We see a lot of pitches at Costanoa Venture Capital. We look to make a small handful of new investments per year. With those odds, entrepreneurs need every advantage they can get.
Most people get the basics of a venture pitch: an overview, team information, product and customer adoption (early indications of product/market fit), market and market size (ideally built from the bottom up rather than top down) and competition — pick your favorite two-by-two matrix. As a former product manager, I’m partial to adding a Harvey Balls chart as well and then your financial plan (not optional).
However, there is one missing slide. When we come out of a meeting with an entrepreneurial company and want to learn more about its forward plan, I often ask the entrepreneur to create one more slide with the following directions:
- Draw a line across the top representing the next six quarters.
- Tell me what happens.
As an early stage investor, we do detailed analysis of product and product/market fit, extensive work on the team, and technical due diligence, but there just isn’t much financial data to analyze. Going through the pro forma financial plan in detail is important, but it doesn’t tell us very much beyond how well the team has thought through the business. It is necessary, but not sufficient.
This new missing slide tells us what the entrepreneur thinks are the most important developmental milestones for the business. Typically, they include things like:
- critical product shipments
- number of customers and/or average selling price
- revenue or the annual contract value (ACV) of bookings
- net burn (total cash flow, usually negative for well more than 18 months given the stage at which we invest)
- number of employees
- key hires
One of the best missing slides I’ve seen had “Revenue and Operating Burn” superimposed on a chart in the back. The innovative format combined quantitative and qualitative information in a way that conveyed a ton of information. It brought me back to the best visual display I’ve ever seen from Edward Tufte’s map of Napolean’s March to Moscow by Charles Joseph Minard. The revenue and operating burn slide put a smile on my face and I gave a huge compliment to the entrepreneurs. I’ve included a mock-up using this format below:
This chart gives us a sense of the planned development of the business over the next six quarters. What are the key milestones and hires? When do new products ship? What will the catalysts be for future growth and which metrics should we be looking at to decide if it is time to step on the gas? This timeline also gives us a better sense of how the pieces of the business fit together — as well as what the company will look like the next time it needs financing.
A version of this post originally appeared on WSJ Weekend Read.