The startup ecosystem continues to grow. Globally, there are 79 ecosystems that generate more than $4 billion in value: more than double the number identified in 2017. Most of them are located in Europe, which dominates the ranking of the 10 main emerging ecosystems, all located in five countries. In Spain, the only one with 2 emerging ecosystems among the 10 mentioned above, Barcelona is ranked #5 and Madrid is #8.
But... How important is this for a Pitch Deck? It is important because it means that new professionals are joining the sector every day, including entrepreneurs and investment analysts. Either because the incorporation of both into the ecosystem is not accompanied, or because the new analysts who are entering have a generation Z profile, and, therefore, are more impatient, the truth is that, according to a Docsend study, between 2021 and 2022 the time that these analysts spend reading a Pitch Deck has been reduced by 24%, going from 3:32 minutes to 2:42 minutes... If you are an entrepreneur and you are reading this, welcome to reality: this is the real time you have to convince an investor that it is worth meeting with you to learn something! more about your startup!
In light of this data, how can you make good use of this scarce time and how are the decks of startups that got funding different from those that didn't?
- First of all, all those who did NOT get funding DID NOT have a “Financials” slide... This is very interesting because what until now was a debate that the detractors of “early stage financials” seemed to win, based on this Docsend study, we already know for a fact that this is not the case. Having an operational-financial plan is important... after all, whether we like it or not, numbers are the language of business. That is to say that “No Financials = No Funding”.
- Another of the missing slides on the decks of startups that have not received funding are those of competition. In this area, there is also a lot of debate about whether to show the competition with a two-axis graph or with a comparative table of functionalities... Both have pros and cons, and this article is not intended to discuss this topic. But what is clear is that one of the worst things you can say to an investor is that your startup has no competition...
- Investors spend more time on the slides of product and business model, especially in the case of early-seed startups. The third slide that investors spend the most time on is that of purpose, the one that describes why entrepreneurs are taking up this opportunity. Docsend researchers assume that investors are using this slide as a filter, to see if the company fits their investment thesis.
- Strangely enough, investors are spending more time than before reviewing the slide of traction, in particular on the decks of startups that have not been able to raise funding. This would suggest that investors are being more conservative looking for clear signs that the product arouses interest in customers.
- The startups that have NOT managed to raise capital had the slides of business model and fundraising at the beginning or in the middle, while those who have obtained funding had it towards the end of the deck.
In terms of findings and trends that allow us to identify the data analyzed, we find:
- At the sector level, software startups were the most successful in the data set, although healthcare and edtech emerged in 2021-2022 with 20 and 13% more startups respectively, compared to 2020.
- Los Founders only have managed to raise on average 16% more funds than teams made up of 2 entrepreneurs and 20% more than teams of 3 founders. However, it took them between 10 and 20% more meetings respectively.
- 20-year-old entrepreneurs earn between 10 and 23% more than those aged 30 and 40 respectively, confirming previous studies that found that VCs have a strong bias to perceive the youth of entrepreneurs as a guarantee of greater success, contradicting reality: most successful entrepreneurs are successful at the age of 42-45.
- Finally, global statistics show that the decks have had an average of about 19 slides (obviously many for such a short reading time as we have seen), they contacted an average of 60 investors and the average time to achieve a successful investment has risen to 15 weeks in 2022 compared to 13.5 in 2021.
However, having the right slides, a problem with high potential and a powerful solution, based on a good business model and a well-conceived roadmap, is no guarantee of obtaining funding... Academic research carried out on startups that have managed to raise funding indicates that winning proposals often do not have so much to do with the fundamental aspects of the business. What works on investors is a presentation specifically designed to inspire confidence. In a highly recognized academic paper, Chen et all (February 2009) conclude that the ability to communicate the benefits of a product or idea must be anchored in the entrepreneur's ability to generate trust in the investor. And beware that a “performance”, even if it is very well prepared and rehearsed, does not necessarily work and can even be counterproductive, as several scientific researches have identified. Investors are very attentive to bombastic but meaningless speeches.
La passion, understood as a state of love for one's work, on its own, it's not convincing. What really convinces is a component of passion, which investors identify with evidence about the level and depth of thought they have put into the idea and the business, and which researchers call with the word preparation (in English, “preparedness”).
