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For seed funding, are VCs investing in a startup's longterm strategy or its immediate use case?

I'm reviewing a pitch deck that a friend will use to help raise his startup's seed round. Currently, his product is a social platform that has modest growth and good user retention. He is in the middle of a pivot that will position the current product to disrupt a $200 mil market within a $50 Bil industry, with a long term strategy of expanding his platform to gain marketshare in other parts of the industry.

We've been in constructive arguments over the pitch deck's narrative. Given that the pitch will touch on both points, should it emphasize the current value the product is delivering (e.g user growth/retention, immediate use case of the app)or the future value the product will deliver (pain points it solves in $50 Bil industry/plans to generate revenue)?

13 Replies

Andrew Lockley
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1
Andrew Lockley Advisor
Investor and strategy consultant
Both
Don Sedei
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Don Sedei Entrepreneur
Owner/CEO at TheAmusementPark
Lucas, It has been my experience that vision and growth strategy of a product, brand, or service is key to any investor. But you must be able to show a calendar of a current launching strategy to give your investors the assurance you can gain traction within a designatied time period so your progress can be evaluated. I would focus on the current value and just touch on the future value. If there is interest then you can satisfy any doubts that they may have by presenting a strong long term business strategy as well as a launch strategy.
Florian Pestoni
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Florian Pestoni Entrepreneur
CEO at Axzo Digital
The answer is "Yes". Investors want to see both an ambitious vision for the company and a pragmatic short term execution plan that is actionable. The best narrative is one where you can position the current product value on a path that leads to the future value it will create.

This can take many forms: you may start with a narrow segment of the market, prove that you are useful and then expand horizontally (facebook); or you may follow geo expansion, starting in one metro area before going national and then global (lyft); or perhaps you start with casual users and then work your way up to more demanding users (dropbox).

Regarding product functionality, if the pitch is for seed funding everyone will understand that the product in its current form is very limited. Investors get excited when people use the product in spite of its limitations, so don't be shy about explaining what's missing from your product.

One quick comment: personally, I try my best to stay away from using terms like "disrupt" or "revolutionize". I'm not saying you shouldn't aim high, but it works so much better if you show how you create value and let the audience make the connection in their head for how this can"change the world".

Reginald Woodie
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Reginald Woodie Entrepreneur
Social Media Strategist
I agree with Andrew Lockley. I think you need to show both (current and future value). Your friend should have a POC for the pivot and could possibly include the metrics of the results in the deck. I think investors' main concerns are as follows: will the startup gain traction and will it make money within a reasonable time frame. "Reasonable time frame" is relative so how long investors are willing to wait will vary.
Richard Acton-Maher
1
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Richard Acton-Maher Entrepreneur
Co-founder at Wundereel
Short answer: If current value is easy to prove, check that box quickly and focus on future potential value and his plan to get there.

Current value is more important in a seed round than future value potential.Proving that you can execute on a product, achieve market fit, and position it to grow are all more important than proving the business could be huge. After all, if you can't do the first three, how huge the businesscould beis irrelevant because you'd never get there.

That said, if your friend's resume and the metrics of the business are such that it's relatively easy to prove this, I would give it little emphasis. Dwelling too much on how well things have already gone can only do bad things like:
a) invite scrutiny of existing operations to the detriment of discussing future plans, which are more relevant to your planned fundraising.
b) send the message that you think you've already achieved success and are looking to be rewarded for a job well done.

If, on the other hand, it's not easy to prove this, it needs the emphasis because, as I said, proving that is far more important than demonstrating a hugehypotheticalopportunity exists.

As for what constitutes "proof," growing users and improving retention is great. If acquisition and other variable costs are flat or falling, I'd say that's good enough. Absent any of one those things, solid proof you can get there could suffice. E.g. a detailed plan, a successful track record executing in similar situations, etc. But those have to be stellar.

Just one man's opinion.
Linda Marshall-Smith
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1
Linda Marshall-Smith Entrepreneur
Marketing Consultant, Ambassador, Silicon Beach at CoFoundersLab
Both
David Still
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0
David Still Advisor
Founder of Start-ups, Entrepreneur, Financier and Advisor
Both, plus the steps that you will take to make the transition.
Michael Brill
2
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
There's an important nuance... pitch the new idea and then use whatever bits of success you've had with the old idea as proof points.

Do not start off with the old idea, tell the investor what you learned and now you're going to go do this new thing. While all of us here appreciate the need and willingness to pivot, *most* seed stage investors simply don't have the bandwidth to deal with plot twists in your story.

Rahul Guha, Full Stack Software Architect
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0
Director of Architecture at Fidelity Investments
I think business case should always be bottoms up - how much u spend for an unit and how much u sell it for and derive the scale in time or volume to reach break even.
Rob Gropper
1
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
...sell the vision and use his most relevant successes as proof points that he can execute on that vision. This of course assumes that the current business can in fact be seen as a success - "a social platform that has modest growth and good user retention" could certainly draw some yawns... if you can get investors to listen past yet another pitch for a "social platform". If the current story is not strong then he won't get investment by pitching it anyway, so he really has no choice. Again, If the current story is a strong story or can at least be positioned as evidence of his ability to execute (idea, test, product-market fit, MVP, more product-market fit testing, more building, user adoption, hire, fire, sell, market, etc.) then use it as proof of his ability to execute on the long-term vision.
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