Entrepreneurs: Your Deck Isn’t About the Pitch; it’s About Due Diligence

By Meagan Crawford and Junaid Mian

Few founders realize the importance of their ‘pitch’ deck and its actual intended purpose. News flash! By the time an investor reads your deck, they’ve already been pitched – either through your intro email, on a phone call from a co-investor, or in a presentation you did that prompted the investor to give you a business card. The ‘pitch’ deck should more appropriately be called a ‘deal deck’ and is not about the pitch. It’s actually about due diligence.

Contrary to popular belief, due diligence doesn’t start at some point way down the line. From an investor’s perspective, due diligence starts at the first conversation. In our experience, many entrepreneurs aren’t as familiar with this process as they should be. To get you in the know and up to speed, we’re breaking down this process to make it easier for you to get to that all-important ‘yes’ from investors. 

It is often said that when issuing a press release, the best way to get it picked up is to do the reporter’s work for them. To write a good press release, you must understand the reporters’ process (Who, What, When, Why, and How). That’s what your deal deck should precisely do for an investor. To put together a good deal deck, you must understand the investor’s process (often called due diligence). 

In this article, we’ll discuss the SpaceFund due diligence process. Other investors will have variations of this process, and some aspects of the comments below are specific to the space industry. However, if you’re looking for funding in any industry or from any investor, this should be a helpful guide to get your deal deck ready for the due diligence process.

Structure
First, it’s crucial to understand how venture firms are typically structured and who you’ll be catering to with your deal deck. Often the first people you interact with are associates, usually early-career and typically entry-level in a VC firm. Second are partners, who have a stake in the firm and are typically the decision-makers. Third is the investment committee. This is the team that makes the final investment decision after reviewing the deal memo that’s prepared by the partners and associates. Don’t let the term ‘memo’ fool you. This document can be a dozen or more pages in length, include proprietary research, reference outside research and reports, and will provide all the data the investment committee needs to make a decision. Typically, the committee comprises senior partners, and sometimes includes LPs (the limited partners that are investors in the fund), industry experts, and/or members of the firm’s board of directors. Your deal deck needs to speak to each of these groups, considering their focus and process, in the same way that a press release speaks to a reporter.

Associates
These are likely the individuals who will be putting together the majority of the deal memo. Think of them as the ‘reporters’ that will read your ‘press release.’ You want to make their job as easy as possible by providing all the information they need to complete the deal memo.

Partners
A partner is the person who will determine whether or not your deal ever makes it to the investment committee. Partners will also assign an associate to write the deal memo and monitor the process. Just like the associate, the partner needs to see that all due diligence boxes are checked within the deal deck, or they’ll need to come back to you for more information. It is the partner’s job to ensure that your business plan aligns with the firm’s investment strategy and timeframe. Most investment firms have their strategy clearly stated on their website. Review this information in detail, review the existing portfolio, and cater your deck to the specifics of their investment thesis. Bonus points if you can show how your business improves profitability or opportunity for their existing portfolio companies. Partners are also looking for a bit of a ‘wow’ factor. Keep in mind that professional investors see many, many decks. How can you stand out? Partners are also looking for your deck to clearly show your path to becoming a unicorn in 7 years or less, which in VC parlance means that this deal can ‘return the fund’.

Investment Committee
It’s the investment committee’s job to say ‘No.’ So how are you going to get to a ‘Yes’? It’s about the deal memo the associate wrote and the partner approved. But more importantly, it’s how hard your sponsoring partner is willing to go to bat for you. Are they a true champion for this deal? The committee will tend to say ‘Yes’ more often if the partner presenting the deal obviously believes in it.   

Deal Memo
The deal memo is the most important document of your investment round, and you may never even see it. You must understand what investors need to complete a deal memo, and ensure that you have each of these elements in your deal deck. We will discuss the SpaceFund deal memo basics below. While each deal memo is unique and may have additional sections based on the technology or company type, here are the basics that must be included in every memo that goes to our committee.

Overview
Think of this as the first paragraph of a press release (Who, What, When, Why, and How). Include in your deal deck a one-paragraph summary of the company, covering topics such as when it was founded, by whom, and for what reason (NewCorp was founded in 2020 by John Smith and Joe Johnson – former SpaceCo employees – to address XYZ significantly underserved market). Describe how you’re different from your competitors and the ‘secret sauce’ that’s going to make you a unicorn. Be succinct but complete. 

Deal
Just the facts, ma’am. Include the basics of the deal such as round designation (Seed, Series A, etc.) lead investor(s), pre-money valuation, round size, the amount already committed, and any other important details about the terms of the deal (convertible note versus equity, stock preference, pro-rata rights, etc). 

Investment Thesis
This section describes how the company in question fits in with the firm’s investment thesis. If you’ve done an excellent job in your deal deck catering to this specific firm, this should be an easy copy-paste for the associate writing your memo. 

People
Most entrepreneurs are good at putting in pictures of their team, job titles, and maybe the logos of previous companies they worked for, but investors need more than that. Tell the investor why each person on your team is the best in the world to do this job. Investors bet on people not companies. Knowing the team, their motivations, and their unique skill sets is at the core of any investment decision. It’s also important to be upfront about the positions that have yet to be filled. One of investors’ favorite things to spend money on is improving the team, so it’s great to have your next hires lined up.

Product
It’s important to note that not all partners or investment committee members will be experts in your field. Be sure to explain your product with as little technical jargon as possible, and from the customer’s perspective. How does your product make your customer’s life easier, less expensive, and overall better? Keep in mind that this is not the same as the underlying technology behind your product – this is a ‘customer solution’ oriented discussion about what you’re selling. 

Technology
An entrepreneur’s favorite section! Here’s your opportunity to brag about your technology. What is your company’s unique capability? How was the technology developed? How is it protected (patents, trade secrets, etc.)? What are the next steps in technology development? What resources do you need to develop your technology into a marketable product?

Market
Most entrepreneurs miss the mark when it’s time to describe their market. SpaceFund is highly aware of the niche market we invest in, and often complete market-leading and/or proprietary research. So please, refrain from quoting a public report from several years ago saying that the space industry is worth $40B now and will be worth $1T by 2040. Yeah, yeah. We read it. Those market ‘insights’ are as irrelevant as they are old. Instead, focus on YOUR market, your actual addressable market. Who are your customers? How many of them are there? How many have you spoken with? How much money do they spend each year on existing solutions? Use this section as your opportunity to ‘wow’ the investor with deep insights into a changing market that you will disrupt. First-hand data and primary research are highly valuable. Customer quotes and recommendations are even better. 

Competition
This is another section that most entrepreneurs struggle with. SpaceFund is likely more familiar with your competition than you are. For example, we see A LOT of launch company deal decks where the competition slide only lists SpaceX, RocketLab, and ULA. SpaceFund is currently tracking over 160 launch companies. Yes, SpaceX is the elephant in the room, but you must also explain how you’ll compete against the 160 other also-rans. Be realistic about your competition. Discuss opportunities, but be honest about threats. It’s never sunshine and roses, and we want to see what will happen on a rainy day. It’s also imperative that you view an investor’s current portfolio to know if any of your direct competitors have already received an investment from the firm. If so, they’re not likely to invest in you and will simply meet with you to get competitive intelligence for their existing portfolio company. It’s shocking how many entrepreneurs fail to do this research and end up showing all their cards to a member of the board of directors (as many VCs are) of their direct competitor. 

Risks
This is another section that requires brutal honesty. Many entrepreneurs fail to recognize or address  critical systemic risks, such as how a down market might affect your future fundraising, or how a US-China war might affect your supply chain. It is also essential to note internal threats like your founder or CTO getting hit by a bus. Do you have ‘key man’ insurance? Will you, as a technical founder, be a good manager of a growing team or do you need to hire a CEO who’s a people person? Space, specifically, has a lot more legal, security, and regulatory risks than other industries, how have you prepared for these?

Financials
If you’re not a financial expert, hire a professional to do your financial models. This is the most critical thing the investor needs to understand, so you can’t afford to get it wrong. You’ll need to put a summary chart in your deck that shows the standard hockey stick-shaped revenue curve over the next few years. However, you MUST be able to justify this chart with a solid financial model in standard format (XLSX or Google sheets), that the investor’s team can research and confirm. You’ll need to cite your sources or explain any assumptions you made and clearly indicate which items are assumptions versus facts.  

Milestones to Exit
What needs to happen between now and your company’s exit? Investors need to know that there is a viable exit strategy within a seven-year time frame and that you are orienting your company toward that exit. List (bullets are fine) all the milestones that you need to accomplish to prepare your company for an IPO or acquisition. Think these through carefully, and include timing. 

Exit
Don’t take this section lightly. Articulate the following, at minimum: What is your likely exit scenario, an M&A or IPO? Who are potential acquirers of your company, and are you currently building relationships with them as a subcontractor or supplier? What is your expected exit valuation? Can you back up the claim that this exit will happen in 7 years or less?

Once all this basic information is well thought out and presented in your deal deck, you’ll be on your way to success. Remember that there will be follow-up questions to clarify some items and oftentimes technical due diligence includes on-site visits to see and touch your product. Investors love to see your technology in action (videos can be helpful), and love to talk to delighted customers. If your deal deck addresses all of the above, you’ll ease through the due diligence process and be WAY AHEAD of your peers. 

Good luck, and happy hunting!

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