The Venture Capitalist Pitch Deck: Your Business Model
Your pitch deck needs to explain your business model. After your potential investors understand what your company does, the next thing they want to know is how you make money. The business model is a combination of company stage and development, product development, revenue model, and product distribution models.
A business model has many parts. Don’t try to put all of the parts on the same slide. Multiple slides are much clearer. You can describe a revenue model with a pie chart on one slide, for example, show your product development plan on another slide, and devote a third slide to company stage.
The company stage is a big part of the business model for companies with a long product development phase. Initially, the company’s resources are entirely devoted to R&D. Then the company devotes effort to product development, after which the company shifts focus to business development, until finally the company becomes primarily a sales- and customer-support–focused business. These transitions can take many years and require significant changes in company structure.
Include the following information:
Tell investors how much time you think your company will remain in each stage of development. For some companies, the product development stage may take years; for others it may take only a short time.
Clearly state what stage your company is currently in and let investors know that your team is able to manage your company while it is in this stage.
Tell investors whether your company will be revenue positive while you focus on product development. Some companies have a consulting side, which financially supports the product development side. Other companies make proposals to the federal government to win grant money to develop their product. Having a positive revenue stream means that the company is not entirely reliant on investor capital, which lowers the company’s risk of failure significantly.
Your revenue model may be highly complicated and subject to change over time. You don’t have time in the pitch to discuss nuances of your revenue model. Instead, break it down:
Describe where the majority of your income will come from over the next few years.
Show a financial summary with five-year projections. Include totals for revenue, cost of goods sold (COGS), earnings before interest, taxes, depreciation and amortization (EBITDA), and net income.
Share what your product costs and profit on sales are. In many cases, venture capitalists (VCs) want to know your pricing strategy and, to some degree, base their opinions on whether they would buy your product or service if they were a target customer. VCs are very interested in gross margins.
Let investors know whether you’ve validated these revenue streams. Companies that have run market tests before approaching VCs have the upper hand because they can point to their test marketing data to demonstrate customer acceptance.
Point out how much investment (raised in how many rounds) you will need to get to profitability.