The Venture Capitalist Pitch Deck: The Problem Your Product Solves
Your company has likely created a product that fulfills a need in the world. Your pitch deck needs to communicate this potential investors. Your audience needs to understand that your target problem is a big deal for a couple of reasons.
This problem may have global implications, like energy, communications, or information management, or it may address a small local need, like the need for fresh food in your neighborhood fulfilled by a grocery store. The nature of the target problem directly affects the type and size of company you will create.
Because venture capitalists (VCs) work with companies that have large growth potential, you need to show a VC that the problem you solve allows for plenty of accessible revenue possibilities and high growth.
Market size, scalability, and dynamics relative to your product
The size of the market is limited to the number of people who are pained by the problem that you solve and how much money they are willing to dedicate to a solution. You must tell VCs that your target problem is shared by a large number of customers who have the money to pay for the solution — your product.
(Note: If you don’t have access to a huge market — think 1 billion and more — VC funding is probably not the right solution for your company.)
Potential value of the market
It’s pretty hard to judge the potential of a market, but that’s what you should try to do. A growing market is more likely to have room to adopt your technology. Think about the smartphone market. There are around 310 million people in the U.S. and 235 million of them use mobile devices.
Eventually most of them will switch to smartphones. Because there are about 114 million smartphone users now in the U.S., you can see that this market is only half penetrated.
If your company has a product that requires a smartphone, your market is still growing. In the next few years, more people will have adopted the technology that will allow them to use your product. Venture companies are built on growing markets such as the smartphone market.
Customer return on investment
Be sure to let the VC know what the return on investment (ROI) is for your customers. In other words, if customers buy your product, how much money will that save them? What pain are you solving? When you can show how big the problem is and how much your clients can save by implementing your solution, you’ll get a lot of interest from investors.
Is your customer an individual or a business? Businesses buy for only two reasons: to make money or to save money. People buy for lots of reasons, only some of which are logical. Identifying that you know your customer will make the VC feel a lot better about your pitch.
Your goal in discussing your competition is to show you know who is working alongside you. You have to keep your eye on anyone who may come out with your product a month or so before you do. In news media, this is called “getting scooped.”
When you discuss your competition, note two things: how you will avoid getting scooped by a competitor, and what your company has learned by studying your competitors’ successes and failures.
Describe your competitive landscape. If you were describing the beer industry, for example, you’d say that the U.S. beer industry has a few mega players — Anheuser-Busch InBev (50 percent), SABMiller (18 percent), and Coors (11 percent) — and all the little craft breweries that together make up only 4 percent of the total U.S. market.
If your company were a little craft brewery, you would then describe your closest competitors in a positive way: “Our competitor brewery X started two years ago, and it has grown to sell Y gallons more per week than they did last year.” (Because a little brewery cannot compete with the giants in the industry, it’s important to show successes in the artisan realm.)
Competition is often a positive thing. Competitors that came before you prove your model works if they are successful. You can improve upon their model as you grow.
One red flag for VCs is your telling them that you have no competition. Although having no competition may sound great at first, such a claim may indicate that you haven’t thoroughly investigated the market in which you’ll be selling your product. You must consider all types of competition, not just those that compete directly against what you offer.
There is always indirect competition — substitutes in other product categories or similar ways of solving a problem. Your biggest competitor of all may be apathy for your product — potential customers who continue to do what they have done all along without buying your product.