“OK. Can you help me make it better?” You have to admit that is a fair question from an entrepreneur who’s deck you’ve just criticized. So it’s not a bad idea to have an answer ready.
Fortunately, when it comes to helping entrepreneurs fix broken decks, there is an easy formula that works nearly universally when it comes to explaining a business in terms investors can relate to.
The key to this formula is that it covers all the required subjects, but strings them together into a coherent and engaging narrative flow. Entrepreneurs need to cover all the building blocks, but the key is in the arrangement of those blocks. Here is a picture of the framework you want to help them understand, followed by a walk through the pieces. If you have this advice handy, you will never need to cringe when criticizing a deck again:
The astute may have noticed team is not first. Many investors say the team is the most important thing, and I agree, so some people recommend that entrepreneurs start with the team. They are wrong. We are trying to craft a narrative here - hook them with the story of the customer and the problem. Team is important, but as you can see from above it just comes later in the flow. Here are the building blocks, piece by piece, in order.
Problem & Customer
Every time I sit down with an entrepreneur for the first time, I always start the conversation the exact same way. Before we've even settled in, I'm already asking "who's the customer and what's their problem?" If they are telling a story, this is the logical place to begin. As an entrepreneur if they cannot describe who their customer is and what problem they are solving for them, they've got work to do.
The next thing to do is to talk about how these customers make a market. What its size is, whether it is growing, if it is fragmented, is it ripe for disruption, who the other players are, etc.; in short, what makes it interesting.
Here you want them to talk about the solution. Have them focus on the pain relief, rather than the product. These are the attributes of the product that solve the problem. Highlight benefits, not features. Have them explain what the perfect solution looks like, not all the details about what they have built.
Here is where the entrepreneur says, “Yeah, I've built a solution with those required attributes, and I've solved it in a cost-effective way.” Given enough resources, anyone could solve virtually any problem. Have them emphasize how their solution is both practical and economically viable.
This is the story of how they are going to get their solution to the customer. Their business model, their go-to-market strategy. What are they actually going to be doing and selling and what the key challenges are going to be along the way.
Go To Market
Here is where you have them get more specific about their actual sales strategy. Are they selling with a direct sales force, over the web, through partners, through distributors? Where are these customers and how will they locate them, talk to them, and bring them on board cost-effectively? What is the customer acquisition cost going to be relative to the life-time value? (Hint: LTV better be higher than CAC, or they're in trouble.)
Now that their listener has a handle on what they are doing, it’s time to explain why the team has the skills to pull it off. Yes, they are super-smart and have the right education, skills and experience, but they also need to gel as a team. Advise them to keep in mind that a high-functioning team is very different from a group of high-functioning individuals. Investors are looking for 1+1=3.
Here is where they talk about where they are, where they have been, what they need to do next, what resources it is going to take, and how long it's going to take. You have to get them to talk about a plan that makes sense, is realistic in terms of both time and resources and is sequenced logically.
Now that their potential investors understand what they are going to do, you need to have them talk about the resulting financials. What is the revenue model? What kinds of gross and net margins will this company generate? How fast can it grow? How much capital will be needed down the road?
Next, looking forward, you need to assume their business starts to grow. Have them take some time to consider who the potential buyers might be. Who cares about what they have built? Are there different kinds of potential buyers? What will they value the company for? What kinds of prices are they likely to pay? How much traction/revenue/growth is required before the company will be of interest to them?
Call to Action
A great call to action needs to express that the team knows it needs help and speak to their desire to get help involved. They should start the dialog by providing the details of your current fund-raising.
Applying this formula when you are helping with decks allows you to have them take an enormous amount of detail and weave it into a narrative that hooks the listener immediately with a human interest story about a customer and their problem, and starts an interesting discussion about solving it. The result has flow. Flow is key to telling a good story and is key to organizing their company's information into a cohesive investment hypothesis. Of course this is not the only way to do it, but it’s a tried and true template that works well and has had proven success. Since you told them the way they were doing it wasn’t working for you, it cannot hurt to try it this way.
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This piece was adapted from an article published by Seraf Investor and was written by Christopher Mirabile.
Seraf Co-Founder Christopher Mirabile is the Chair of the Angel Capital Association and Co-Managing Director of Launchpad Venture Group, an angel investment group focused on seed and early-stage investments in technology-oriented companies. Christopher has served as a public company CFO with IONA Technologies PLC, a management consultant with Price Waterhouse's Strategic Consulting Group and as a corporate and securities lawyer with Testa Hurwitz & Thibeault.
Christopher's portfolio management skills and insights are born of experience. He is a full-time angel and an active member of the Boston-area angel investing community. Not only does he help manage the Launchpad portfolio of 50+ companies, but he has personally invested in over 70 separate fund-raising rounds in 40+ start-up companies and in addition to his direct investments is a limited partner in four specialized angel funds. Christopher is a board member, advisor and mentor to numerous start-ups, and a frequent panelist and speaker on entrepreneurship and angel-related topics. He also serves as an adjunct lecturer in Entrepreneurship in the MBA program at Babson. For these reasons he was named one of Xconomy's "Top Angel Investors in New England.