Russ is co-founder and CEO of DocSend. Previously, he was a product manager at Facebook, where he arrived through the acquisition of his startup Pursuit.com, and held positions at Dropbox, Greystripe and Trulia. Follow him here: @rheddleston and @docsend
Other contributions from this contributor
- Perhaps now is the perfect time to rethink your fundraising approach
- What can you expect when you set up European VCs?
Many founders will have started the new year with a new round of donations. According to the data we shared last year, March, October and November were the months when VCs checked most decks.
But the COVID-19 pandemic has brought many industries to a standstill, and there are even warnings that this will affect the next two quarters of fundraising.
We checked the data in our DocSend 2020 start index and started tracking Pitch Deck Interest Metric. With a shelter-in-place order placed in San Francisco and many VCs trying to adapt their processes to a distant world, interest in pitch decks fell 11.6% compared to the same week in 2019 Interest, there's still a lot of activity and VCs still seem to be reading pitch decks.
We will be monitoring the Pitch Deck Interest Metric in the coming weeks. However, if you are in an early startup and are in the middle of your fundraiser or are about to start a fundraiser, there are a few things you can do to insure your insurance to meet.
Expectations have shifted and will continue to do so
If you wanted to start a fundraising session, you should be ready to contact 50 or more investors, hold 20 to 30 meetings, and spend about 20 weeks before signing your term sheet. This is a lot of time and energy to invest, especially when the economy is down and you are most likely needed in other areas of your business.
If you've already started your round and are wondering if you should prevail, I wrote an article about when to stop and recalibrate and when to prevail (additional crunch membership required).
Many factors play a role in managing a successful fundraising round, and investors' expectations are constantly changing – especially with regard to the pre-seed round.
Investors are now looking for marketable products and want to see pitch decks that contain the expected content. We expect this focus to increase in the coming months as VCs have more time not only to review pitch decks but also due diligence for companies they want to invest in. Our new report includes advice for pre-startups looking to adjust their donation strategy.
Focus on an MVP, not just a great PowerPoint
Our analysis shows a shift in the willingness of institutional investments to receive pre-seed funding. In the past, pre-seed startups could only get by with an MVPP (Minimum Viable PowerPoint). But now investors are betting on startups that have already entered the market and have developed an alpha, beta or mail order product.
In fact, 92% of companies with successful pitch decks had either an alpha, beta, or mail order product, with only 68% of companies with unsuccessful pitch decks exhibiting the same type of product readiness.
If the economy approaches a downturn, we can assume that VCs are more cautious about their investments. The current data already show a preference for companies that have live products. It's worth being product ready to go into a pre-seed round, or if you're a startup that's ready to start the round again with a new perspective.
Rethink your deck
That said, even if you have an MVP, rethinking your pitch deck can be different. Here is a good test. With your pitch deck, take three to four minutes (that's the time you get from a VC) to introduce your company to a friend or family member who knows nothing about your company. Then ask them for a one-page description of your company. If they don't clearly describe what your company is doing and what problem it is trying to solve, you probably need to rethink your pitch deck.
According to our latest report, a “less is more” setting to create a compelling pitch deck for meetings could make donation collection more successful before the start.
Your pitch deck will now be your main business card. Since community events will be replaced by online meetings during the COVID 19 pandemic, we can assume that fewer one-on-one discussions will take place at these events. It is therefore unlikely that a VC will be published personally shortly. Whether you send them a cold email or get a warm intro from a portfolio company, you have to run with your pitch deck.
Although the product plays a more important role in the fundraising round, the pitch deck is still a focus and should be tailored to tell your story most effectively as investors spend less time evaluating it. On average, investors spend only 3 minutes and 21 seconds on the pitch deck and the average deck is only 20 slides.
When you're re-evaluating your pitch deck, it can be helpful to make sure your slides contain the right content in the right order. Investors spend almost 50% more time on product slides in successful pitch decks and over 18% more time on the business model in unsuccessful pitch decks. In addition, investors spent more time with solution slides in successful decks than with unsuccessful decks.
It's a numbers game … to a certain extent
Another area that could benefit from a revaluation is the number of investors contacted, the meetings held and the number of weeks spent in a financing round. In general, the average number of investors contacted for successful fundraising rounds is 56, resulting in 26 sessions. On average, successful pre-seed startups will spend 20.5 weeks collecting donations.
When it comes to collecting donations, there are declining returns for the reach of investors. You shouldn't have to send your deck to more than 60-70 investors and have to hold more than 20-30 meetings. If you do more than that, the ROI of your time just isn't worth it. Since the current crisis is affecting VCs' willingness to invest, it is better to find a small list of investors who are active and target your pitch at them. If you have reached more than 70 investors, but are still facing a wall of "no", you should pause your fundraiser and listen to the feedback you have received so far. To learn more about when to stop and re-evaluate, read my article here (additional crunch membership required).
Another area that pre-seed startups should evaluate is the number of founders of a company. Our data shows that investors still prefer teams of two to three founders, although our data shows that if you have too many founders, it is preferable to be a solo founder. For teams with five founders, they earned an average of $ 195,085, while founding teams with three founders earned $ 511,522.
This could be the right time to find a co-founder. For many people who work from home or work, this could be an opportunity to pick up on your idea and gain the technical founder you need. There are online groups and events everywhere in response to social distancing. If you're concerned about being a solo founder who is holding you back, you may want to invest time in these new communities.
For many startups, especially if you're not in Silicon Valley, where a significant amount of funding is available, the fundraising process can be very opaque. The purpose of DocSend when analyzing this data is to make the process more transparent. This in turn offers perspective.
However, founders should have additional perspective if they haven't already. Talk to experts outside your immediate sphere of influence. Don't have a mentor or advisor? Find her. Get a different view of your product idea or the market conditions. Especially now that community events are taking place virtually, the location doesn't have to stop you from joining the startup community and finding people to give feedback on your product or company.
Fundraising is both an art and a science. If you combine the knowledge from our data with the benefit of your own community, you can get back on your feet and hopefully set up your company with a better result.