now the entire transportation infrastructure has just changed because these companies exist.

Healy Jones:

Yeah. But again, I would be very careful, I would not say, "Hey, it's a $5 million market right now, but we're going to grow it to a $5 billion market." And that's really hard. That is a really hard thing to do. Now, again, there will be moments where you actually are creating a new market, a new product, a new service that has never existed before, but hopefully there's something tangential that you can show. So let's say you are pitching Amazon Web Services, AWS, basically the dawn of cloud computing, you would do the overall server market, overall data center market, you would use that as your tangential market and you say, "Hey, we're going to deliver this thing, but in a different way," right? So you want the big numbers on this slide so that there's no math required, no leap of faith required. It needs to be like, "Yeah, it is a big market. Wow. I'm excited."

Haje Jan Kamps:

Yeah. Well, and hilariously Amazon, everybody thinks of the shop, but AWS in itself generates $45 billion per year. It is ridiculously valuable. And it essentially started out as a footnote because Bezos was being angry with having to pay all these hosting fees and like, "Well, maybe once we build out all the infrastructure, maybe we can help other people." Well, turns out that wasn't a bad idea from selling books to selling other things.

Healy Jones:

Great. So anyway, kind of going back to the core topic here, does this change based on the stage of the company? Potentially as you mature and work your way into other companies or industries or tangential markets, okay, potentially, but every company should have one of these things, okay? I don't care if you're a biotech company attacking a particular cancer, or if you're a consumer product or if you're an enterprise company selling into the Fortune 500, you need to have this slide. It is very important.

Healy Jones:

And so again, why is it important? One, you're proving that you're going after a venture scale space and that you're that ambitious founder that wants to build a VC scale business. This is definitely one of the slides I see people trip up on. In fact, when we do our top pitch deck mistakes, I think having too small of a market is probably one of the top mistakes I see founders make.

Haje Jan Kamps:

Yeah. And I guess the other thing, I think it's one of the most important slides, but it's also important to talk about market trajectory, right?

Healy Jones:

Ah, yes.

Haje Jan Kamps:

I've mentioned tax software a few times, tax software is pretty flat, right? Everybody who was going to buy tax software has probably bought tax software. It's probably not going to grow exponentially. Which means if you want market share, you have to fight for it, you have to take over that kind of thing. You have to take over other people's market share, or create a new market. And we've just said, those are the two hardest things you can possibly do.

Haje Jan Kamps:

However, if you're doing metaverse stuff right now, or web three or crypto or one of those things, it is a large market, but is probably going to grow. And in that universe, you kind of get this whole rising tide raises all boats syndrome, where if you manage to cling, do an early land grab, get 5% market share and then grow with the market, like to use the Uber example, they thought the market was going to be 5 billion now it's at least 20 billion, if you manage to just cling onto 3%, your business is going to be on an incredible trajectory. So think about the market trajectory, think about what the larger context is of the market you're in.

Healy Jones:

Right. And again, remember how it relates to your sales and marketing and your go-to-market strategy, right? So if you're selling it to large enterprises, they're going to expect a sales team, right? Big companies don't kind of click to auto agree to terms of service and put a credit card down for a quarter of a million dollar or a million dollar product. There's a sales cycle where a salesperson is going to have to schmooze, et cetera, there's contracting, et cetera. So just keep in mind that sales and marketing is intimately tied to this, okay? So this slide is important because you're showing size, you're showing scale, you're showing your ambition. That's two fingers. You're showing a trajectory. So hopefully something is growing really well. And three, you're reinforcing who the buyers are and who you're trying to sell to. And then five, it is connecting with your sales and marketing slide in a way that's very logical and is a no brainer. So you don't really want people to have to think too much about the slide, you want them to get very excited.

Haje Jan Kamps:

And these slides typically have a lot of numbers on them, right? So there's a couple of ways of getting to the market size. Do you want to talk about that a little bit, Healy?

Healy Jones:

Yeah, I think it's time to start showing some examples and getting into the meat of the slide. So we showed you the Uber one and the source on that was a research study from NCI, right? And essentially there's the top down and the bottoms up. So I'm going to share my screen and I'll kind of jump up between the two and then we'll dig into what they are. So this is a bottom up market size. Hopefully everybody can see this. And then this is an Airbnb example, which is more of a top down. We do have pitch deck examples available for free on the Cruise Consulting website at kruzeconsulting.com/pitch-deck. So we have an enterprise one, okay, here's an enterprise one, and then we have a consumer one. Haje, why don't we start with the bottoms up? It's a really great way to do a market size slide.

Haje Jan Kamps:

Yeah, this is the time TAM, SAM, SOM thing we talked about earlier. At the bottom there, you have your total addressable market. That's like the number of gyms in the United States for this one particular thing, right? Serviceable market. So in this instance, this company is going after multiple location gyms. So not independent gyms so basically gym chains. And so they've said, "Okay, the serviceable market, we're going to ignore all the single boutique gyms and we're only going after multiplication gyms." And then they're saying, "Okay, what are we going after in the first year?" That's their SOM. In this case, a thousand gyms that have online class sign ups and stuff and then put some pricing around that too. I think this is actually a super elegant way of doing it because if you believe the numbers, if you think, "Yeah, there are two, 200,000 gyms. Yeah, sure. There are 4,000 gyms that have multiple locations," the last step there, it's kind of impenetrable, right? As long as you believe the numbers that are the basis for this projection, you end up with a really good story around this.

Healy Jones:

Yeah. And again, this is pretty powerful, right? You're saying, "Hey, I know exactly where I'm starting. I know the exact customer who's correct for me right now and it's not big, but don't worry, right around the corner is this next opportunity and I'm going to be able to step into that. And then right around the corner from that is the next opportunity and it is really big, right?" So there's no leap of faith required here. It's just, "Hey, this is a logical way for me to advance the ball."

Haje Jan Kamps:

Yeah. And I think this is actually my favorite way of presenting this. So if you can do it this way, A++, because it is so hard to argue with, right? And I think just shortcutting that would be very helpful.

Healy Jones:

So let's go to a top down, that's potentially arguable against. This is Airbnb, which again, we mentioned was kind of hard because you're basically couch surfing initially, that was their initial market, right? So a lot of travel is booked, a lot of people buy stuff online and we think we can get to 84 million worth. It's small numbers, but then there's… I guess this is probably trips as opposed to dollars.

Haje Jan Kamps:

This was trips, yeah.

Healy Jones:

It'd be a lot more powerful if there were dollars on this slide, to be honest. But this one is a little bit tougher, right? They're trying to say where they're starting from and how and how it's actually a big overall market they're going after, it's a little tougher. I think what I really like for us, Haje, let's talk about an overall big market is the 4Ps example pitch deck that we have created together, right? And this one, we're throwing out a massive number in terms of plumbing businesses in the United States, right? A huge number of plumbers and how much is spent on plumbing. Now here, this one is a little wishy washy, right? Because dollars spent on plumbing does not equal dollars spent on plumbing software, but basically saying that there's like 350,000 small businesses that are addressable here, that's a big number at the price points that this company's talking about.

Haje Jan Kamps:

Yeah, totally. And so there's an assumption here, which is that plumbing is a really solid and predictable market, right? As we said earlier, I don't think realistically that plumbing as an industry is going to be a hugely growing market, that's what I would've thought. Then I did a bit of research. It turns out it's growing at a 3.5% CAGR, that is not awful, right? It has some growth, which means… So CAGR is a compound annual growth rate, but it means that you actually have a market that is growing. And what that probably means is that the industry in general is growing, the kind of installation of new plumbing in buildings is growing. And so the story you're telling here really is that there is a very large number of businesses that are available.

Healy Jones:

That's right, yeah. And so please don't get hung up on this particular example. We made this company up in order to create a free pitch tech template. It might be pretty easy to pick holes into this and we obviously are not plumbers or software sellers in the plumber industry. But the point here is that there's a lot of big numbers on here and it's not particularly hard for the VC to think that you've got a lot of folks that you can sell to. And again, this is going to match with the go-to-market slide, where we talk about the growth and the sales team and things like that. So this clicks nicely in with that strategy and reinforces how the company expects to grow.

Healy Jones:

Now, I'm going to switch to a different top down one that we created that I actually think is a little too hand wavy.

Haje Jan Kamps:

Yeah, that's garbage.

Healy Jones:

And maybe a little off the mark. So I think if you were to present this one, this is for our beer subscription consumer service, which is a challenging sounding business model. And so this is basically saying, "Hey the craft beer industry is really big."

Haje Jan Kamps:

And well, more importantly, if you look at the shape of that curve, it is flattening, right? It had rapid growth and then it flattened out. As an investor, I would look at this and go, "Wait a minute, this market is plateauing. Why are you trying to do something here?" And I actually go into that in the book where I'm saying, "Hey, this slide in this one particular instance is an actual warning sign to investors." So you've got to think very carefully about how you are going to get some of this market. And how does that show up in terms of the storytelling in your pitch? Yeah, I would be very worried if somebody put this in front of me and wanted to raise money.

Healy Jones:

Yeah. No, a better way to do this might be to do the food delivery market because there are a lot of food, beer, and actually alcohol delivery services. So that might be a better thing to put in there because it's probably decent size and growing pretty aggressively. And then you can attach your competition slide later, but you're kind of starting to attach yourself to hot companies. At the moment these companies are hot, who knows when you're listening to this presentation, in a year or so, perhaps some of these home delivery companies won't be as hot, but right now they're considered hot. So to the extent you can help the VC connect your idea with other examples that are doing really well, that's really powerful. And this is a slide that can help you do that if you do this correctly. Again, I don't really love the way this one was done, but it's a free template so you should take it.

Healy Jones:

Awesome. Okay, great. So let's talk about some of the most common issues that we have seen on this slide. And I have to say that again, this is a slide that does kill a lot of venture deals. If you do this wrong, you can basically shut the meeting down pretty fast.

Haje Jan Kamps:

I think one of the things that is worth noting is that market sizing is done a lot by consulting firms, right? There's a lot of really big businesses that are doing a lot of things like investment analysts, brand extensions for big businesses, which means a lot of the consulting firms are out there doing research on this. They have probably come up with a market size for almost anything you can think of, projectors sold, helicopters, whatever. So make sure you Google it because if an investor is really serious about wanting to invest in this, they will do that Google search, they will buy whatever reports they need to as part of their due diligence and if your number is really far away from what this consulting firm has come up with, you have to be really well prepared to defend why your number is so different.

Healy Jones:

Yeah, you should have a story there and you should be aware of those major research reports that have been published. And personally for really big, well understood markets, I generally think it's okay. Just use a third party research as your market size. There are some VCs who don't love that, they strongly prefer the bottoms up. I would suggest, again, you always Google and look at the Twitter feeds and the blogs of the folks you're meeting with before you meet with them to see if they have any weird nuances on this. But again, if it's a big industry, it's really well understood, those reports are usually pretty okay to use on this and then you're using this slide as a foil to talk about kind of where you're going and how big of an entrepreneur you want to be and things like that, right? You're selling so big and you're focusing less around is the XYZ market huge? It's like, "No, everybody knows the X, Y, Z market is huge. Here are the numbers, it's growing. I'm really excited to take on this market, it's going to be a big company." That's what the message is, okay?

Healy Jones:

I think the next issue that's pretty common, which we've talked about a little as well, is measuring the right thing. That's where the beer slide didn't do a great job because it was showing overall craft beer sales, which is not really one for one what the company is, right? Again, it's like overall tax revenue for the US government does not equal what the tax software market is, right? So that's the next thing ,I think, make sure you're measuring the right thing.

Haje Jan Kamps:

Yeah, 100%. And I think it's also being very careful about making sure that the thing you are defining as your market is actually realistically the market you're going after. I mentioned a sports equipment thing earlier, but especially when you're doing stuff in pro sports or when you're doing stuff in gambling or really, really big sounding markets, be super honest with yourself. Is what you're defining as the market here something that your product actually addresses at all? Because a lot of the time, founders get so tempted. They're like, "Look, it's an enormous market," you're like, "Well, yeah, but your product is definitely not going to fully address this," and it means that it just gets shot down and you end up with so much pain trying to explain why that is the number you're going after. It shows you're not a sophisticated founder, it shows that you don't know what you're talking about.

Healy Jones:

So here is where if you're pitching and you're getting hung up on this slide, if VCs are really pushing you hard on this slide, they're probably not going to tell you why they're not going to invest, it's just not what they do unfortunately. But the reason is they might not have faith in your market slide. So you might want to go iterate and if you have some investors who you're very friendly with, you might want to ask them, "Is this slide working for me? Because maybe it's not because I feel like I'm getting pushback," and then you just go and you find a different way to do it. SO if it's not working, it's not working and don't let this thing be the hill you die on. Figure out what's going to work here, right? Make sure you're attacking something big, but figure out if this is going to work. The other place where there's a problem is if the market is too small. So let's say-

Haje Jan Kamps:

I have a great example for that.

Healy Jones:

Oh, go for it, go.

Haje Jan Kamps:

One of my previous companies is called Life Folder and it was basically end of life planning and our idea was like, "Well, everybody dies." Turns out that the number of people who plan for the end of life is very small and people who are willing to pay for it are vanishingly small. So we had an enormous TTAM, but the SAM was tiny and the SOM was essentially nonexistent. So be super careful on that kind of thing.

Healy Jones:

That is a huge problem. That's a huge issue. The other place I've seen a problem is where let's say you have a product that costs $10,000 a year, but your market is there's only a hundred companies that can purchase that. You don't have a big market, your market is tiny. You have a problem, right? So be careful that you're actually not by design going into way too tiny of a market because you're not venture investible. And the VCs will definitely do the math around that, if you say something like, "Hey, my product is useful for the top three pharmaceutical companies in the world and that's it and the price point is half a million dollars," well then your market size is 1.5 million, that is too small. So that math is really easy to do by the venture capitalists so make sure that you've thought through that.

Haje Jan Kamps:

Yeah. Yeah, and this is the nature of VC, right? You see so many pitches, you see so many slices of the market and you might be able to trick people on other slides. This one is not one of them, right? It is just not going to happen because this is so crucially important to whether or not it makes sense to the VC's business model at the very heart of it. So yeah, do your homework.

Healy Jones:

Yeah. So another thing here that kind of leads nicely into, sometimes you might be pitching a VC who has been a founder in this industry or has an investment that they exited in this industry or that failed in this industry or it is possible the VC is a true expert on this space and you probably ought to know that before you get into the meeting by researching who they are. But it could be an issue if the VC knows more than you do. And I'm not necessarily saying that… It's okay to not know everything, but when the VC is telling you stuff that you don't know that is blowing your mind or is dramatically changing your impressions of the market, you maybe have a little more work to do as a founder and it's going to be really tough to get that investor to want to invest in you because you've come to them with this idea and a space and they're kind of poking holes in your market size or how the market is structured, you got a problem. That is something I'd really be careful with. So basically you have to actually do your homework.

Haje Jan Kamps:

Yeah. Well, and the flip side is also true, right? So if you do come across one of those VCs, they might be an incredibly powerful board member because they have connections, they have ideas, they have insights, you got to convince them that it's a good idea to invest in you, but then once you get them to that point, they could be incredible leverage. So it kind of works both way, but clearly you're not going to close the investment unless you convince them that you know what you're doing.

Healy Jones:

Right. And to the extent you do get in a, in a meeting and you realize that venture investor actually is incredibly knowledgeable, be humble, ask them a lot of questions, be excited about their knowledge, acknowledge where they have a view that has been different than what you'd been thinking about and thank them being humble because they're looking for someone who's coachable. So if you can show that you may actually turn the issue of the market slide not really working out perfectly based on this person being more knowledgeable than you into a little bit of an advantage where them realizing that you're the type of person that is humble enough and is self-reflective enough to learn and wants to be coached because again, VCs want to be coaches.

Haje Jan Kamps:

Yeah. And I was going to mention this in the summary actually, but I think there is an interesting flip side to that too. If you talk to a VC who really understands the market or if the market size is really obvious, they might take one look at the slide and go, "Yeah, move on," right? Sometimes-

Healy Jones:

That's fine.

Haje Jan Kamps:

That's fine. Next slide. You've been so prepared for this slide and to defend it, but they just go, "Eh, yeah. That makes sense. Next." Listen to them. There's no point in trying to drive home a point that's already been made.

Healy Jones:

Yeah, exactly. Unless there's some particular nuance in here that is important on your go-to-market, if they're like, "Yeah, of course it's a big market, moving on," no problem.

Haje Jan Kamps:

100%.

Healy Jones:

And then the final point or the final issue that we've mentioned a few times is this is going to have to match or go-to-market or your sales and marketing slide, okay? So essentially if you're like, "Hey, it's a $10 billion market enterprise software," and then your go-to-market slide says you're going to spend all your money on Facebook advertising, guess what? Large enterprises don't make decisions based on what's on Facebook advertising, right? So just keep that in mind, be really thoughtful about that.

Haje Jan Kamps:

Yep.

Healy Jones:

All right. Well, let's wrap it up here. This is perhaps one of the most important slides, I think we've said that several times now, but this is where I would say a huge percent of pitches die. So what do we got to do? What's the summary here, Haje? Take us out.

Haje Jan Kamps:

So I think it's a really good idea to pay very close attention to the reaction you get, right? If they look skeptical, be prepared to dig in, if they look like they kind of believe you, great move on, right? It's very tempting to spend a lot of time because it's important. But if you don't have to, you don't have to. It's particularly important for if you're doing a very niche company and your SOM is very specific and maybe a little bit small, spend a bit of extra time here to show that, okay, your current SOM is small, but here's the ways you're thinking of expanding the company, whether vertically or geographically or whatever. Show that you are realistic, but also that there is a huge opportunity. You can do both, but you've got to kind of work on the story with that.

Haje Jan Kamps:

And realistically, what this all boils down to is the answer to a really simple question, which is if everything goes to plan, how big can this company get, right? And if you end up with an enormous number, fantastic, that is what they want to see and now it's possible to invest/ if they don't believe you, or if you turn up with a tiny number, it's like, well, it's just not VC investible.

Healy Jones:

So that is the most important thing about this slide. Proof that you're going big, that you're ambitious,, you're trying to build a venture scale business. That's what the slide is for. Make sure that story is told here.

Haje Jan Kamps:

Yeah, love it.

Healy Jones:

All right. Well everyone, thank you so much. And again, go to cruiseconsulting.com/pitch-deck to get the free templates and all these recordings. And we hope that you find this helpful.

Haje Jan Kamps:

See you again soon.

Healy Jones:

Hello, and welcome to the operating plan slide of the Kruze Consulting venture capital pitch deck free course. Our course is designed to help you create the ultimate venture capital pitch deck or at least one that is competent and won't get you left out of the room. You decide. I am joined as usual by Haje Kamps. Haje is a former venture capitalist and an accelerator, a startup founder who's raised a lot of venture funding, and a writer for TechCrunch. And of course, he's written the book, Pitch Perfect, which you can get on Amazon. It's how to create a venture capital pitch deck. And just as importantly, he is a very active consultant who helps companies put together their pitch decks and put together their stories so they can raise funding, Haje, how are you doing, and where can folks find you on the internet?

Haje Jan Kamps:

I'm doing great. And yeah, you can find me at Haje.me, easy enough, which is where the pitching and my book lives.

Healy Jones:

Perfect. And the entire Kruze Consulting venture capital pitch deck course lives on kruzeconsulting.com/pitch-deck. K-R-U-Z-E consulting.com pitch deck. Let's dive in here. Let's talk about the operating side or the operating plan. What is this operating plan? We talked about this ad nauseum and at Kruze, we help a lot of companies put together operating plans, their financial models, their projections, and help them fundraise with, what is this thing?

Haje Jan Kamps:

I think for me, what the operating plan is, it's basically a slide with numbers that really tells the story, but through numbers. So it typically lives towards the end of the pitch deck because that makes sense, but you kind of re-summarize all the things you're about to do in the space you can see. So typically, the operating plan should cover… Some people go as little as six months. I think that's a little bit low. Some people go for the duration of the current fundraise. I think that is probably the clever thing. So if you think you need to raise money again in 18 months, the operating plan should probably be about 18 months in length. And obviously, you have more granularity at the beginning where you have higher certainty for what's going to happen, and then it's a little bit more hand-wavy towards the end. But the important piece is that this shows that you know how much money you're raising, why you're raising that amount of money, and kind of the milestones and goals that you're going to do during that amount of time.

Healy Jones:

Excellent. I love that. So I advise clients, I run the financial planning and analysis team, the team that helps our clients put together models and projections and put together operating plans to present to VCs, and I like to tell them that this is essentially the strategy that you have for this… After you raise the capital, this is your strategy, but in numbers. That is what you're producing here. You're showing the VC, the numbers behind your strategy. So it really needs to match up. Another key thing here is you're going to click the reality of where your startup is now and draw the dotted line, hopefully, in a way that's easy for the venture capitalist to buy into, to where you're going to be when you next fundraise.

Haje Jan Kamps:

Yeah, absolutely. I guess it's worth mentioning in that world that VCs, even people who come from an operating background or come from a nonfinancial background, they are numbers people. And so this is going to be a slide that gets scrutinized and looked at very carefully because this is where you get to show whether or not you're a functional founder, essentially.

Healy Jones:

Exactly. That's right. Right. So as numbers people, the VCs are going to want to basically confirm that the money you're raising now can get you to a point where you can raise your next round. If you can't do that, it's called building a bridge to nowhere and VCs hate to do that. It is a common problem that I see founders make. It's a mistake that they make. They don't raise enough money to get where they're trying to go, and so the VCs feel like they're kind of throwing their money away because they know that the company's not going to reach the point where they're worth more.

Haje Jan Kamps:

Yeah, certainly.

Healy Jones:

And so, you definitely want to avoid that. And the VCs are also going to eyeball what you look like when it's time for the next fundraise. So they're not only going to want to make sure you can raise that money, but they're going to make sure you're worth a lot more.

Healy Jones:

The venture capitalist needs the money they invested to be worth three or four times probably what it was when they first invested. Now I've seen some compression there. The seed valuations are kind of getting really high. So sometimes, it's maybe 2X, but regardless, the company's got to be worth more. So there have to be some sort of metrics. There has to be something accomplished, something built, some sort of milestone reach, so the company's worth more as you next do your next fundraise, and this operating plan is showing the numbers as you get out to there. And it also helps you size the round, like how much you need to get where you're going. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

How much are you going to burn over the next few quarters? How many people are you going to hire? Things like that. And then, you're proving to the venture capitalists that you've got a plan and that you've got a good grasp, but the financial implications of your strategy in your business as well.

Haje Jan Kamps:

Yeah. When I work with my clients, this is actually often one of the first conversations we have. I ask them how much they're raising and they say $50 million. And I'm like, "Well, based on the business you have here, you're in the right place to raise about three." So if you want to raise $50 million to get to where you need to go, that's great. But what is the stepping stone? What can you prove between now and then to show that you are ready for that growth capital or for that larger chunk of cash? And I think really that's one way that you use your operating planning and your financial models. You see, "Okay, what are the milestones? What are the KPIs? What are the things we need to prove in order to really start raising?"

Haje Jan Kamps:

And so, find out what that is. And so, if you are an early-stage app company and you need to get, I don't know, a hundred thousand users, a fully functioning app, and a revenue run rate that makes sense, then, put that on your plan and then work backwards. Like, okay, how many staff do you need? How much do you need to spend on advertising? How much do you need to spend on this, that, and the other? And if you don't have the answers, then it's possible you're trying to skip a step. And I think it's a very good idea to raise a smaller amount of money, get that nailed down so you have a much greater clarity on how you would spend $50 million.

Healy Jones:

Yeah. So this stride is where you probably talk a lot about your fundraising strategy. At least why you're raising the money that you're raising. Right? And it's kind of double-click into what the venture capitalist is going to try to feel out. Because again, you're selling here. Right? You're selling. What you're trying to sell is that, "Hey, I've got a plan." Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

The VC's going to dive in to try to use this slide to battle test your plan, to make sure your plan is actually getting you somewhere. And so, there are a few things you just mentioned there that are really important. There's some sort of milestones that you're talking about in your strategy, part of your deck, the numbers need to prove that you're producing them here. Right?

Haje Jan Kamps:

Yep.

Healy Jones:

If you say, "I need to get X million in revenue to raise my next round," you better have X million in revenue when you run out of money here on this slide.

Haje Jan Kamps:

Yep. Right.

Healy Jones:

It just has to be like that. Right? And there's also how much you're going to spend to do that? What kind of a team and how many people do you need? These are all things that can get reflected on this slide. Because again, this is the nuts and bolts of what you actually have to do. And you want to make sure that… We've already talked about the go-to-market or the traction slide. There you have things like if you have customers and revenue, you're talking about your customer acquisition cost and your revenue and et cetera. But you start from where you are, and then you go out to where you're kind of what you're going to grow to be with this money. And you want those numbers to all make sense. Right?

Healy Jones:

If your customer acquisition cost right now is a thousand bucks, but you're showing that it's a hundred dollars in this slide. If the math is I'm going to add a hundred customers and I'm going to spend $10,000 in marketing, well, the VC's going to say, "Well, that doesn't make sense because you told me that your customer acquisition cost was a thousand dollars so that means you should only add 10 customers, but you're saying you're at a hundred customers, why does that make sense?" Right? Make sure that the kind of reality of what is happening and what you're talking about in your other slides is reflected in the numbers here. These assumptions all need to tie together. Everything in here needs to work hand in hand with the strategy that you've outlined. And then also with the financial model that you may have an appendix, or you may have a standalone slide, or you may have an Excel file or Google Sheet that you share with them. Right?

Healy Jones:

All these things need to come together to tell a coherent story. And remember the story is, you're selling the business. Right? You're selling equity here so you want people to believe your vision.

Haje Jan Kamps:

Yeah. And I think this slide is where so many founders stumble. Right? Because a lot of founders are really good technical people. Right? They come out as an engineer or as a VP of engineering or something out of a bigger company, and they know how to build a product. Great. That is wonderful. But you have to also be a good founder and a good business person. And I think this is where the rubber really hits the road. Your numbers need to tell the same story as the hand-wavy excitement part of the story that you're also telling. And as you said, it really has to match up. I see so many times that people go, "Oh yeah, we're going to 10X our sales." And the marketing spend goes up 2X. I'm like, "Well, what happened here?"

Healy Jones:

Yeah, how.

Haje Jan Kamps:

"How are you suddenly five times more efficient with your marketing money?" And if the answer is, "Oh, we're going to hire a marketing guy who will figure it out for us." You're just not a believable founder. And I think the numbers here really hold up a mirror to you and you have to be able to look at them and go hand in hand, "Yeah. I believe I'm going to be able to do this." You're not going to get shouted at if you don't exactly hit your numbers, but it has to at least be vaguely reasonable, what you put in front of the VCs.

Healy Jones:

Exactly. And I generally suggest that you raise another quarter worth of capital.

Haje Jan Kamps:

Yeah. Right.

Healy Jones:

It's always good to have a little padding. You don't want to get too close here. You've got to keep yourself growing aggressively as you're approaching your next fundraise, and you don't want to be freaking out about running out of cash. That's just another thing to worry about. So do a future you a favor, if you can, raise a little more money. Of course, it's easy to say that when you're actually out there pitching. I've raised money too as an executive at startups and it's really hard. Right?

Haje Jan Kamps:

Yep.

Healy Jones:

Who needs an operating plan in their deck, Haje?

Haje Jan Kamps:

I think everybody.

Healy Jones:

Everybody.

Haje Jan Kamps:

I think it's the one place where you get to really shine as a CEO and really show that you know what you're doing.

Healy Jones:

Exactly. This is how you prove that you know what you're doing. Right? And so the other question that I have, or I've thought about is can you have a financial model slide instead of an operating plan? And I think you can if you do the financial model side really well. So the financial model slide, which we'll talk about in a little bit, and also Kruze has free financial models available on our website so just go to our resources section and click on free financial models. You can download those templates and use them. And also, this operating plan has a financial model template behind it. We will be sharing that Excel file as well so you could just use that if you'd like. But I think you do need a five-year plan. And one of the big problems that I see founders having is not having a big enough vision to justify raising venture capital funding.

Healy Jones:

Every quarter or more I see a founder come and say, "Hi, I need to raise 10, 15, $20 million in venture capital funding, and in five years, my business will be at its max size of $5 million a year of revenue." And that happens very regularly. I see that way too often. And I hate to tell you, but that is not the type of business that can raise that much money. It's just not a big enough business. You need to show huge outcomes. The VC wants your investment to return their whole fund. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

If they have a hundred million dollar fund, they want their 20% stake in your business to be worth a hundred million dollars when it gets sold or more. So you got to go big, and that's why I love the financial model side. Because you're telling the VC. You're thinking the same thing. "I'm going big. This is not a lifestyle business. I'm going to make a huge business. It's going to return your fund. Let's do this." That's why I love the five-year projections.

Haje Jan Kamps:

Yeah. Now I see the same thing a lot where people are not ambitious enough. And I think it's an interesting thing. Right? A lot of people get advice from people who don't really understand the mechanics and dynamics of startups. And you know, there's nothing wrong with running a $5 million a year business. That's impressive. But VCs are just not going to be interested, for exactly that reason. They are in a different business than you are. You are in a business of feeding the people that work there and maybe buying yourself a nice car. They're in the business of returning huge amounts of cash to their LPs. And if you're not singing from the same hymn sheet there, you just… I mean, it could be a good business, but it's not venture fundable and you have to be very, very aware of that.

Healy Jones:

I definitely, completely sure, completely agree with you. Right? I think the difference between… If you were to have two slides of an operating plan and a financial slide, the differences are, how far out you go so the operating plan is right, it's what you're doing with this funding. The financial model is five, three or five, four or five years out where you're showing how big you're going to get. I think the level of confidence can change. Venture capitalists understand that even nine months out and as a startup, it's like in dog years, that's 50 years or whatever. So it's like-

Haje Jan Kamps:

It covers the years, basically.

Healy Jones:

Exactly. Right. So they understand that you're not going to perfectly hit your numbers, but with the five-year plan, they're definitely not saying things like, "Oh yeah, for sure. You're going to have that number of customers exactly five years from now giving you that much revenue." They get that. But it's, again, you're doing the dance, and you're helping them understand how you're trying to think big, how your company changes as it grows.

Haje Jan Kamps:

Yeah. I think from my point of view, there's an important difference between the two as well. I'll be honest, financials aren't my biggest strength. Right? My eyes glaze over when I look at a spreadsheet, and it's not good. And I can work on it and make it happen. But when I'm trying to pitch something, I find that really distracting. And so the way I think about the operating plan is something that distills the financial information to the space I can see, and it overlays extra information as well. It overlays those gates we talked about that you need to do in order to raise that money. Call them KPIs, call them whatever you call them, but the important milestones, like product launches, headcount, KPIs, important bits and pieces of the puzzle, that all goes in the operating plan.

Haje Jan Kamps:

Yeah. Now, the financial model spits out some of those numbers too and uses them as input, but there's so much other data there that to me, it's very hard to read. And as a storyteller, when that slide comes up, I get like, "Ah." I get a little overwhelmed. So the way I design my operating plan slide tends to be much simpler with typically the numbers being rounded. They're really easy to read and look at. If it's $2 million, it just says $2M. It doesn't say $2,000,057. Right?

Healy Jones:

Right.

Haje Jan Kamps:

Because, in the storytelling sense, that's not relevant to me. And so, I think from a storytelling point of view, I love the operating plan because it really helps you tell the story without getting too bogged down. And then I would typically argue that the financial plan can go to the appendix because you don't want to end up wasting your time getting super nitty-gritty about the details while you only have a limited amount of time with your VC. Now, in the second or third meeting. Absolutely. You'll go and look at that. You might even go and look at the spreadsheet and you start playing with the numbers a little bit. They often like to look at it offline as well, to poke the numbers and see if it makes sense to them and actually ingest it properly. But in my experience, a pitch meeting just isn't really the right place to do that.

Healy Jones:

I feel like I've been able to help clients really simplify their five-year financial projections and put it in a slide deck in a way that resonates with VCs. Both of us have worked with clients that have raised a lot of money. Your clients have raised a lot of money doing it the way you've done it. And Kruze clients have raised six billion-plus in venture funding. Our way works as well. I think it really depends on how comfortable you are as a founder talking about these numbers. But you have to have some version of an operating plan or financial model in your initial pitch just to help-

Haje Jan Kamps:

100%.

Healy Jones:

… the VC understand the numbers behind what your strategy is. Right? You have to have it. So if you hate numbers, maybe work with an advisor like Kruze. That's one thing to do there.

Haje Jan Kamps:

Well, it's funny. Actually, we recently… I don't know if you knew this, but we worked together on a client. There was somebody who raised 16 point something million. And I really helped with the story, and he actually just took one of your financial models and dropped it in that. He's one of your customers as well, and did a really good job with that, and was able to tell the story from both angles. I think the truth is, you'll sit across from VCs. Some of whom are more focused on numbers and some of them who are more focused on the dream, and you should be able to tell the story both ways. Even if you're not a storyteller and even if you're not a numbers guy, you need to be able to do both.

Healy Jones:

Exactly. Yeah. And that was a great client. An engineer who understands, is not afraid of numbers, and really figured out how to tell this really compelling story as well, and raised a great amount of money without any revenue or anything. Right? Just really, really pull this together because they're doing something pretty important so that was an awesome success story. Yeah. So just to double click again, like why is this important? Finance is a common language. Right? And so the VCs are going to speak this language. Right? And they're going to want to make sure that you can raise your next round. Right? Because they know the next VCs are going to need to speak this.

Healy Jones:

And then the other thing we haven't really talked a ton about are the KPIs for your business. So it often makes sense to have some KPIs on here, which could be things like headcount. It could be things like customers, product milestones. KPIs are not a bad thing to put on here because again, it's taking the verbal story that you've told and clicking it in here, and putting it next to the numbers, making it really easy for the venture capitalist to translate your strategy into their financial rubric.

Haje Jan Kamps:

Yeah. And especially if you do stuff like shifting from an MVP or a concierge product to a fully-fledged product. If your plan doesn't show any engineers, I'll be like, "Okay, where's this product coming from?" So again, that's one way that you can tell your stories. That engineering headcount needs to go up for you to be able to deliver this product. Or you have a huge product launch, but you don't have marketing spend, or you don't have marketing people who know anything about how to do the marketing spend or… And I think it's just a really… It's an honest mirror. If you ask yourself, "Hey, this milestone here, can I really deliver this with these people?" If the answer is, "Yes." Great, carry on. If the answer is, "Hmm. I'm not sure." Then, how can you get yourself some more certainty? Because I guarantee that the VC will ask that question so you may as well preempt it.

Healy Jones:

Yep. And actually, another thing that is really important is a lot of times you'll pitch a great VC at your seed. And they'll say, "You know what? Come back at the Series A." And then when you come back to the Series A, they will remember… It is not the right word. They will still have your slide deck from before. Right? So they will pull up your seed deck, and they'll say, "Hey, you said you were going to have 50 customers now. Do you have 50 customers now?" Right?

Healy Jones:

And so, it's important to remember it's a long-term game. You're pitching VCs over and over to the extent you're hitting your numbers that you've played on that operating plan. You could even call it out. You can even say, "Hey, you know what, 12 months ago I told you I was going to have 200 customers right now and I would have XYZ in revenue. You know, guess what? I have that right now." And that just drives so much credibility there. That is basically like saying, "Wow, this guy or gal has done exactly what she said she was going to do. You did it." Just like, "What an operator. I've got to get on this train."

Haje Jan Kamps:

Right. So the name of the game there is meet, exceed, or pivot. Right?

Healy Jones:

Mm-hmm.

Haje Jan Kamps:

You have to hit your goals. You have to do better than your goals, or you need to have a good explanation for why this is. That is perfectly valuable. Right? So if you say, "Oh, we're going to have a hundred customers," and you only have 30, but those 30 are like enterprise-grade, much more high-valuable customers, and you realize that's a much easier way of doing sales. That is still a good story. And it shows that you're able to adapt to the market. You didn't hit the numbers but you have an explanation for why. The thing you don't get away with is underperforming and not being able to explain what happened. Because that shows that you just don't really know what you're doing.

Healy Jones:

And actually, speaking to the common client that we had. That client… Actually, no, this is a different client I'm thinking about. A client that I work with that I love, they said, "You know, in four months I will release this feature and I'm going to sign up." And then he listed three names that are Fortune 500 companies. And I was like, "Whoa, that would be very impressive if you could do it. Those are major logos. Every investor in the world knows the names of those three companies." And guess what? Four months later he came back. He said, "All right. I'm very ready to fundraise. And I'm starting to recognize revenue from those three names that I mentioned plus I had this other company that I just signed up as well." And I was like, "Holy cow. You did it. That was impressive."

Healy Jones:

And I'm certain that that founder had mentioned that to other venture capitalists when he had spoken with them four months before, and because he did what he said he was going to do, his credibility went through the roof and he had no problems raising funding.

Haje Jan Kamps:

Yeah. I'm actually working with that client as well. And they are one of those things. They are so timid, but they are so fantastically good at what they do. It is incredible. It's been a long time since I've seen operators that solid. And it's just fantastic to see they're just grinding away, making it happen. And again, it's about knowing what you can do. And if you put that on an operating plan, or if you say that out loud in a meeting, you should be able to back that up. And of course, not every plan is going to come to fruition. But the number of times that I sit with founders to say, "Oh yeah, I'm going to sell to Coca-Cola and all these other companies." And then by the time they come back to raise money, they haven't even had a meeting with them. I'm like, "Guys, why did you say that? Because now I don't believe you anymore. And I don't believe anything else coming out of your mouth either."

Healy Jones:

Exactly.

Haje Jan Kamps:

It's about that believability piece.

Healy Jones:

Exactly. So I definitely want to run through how to create the operating plan.

Haje Jan Kamps:

Yeah. Let's do that.

Healy Jones:

I'm pretty passionate about it. But I think maybe it makes more sense just to show a couple of examples here-

Haje Jan Kamps:

Yeah. Let's do that.

Healy Jones:

… to set the table. So why don't I do that? And so, while I've pulled these up, why don't you explain our free templates so that folks know what they are.

Haje Jan Kamps:

Yeah. So we have a couple of really good free templates. You can find them on Kruzeconsulting/pitch-deck. There's two of them. One is the one that's actually used in my book called Pitch Perfect. And it's for a very silly company called BeerSub, which is a beer subscription company. The other one is called 4P, which is a very silly company as well. We have a theme there. Which is a B2B company doing solutions for plumbing companies. And so both of these have an operating plan in them. I'll be honest, neither of these have amazing operating plans, but it shows a way that you can tell the story around it. So if you can pull up the… There we go. This one.

Healy Jones:

Great. Go.

Haje Jan Kamps:

This is how I really like to do my operating plans.

Haje Jan Kamps:

Now, this is a pretty unambitious one. I'm being honest. I probably don't think that anybody's going to raise money from this. But what you see here is that the red line across the middle is product milestones. Right? In the first half, second half across the thing, it shows like here we have a beta product that's going to start. Then there is an iOS and Android product. Then the recommendation engine goes live. Then an affiliate sales engine and affiliate sales is a really good way of driving a huge amount of revenue if you can team up with the right affiliates. And then they're doing a second version of the web app. Right? So on a high level, that is kind of the product roadmap as milestones right there in front of you.

Haje Jan Kamps:

Now you can see here that the staff matches up with the type. The delivery staff means that you can service the additional deliveries that are happening. The number of customers matches the marketing spend. You can see that the customers increase with the same amount as the marketing spend. The revenue numbers actually go up at a reasonable clip, but the burn rate also goes up quite significantly. There isn't a huge, very good margin in this business, which is interesting. I've also listed COGS here. Now, that's the cost of goods sold. I wouldn't always put that on an operating plan. Typically, I would feel more at home with that in a financial plan. But for this one particular business, I felt it was useful to include that because it shows between the burn, so the money you spend and the cost of goods sold, that you have your fundraising numbers and when you need to raise money. So there's a pretty clear plan here for when they need to raise money.

Haje Jan Kamps:

And here, just the EOH, end of half of the year, money in the bank. So you see the cash burn down. And so really from this, I can really talk about, "Okay, how do we roll out into different cities? How many staff do we need on the team? How many delivery staff do we need? Look at the marketing spend and how that results in customers. Look at the monthly recurring revenue." And so this, I feel really at home in this. Even as a non-financial person, I feel really at home in these numbers because they're easy to understand. They're really straightforward. You know, $1 million burn. I'm going to spend more or less. Absolutely. But it just gives you the general size. Now, in an appendix, I would put the financial plan which doesn't have rounded numbers. Obviously, it is very detailed. But as far as telling the story, it just makes a lot of sense to me.

Healy Jones:

What I really like about this slide is that, just to reiterate, it talks about the key components that you've outlined before about how this business is actually going to grow, like rolling out into the different cities, having delivery staff, the customers that it will add, that's perfect. And then the math is lining up between the customer ad and the marketing spend, what you've discussed already, around traction and go-to-market and things like that. So it really ties very nicely.

Healy Jones:

And then the COGS is really smart for this particular business because just the nature of this business has a relatively high cost of goods sold. If you're a software as a service business using AWS and your cost of goods sold is just a couple percent of your revenue, you don't need to put that in here. But for this particular business, it makes a lot of sense. And it definitely makes sense for e-commerce businesses to have either the cost of goods sold or inventory and things like that. These are metrics that are going to depend on your particular company and the industry and the KPIs you know the VCs are going to want to talk about, and the ones that you want to talk about. Again, because you're selling. And then-

Haje Jan Kamps:

Yeah. Absolutely. I've definitely had businesses in the past too, where, in our operating plan, we ended up listing the value of inventory because there were risks when the money started running out. We just do a flash sale, and we turn inventory into cash, and there's no risk of running out of money at that point. Now-

Healy Jones:

That's pretty interesting.

Haje Jan Kamps:

Obviously, that means that the revenue goes up, but the potential revenue goes down because you sold it at a cheaper rate. But there's just different ways of telling the story and don't use this operating plan as a straight-up template for how you do yours. Think about what the levers are in your specific business. Right? Delivery staff makes sense for this business because they're doing delivery. If you can use FedEx, that doesn't make sense. It becomes a line item on your cost of goods sold instead. So really carefully think about what are the metrics and what are the dynamics in your business and the things that the VC will care about that goes onto your operating plan.

Healy Jones:

Right. I do also like the fundraising number here because this shows them how much you're going to raise in the next round. And they can judge how realistic it is with the company, with a million plus in monthly recurring revenue. Is that reasonable enough? They can judge that. They can decide like, "Can I hang? If I take two of this $2.5 million, I'm probably going to need to put one or two in here. Do I have enough money in my fund to go and do that? Yes, I do." Right. So this is really nice. I like that a lot. Now, we'll jump over to the 4P's one. And this one is, again, the design to be the enterprise one, focusing on a business that's selling other businesses as opposed to a B2C company selling to consumers. And so, in this one, the place that you can kind of see… Well, just kind of first, I guess we're starting with the revenue growth, which is a pretty good revenue trajectory here. This is [inaudible 00:27:35].

Haje Jan Kamps:

Can I just add a little note here?

Healy Jones:

Yeah.

Haje Jan Kamps:

Healy and I work together in putting together a really good… Well, he and I work together. Healy put together a really good financial plan and I kind of pulled out a number that I wanted in my operating plan because I was like… Again, it was a really good model, which means that my eyes glaze over. I just can't deal with it. And so, this is my version of the same, where I'm like, "Hey, this makes sense to me. I can work with this."

Haje Jan Kamps:

And so, this is why I pulled out the ARR right at the top. I figured, as a VC, that is the number that people care the most out. The other thing is, the biggest expense in this business is the team size. So that is why ARR and team size are bold and bigger than everything else on this slide. I'm planning to talk about those two numbers more than anything else. And then all the other numbers kind of back up those numbers. I think from a storytelling point of view, that is really helpful. Because you're using a visual device to tell the people who are looking at this what you want them to look at. It's really simple. I mean, this didn't take me a long time to make, but it helps set the tone for what you're about to talk about here.

Healy Jones:

Right. And the other part of this is talking about customer growth. Right? So part of the story behind this is, "Hey, I can acquire customers and I have a strategy for acquiring customers." And then the LTV, although, as I look at this LTV, it bobs around a little bit. A lot of times you'll see a story where the LTV increases. Either there's an inflection point where suddenly the LTV increases. Basically what this means is that the lifetime value of your customers are increasing. And the drivers behind that are either how much money you make from them any given month or their retention rate.

Healy Jones:

And so the two stories there are, if there's an inflection, it's, "Hey, we've just released a feature that improves our retention rate," or, "We've just released a feature that means we can sell to larger customers or the customers will add more seats or purchase add-on products." Right? That's when you have an inflection. And then a general kind of up into the right numbers, often a little easier for their VCs to get their heads around. But you can say around how you're targeting will improve or as you get a better name brand, you're moving upmarket, et cetera, et cetera. Now, it is a little weird to me here that the LTV is moving around. That's really not a [inaudible 00:29:41] story.

Haje Jan Kamps:

I wouldn't expect it to go up and down. What I have seen though, is very effective decks where it drops. And at that point you go like, "Hey, why does the LTV drop?"

Haje Jan Kamps:

"Well, because we're about to launch a consumer-grade product where the cost of acquisition is much, much, much lower than this product." And so you can tell a story around, "Okay. We get 10X…"

Healy Jones:

We get something. Exactly.

Haje Jan Kamps:

Exactly. "We have 10X more customers. It costs us a 10th of the amount to acquire each customer, but also they pay less so the lifetime value goes down." And so, you have to be able to tell the story. Like in this particular one, it's a little curious that it goes up and down and up and down, you'd expect there to be sort of either a drop and then continue or something like that. So that would be a small warning sign in the back of my head as a VC. We would probably talk about that a little bit.

Healy Jones:

Yeah. So this is probably an artifact of the model. I should go look at that. I'm glad you put that in there. Maybe I asked you to put that in. Maybe I didn't. But if I had asked you, I should've looked more closely at it. So this just does speak to the need to carefully pay attention to the numbers that you're putting in here because it needs to tell the story that you needed to tell. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

And then, the one other item in here that I'll point out is ARR and revenue. I'm assuming most folks know what those two are, but ARR is your recurring revenue. And essentially you take your monthly revenue that is technically recurring at the end of a period, and you multiply it by 12. That's a typical VC thing. It's not a gap. It's not defined by any accounting body or accounting authority. It's the accepted way to do things in Silicon Valley. Whereas your revenue is you recognize revenue, which should be done according to generally accepted accounting principles so it's based on when you're recognizing that revenue. And if it gets-

Haje Jan Kamps:

And if you are putting an ARR or MRR on the slide, you need to know whether it's end of quarter or beginning of quarter.

Healy Jones:

I would say, just do end of quarter always.

Haje Jan Kamps:

It should always be end of quarter, but you need to know for sure. Because if the numbers don't match up… I have seen that done by mistake where somebody grabs the wrong number. And the thing is the annual recurring revenue, so ARR or monthly recurring number, MRR, they're both perfectly fine numbers to use but you should have a pretty good vision on the ARR actually being as real as possible. Right? If your customers churn in six months, it's very hard to make an argument for an ARR number.

Healy Jones:

That's true. And so again, for Q1 of 2023, this should be March of 2023, the recurring revenue in that month multiplied by 12.

Haje Jan Kamps:

Yeah.

Healy Jones:

But the reason, I think I was going to point out is that ARR is much higher than revenue. And because we're showing the burn rate here with the OpEx, it's nice to have the math easily understandable right here. If you had just done ARR operating expenses and then the burn, sometimes VCs in the rush of things will try to do the math of the 2.8 minus the 2.3, and then they'll say, "Wait a minute, you should be making money. Right?"

Healy Jones:

This just makes it really no-brainer so that the VC at a rush doesn't make a math mistake, you know, help them not look stupid in the meeting.

Haje Jan Kamps:

Yeah, totally.

Healy Jones:

You got to massage their fragile egos a little bit.

Haje Jan Kamps:

Yeah, totally. The other number that actually pops up here and you don't often put that in an operating plan or anything like that, but be very careful with your happiness numbers. If you're tracking your customer happiness, there's a few different ways of doing that. And those formulas are surprisingly not that easy to understand so make sure if you put numbers in here that you're actually using numbers that the VC understands. Yeah.

Healy Jones:

It makes sense to define the terms with the V is or for the VC.

Haje Jan Kamps:

Definitely.

Healy Jones:

Another place that, particularly for enterprise software as service companies and sometimes for hardware companies that have large sales, is a bookings ARR number. That can be different. And so, you want to work with an accounting advisor who actually can help you understand what that is. But it does make sense to explain if that ARR is not based on the recognized revenue. Just help the VC understand that. And again, it's very common for VCs to have a particular way that they think about ARR, particularly for enterprise companies or hardware companies or ACV is another one. So just work with them, make it collaborative, ask them how they define it or explain how you're defining it. If they want to talk about it a different way, be prepared to talk about it a different way. You should have those numbers somewhat available to you.

Healy Jones:

And you know what? Don't argue with them about it if it's some way that they wanted to define it. You don't win any points by trying to convince them to think about it a different way, just say, "You know what? I have those numbers. I'll get them for you. This is how I've done it here. And I'm very willing if we work together to present it to you in a different way just to make sure it's exactly aligned with how you're thinking about it." Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

Again, let's talk about these two and think about what's on here. Right? So we've got the revenue and how your revenue's changing. This should tell an exciting story and better match your marketing strategy. Right? So all that better lineup. We're talking about how we're running out of cash. We're sort of a cash balance here and you can see how much you're burning. So it makes it pretty clear. You're going to be raising pretty soon. And for the BeerSub company, we're very explicitly saying how much your next fundraiser is going to be. Right? Very, very helpful.

Healy Jones:

Hiring is generally the most important, biggest expense, and one of the most difficult/important jobs for founders. Right? So mentioning your staff, I really think operating plans should mention staff. I think it should.

Haje Jan Kamps:

Yeah. I agree.

Healy Jones:

Okay, good. And then tying your milestones in here. Product milestones, I like how you've mentioned the product milestones because particularly for this early stage of a company that Beer Sub is, having the product milestones in there can help you hand wave a little bit at the small numbers.

Haje Jan Kamps:

And on this one, actually, I would challenge like, "Look, if you launched your iOS app in beta, how are you going to get 8,000 MRR?" Right? I would immediately push back and say , "Okay, if you are only in beta, you have only 80 customers, the number matches up, right, I believe you. 80 customers gives you eight grand, that's fine. But can you really do that from a beta app? Do people trust you there?" And the number, once the app is live, there's still 130 and 13K so clearly the ratio is the same there. And now, I doubt. Now, I get a little bit of doubt because I'm like, "Wait, you get the same amount of revenue from a beta app, which is probably buggy and crappy. And then you launch an Android and iOS and you have more trusting customers, but that ratio doesn't change." We would have to have a conversation there. So that's the one warning sign that I know about on this slide where I'd be like, "Hmm, that doesn't look great."

Healy Jones:

Right. Exactly. And then, so if we were to look at the other slide, and I look at it again, the weird flopping around of LTV, it's just a little weird. Right? If somebody's going to notice that you should have an answer for it. And then again, making sure that your hiring plan is tied to your milestones and your spend is tied to your milestones, et cetera, et cetera. Making sure how much your customers are paying you now makes sense here, you tie it to your historicals and your projections. Think through all those things.

Healy Jones:

I do often like to have the most recent performance. So for this particular company, this is history. This has happened. Right? And you can see this is just sort of… It's not exactly linear. Right? It's up until the right. But the VC should be able to connect the dots here. There's nothing in this slope that isn't possible for a VC-backed company. It is doable. And again, same thing with the team, you're just making it really easy for them to connect the dots. They don't have to do any weird mental gymnastics to figure out how you go from eight employees to 500 employees in the next quarter. Right? So make it nice and smooth.

Haje Jan Kamps:

Could you flick to slide 15 for a sec?

Healy Jones:

Slide 15.

Haje Jan Kamps:

Yeah. So that is the same kind of slide, but the way that it kind of comes out of the spreadsheet. So I just wanted to highlight, I mean, to me, this is hard to read. It is actually exactly the same numbers. It's exactly the same stuff that's going on here. And I think it's just a presentation layer thing. Right? If you are working with somebody who is very comfortable reading spreadsheets and can draw the same information out of this, but I feel like it's harder to point at the right line and tell the right story here. So that's why I ended up having a slightly differently designed operating plan slide with simplified information and less information just to ram home the point and say, "Look, we are just trying to tell a story here. I'm not inviting you to dig into the details."

Healy Jones:

Yeah. So the presentation layer definitely does matter. I think that before you present this slide, there's a few things that you ought to really know cold. And you had a really nice way of explaining that in terms of how the VC is evaluating the CEO and what their job is. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

Do you want to just extrapolate on that a little bit for us?

Haje Jan Kamps:

Yeah, sure. I think really, as a CEO, you have three jobs. One is to set the vision and the culture for the company. Right? If you are a crappy CEO that is a really unlikeable, toxic human being that is going to ripple through the entire company. So it's about being fair, being likable, having a strong vision for all that kind of stuff. The second thing is hiring. So you have to hire the right people into the right seats, build the right teams to build the right company. And the final thing is not to run out of money. That involves fundraising. That involves keeping visibility on the things. You might have the CFO, but it's not the CFO's job to make sure you don't run out of money. They're there to help you make the right decisions. So if you do those three things right, and of course, in an early-stage company, you'll do that. And you'll also be making tea and ordering printer toner and kicking the printer when it stops working. But over time, those are your three only jobs.

Haje Jan Kamps:

And it's very hard to show company culture, but you show that a little bit in how you tell the story of your company like, "Why you, why this, why now? Who did you hire? How did you get to this? Why is this important to you?" You can tell that part of the story as part of your pitch. Then you show how you're not going to run out of money. How are you fiscally responsible? You show fiduciary responsibility to your investors, to your board, you're a responsible and solid grownup.

Haje Jan Kamps:

And then finally the hiring thing, do you know how much each of your people need to be paid? Do you know where you're going to find it? Do you know… how do you rely on other people? Can you delegate? All those kinds of things. And if on the pitch you're able to really loudly tell the story of those three things. You put yourself in a much better stead to raise the money. And the operating slide is such an important part where you do that because it really shows whether you're a believable founder or whether you're not essentially.

Healy Jones:

Exactly. Yeah. And so, directly translating those three things. Two of them for sure have KPIs that are going to be on this slide and that you should have memorized cold. So first of all, you should know your cash-out date. You should say, "Hey, I am going to… If I hit my plan, I'm running out of cash in early Q3 2023. You should know that." And just say, "Hey, if I don't grow revenue very well, I'd probably run out of cash Q1 2023." Knowing those two things puts a lot of credibility out there around how you have a legit plan and you're a decent operator. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

The next thing you need to know is what your revenue looks like at your next fundraise. Right? So, "Hey, when I kick off my fundraise in early Q2 of 2023, my ARR is going to be kind of low three millions. Do you think VC that I can raise a Series A on three to $3.5 million of ARR with this business model?" That's basically what your [inaudible 00:41:16]. And the VC is going to probably say yes to the extent that's what the market conditions are, et cetera, et cetera. Right?

Haje Jan Kamps:

Yep.

Healy Jones:

That's really just a number you have to know. Right? You want to know how many customers or other important KPIs at that next fundraise. Because again, you're building credibility with someone, the person you're trying to raise money from, you're going to be able to have a great story when it's time for the next fundraise. You're also going to want to know how much money you're going to need for the next round. So I really loved your slide that showed raising $7.5 million and saying, "Hey, I expect that my Series A would be a $20 million Series A by the end of Q2 2023."

Haje Jan Kamps:

And as we just said earlier, that means you need to think pretty far ahead at this point. Right? So for this round, if you say you're going to raise 3 million, you've thought ahead to your next fundraising round. That's how you got to do 3 million. To know what you're raising in the next funding round, it means you have to think one-two out. Right? You're thinking… For me as a startup founder, that level of future doesn't exist. Right? I live in the now and in the very near future. But in this one particular exercise, you have to have, to have, to have a very clear vision for, okay, what are you raising now because you have to get to this funding raise? How much are you raising here to get to the next one? Now, it's going to be fuzzy. Right?

Haje Jan Kamps:

Because you don't exactly know what you're going to learn over the next 18 months. That's part of the point of having a startup. Right? You're learning about your market. You're learning about your context. But you need to have a clear enough vision, and if by all means pad that number, but you need to have some sort of idea for what you're doing. If you're raising 3 million now and you're proposing to raise 5 million next, the VC's going to look at you and go, "What are you doing? That doesn't make any sense. If it's three now, it's probably 10 to 15 next. And it's probably 25 to 50 after that." Right? Or whatever the numbers are. So you need to have a really good vision for what you're trying to accomplish and what that's going to cost. The nitty-gritty, the nuts and bolts of how you're going to do that, whatever. You're not going to get called out on that. But you need to at least show that you thought far enough ahead to have some sort of number there.

Healy Jones:

Right. And then the one other metric that I believe you should know cold in your head is your hiring plan. How many folks you're going to hire in the particularly near term and what their roles are going to be and about how much you're going to pay them. You should really know that. It's even better if you've identified someone like, "This person is going to quit their job at Facebook the day we raise funding, and they're going to make $300,000, and this is their job title." If you can speak to that kind of stuff, it's really powerful. And then, "Hey, when we're at the next fundraise, we probably have 40, 50 people on staff, payrolls, X, Y, Z." It starts to get a little too much detail, but just knowing how many people you're going to have so that the VC can make sure you're being realistic in both ways. Like one, you're not trying to hire too many people with the money that you have, because that's, how can you afford them? How can you find them?

Healy Jones:

But also, a very common problem is where a founder has three people on staff and they're going to grow to have 200 million in revenue with those same three people and no other hires. That is a very… That would be crazy.

Haje Jan Kamps:

Yeah. Yeah, totally.

Healy Jones:

That would be crazy.

Haje Jan Kamps:

Yeah. And I think it's so worth being aware of that and keeping a very good eye on that. Remember that hiring also costs money. Right? If you use an agency, they're not cheap. The other thing is you can actually use this to your favor too. If you are… One of my bugbears is that a lot of hardware companies don't really think about what happens once the product is ready to ship. Right? At that point, you actually stop being a hardware company and you start being a marketing company. So you need the right staff … There's a big shift in the type of staff you need. Maybe you essentially stop being a hardware development company and you start being a marketing company. At that point, you need marketing staff.

Healy Jones:

Yeah. You probably need them actually a few months before, like the people need to be in seats, getting everything prepared to launch.

Haje Jan Kamps:

Yeah. And that is, you have to have some spool up there. You need to have the right people. They have to be ready to go. And it is not unreasonable to tell your VC like, "Hey, this is what I need to launch this product. And I'm raising money now because I need to go to the factory to have these things built. And you know, I have an offer out to somebody who is going to be perfect for this. They're going to accept the job as soon as the money hits the bank account." That's a really good story because it shows you've thought far enough ahead that you know what you need and you have done the hunting. You have done all of that stuff and they're basically just jumping at the bid to join you. That would be a really good story.

Healy Jones:

This is tiptoeing into how to build an operating plan. So I want to get a little slow as we're here and talk about this. This is very important to me. Again, this is what I do for a living. This is what my team does and I think we're pretty darn good at it. Right? So first of all, in Silicon Valley, it's normal to see startups that have pretty extreme financial predictions like extreme compared to a regular business that is normal. And in fact, that is expected. So you don't want to freak out about, "Oh my gosh, are they going to laugh me out of the room because I'm trying to grow such a big company?" As long as it's not crazy unreasonable, no, they're not going to laugh at you in the room.

Healy Jones:

You do want to show pretty aggressive growth to the extent when that moment comes to push the gas, you want to show that hockey stick thing, you want to believe that you can do that. You really do want to believe that and you want to capture the size of the market and the market opportunity. Right? So bigger markets do lend themselves to larger projections and higher growth and things like that. So hopefully, you're attacking a large market and you feel like you can really step into it or really grow that market. So don't be afraid to have some big projections.

Healy Jones:

Now, for your super near term operating plan. In 18 months, you don't go from zero to 50 million in revenue, that's too extreme, but what you're going to be doing is you're going to be creating generally an Excel or a spreadsheet, like a Google Sheet, a model that starts from wherever you are. And I say, build a five-year model by month, understanding that December of 2028 or whatever, it's going to be a little iffy, but that's okay.

Healy Jones:

That's just an exercise. Right? And just pencil yourself all the way to getting really big. And for the operating plan, work yourself backward from the next fundraise. So what do you need to look like at the next round to be successful? For a lot of companies, that's a revenue number. For a biotech company, that's going to be where you are with your drug development and approvals and things like that. Right? For a hardware company there may be certain milestones around product creation and things like that. Right? So it's going to vary by industry, but like work backward.

Healy Jones:

Now, how do you know what you need to look like at that next fundraise? So of course, you can work with an advisor like Kruze, we advise hundreds and hundreds of startups in many different industries. So we have some ideas there. In fact, we're just interviewed by someone at TechCrunch about what SaaS companies look like right now at their different fundraisers. Right?

Healy Jones:

And so again, that's usually a revenue number. But another thing you can do is you could research similar companies that have similar business models. You may not be able to get access to their financial statements, but sometimes you can, particularly, if they've gone public and you're a later-stage company. So you want to have those as comps, understand how they grew, and what they were at the different stages when they raised money.

Healy Jones:

But the other great idea, I think, is to just network with other founders that have similar business models. I'm not saying network with your direct competitor and say, "Hey, like you're my direct competitor, and I'm a seed stage company and you just raised a Series B, what were your metrics at Series A?" That's probably not the right conversation to have there. But a company with a similar business model is the right way to go and ask. And if you have existing investors, you can also ask them as well. But you got to be pretty scrappy as a founder. You should be willing to talk with people and work with them and see if they will provide some information to you.

Haje Jan Kamps:

Yeah. Yeah. I love that. And I think this is… I mean, if that sounds daunting to you and it did to me when I did my first couple of companies. Once I had a couple of companies under my belt, I actually really enjoyed talking to founders who were earlier on the journey. Right? And the reason I enjoyed that was that I realized, it is so much cheaper to learn from somebody else's mistakes. And it's a little bit of a karma thing, pay it forward. I want to help young companies do as well as they possibly can just like I lean on people who are slightly further down the line or have a similar experience that I need.

Haje Jan Kamps:

And I think it's one of the good things about startups. Everybody knows that they're brutally hard, but there's also a pretty good appetite for helping each other out. And it's a good idea to have very clear questions and imagine, if you could have 15 minutes with somebody who has all the answers, don't waste it. Spend that time asking the questions that you really want an answer to.

Healy Jones:

Yep, exactly. So you should be able to network. Right? So again, tying it back to how you're creating your operating plan and your financial model, and you're working back from the next fundraise in terms of revenue and other unit economics as well. How many customers will you have? Right? How much does it cost for you to acquire those customers? And the VC is going to try to test your assumptions here? Right? So does your pricing assumption make sense? Will the market bear what you think the pricing should be? Right? We want to think through others… To the extent that you have metrics already, like KPIs from churn rate, to the extent that that's a metric for your business. Right? How does your churn compare to companies serving a similar client base or in a similar product line? Right?

Healy Jones:

Another KPI that a lot of companies have is, if you're selling it to enterprises, how many deals can a salesperson close in a given period or what's the sales cycle? Right? So, pull these things together and work back on that revenue number, making sure that your sales and marketing, your pricing, your customer numbers are all making sense, and they're growing from where you are now to where you're going to be in a way that is believable and particularly for your operating plan that you definitely think you're going to hit. Right? So one of the things I counsel my companies on is when you're in process that you tell the company like, "Hey, it's the beginning of April, and I want to get a term sheet by the beginning of May." You better hit whatever April number you say you're going to hit. Right?

Healy Jones:

You better hit that number. So again, you do want the stuff to be pretty realistic, particularly, in the near term. Other KPIs or the other major expenses that you'll want to try to layer in after you figure it out and how your revenue's growing, and if that's turning into sales and marketing and sales and marketing personnel is the other support-type features or R&D type features that have to go in here, with a particular focus around payroll for most companies because, for most companies, payroll is going to be their biggest expense. So how many engineers do you need to build the next feature set? And as you launch new stuff, other expenses can come up. Right? So you could unlock additional expense areas as you grow or add new customers.

Haje Jan Kamps:

Yeah, totally. And I think there's some non-obvious stuff there too, which is worth just naming. Right? If you ship physical products, stuff goes missing in the mail, stuff gets delayed. You see an incredible spike-

Healy Jones:

Returns.

Haje Jan Kamps:

… in customer support. Yeah. In returns and customer support queries. "Where's my package?" By far the most common question in those kind of companies is, "Where's my package?" And you know, it's easy enough to look up, but you need to have somebody on the, on the phones or on the support desk to be able to answer that and answer that quickly because your customers are there. They're nervous. Maybe if you're a new company, they're worried, "Oh, did I just got scammed or whatever." And really thinking about that. So taking in returns, if you do take in returns, what do you do with them? Do you test them? Do you just throw it into the trash? And you have to think through these things. And those things can really, really bite you in the butt.

Haje Jan Kamps:

Launching an Android product, for example, means you need to have support staff who understand Android. Or the biggest surprise that I had in one of my past companies, we launched in 50 new languages, great markets, massively expanded. Guess which languages we started getting support tickets in. I don't speak Italian. And it turned out to be a really tricky thing to suddenly have to support users who don't speak a word of English. So think it through, what are the logical steps that happen once a particular thing changes?

Healy Jones:

Definitely. And so, scale up your big expenses as you scale up your revenue or your headcount. When revenue goes up or headcount goes up, other expenses inside your organization are going to go up. So in pre-COVID, it used to be, the analogy I would say is, "As you hire people your snack budget's going to go up." I'm not suggesting you battle your snack budget, but that's just really easy for people to get their head around. Right? So just think through all of these things and it's really unrealistic for your revenue to go up without expenses increasing. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

It's very unrealistic for your headcount to go up without other non-personnel expenses to go up. These things are just natural and it really does happen. And in Silicon Valley, you're expected to burn money so you shouldn't be super afraid of that as long as the numbers aren't getting crazy which… And so that kind of brings me to my final point. And again, I didn't really talk about inventory modeling. I didn't talk about working capital modeling. I didn't talk about legal costs and things like that, but these are all things you want to think through. And the operating plan, it's good to extrapolate stuff up so you don't have to argue with the VC that your legal bills aren't going to be 40,000 instead of 60,000.

Healy Jones:

But in general, you want to have that stuff. But again, the big point here though is, you want to grow. You want to be a little aggressive. You want to be able to hit aggressive numbers. Your startup should be able to succeed big time if you're going to raise money so you have to feel confident in that so don't model yourself out of a transaction.

Healy Jones:

I really can't tell you how many times I've seen a founder with a big market opportunity and a lot of potential and really good run rate to put their projections at almost flat or very low growth. And they're saying, "Oh, I'm just trying to be conservative." That doesn't… Is that what you really think you're going to do? Or you're going to collaborate these numbers or you're going to beat the pants out of them? If you're going to really beat them, you're really hurting yourself. You might model yourself out of a deal is what it's called. So don't make your numbers too conservative, unless there's a real specific reason why you think your growth rate's going to change or things are going to be conservative in the near term.

Haje Jan Kamps:

Yeah. And I think that reflects also what an operating plan is. Right? You have to be as accurate as you… This is your best belief guess for what is going to happen in the next six to 18 months. And 18 months from now, sure, you're probably going to be wrong. Three months from now, if you are vastly wrong, then that shows that there's something you're misunderstanding about the business.

Healy Jones:

Yeah, exactly. So that leads us into the most common issues that we see on this slide. Right?

Haje Jan Kamps:

Yeah.

Healy Jones:

And so, the first one is being too conservative or potentially being too aggressive. These are… It's a very common problem. Again, it helps to work with an advisor or it's great to talk to your existing investors or to other founders who are similar to you to understand what they are experiencing, but don't be too concerned. The next thing is, I think the numbers, we've talked about five times now. But the numbers need to match or line up with themselves internally, and they need to be consistent with how you're describing the company inside the projections.

Haje Jan Kamps:

Yeah.

Healy Jones:

If you-

Haje Jan Kamps:

Yeah. And I think it's like… Think of it as storytelling. Right? You don't teleport from one place to the other. When you tell a story, you're like, "Oh, and then we got in a car or then we got on a plane." Right? You have to tell how you're getting from one place to the other. You don't just teleport. That is true for storytelling. That is also true for the numbers. There's going to be a gradient somehow. Explain what that gradient is, and how you're going to get to where you're going.

Healy Jones:

Exactly. The next most common issue I see is hiring not being realistic. So if you raise money, you're not magically, the next day going to have an additional 50 people on your staff. Right? And if you need those people to sell the product or build the product, you have a problem. Right? So be realistic about hiring. And this moment that we're recording this at the beginning part of 2022, hiring is very challenging because it's not easy for startups. This is an area where the VCs are really going to want to push you a little bit so make sure you're pretty realistic here. Of course, the flip side is a problem I see pretty regularly with folks who I don't think are going to be successful in fundraising is that they don't show any hiring growth. Right? They don't add any heads. And yet they grow this huge business. That is very hard to do. It doesn't seem possible to me.

Haje Jan Kamps:

Yeah.

Healy Jones:

And so, okay. Next issue is where your sales and marketing strategy don't match your sales and marketing spend.

Haje Jan Kamps:

Yeah.

Healy Jones:

Right? If you're-

Haje Jan Kamps:

It's such an annoying one. Right? And especially, if you're a B2B company, you have a salesforce that can make 10 sales a week. Well, that's what they can do. Right? There's no more hours in a day. You can't work them harder, the process is the process. You need to have the right number of people there, or you need to have the right amount of ad spend if you're doing direct ads or you need to have the… Whatever your mechanism is, that needs to be reflected. Probably, it's going to cost you money to make money. And if the cost doesn't show up, or if the cost doesn't go up proportional, then you need to explain why you are so much more efficient six months from now.

Healy Jones:

Yeah. I see this both on marketing-driven and sales-driven growth plans. Folks just have $10,000 a month on Facebook spend in perpetuity, and yet somehow, they're going to quadruple the business every few months. You're probably going to be spending more on your ads. And then, the other place is not adding headcounts, on the sales team, not having to get ramped. Very common problem is that I've got a founder who is the only person who's doing selling, and they're spending five hours a day on sales calls. And they're adding five customers a week. And their model shows they're going to add a hundred customers a week in a few months, but they're not adding any salespeople. So how is that founder going to get that much time to sell that many deals? So it's just not going to happen. Right? Just keep in mind, it costs money to make money. Right?

Haje Jan Kamps:

Yep.

Healy Jones:

And then, I always like to use this line with my founders, that your model shouldn't be kinky. There shouldn't be any weird jumps in the model unless it's very strategic. Right? So again, not going to double your headcount immediately after raising fundraising. Your revenue or your pricing doesn't immediately double after you raise money. There's got to be a story behind any of the weird jumps. Otherwise it's got to… It can be an up and to the right line, but it's got to be nice and easy to connect the dots.

Haje Jan Kamps:

Yeah. I always describe it as flying a hot air balloon. You can hang on the lever that fires air or hot air as much as you want, but it's going to take a while for the trajectory to change. And I think that's a good way to think about it. You have to think about, okay, if you pour $10 million into your sales, that isn't going to work overnight. You still need to learn. You still need to adjust. There's very few businesses that can just completely linearly change by pouring a lot more money into it.

Healy Jones:

Yeah. And then, I've already said it. I'm going to continue to say it, because this is the one that annoys me the most. And particularly when I argue with any experienced founders about it that you're not getting to 50, a hundred million dollars in revenue on zero expenses with one founder and two developers. It's just not going to happen. So don't. You're going to get laughed out of the room if you show this huge growth with no expenses. Plus, why are you raising money? You can be among the most profitable companies. This is the dawn of time. Why do you need to raise capital? It doesn't make any sense. Just grow your business, you don't need any… You don't have any expenses. Just go get that revenue, you know?

Haje Jan Kamps:

Yep.

Healy Jones:

That's just not a credible sign from the founder that you're not giving off the right signals there.

Healy Jones:

And then part and parcel to that is realizing that people are pretty darn expensive. There's going to be benefits. There's going to be sales taxes. So, you might have your first couple of developers working for you for 75K, but I can guarantee you, your 30th developer is not going to come on board for 75K. Right? Eventually, you're going to have to start paying whatever market rates are. You're going to have to provide benefits, et cetera, et cetera. This is just what you have to do. And then finally putting the wrong KPIs on here. So this is…

Haje Jan Kamps:

This is one of my favorites.

Healy Jones:

If you want to do this one, it is going to be pretty silly sometimes.

Haje Jan Kamps:

Yeah, sure. I mean the thing is your KPIs are key performance indicators. They are the things that show what is really going to happen inside the business and what has happened within the business. So show stuff that drives business goals. The thing you put on your operating slide, which is the most important, like ARR, all the other KPIs should drive that somehow. So if you show a number of page views, nobody cares, unless that somehow directly affects your revenue. If you're an ad-driven business, like if you're selling advertising, then page views might be relevant. But it's much more interesting to see conversion rates or revenue. Those are real KPIs that actually matter to your business or other vanity metrics like the amount of news coverage you got, or the number of social media followers you have, blah, blah, blah.

Haje Jan Kamps:

It doesn't matter unless it translates into something that actually matters to the business. And I argue with founders about this all the time. They're like, "Oh, but when we have more social media, it becomes easier to hire." Yes, it does become a tiny bit easier, but it doesn't actually move the needle and your VC is just going to go, "Why is this here? It doesn't make any sense." And the other thing is there are some KPIs that are crucially important to the business but that are internal KPIs. That might be some hiring metrics. It might be something to do with, I don't know, code test coverage. It might have something to do with all the bits that are important to you internally in the business. But if they don't translate… Remember why the VC is sitting there. They're putting money in, in order for your business value to grow, and when that does, when you eventually exit somehow, they're going to see a return on investment.

Haje Jan Kamps:

If these KPIs don't reflect somehow that your business is going to be more valuable, don't put them on there. They're not interesting to them.

Healy Jones:

You have this hour-long pitch, this half-hour-long pitch to sell to the VC. Right? You don't want to spend 10 minutes of it explaining some weird KPI. Because you're selling your business, that explanation does not make them want to invest. It's just a waste of time. So be very judicious with the KPIs you put on here. Put the right ones on here and don't put a bunch of wonky ones. It's not worth it. So as you can tell, this is one of the slides I'm very passionate about. I think this really matters. And when I was a VC, this is something I thought a lot about in evaluating the business.

Healy Jones:

It's a lot harder when you're very early stage, because there may not be a number bunch of numbers on here, but you still need to prove to the investor that you're going to be a good steward of this money and show them what you're trying to build with it and where you're going to be. Right? So the purpose of this slide is you're selling to the venture capitalist how great of an operator you are, you know your metrics, you got to plan. That's what this is.

Haje Jan Kamps:

Yep. 100%.

Healy Jones:

Perfect. Well, that is the operating plan. Again, we will have a spreadsheet available, kruzeconsulting.com/pitch-deck. There'll be a downloadable spreadsheet that you can use that was used in the 4Ps example here. And we also have other free financial models available on our website that you can use as well. So visit our site. We hope you continue to follow along with the course because we're also going to talk about the financial projection slide and building a model, which is again, one of the things I'm really passionate about. So thank you, everyone. Thanks, Haje.

Haje Jan Kamps:

Thanks for coming.

Healy Jones:

Hello everyone, and welcome to the Kruze Consulting venture capital pitch deck course. This is our free course that helps you figure out how to put together a compelling venture capital pitch deck. In this piece here, we're going to actually be walking through not a spreadsheet, but instead an Excel model, talking through your financial model and giving you some tips, and tricks to help make the financial model tell the same story that your pitch is. As usual, I'm joined by Haje Kamps, the TechCrunch author, startup founder, and also a former ventures capitalist who is a pitch deck consultant. Haje, how are you?

Haje Jan Kamps:

I'm doing great. How are you?

Healy Jones:

I'm great. Hey, where can people find you online if they want to get your help?

Haje Jan Kamps:

Haje.me. I'm super easy to find. I even wrote a book about this stuff, which is super handy. So you can find that on Haje.me/book. It's a whole book about how to put together a pitch, which seems relevant to what we're talking about.

Healy Jones:

Extremely relevant. Excellent.

Haje Jan Kamps:

You know what's missing from that book though? It's my least favorite thing about any of this, which is what we're talking about today.

Healy Jones:

Financial model.

Haje Jan Kamps:

Yep.

Healy Jones:

Well, thankfully, I guess, I'm here. And just so everyone understands the background from my perspective, I run FP&A, financial planning and analysis for Kruze Consulting. Kruze is I believe the largest CPA that's a hundred percent focused on VC backed startups. Our clients raise well over a billion dollars a year, and my team helps our clients put together their financial models for their fundraises or to manage their money. So this is what I do, and I'm pretty passionate about it. [crosstalk 00:01:38]

Haje Jan Kamps:

And funny enough, that's actually how we met too. I've run a number of companies in the past, and I've actually used Kruze for most of them as my financial partners. And it's wonderful to be able to work with people who go deep under the skin of these types of things that make my eyes completely glaze over. I'm a really solid operator, but spreadsheets, especially financial spreadsheets, I'm like, ah, kill me now.

Healy Jones:

Yeah, we like numbers so you don't have to. That being said, if you're running or you're raising money, you have to at least be able to talk a little bit of the talk because finance and accounting is the language of business and at some point that's the language that the investors are going to want to talk to you about. So let's discuss how to do it here. My quick background as a VC, I was an executive at a handful of startups, one of which went public, one which grew and we sold, some didn't do that great. My clients here at Kruze have raised hundreds of millions if not a billion dollars worth of venture funding since I've been working with Kruze. And so I've got a pretty solid handle on what VCs are looking for when they're looking through a financial model. So why don't we just kind of dive in and I'll talk a little bit about what the overall goal of the model is?

Haje Jan Kamps:

Yeah. I think there's some interesting context here, right? So as part of the first pitch you do. You typically talk through an operating plan, which we have a separate episode about, which is all about the kind of the future you can see. Like that's probably going to be the amount of time that you're going to operate through on this round of funding. So if you expect to raise about 18 months worth of funding, your operating plan will be about 18 months. In addition to that, there's going to be a financial model, which is probably going to be three to five years and maybe even beyond that. And once you get put through the wringer for the first time, you'll be invited back and the question will be something along the lines of, hey, talk me through the financials of your business. That is where this becomes super, super important.

And even if you're somebody like me, who kind of goes, ah, I don't know about this, you have to really deeply understand what the financial levers are. Like, if you change something, what else changes? If you hire earlier, what does that do? If you hire later, if you grow faster, et cetera. And financial models are such a beautiful way of outlining that. And I'm really excited to have you talk through the one we put together for one of our mock companies.

Healy Jones:

Yeah. Perfect. And so just to double, deep dive into there, as you're doing due diligence and getting closer and closer with the VCs, they're going to want to look at your model and they're going to want to have a conversation about your model and your historicals. This really shouldn't be the thing that makes it so you don't get an investment. This should be just sort of a slight check the box, advance the conversation, help the investors understand how you're strategic and what KPIs you care about, hear from them what KPIs they care about, what numbers they care about. This should be just a beautiful meeting of the minds, advancing the ball on selling the equity of the company, advancing the ball and the story, this should not be the reason you don't get an investment. This would be really tragic if your numbers and your projections were the reason you didn't get an investment.

Haje Jan Kamps:

Yeah. Absolutely.

Healy Jones:

Okay, perfect. So, perfect, Haje. So why don't you talk a little bit about the company that we're going to discuss here, and again, you can go to KruzeConsulting.com/pitch-deck to not only see all of our talks about the pages, but also see the example company that we created out a thin air, including the slide deck, so you can follow along a little bit better about what we're talking about here with the model.

Haje Jan Kamps:

Yeah. So this is the hilariously named 4P company, which is a plumbing company that we made up. It's a B2B SaaS company where we are a company that provides a SaaS solution for plumbers and for plumbing services to help them essentially run their businesses. And so behind that, we did a bunch of work. We put together some mock financial models. We put together some mechanics and a full pitch deck. So as just mentioned, the pitch deck is available on the website. And today what we're talking about is the spreadsheets and I guess the financial mechanics that are behind this made up company. Now, I keep saying made up because when we started going through this model in more detail, we realized there's a couple of like little loopholes in there or little wobbles, and we'll talk about them too, but I think it's a really helpful exercise to be able to talk about real numbers, even for a made up company.

Healy Jones:

Exactly. Wonderful. And just to set the context here, I'll present some of the slides from the 4P pitch deck just so you can see where the financial flows to, because this helps you understand how this is advancing the ball in terms of you selling the company and telling stories. Okay. So hopefully you can see my screen where, first of all, in the 4P's presentation, the financial model drives this chart behind the traction and milestones and also the metrics. It's a pretty important part of the pitch. We have the operating plan, which Haje has mentioned and-

Haje Jan Kamps:

Can we pause for a second and go back to that one?

Healy Jones:

Oh, of course.

Haje Jan Kamps:

So the reason that slide is so important is that it explains to the venture capitalist why this is a venture backable company. I know we've said this in the other episodes, but you know that up into the right graph with the ARR, so the annual recurring revenue is improving, the user growth being aggressive, and being able to reduce the blended customer acquisition cost. Those are metrics that look really, really good and help explain. This is the slide you put in front of someone to make them lean in. Now what happens next is to go, okay, I want to see where these numbers came from. How did this happen? What are you projecting? What are you assuming? What are your assumptions? All that kind of stuff. And that's where these other slides become really, really important.

Healy Jones:

Excellent. Excellent. So this is the traction slide. This is the operating plan slide, which we talked about before. The goal here is to show the investor what you're going to do with the money that you have and what you look like when you're raising out of money so they have confidence that you're building a valuable company that will be able to raise its next rounds of funding.

Haje Jan Kamps:

Yeah. So I'd like to think of this as like the 10,000 foot view. This is like the numbers are all rounded. It's really simple to talk about and it's really easy to pull out the top level numbers, right? It's very clear what's important here. It's the ARR and the team size. Team size because it represents the cost, and the ARR represents the biggest number that we can come up with to really show the health of the business. And the other numbers on this sheet are important, but they kind of support those two numbers and explain all that kind of stuff. And so we go a little bit deeper in the next one, which is our financial model. That's this one. And what we're showing here is actually kind of the same stuff except broken out to an annual level, so year 1, 2, 3, 4, 5. And going into a little bit more detail. Now the spreadsheet we're about to talk to, informs all three of these slides. And I'd love to take a look at that.

Healy Jones:

Great, awesome. Let's jump over to it. Here we go. In fact, you can literally see these were the same numbers on the operating slide coming out of here.

Haje Jan Kamps:

It's so similar because it copied and pasted them across.

Healy Jones:

Exactly. Here is the summary. Although, I just noticed we changed the amount of cash being used here. I'll have to go check that out, but anyway. Oh, I see what happened. I actually got to probably put that back in. We've got some beautiful graphs that sometimes make sense.

We have, this is the chart that was in the traction slide. This is one of your up-and-to-the-right charts that will really help you out. And then here are the guts. This is the guts of the model, which we'll talk through at a high level. The purpose of this isn't really to talk about how to do things in Excel. It's how to talk about things in Excel, right?

Haje Jan Kamps:

Yep.

Healy Jones:

So that's what the purpose of our conversation is. So I'm going to stop sharing just for a second. And I'm going to talk to you a little bit about what is the purpose of this model, right? I'm a venture capitalist, you're the founder, you're pitching me, I'm going to look at your model. What's happening here? So I am checking to make sure that your vision that you've told me, maybe over coffee and then through a more formal pitch like a pitch deck meeting, I'm checking to make sure all that is the same in this model. The model should be telling the story that you've been telling. It should be telling your strategy, should be selling yourself and the company and how awesome you are in the market, et cetera. This is a piece of sales collateral, and it's all designed to tie very tightly with the pitch.

Haje Jan Kamps:

Yeah, totally. And I like to compare this with kind of the Matrix, when you see Dozer sitting in his chair going "brunette, redhead," that's kind of the thing, right? The beautiful, shiny slides we showed is the glossy layer on the front of this, now we're going to go under the hood and get kind of gritty and dirty with what's actually happening underneath. It is so important to be able to talk through it because here is where you really, you're taking your story and turning it into numbers. It's actually the same thing. There should be no discrepancies there. And when you just pointed out, Healy, that, oh, wait a minute, I changed that, that is a warning sign to yourself, right? Put on a post-it, stick it on your screen, make sure you update that before you pitch, because those two stories should be the same. And so when you're hiring people, make sure the hires show up, make sure that everything kind of goes all the way through. And really this is the magic that drives everything else.

Healy Jones:

Exactly. So I did just go update that number because it is germane to the next thing that I want to talk about here. So I'm-

Haje Jan Kamps:

We're running live.

Healy Jones:

Exactly. This is real life here. Hopefully you don't do this in your pitch deck meeting, but you know what? VCs are somewhat understanding if you're humble. So hopefully you can see my screen again. I've gone to the summary tab, which again, matches the summary in the pitch deck. So what are we looking for, when I'm a VC, what am I looking for here? Well, the first thing I'm going to do is I'm going to check to make sure that your startup is big enough to be acceptable for a venture capital style return. If you hit your numbers, right? So I'm checking to make sure you're dreaming big and I'm seeing 50 plus million dollars in ARR up year five. So, that's good. That means, hey, you are playing in the type of venture capital sized business and market, or at least you think you are there. That makes me feel really good.

Haje Jan Kamps:

So, Healy, we're looking at a couple of things here that are interesting. So what I'm seeing immediately is that in year five we have a 56 million ARR. That's a hell of a business and that's going to get interesting. I also see that we are running at a pretty significant loss still, like a negative operating margin, even at year five, even when we're turning over 50 million. So this is a very cash expenditure heavy business. And as an investor, what I think I'm looking for here is clearly the business is big enough. 50 million ARR is a very healthy business, but we're also burning through a lot of cash. And I would be wondering how quickly do we run out of cash and how much cash do we have to raise? Does this model show that?

Healy Jones:

So it does. It definitely does. And that's the second thing that I think most VCs are going to look for is how much money do you need right now, where's the money going, and when do you run out and what do you look like? So in the near term operating plan, we do have a cash balance number that is pretty important. And you can see it's tipped up here to 20 million because the company is raising 20 million at that time at a series B, but you could even dive more deeply into the projections because it has a mini cash flow statement that shows the cash balance. So as a VC, I would try to figure out where your cash total is, which might be on a balance sheet, or it might just be in a little cash flow statement, it might just be a simple total that you have.

For an early stage company, you don't have to be too complicated. That's what I'm looking for. So I'm watching your cash go down and I'm seeing, okay, you're basically running out of cash around the middle of 2023, and so I'm trying to see when do you run out. So, yeah. And then conversely, what do you look like? And so the next thing I would do as an investor, if I was familiar with this particular model type is I would scroll up and just check out your ARR as you're running out of money. So your ARR is here, and I would say to myself can a company with this trajectory and approaching kind of 3 growing quickly to 4 million on ARR, raise a series B? In today's market you can. So I wouldn't be too concerned about that.

Now I have seen markets in the past where this wasn't enough. I mean, I used to advise startups that they needed $10 million in ARR for series B, but that's not really the case anymore.

Haje Jan Kamps:

Yep.

Healy Jones:

But this is a place where you, as the founder, should be leaning into your current investors who hopefully know the market and you should be talking to founders of companies that are in a similar business model to yours, that are a little further along, non-competitive companies where you can develop relationship with the founders. You can say, hey, you just raised a series B what, what do you need to look like? I'm thinking I'm going to have around 3 or 4 million in ARR, growing pretty fast, do you think that I can raise a series B? Ask those questions, have a network so you can understand if you're proposing something wildly off market.

Haje Jan Kamps:

Yeah. And there's a bunch of other stuff that shows up here too. As we talked about in the operating plan, we're talking about milestones. So part of it is the number, part of it is milestones. Do you get your product out in time? When you run out of cash and you don't hit major milestones along the way, you know that it's going to be really hard to raise money because what they want to see is that they gave you however much money you're raising here, $6 million, $5 million.

Healy Jones:

Nine. Five?

Haje Jan Kamps:

Nine? Where is the funding raised?

Healy Jones:

Nine, I think.

Haje Jan Kamps:

Yeah. Okay. So we raised $9 million. And with that $9 million, we have to hit certain ARR numbers, we have to hit certain milestones. And from that, if you put that in front of an investor and say, hey, if we manage to operate against this plan, if we manage to spend those 5 million, we get to these numbers, we have these product milestones, we have this team in place, can we go and raise that 20 million? And if the answer is, we don't think so then this is not a good plan.

Healy Jones:

Exactly.

Haje Jan Kamps:

If they say, well, actually, yeah, everything I know about this market and about you and about your team and everything means that it should be pretty straightforward to raise $20 million in year two. Then we're talking about some really cool stuff here, and we're talking about a plan that if you manage to execute on it, you're going to be okay. And really, I think that is one of the big, correct me if I'm wrong, but I think that is one of the big things that the VCs are looking for here.

Healy Jones:

So that's for sure, yes, a hundred percent. In fact, if you ask experienced VCs what are some of the signs that your company or your investment that you've just made is going to be successful? It's that they're hitting their numbers, they're hitting their hiring plan, they're launching their product on time. Achieving your plan is a strong indicator that your company is going to be a great outcome for the investor.

And so this is your marching orders, right? This is how you're telling the VC you want to execute. And it now kind of goes to the next thing, which. . . So we just talked about VCs checking to make sure you're going to get really big. They're trying to understand how much capital you're going to use and what you look like as you're running out of money.

The next part is the VC is evaluating your experience level and competence as an operator, which there are many places in this model where there are assumptions. And so the VC will want to look at those and say, does this seem right or not? And a great place to talk about those with the investors in the operating plan, because we have higher level metrics on here. We have customer count and we have customer LTV. We have LTV to CAC. These are all metrics that are spring off points for you having a conversation with the investor about what you're going to look like over the near term to get them comfortable with your ability to operate the business, to get them comfortable with the idea that you understand the important KPIs and that you're a good business executive.

Haje Jan Kamps:

Yeah. And even here, we're seeing a couple of really interesting things. On December 22, there's a 3.5 X multiple, but even just two quarters early, it's a seven X multiple. And as a VC, I'd be looking at, wait a minute, you're halving your LTV to CAC ratio. What does that mean? And it's not a big deal. You just have to be prepared to talk through it because there will be questions there. Absolutely guaranteed.

Healy Jones:

Yeah. So the VCs are generally pretty good at noticing kinks in the numbers. So one I would point out would be in this user ARR, which we also have in the pitch deck. You can see that there's a period of time, basically a one-month period here where the user growth doesn't really grow and the ARR doesn't grow. And what that indicates for a company that's still attracting customers is that you had churn. So there's probably a story here and you look very credible to the VC if they point that out and they say, what happened here? And you say we had outages, or we had a couple large customers come on. And they expected certain features that we didn't have built yet. Have a specific reason.

And another underlying piece of advice that I give to founders who don't have a lot of customers or have had very minimal churn, is know the name of each client that has churned and know why they churned. It's really powerful. If you've lost five companies over the life or five clients over the life of your company, and you can explain why each one left you very quickly, that shows the investor that you are super focused on client success and super focused on understanding what makes your product successful in client size. That is a huge win and I strongly recommend that founders who haven't had a lot of churn yet follow that advice and really understand and have memorized specifically why each client has left.

Haje Jan Kamps:

Yep. And again, this is all, so part of it is understanding and that feels really operational, but part of this is storytelling. You're going to get challenged. You're going to make mistakes along the way. You're going to, your model is. . . I can promise you one thing about it, which is that it's not a crystal ball. You're not going to be guaranteed that this is exactly what is going to happen. But the other thing that this model shows is that you've thought about eventualities. If you aren't growing as fast as you thought you were, you can hire slower. If you're growing much faster, or if you need to grow much faster, you can spend more marketing dollars, or whatever it is. There's lots of levers you can pull here. And understanding the model deeply means that if you get challenged on something, you could say, well, actually we've thought about this and we looked at what would happen if we double our marketing spend, or if we double our hiring cadence.

That means that the time before we need to raise money gets much shorter, because we spend much more money, but actually there's an interesting, this is the hockey stick curve people talk about, you spend very rapidly and money burns out really, really quickly but what that buys you in theory is the ability to grow much faster with a little bit of a lag. Running a startup is much like flying a hot air balloon. If you pull the handle, it takes a while before the balloon starts going up. And so this is the thing, if you decide to hire 20 people tomorrow, you're not going to have a pipeline that enables you to do that. So deciding to hire today means you're probably going to be hiring over the next three or four or five, six months to get the right people in the right chairs, with the right skill sets and get them trained up and get them effective.

Even if you have the perfect developer, if they join tomorrow, they're not going to be deploying code for a little while. So knowing that things take time and there's no shame in that, the VCs know that too, but it means that you have to be a little bit clairvoyant about what is about to happen in order to be able to pull the right levers and make the right decisions. And that is absolutely something you're going to be judged for as a startup founder. If you're completely oblivious, if you say, oh, we raise money on Tuesday and on Thursday we bring on 35 new people, it's not going to happen. No matter what, it's not going to happen.

Healy Jones:

That's right. And so you're trying to prove to the investor that you're a credible executive, you have experience and you understand that magic things generally don't happen in businesses. That is definitely one of the major mistakes I see founders make and we'll list out some of the biggest issues I see regularly with models that founders are producing. But just to be super clear, immediately after you raise money, you don't magically hire a bunch of people. Now it is possible that you have folks waiting in the wings who are like, I'm going to quit my job at Facebook or Google as soon as you can pay me a salary. That's fair. That's totally fair.

But to not have a big hiring funnel already built and people ready to give notice, you're not going to just have people start the next day. And even when they're ready to start the next day, what that means is they generally need to give two weeks notice. Most people want to take a month off or a couple days off to organize their life after they leave their former job. So just to be thoughtful, you are being judged. You are being judged.

Haje Jan Kamps:

Totally. And the obvious version of that I saw was like, oh, we're going to raise 20 million. We're going to spend five of that to acqui-hire this entire company that does exactly what we need. And I was like, okay, buying a company is not going to take you three weeks. And then once you buy them, some of the staff are going to leave. There's no amount of golden handcuffs that makes people stay if they don't want to. The people who are kind of already one foot out the door, they might stick around or they may take this as an opportunity to leave. And again, spooling people up takes a while. Learning the code base, learning how things are done, really kind of grocking the learnings from previous things that the companies have tried, don't underestimate that as they famously say.

Healy Jones:

Exactly. Okay, great. So before we do a little bit more of a detailed walk through this piece of Excel, let's discuss the level of detail that I think is appropriate for a fundraising model. And cutting to the chase, I would suggest particularly for a seed and a series A company, you don't go into detail. Because detail, when you get in the weeds, at least some of the investors who are doing diligence are going to get down in the weeds and they might even try to dig one level deeper and then you end up talking about things that aren't strategic, or you maybe end up talking about Excel formulas when what you should really be talking about is your strategy and how that impacts your numbers and your metrics.

So you don't need to be incredibly detailed in a financial model, particularly for a seed and series A. For a more sophisticated company, raising a B, you may have a part-time CFO or a finance person who can help you be more sophisticated. The level of complexity will go up and in particular later stage investors have teams of analysts who can dig in, but as a seed and series A investor, you shouldn't need an excruciating level of detail to explain to them your financial projections.

Haje Jan Kamps:

Yeah, totally. And I think the other piece that people end up looking at is, remember that once you're working with your venture capitalist on a deeper level, they're probably going to have a board seat, which means they talk to you on a regular basis, but they really go deep. . . Well, go deep. They get a 60,000 foot view every two to three months, something like that. And so it is kind of absurd to start talking about what is your snacks budget, how much are you going to spend buying computers for your staff members. That's not something that the board should ever really get involved in unless you are spectacularly mismanaging your company.

And so really what the level of trust you need to build with your investors is they need to trust you to do the right thing between board meetings and that they can have big picture, strategic input in the direction and the decision making processes of the company. And so that's the reason why somebody might get a little bit more granular just to kind of kick the tires and just to get an understanding of you as an operator. Can they trust you in the three-month span between each board meeting? And really with a good model, what you're saying is yes, you can trust me, I've got this. And then you can really get into the big, interesting strategic conversations like which market do you go after, how fast do you hire, what is the big picture products, strategy, that kind of stuff.

Healy Jones:

Exactly. Perfect. Great. All right. Well now let me do a quick walk through. This may be similar to how you walk through the model with an investor. And again, the idea is to present the strategy. So you quickly want to get through the architecture or the sort of design of the model, and you want to start to get into explaining what the company's trying to achieve. So I will share my screen again.

Haje Jan Kamps:

And so just to kind of, to translate that for humans who don't speak spreadsheets-

Healy Jones:

That was pretty clear, but okay, go for it.

Haje Jan Kamps:

I mean, I'm asking for a translation. So what I heard you say is that what you're about to talk me through is where the different parts of the model come from and how they feed into kind of the master sheet. Is that right?

Healy Jones:

So actually what I'm going to talk through very quickly is I'm just going to lay out the land for the investor so that they understand what the different tabs do. And I'm not even getting, I guess and sort of how they talk to each other, but that's not kind of the super goal.

Haje Jan Kamps:

Love it.

Healy Jones:

If you're presenting, we do have an instructions page, which you probably don't even need to mention to the investor. I probably wouldn't even mention that, but if I were to do the walkthrough, I would say we have the model tab where all the assumptions and calculations occur. It's monthly. It flows to an operating plan which shows what's happening for the next 18 to 24 months. We have a summary tab that's a five year view that shows what we expect to be like in five years from now and shows you how much money we're raising to get there, how many customers, et cetera. We have some graphs, in particular showing our cash burn and cash position. And we have our ARR or near term ARR or historical ARR and user growth terms. So just pausing for a second. So what we've basically done is you've explained to the VC what the different tabs are so that they can in their minds orient, if they need, if they have a question where they might go to check it out. Okay?

Haje Jan Kamps:

Perfect.

Healy Jones:

Great. Now, in terms of the depth of this model, I think you are wasting your time if you actually go and explain to them how the formulas work. If you strongly feel like that's something you need to do, here's a pro tip, record a quick video of you walking through the formulas and share it with the venture capitalist a couple of days before you actually meet with them to talk about the model so that they can spend the five minutes looking through that so you don't have to waste the five minutes of the precious time you have with them explaining Excel formulas. That is a huge waste of time. So again, if you have a nice little model, record a quick video, jet it over to them when you send them the Excel file and say, listen, here's a quick video that talks about how the model is and actually flows.

Haje Jan Kamps:

When you say explain the Excel models, does that mean literally explain what the different formulas do or how the data flows through the sheet?

Healy Jones:

Sometimes, generally how the data flows through the sheet. Most VCs should be able to handle the formulas. And if-

Haje Jan Kamps:

Right. Yeah, no, that was what I was curious about.

Healy Jones:

And if they can't, that's fine. Not every investor wants to spend a lot of time in Excel. It's not that big of a deal. Don't don't judge them harshly is what I'm trying to say.

Haje Jan Kamps:

Totally. You're talking about some pretty cool and esoteric things here. You've got some cost of good sold numbers there. You've got some revenue numbers. And if you scroll down a little bit, when I was looking at this, I noticed something really cool around the headcount and how those numbers keep.

Healy Jones:

Exactly.

Haje Jan Kamps:

Is that the kind of stuff you would talk through?

Healy Jones:

Well, so I would, yes, in a video, I would say, listen, this is how the model works. I would say we input the number of customers that we're going to have in any period here. This is the kind of end of period number of customers. Now, quick time out, this model is probably fine for a seed or series A SaaS company. When we build models for our clients, we get a little more complicated where we have beginning customers, new customers, churn customers. There's a deeper level of detail possible that I didn't think was worth anybody's time for this particular pitch deck course, but that is something you could do.

Game back on, un-timeout. We have pricing. This helps obviously calculate your revenue and your ARR, but it also helps the venture capitalists understand what price points you think that your different products will have.

Now. I wouldn't go too detailed. This is pretty high level. We've got a few product lines, that's it. I think a lot of very early stage startups that have no revenue get very complicated pricing models. You spend a lot of time mucking around in Excel and if you haven't actually sold that to a company, a client yet, then you're sort of wasting everybody's time. You're just goofing off in Excel. Instead, I say just sort of, we expect each customer to pay us X. It's really great for a seed stage company. Now there is a little toggle here that I built just for the SaaS company. Sometimes SaaS businesses have non-ARR style revenue. This is just a toggle to drive your monthly recurring revenue to your ARR calculation.

Haje Jan Kamps:

So would that be something like an onboarding cost or something like that [crosstalk 00:29:57]

Healy Jones:

Right. So for this particular, for the 4P's, we said eventually part of their business model will be referral fees and we're not going to count that as ARR. That's pretty normal. Sometimes some companies have implementation fees. Sometimes you have some services that are one off services. You need to be pretty clear with the VC how you're describing your ARR. A lot of VCs have different ways to talk about ARR. I kind of noticed this when I was first working with one of the best Sand Hill Road VCs. This particular partner talked about ARR in terms of bookings, because he was used to large enterprise sales and so he wanted to know what you were closing and then he wanted to know what you were actually billing. So the book to bill ratio, your recognized revenue.

That was a key focus for him. Really fascinating. And so just keep in mind, VCs can think about this stuff a little bit differently, and you just need to have a consistent way that you're thinking about it. Again, back into the model. For this particular business we're assuming that each dollar in revenue has a certain amount of cost associated with it and you see that kind of change a little bit. There should be a story here. See how this changes pretty aggressively over time? There should be a story. There should be a reason why this is changing so much.

Let's get to the headcount part, which I actually happen to love. So when projecting headcount, there are a couple ways to do it. I think though, that particularly when you're projecting far out into the future, it makes sense to bucket your employees into different types of employees, like maybe senior engineer, junior engineer, designers, customer service, marketing, sales. Because right now maybe you have 5, 10, 20 people on staff and sure you could list out Mary and Jim and Amit and everybody. But then guess what happens when you're hiring people four months out who you haven't identified yet? You don't have a name.

And in fact, does it make sense to have a hundred rows for your new employees where you have new engineer one, new engineer two, new engineer three? No, it doesn't. I suggest you bucket those people into like types of employees who have similar salaries so that it's just very simple to say, hey, listen, I'm going to have in this May of 22, I'm going to have 11 engineering and product employees who are going to be making about 175K each. Simplify it that way. And in terms of the way this model works is you just put the number of folks you have at that position and the salary and then it will calculate below their payroll and it will add in benefits and things like that below.

Haje Jan Kamps:

So I got to say, the first time I saw this in your model, I was like, ugh, because I definitely have like 300 rows for future employees, especially if I'm trying to do projections. I mean, I think it's absurd to do six year projections. I know we have slightly different opinions there. But trying to have a 900 row six year projection, this is how much junior engineer 19 is going to get paid, it is completely bizarre. And so this is a way more elegant way of doing it. So thank you for introducing me to that.

Healy Jones:

This is a lot easier. And for the models that we build for our clients, we actually do what we call driver based hiring. So not in the super near term, but out in year four or five, we just talk with the executive and understand, listen, how many sales folks will you need per new sale? Okay. Well, we figure out how many sales we got and do some math, just some division. And that way, when you change your projections, the number of folks that you are hiring in the out years changes as well automatically. See that when you're doing assumption planning, you don't have to go and change everything out in year five manually every time. So it definitely speeds things up quite a bit.

Haje Jan Kamps:

Well, and the thing we haven't really talked about yet, which may be a little too granular for this particular talk is scenario planning. What if? Anybody who raised money in January of 2020 had a pandemic to deal with, which in one way or another impacted every single business. If you have a good financial model and a pandemic hits and you go, oh crap, this is going to be like, I'm in entertainment and this is going to massively impact my business, having a really good model and being able to do easy scenario planning is gold dust.

Or if your business suddenly takes off and you're like, oh, actually we are growing two X faster than I was hoping, not having to completely start from scratch, but instead using your existing model that you know and love and have become familiar with to do this kind of planning, especially if it multiplies out as you do here with if you three double our marketing spend maybe there isn't the linear growth trajectory, maybe a smaller marketing team can handle the additional spend, but you do need some additional people, et cetera, et cetera.

It is so valuable. And it can't be overstated how useful it is to work with Kruze or somebody like Kruze to build these kinds of models that you can actually use for something useful.

Healy Jones:

So one of the most important scenarios you should at least think through and you should have used your Excel to play with this is if you are a pre-revenue company who is projecting to get revenue during the amount of time that you next round lasts for. So, let's say you're going to close a round next month and you expect it to last for 18 months, you expect to generate substantial revenue in the outer months in the future, before you run out of cash, you should just zero out that revenue and see what it does to your cash position and your cash out date.

That's a very common scenario that the VCs are going to look at like, hey, what happens if you haven't started generating revenue in the timeframe here? Do you run out of cash really soon?

So those are exercises to play with just to see what happens, see how long you can last. And then of course the corollary of that is, hey, listen, if it's taking longer for our product to get out, perhaps we hire fewer engineers, reduce our burn. Now of course, these things feed off of each other. It's entirely possible that you can't launch a product without those engineers, but just keep. . .

That is the most basic level of scenario analysis that you should have. All right. Back on to quickly walking through the projections here. This is highly simplified sales and marketing spend, R and D spend, rent spend. Some of these are based on the number of clients that you add. So this is the CAC for new clients added. Some are just based on the number of employees. Pretty simple. Again, I don't think you need to be incredibly complicated here. You're not trying to wow them with how you're renovating your office for a tiny bit of money or anything like that. That is just not particularly germane I would say to the discussion.

We have a part of the model, which is not particularly important, which is the fixed assets and depreciation. In fact, I don't really think this is useful at all for a SaaS business. Probably should have pulled it out. Now we get to the interesting part, which is your cash balance. So this is the beginning of period cash, end of period cash. Row 160 is showing where you're raising capital. So we're saying we're raising $9 million and you can see the cash position go up and then you watch it go down as we burn. So again, the VC will kind of scroll out to figure out where I am about to run out of money. So if you just delete out the fundraise, they would be able to say, hey, listen, I am running out of money in August of 2023. So therefore in June or July, I should raise my next round.

Haje Jan Kamps:

You should close your next round. So you should raise your next round in January.

Healy Jones:

The money should be in your bank account so that you can continue to pay your employees.

Haje Jan Kamps:

Apparently that's important. I don't know. I'm not a finance guy.

Healy Jones:

It is super important. Yes. All right. So that high level, that's how the model runs and where you're going to be spending your time talking through is your hiring assumptions, your revenue and pricing assumptions. That's where you'll probably spend most of your meet and then there'll probably be meet around the customer acquisition cost as well. Those are sort of the most important parts for SaaS companies these days. Of course, it will vary by industry, for marketplaces or biotech obviously won't have any sort of customer acquisition cost. But just in general, for most of the businesses we work with, or many of the businesses, those are the key things where the VCs are going to want to start to focus.

Haje Jan Kamps:

Yeah. And I'll put a layer on top of this is that this spreadsheet is going to be super helpful for you as an operator to run your business. And the things that are important to you are not necessarily the same things that are important to a VC. So be very clear on the kind of things, like understand how VC works and be very clear on the kind of things that they care about. As you just mentioned, how little or much you spend about fitting out an office, nobody gives two craps about unless it's outrageous.

Healy Jones:

Unless it's outrageous, yeah. In which case, you got a problem.

Haje Jan Kamps:

Sure. But then that becomes, so think about what is the kind of stuff that your board would like input into. If you turn into Airbnb style, spending 20 million on outfitting an office, the board will want to have a conversation with you. If it's not. . . So, look at it through that lens. If you show up to a board meeting and you were to talk about any of this or not talk about any of this, would they appreciate or be upset by it? That is the type of information that needs to be talked about at the VC level when you're raising money.

Healy Jones:

Exactly. And so there's one other place that I think does matter to a founder, and that is your salary. This is a way to communicate your salary expectations after a fundraise. A lot of the founders who work with are paying themselves very little to nothing as they're seed funded and then they raise an A and they want to get a more reasonable salary. This is one of the places you communicate that to the VC. And I would, I'll definitely encourage people to make sure that you are getting a market clearing salary after you raise a fair amount of money.

Haje Jan Kamps:

Yeah.

Healy Jones:

If you go to Kruze's website or you just search Kruze for our CEO salary report, we analyze CEO salary every year, just a ballpark where it is for seed, series A, series B. But make sure you're getting paid.

Haje Jan Kamps:

Yeah.

Healy Jones:

It's pretty important.

All right. So let's, I think it's probably time to wrap this up. I think we've walked through it enough. Let's summarize. Again, the model is part of your sales process and it's telling your story. So everything you've talked about for your business strategy needs to be overlayed here. If you need sales people to grow your business, and you say that's how you're going to grow, you better have sales people in here. If you say your average customer in three years is going to be paying you 3000 bucks a year, the model ought to be pointed in that direction. The VC is looking to confirm with the numbers in here that the strategy you've articulated is also the strategy that you're planning on executing.

Haje Jan Kamps:

Yeah.

Healy Jones:

Make sure you're getting big enough in the out years, make sure you know where you're going from a dollars and cents perspective and just be like, this is your roadmap. So spend time on this. It does matter.

Haje Jan Kamps:

Yep. And again, the overarching thing is know what your VCs need to know and know that this back your story. I think if you got those two right, then you are cooking on the gas, as they say in other places.

Healy Jones:

I don't know that people say that, but okay. Awesome. All right. Well, why don't we dive into some of the common mistakes that we've seen people make with the model.

Haje Jan Kamps:

Let's.

Healy Jones:

Just pausing for a second because Google signed me out. One second.

Haje Jan Kamps:

Thanks, Google.

Healy Jones:

Thank you. Good timing.

All right. So let's talk about some of the common issues I've seen with financial projections. Oh, the first one that I've seen that is very frustrating is where companies are getting strangely profitable. And a lot of times what this is that the CEO spent time doing revenue projections, but is not increasing their head count, isn't increasing the marketing spend, isn't increasing the G&A. I mean, it's a fact of life that when you get to $50 million in ARR you're going to have a lot of expenses. So if you're going to be more profitable than Google, you ought to have a pretty compelling reason for that.

So just look at your model and you're suddenly throwing off a bunch of cash, you probably didn't add enough expenses. The flip side is the other place that I've seen big issues is where a CEO started to be too conservative with their projections and this is what's called modeling yourself out of a deal, where you're so conservative that an investor looks at your numbers and they're like, this isn't big enough, it's not interesting enough, it spends too much money. Don't be too conservative. You kill your deal there. You're dreaming big. Everybody understands in Silicon Valley that the idea is to go really big.

Haje Jan Kamps:

Yep.

Healy Jones:

The investor basically wants your company to return their entire fund if it succeeds, so the success that you're showing ought to be worth a lot of money. If you're playing this game.

Haje Jan Kamps:

There's actually worth digging a little bit deeper there, because remember you are in this for a successful business, but your VC is actually, they've got a portfolio. Out of every fund, they invest in 22,30 companies depending on their model and they just need one of them to be massively successful to return the fund and two of them to be fund, like they're going to be drinking champagne the rest of the year.

Healy Jones:

Yeah.

Haje Jan Kamps:

That has to be reflected in these models. This is high risk investing also to the investors. They want to see high returns, and if there's a real risk that your company goes horribly wrong and fails, that's not actually the worst thing that could possibly happen. The worst thing that could happen is that they deploy a lot of money into your company, it takes you 15 years and they get a one X return. They only get their money back. That means they've made a poor investment. And so tell the story here that this could be a fund returner.

Healy Jones:

Exactly.

Haje Jan Kamps:

It's a little counterintuitive because that's where your alignment is a little bit in contrast with the VC's alignment, but you have to be able to tell both stories here.

Healy Jones:

Exactly. Now, again, there's another flip side to this, so now we're going to flip the coin back over the other side.

Haje Jan Kamps:

We're just pancakes now.

Healy Jones:

Exactly. It doesn't make any sense, but I'm going to tell you too much revenue can be bad as well. And too much is a billion dollars in revenue in three to five years from a cold start. Like that's a lot of revenue. You don't, I mean, you don't have to show that crazy revenue growth. I don't, or I have not seen very many companies in my career that can do that. I have seen some that grow very, very, very, very fast. And I'm working with one right now that's blowing my mind. But even there, I think you actually lose credibility when your numbers get too big. So this is where talking to your current investors, reading the room and talking to other founders who are in a similar situation a little bit ahead of you, understand what they're doing and model it off of those successful people.

Again, you're not too extreme here, too conservative, too crazy big, too crazy profitable. When you get to the outliers, it actually starts to get weird with of course the caveat again being that all investments in Silicon Valley are intended to get very big kind of unrealistically. But even for Silicon Valley, there is such unrealistic revenue growth that it can make people kind of chuckle at you a little bit there.

Haje Jan Kamps:

Yeah. And I think what we're talking about here is that you want realistic but aggressive. And then if you're out to perform on top of that, you're doing really, really, really well.

Healy Jones:

Yeah.

Haje Jan Kamps:

So yeah, don't be shy, but also. . . Yeah.

Healy Jones:

Yeah, exactly. So other places that companies can make mistakes are not thinking a lot about the cost of goods sold or other direct costs of the business. Now for many SaaS businesses, that's not that big of a deal, but there are some businesses, in particular you're starting to get into hardware and whatnot, you need to really think about that carefully. So as the business generates revenue, there's this cost line that just kind of goes up with it. And advice I give a lot of founders, particularly in the hardware space that have a negative gross margin right now, so that means for every dollar they sell they immediately lose a little bit of money, is to explain the path to you that flipping and you have a business where for every dollar that you put out the door, you get 50 cents, 75 cents, 90 cents, and actually profit that can then support your operations.

Haje Jan Kamps:

Right.

Healy Jones:

So you should have that path to positive gross margin. Negative gross margin companies can get funded, particularly at the very small stage, but there's got to be a road to somewhere that is actually a more sustainable business.

Haje Jan Kamps:

Yeah. And I guess the other one is, remember that hiring gets more expensive as you grow. There's a reason why Facebook and Google famously pay really good wages and that's because they need the best people they can get their hands on, but also there's a huge amount of opportunity cost for those people. Anybody who joins Facebook could also be joining an early stage startup, where they get paid a lot less salary, but get a much higher potential upside in the form of equity. Now that, as your company grows and as you hand out less and less equity to your staff, which you should because it doesn't make sense otherwise, remember, it gets a lot more expensive because suddenly as you get big enough series B, series C, beyond now you're competing with Facebook on very similar terms. And so unless you have some sort of business that has something like an ethical or moral thing that makes people go, oh, I really want to solve this problem, you are going to struggle to hire the right people after a while, just on competitiveness.

Healy Jones:

Exactly. And another common mistake I see is forgetting payroll taxes or benefits. And particularly as you get bigger, those might get bigger. It's more important though, in the near term for your operating numbers, so that you realize that for every person you hire, you're probably spending 30% more on their benefits and payroll taxes. Just don't forget about that because you could run out of money a lot faster than you anticipate if your primary expense is head count and it's 30% higher than you projected. So just don't forget about that.

Haje Jan Kamps:

Yep.

Healy Jones:

For some businesses working capital matters, and this is the timing of when money goes in and out of the door, that's different from when you're recognizing revenue or expenses. So the easiest way to think about this is if you're a direct to consumer business that has kind of got inventory, you'll have to often write a check to get the inventory sent to your warehouse or to have your third party provider or logistics provider store it.

And that doesn't actually flow through your income statement. It's questionable how much detail you need at the super early stage in terms of where, from an accounting perspective, if you're recognizing all your expenses correctly. I think people care less about that. It's more about that bottom line of the cash. So just think through the cash flow. Think through if you're getting paid up front from customers. That actually helps your cash flow. Or if you're selling to large companies, it may take them 60, 90 plus days to pay you. That hurts your cash flow. So these are just minor items just to think through. You may or may not need them in your model, but you should at least have sat down and thought about them for a few minutes.

Haje Jan Kamps:

Yeah, and they become more important as you get closer to the cash out date. If you have a $20 million buffer, who cares if you get paid in 30 or 60 days? If you are running out of cash, that starts becoming really important and that's a really bad time to have to renegotiate with your customers because they know they have you over a barrel at that point.

Healy Jones:

Exactly.

Haje Jan Kamps:

So be very careful about, again, just echoing what you're saying, but be very careful to think about that in advance.

Healy Jones:

Exactly. So we've already talked about it, but a big mistake is being too detailed. You're trying to talk to investors, you don't want them to get too far into the weeds. So pick the level of detail that's appropriate. And then finally for seed and series A companies, sometimes I see founders spending too much time on the projections and not enough time on other things that can benefit their pitch and their process. I wouldn't, like if you're really comfortable in Excel and you find you're spending a lot of time in it, you're probably spending too much time at Excel. Don't go and do the thing you like, because it's the thing you like, do the things you need to do to get your business moving.

Haje Jan Kamps:

Yep. Absolutely.

Healy Jones:

Perfect.

Haje Jan Kamps:

Healy, I have a confession to make. I actually enjoyed this episode a lot more than I thought I would.

Healy Jones:

Okay, good. Thank you. Well, I think that's a compliment, right?

Haje Jan Kamps:

I think it's a compliment.

Healy Jones:

Wonderful. All right. Well, everyone, we will be releasing this Excel file on our website, KruzeConsulting.com/pitch-deck. Additionally, we'll have the free template for the 4P's, the pitch deck that we showed. And then we have a consumer business that we made up as well, that we have the pitch deck there. You could follow along in the whole course. We hope that you enjoyed this. And Haje, thank you so much.

Haje Jan Kamps:

Lovely to be here.