Two additional things founders should include with their Seed pitch deck

Seed Stage Investment Materials

I was just meeting with a founder who is raising their first Seed Round. They echoed something I remember from when we were raising our Seed round and that I’ve heard from other founders – “it’s hard to know what exactly we should be preparing for investors.”

While there’s a lot of discussion about the pitch deck, which of course is important, there are two other things that I think don’t get highlighted enough that are also pretty darn important IMHO. These are:

  1. Use of Proceeds
  2. Financial Model

Now I know what you’re going to say, “what’s the point of a financial model at the Seed stage? Isn’t it just going to be wrong!” Sure – it likely will be wrong but at least you can show investors that you do have a plan to make money and outline in more detail how you plan to do it. An investor that I think very highly of recommended making a three year model, which also sounds like a lot more than you’d need at Seed, but to her point, “it shows the investor that you’re thinking about how you’re going to make money and that your growth rate meets the expectations of a VC firm.”

As for the Use of Proceeds, well that should make logical sense right? You’re asking for someone to give you a million dollars (and often more) it seems only logical that you’d have a plan for what you’re going to do with that money when you get it.

Last but certainly not least – Mark Suster has a must-read article about What you should send before a VC meeting, you can read it here, and seriously, this is a must-read.

Interview with Andy McLoughlin from Uncork Capital

Morgan Linton - Andy Mcloughlin

Uncork Capital is one of the largest Seed-focused Venture Capital firms in San Francisco. If you haven’t heard of Uncork Capital, you’ve definitely heard of the companies they’ve invested in like EventBrite, FitBit, Postmates, Poshmark and more. Yes – it’s safe to say that Uncork has a very good track record when it comes to identifying great companies early on.

I was lucky enough to be able to sit down with Andy Mcloughlin, a Partner at Uncork Capital to talk about how he got into the VC world, his our adventures as a startup founder, and what he looks for in a good investment.

This interview has so many good nuggets in it I would say that if you’re the founder of a Seed stage startup, you should listen to this from start to finish, and maybe multiple times. In the interview Andy shares what impresses him the most in a pitch, as well as a red flag that you might not think of but could cause a firm like Uncork to lose interest.

Uncork Capital is one of the most-respected firms in San Francisco and after spending some time with Andy I can see why. If you’ve ever wanted to get a closer look inside the mind of a top Seed-focused VC, you’re going to really enjoy this one. Simply click the play button below or feel free to head over to the Podcast app on your iPhone and search for the Morgan.xyz podcast for listening on the go. Enjoy!

What do Seed Investors care about more than revenue?

Cofounder

I’ve heard the same confusion from founders over and over again when it comes to raising their Seed round – “why are investors passing, it feels like I have everything they’re looking for?” In many cases these founders have what they think investors are looking for – a functioning product, some early customers, growing revenue, and usually an impressive advisor or two.

So what gives?

More often than not I find these founders have one thing in common – they don’t have a technical co-founder, or in some cases, a co-founder at all. Christoph Janz from Point Nine has done a great job over the years of collecting data about investors, and what they’re looking for in potential investments, and he had some interesting findings when it comes to Seed investors.

Here’s the data along with a bit of analysis from Christoph:

As you can see, most of the seed investors we asked didn’t give very high ratings for Product/Market Fit, paying customers and revenue. Founders with a proven track record are somewhat important to most seed investors, but the highest rating by far got the strong technical co-founder. It looks like most seed investors are willing to take a large — maybe surprisingly large — degree of market risk (as in, will the dogs eat the dog food); but they want to minimize the amount of tech risk (as in, can the team produce the dog food). For what it’s worth, a strong tech co-founder is a must-have for us at Point Nine, too.

(Source – Point Nine)

In the early days of building your product, investors want to know that someone on the founding team understands how the product is being built. Outsourcing all of your development to offshore developers and hoping they will build a robust product is more of a pipe dream than a reality.

I’ve seen a number of cases where a very sharp founder who is an expert in their field tries to go it alone. They can pitch well, they understand the market, they know what they want to build, but managing developers and getting their product to where it needs to be ends up becoming an impossible struggle.

If you have outsourced your engineering, you are now out of business. Good luck in getting the contractor to do the work over the weekend, while they are now moved on to some other contract with its own deadlines. Good luck in even understanding whether the quote you are now receiving for the overnight turnaround of some priority is a good deal, or whether you are being ripped off because you don’t understand the costs of manufacturing or the technology stack your service is built on top of. Good luck in not having so many of these unexpected events that your business is continuously being bled by your contractor for the endless stream of “change orders”.

Investors don’t want to count on your good luck. No-one likes to invest in companies that don’t own or control their intellectual property. You can’t outsource your core competencies.

(Source – SOSV Accelerator)

So if you’re out there pitching your heart out and you feel like you have a product market fit and growing revenue but investors just aren’t biting, you now know what you might be missing. Of course, I know finding a technical co-founder isn’t something you can just put on your to-do list and check off at the end of the week.

If you’re interested in learning more about how to find a technical co-founder, here are some resources to help get the process started:

If an investor asks for your deck, just send the darn deck (most of the time)

Okay, so here’s a topic I’ve gone back and forth about over the years and I’ve finally come to a conclusion. When an investor asks for a deck, whether it’s before you’ve met with them or after, just send it.

Rewind about three years ago and I would have said the opposite. I hated it when investors would ask us for decks before we had the chance to pitch them. I just knew that if we were there in-person we could do such a better job of presenting our company and walking through the deck.

As time has passed, and I’ve started Angel Investing myself, I had an interesting realization. Investors also know that you’re going to do a much better job walking through your deck than they will skimming it on their iPhone. At the same time, investors are super busy so sometimes they do need to skim through a deck, and get a taste of what you do, to decide if they want to take a meeting or continue the conversation.

If an investor asks you for a deck before you meet with them and you respond with “I’d rather not, we prefer to walk through our deck in-person” you are creating friction and some negative signaling before you’ve had the chance to meet…which isn’t ideal.

Now all this being said, I do think you can have two versions of your deck. One version can be a reading deck, one you send to an investor to get a high-level overview of what you do. You should be a-okay knowing that this deck could end up in the hands of your competitors. Now for your deep dive, the deck that you can walk through in all of its brilliance, sure – that can be a different deck with more slides and maybe even some proprietary data that you’d love to show investors, but not your competitors.

Okay, now I know what you’re going to say. What about the Executive Summary? Can you send this instead of a deck. Eh, not really. Executive Summaries require a lot of reading and people often stuff way too much information on one page. Investors are really used to looking at decks, there’s a common structure they follow, they’re more visual, and it really is a great way to get a quick look at a company.

Of course like most things in life, there is a caveat here, which is why the title of my post has “(most of the time)” at the end of this. There is an exception where I think you don’t have to send a deck before a meeting and can instead take another approach.

One person in the VC world that I look up to a lot is Alex Iskold – Alex is a serial entrepreneur who became the MD of Techstars New York and now runs 2048 Ventures. Alex has some pretty solid advice when it comes to sending a deck that goes a bit deeper than the advice I’m giving here.

Alex does not recommend sending a deck before a meeting, at the same time, he also doesn’t suggest taking a meeting until you have some meaningful traction and a warm intro. Here’s his two cents, and I’d recommend reading the whole article linked below to really understand his advice here.

Don’t go after investors until you have traction. Get a warm intro from someone who knows you / can attest to your progress, and who knows the investors. Someone who investors actually trust and respect – most likely another founder they backed or someone they worked closely with in the past.

Instead of the deck, send a 2-paragraph intro. Read this post for full details on what should be in those two paragraphs. Most importantly, include traction, how you are different, and why you are working on this business.

Ask to get feedback via a 15-minute Google Hangout. Not a meeting. A Google Hangout. Why? Because you can still make a connection with the investor, because in the worst case you will get a call, and in the best case, the investor will actually be impressed and ask you to come in for a meeting.

Two paragraphs written correctly should be easy enough for an investor to decide if it makes sense to engage. Two paragraphs are A LOT EASIER to understand than the deck. You are actually saving the investor a lot of time. You are also making sure your deck is not parading around the Internet.

If you want to up the game, shoot a 60-second (not longer) introductory video to give more background on you and the business. I love seeing those included in Techstars applications. The video is WAY better than the deck. The investors can actually tell a little bit about you as a person. An awesome video increases the chance of investors saying YES to a meeting.

(Source – AlexIskold.net)

While I do agree with Alex, I also think that sometimes (okay, maybe more than sometimes) founders end up approaching investors before they have meaningful traction and also often can’t get a warm intro to every investor. If you can check both of these boxes then I think you’re in a place where you can get away without sending a deck beforehand, but without some interesting traction and a warm intro – you’re probably going to need to send a deck.

To Alex’s point – if you can wait until you have traction and network like crazy to get warm intros, you’re going to put yourself in a much better situation overall. This is also why accelerators like Techstars and Y Combinator are so valuable, they help both with traction and investor connections – the two critical elements in raising a round.

So what’s the moral of the story?

Well you know yourself and your company better than anyone. Do you have meaningful traction? If not, are you close? Do you have good connections that can make warm intros for you? If not, what can you do to make those?

What Alex lays out in his post that I linked to above is the best-case scenario. If that’s not describing you, but you still feel like now is the time to raise money, know that you’re not alone, there are a lot of people just like you that have successfully raised a round…just know that you might have to send that deck beforehand.

The reality is, when it comes to meeting with investors, anything you can do to reduce friction and make it easier for them, is probably worth doing.

Of course, this is just my opinion – I’d love to hear from you. What do you think? Comment and let your voice be heard!

3 red flags that could scare away potential investors

So you have this great idea, it’s going to change the fucking world, and you also think you’re in the right place to raise a Seed round. First – right on, that’s definitely the right way to think as a founder, if you aren’t insanely passionate about what you’re doing you definitely won’t be able to convince an investor to be.

At the same time a great idea, even some solid initial traction can all go to waste if you’re doing something that most investors see as a red flag.

Now before I go any further let me say this. You can always point out cases where a hugely successful company had one or more of these red flags. Outliers are always possible, but they aren’t the norm, and the reality is you really want to reduce any friction you might have when it comes to raising money, it’s hard enough, don’t make it harder.

Also, these are not deal-breakers I came up with myself but instead red flags I’ve heard mentioned multiple times by some of the top Seed-stage VCs in Silicon Valley. For some of them these red flags are absolute immediate deal-breakers, others are still open to considering a deal but one of these red flags will definitely give them pause.

There, I’ve given my disclaimer, now let’s get to the good stuff. Here are three red flags that could stop you from raising money from VCs.

  1. Solo founder – running a startup is incredibly hard, going it alone is even harder. While solo founders can and do get funded, it’s not the norm and for some investors this is a complete deal-breaker.
  2. No technical founders – if you and your co-founders are all businesspeople this could be a problem for you, in fact, it probably already is. I’ve heard non-technical founders say things like “we’ll just have a developer work for us on night’s and weekends for a few thousand dollars a month.” Sounds good right? It’s often too good to be true, and investors know that. The reality is that you end up under-paying a dev who does crappy work and then leaves you with a bunch of poorly-written code after a few months.
  3. Messy cap tables – when you’re raising your Seed round, your cap table should be pretty clean. If you have weird things like advisors with huge equity grants or old team-members still hanging onto equity even though they aren’t working there any more, yeah – red flags. A VC wants to see you raise an A round, B round, etc. if your cap table is already messy pre-Seed it’s only going to get messier.

I could have made a top five or even top ten list but these three have come up so many times when I ask VCs what red flags they care about that I thought this was a good place to start. Feel free to share other red flags you know of in the comment section below.

Here’s some advice all founders should take when it comes to getting product feedback

One topic that all founders are obsessed with (and if they aren’t, they should be) is Product. At the end of the day you can raise a lot of money, have a great team, but if your product sucks, you’ll be misusing both. While most of my posts tend to be about raising money at the Seed stage, I thought it was time to throw a product post into the mix since this is so damn important that it deserves some real attention.

When it comes to experts in the product world, one of the people I truly respect is Brian Norgard. Brian was the Chief Product Officer at Tinder and before that he was the founder of Tappy, a startup that was acquired by – you guessed it, Tinder. Before that Brian started Chill, a Facebook app that got 30M+ users…and before that, Newroo, which was acquired by FOX Interactive.

So, it’s safe to say that Brian knows a lot about how to position, grow, and get feedback about products. When Brian shares advice, me and many others listen, and today he shared some pretty solid advice about getting feedback about your product. Here it is:

Brian Norgard Product Feeback

Brian makes a great point here and it’s one that I don’t think many people think about. Be honest – when you want to get feedback about your product, how often do you find yourself asking people “Do you like my product?”

This is also probably why you feel like everyone loves your product. You showed your friends and family, people you trust, and asked them “do you like my product” and they said, “yes” so you assume your product is a hit.

The problem is, this question doesn’t really help you learn, instead it serves to give you the answer you want to hear, i.e. that people like your product. The first question Brian suggests is a great one, “Can you explain this product to me?” Think of how much you would learn if you asked someone that doesn’t have intimate knowledge of your product (like you do) to explain your product to you. They might screw it up, and how they screw it up should be super interesting to you.

Another great question – “How does this product make you feel?” I bet you’ve never asked anyone that…if you have, kudos to you.

The point here is a good one and it’s why me and many other people liked and retweeted Brian’s tweet. If you’re looking for feedback on your product, get creative, ask questions that you can learn from, not questions that will tell you what you want to hear. At the end of the day, you learn the most from feedback that you might not want to hear, but you probably need to hear to make a better product.

I’ve been failing at writing consistently for Morgan.xyz, but I’m going to change that

As a founder, I’m used to making mistakes, owning up to them, learning, and then moving forward in what at least I think is a better direction. One thing that drives me crazy is people who only talk about the things that are working for them. When I ask some founders how they’re company is going – they respond with something like, “we’re crushing it!”

I cringe when I hear this, first because it’s not very authentic, and second because it doesn’t open the door for us to have a conversation that’s actually interesting or productive. The reality is that yes – sometimes things are going well when you’re running a startup, and that’s awesome, but most of the time, you’re struggling, not with everything but with something, and being open and honest about that is so important.

This is an approach I try to take with everything in life, and no, I wasn’t always this way. I too used to be a “crushing it” kind of person who only talked about things that were going well. As I’ve gotten older, and maybe just a little bit wiser, I’ve changed my tune and the end result is that I feel a lot better about myself and about the conversations that I have with people.

So I’m having that conversation with you right now. When I started this blog and the corresponding podcast, I planned on watching it really take off…and that hasn’t happened because I haven’t been consistent. I do have a daily blog that I’ve been writing for almost 12 years now on MorganLinton.com, I am very consistent there and have really seen the results.

I could give some excuse like, “oh I’m just too busy to do this!” but that wouldn’t be true. It takes me about 30 minutes to write a blog post so if one day a week I have to spend an hour (a blog post here and a blog post on MorganLinton.com) that probably just means during my downtime I’ll have to forgo an episode of Stranger Things (Season 3 starts tomorrow!) and that’s okay.

To kick-off my new consistent schedule I’m going to commit to writing a post here every Wednesday. I’m also going to really push to have a new podcast out every month, for the next three months that shouldn’t be too hard since I have three podcasts that I’ve already recorded that I just need to edit.

If you haven’t listened to any of my podcasts yet, you can check them out on Apple Podcasts here. The two interviews that I have up so far are with Hunter Walk from Homebrew and Joe Floyd from Emergence. These are two of the VCs I look up to the most and both interviews are excellent and definitely a must-listen IMO for founders at all stages.

So for those of you who have been reading Morgan.xyz and wonder, “hey, what the heck happened to Morgan?” I’m here, and I’m sorry I fell off the wagon, now it’s time to get into a groove. Thanks for reading and look out for regular posts here every Wednesday. As Tom Cullen, one of the founders of Sonos used to always say to me when I made a mistake, onward and upward!

The fundraising dilemma so many Seed founders face

It’s a dilemma we faced ourselves, and one that I see so many other founders struggling with – pitching investors that you want to invest, but haven’t built any kind of relationship with yet.

For us, we learned this lesson the hard way by pitching a ton of investors and realizing that we just didn’t have the relationship yet to get them to invest. So we applied to accelerators and got into Techstars, that was where we finally were able to start building relationships with investors the right way.

Semil, a well-known investor and the MD at Haystuck Fund, focuses on Seed Stage Investments. He shared his thoughts about this topic on Twitter last week and I think his point is one that many founders (like me) do end up learning the hard way:

The point Semil is making here is a good one. While you as a founder are living in your company every day, see the progress you’re making, and likely have a couple investors onboard, building relationships with new investors takes time.

Unless you have started and successfully exited in the past, or happen to be good friends with someone who knows an investor you’d like to approach you’re likely starting cold.

Mark Suster talks about the concept of investing in lines, not dotes and does a great job of sharing this concept from the investor side.

The first time I meet you, you are a single data point. A dot. I have no reference point from which to judge whether you were higher on the y-axis 3 months ago or lower. Because I have no observation points from the past, I have no sense for where you will be in the future. Thus, it is very hard to make a commitment to fund you.

(Source – Mark Suster)

Accelerators like Techstars, YCombinator, 500 Startups, AngelPad and many others are great at helping Seed stage startups make those connections with investors that can build more organically over time.

The reality is – Seed stage founders do need to do something to kick off a relationship and that something shouldn’t be asking for money. How you get to that first meeting is up to you but don’t be surprised if you pitch 50 investors that you’ve never met before and all 50 say “no.”

Just know that it might not be that they don’t like you, or don’t like your startup, it might just be that they haven’t had enough time to collect enough data to make a good investment decision.

Is it silly to combine years of experience in a pitch deck?

(image source – Robinhood Ventures)

When we were first putting together our pitch deck I can remember looking at dozens of other pitch decks. Just about every pitch deck has a team slide, if it doesn’t then it should. 

Most pitch decks I’ve seen, and created, have a team slide that shows key team members and a bit more information about them like where they worked, went to school, etc.

Every once and a while I have come across a pitch deck that says something like, “a combined 40 years of experience” and I’ll be honest with you, it seems a bit silly to me. 

Well it looks like I’m not alone as Leo Polovets from Susa Ventures shared a similar sentiment on Twitter…and a LOT of people seemed to agree.

The point Leo makes here is a good one. Combining years of experience doesn’t really tell an investor much. Suppose you have two engineers with a “combined 25 years of Python experience” well you could have one person with 24 years of Python experience and another with one. Or maybe you have two balanced people, one with 12 and one with 13 years of experience.

It’s confusing and like the title of my post says, I think it’s just silly. At the end of the day you’re trying to put your best foot forward when you’re pitching an investor and doing this IMHO makes it seem like you’re trying to over-state the amount of experience your team has. 

While it’s great to be proud of your team (I’m damn proud of ours!) it’s also not doing justice to your team members to highlight what really makes them special. Investors really want to understand if you have the right balance of skills on your team to execute and this doesn’t do a great job of articulating that.

I don’t like to give advice on my blog because I’m a first-time founder myself so I’m not sure I’m in any place to give advice. That being said if there are ways you can mitigate risk while pitching, I’d try to avoid doing things that either bugs or confuses investors, and combining years of experience certainly seems to be one of those things.

If you’re looking for a little pitch deck inspiration, one of my all-time favorite blog posts about pitch decks is from Reid Hoffman the founder of LinkedIn. You can read his advice about pitching as he goes through the LinkedIn deck and pick up a few nuggets that will likely help you in refining your deck.

Happy pitching!

Raising a Seed Round with a high cap can come back to haunt you…

I recently spoke with a founder who was ecstatic, they were able to get a handful of investors to commit to their Seed round at a $15M cap. While they didn’t have any revenue yet, they told me they were confident they would be closing deals left and right and easily would be able hit growth targets.

While I’m an optimist so I’d like to say, “yes – you’re going to hit it out of the park!” I’ve also become a bit more grounded over time, especially when it comes to being able to predict revenue growth when you’re still a pre-revenue startup.

The challenge is, for founders who raise at a high cap, the bar gets set so high, so early on, that it really is almost impossible to hit the targets that VCs are going to expect going into your A Round. Ash Rust, Managing Partner at Sterling Road recently wrote a tweet that I thought highlighted this issue really well:

It seems I wasn’t alone in liking this one as Micah from Founder Collective and 212 other people seemed to agree.

In the past I’ve heard founders say things like, “well if you can raise at a high cap, why not? You’ll keep more of the company.” Sure, at this very moment in time you might feel like you’re on top of the world. Fast forward a year later and doing a down round to keep the company alive doesn’t quite feel as warm and fuzzy.

On the flip side, I met with a founder a few weeks ago who raised at at $10M cap pre-revenue. Things were going great, they had huge companies signing up for POCs, it felt like things were really going to tip. But, like most things in startupland (or life really) everything took a lot longer than they expected. 

So they went out to investors who now felt that $10M was too high. They were stuck, either do a down-round or try to hang on and make it work…when I spoke to them they had four months of runway.

While I totally understand that founders with multiple exits can raise at high caps and probably just keep on raising. First time founders, normal people like you and me, can’t really get away with that more than once. 

Keeping your cap grounded in reality and on-par with other companies at your stage gives you a fair shot at setting and hitting realistic goals. Sure, you can still shoot for the moon, we all should, but when you have $0 MRR you don’t quite know even where to build your rocket, what kind of fuel it takes, and a lot of other things that you’ll need to understand first.

I personally think that pre-revenue startups in the SaaS space should be happy with a valuation in the $3M – $6M range if they’ve gone through an accelerator like YCombinator or Techstars. No accelerator, then it might trend lower, maybe in the $2M range. 

At the end of the day, as a founder I’ve found that I can’t just think about how my decisions will impact me today, I have to think of how they will impact me a year from now if things don’t go exactly according to plan…because that’s often how it goes.

What do you think? Comment below and share your thoughts!