1. Insights of the week

The best investor decks hide the truth

The best pitch decks just seem so easy to digest. The messages are clear, the flow feels natural and they leave you on a high. You are enthused and want to get involved. Why can't every story be so simple? The truth is that these stories are never simple - or rather they don't start out being simple. What you don't see is the extensive drafting of ideas, the capturing of mounds of data, the ugly first diagrams and the confusing bullets. As Hans Hoffman once said: “The ability to simplify means to eliminate the unnecessary so that the necessary may speak.”

Powerful pitch decks take time to come together, often many days, sometimes weeks. Leafing through benchmark examples will provide inspiration. Their hidden secrets will emerge when you dissect their construction: How you are fed the takeaway statement on each slide so you don't have to think. How pictures replace words and say so much more. How the headings on their own tell the story. The Front Series A deck shows us how: Rather than 'Team' say 'The right mix of passion and experience'. Rather than 'Roadmap' say 'The product roadmap is clear'. Simple but effective.

Above all, start with a framework. This will give you discipline in construction. Be an architect first, not a bricklayer. Divide a blank page up into a 5x4 matrix and in each box simply write your slide heading. Make sure you cover the core topics every investor wants to see. Refine these headings and takeaway statements until you have your key messages nailed. Then add the evidence that supports these claims and reject almost everything else. Rework the flow to improve the narrative arc that delivers the most compelling story. Then pitch it to a friend who won't be shy about telling you what they think. Rinse and repeat until you don't need the slides any more. You're ready.

 

Great founders are below average

We're often struck by how 'great founders' are characterised by the press; ..their grit, their passion for the cause, their leadership skills, their ability to scale an idea.... All this is fine (and true), but it is the less glamorous aspects that mark out the great entrepreneurs in our experience. The most remarkable founders start out with a mindset that they have a below average understanding of the problem they are trying to solve. As author Derek Sivers says "To assume you’re below average is to admit you’re still learning. You focus on what you need to improve, not your past accomplishments.”

This amazing thirst for insight, the knowledge that will enable the creation of the core problem/solution thesis, is the starting point. Then, armed with an initial product - often no more than a lash-up - the quest to discover the true target customer who has this problem in spades is the next phase of understanding. The building of close relationships with early adopters, those that will provide the essential feedback on the initial product, is an essential trait. The overriding priority is to learn, to gain insight, and then to validate assumptions. The aim; to find the optimum fit between the product and the market.

There is little glamour in these initial phases, it is a constant journey of two steps forward and one step back. As Winston Churchill said: Success consists of going from failure to failure without loss of enthusiasm. This requires unnatural levels of perseverance to find answers that will have evaded all others to this point. In the early stages of the journey, our definition of a great founder is that they are great at searching: searching for the solution, searching for the market, and ultimately, searching for a repeatable and scalable business model.

 

European VC deal value could break all records this year

Pitchbook analysis shows European VC deal value is "astonishingly on pace to set a new annual record at year end". VC dealmaking has shown limited signs of slowing amid economic turmoil as investments in tech-based startups continue to flourish. Mature startups and huge follow-on rounds drove figures upward in Q3, with a total of €10.6B invested in the quarter and €29.5B year to date across Europe. But the tide did not rise for all: Late Stage investments surged, with both Angel/Seed Stage and Early Stage (typically Seres A & B) getting squeezed, confirming our earlier analysis of Crunchbase data.

93.4% of VC investment through Q3 2020 went to follow-on rounds, with first-time financings under continued downward pressure. Pitchbook attributes this gulf between first institutional financing and follow-on deal value to developed startups utilising funding from growing non-traditional sources such as Corporate VC arms, sovereign wealth funds, and serial angel investors to raise larger follow-on rounds. In terms of hot sectors, Software, Pharma and Biotech have soaked up almost 50% of European funding for the first three quarters of 2020.

VC deal value with US investor participation reached €16.1 billion across Europe through Q3 2020, so this could be a record year for overseas investment. Boards need to be aware that there are various regulatory initiatives targeted at increasing scrutiny of corporate deals particularly in the Tech sector. In the UK, the government has recently introduced protective measures that significantly lower the threshold at which the Business Secretary can intervene in transactions involving non-domestic investment in artificial technology, cryptographic authentication technology, and advanced materials. Further reforms are currently under consideration as part of the forthcoming National Security and Investment Bill.

 

UK investment data for Q3 2020 is a tough reality check

Beauhurst has just released third quarter equity figures for the UK. The amount raised totalled £2.7B — a 48% increase from the previous period and a 1% drop from Q3 2019. Deal numbers declined to their lowest point since Q4 2016. A total of 402 deals were announced during the quarter, a 12% decrease from the previous quarter and a 7% decrease from Q3 2019. The number of Seed stage deals dropped 20% from Q2 2020, and first-time fundraising fell to a new low. Just 87 companies announced their first fundraise in Q3 2020, down from a high of 214 in Q2 2014.

With a significant proportion of all investment going to later-stage businesses the real metric that determines the health of the UK startup to scaleup ecosystem is now deal numbers. After three successive quarters of decline, Beauhurst expects deal numbers for 2020 to land somewhere between those of 2016 (1,607) and 2017 (1,856) by the end of the year. Judging by how investors are now assessing new propositions, we have to repeat the observation of a year ago when we said "Seed is the new Series A." This seems to capture the current mood in a nutshell. Companies that have been trying to raise their final Seed stage round over recent months have been evaluated against what would have seemed more like Series A criteria in 3Q 2019.

These figures are a tough reality check, but only confirm anecdotal observations over recent months. Never before have we seen such polarisation in our own deal flow: companies are either desperately trying to bridge to better times in 2021 or are accelerating their scaleup rounds. There is very little in between. The beacon of hope for all is that unlike other periods of turmoil, the overall flow of capital into VC funds is surging. We believe a new annual European fundraising record could be set by VCs if the current pace continues into Q4. Success for founders now depends heavily on their ability to realign their fundraising strategies with these radically changed market conditions.
 

2. Other pieces that are really worth reading/listening to this week: 

UK’s largest domestic investor sets out new plans
As reported in Techcrunch, British Patent Capital has committed £1B to VCs and startups in the UK. What will it do with the remaining £1.5B it has to deploy? CEO of BPC, Judith Hartley, explains.
 

How Europe can dominate the next decade of tech
According to two senior European digital policymakers, three of the continent’s most influential investors and one of its most high-profile ecosystem players, Europe has a path to bounce back and take a leadership position in global tech over the next decade. This is thanks to its expertise in frontier tech, its powerful institutions, its ability to attract talent and the improving landscape for funding and government support. Read more in Sifted.
 

Startup PR for Dummies
The value of great PR is often undervalued by early stage companies. Yet it can have a profound effect on hiring, lead generation and fundraising. Christoph Janz, Partner at Point Nine VC, has published a great article on how to get started with PR. "I’m just trying to teach you a few basics on how to pitch to journalists so they’ll finally write about the cool stuff you’ve spent so much time building. :-)"
 

The Future of Wearables
Will Ahmed is the Founder and CEO of WHOOP, a startup that has developed next-generation wearable technology for optimizing human performance and health. In this insightful interview on the David Perell podcast, he talks about designing hardware, the business of health technology, and building a billion-dollar company.
 

Future Fund extended to 31 January 2021
An important announcement for all companies in the process of applying to the British Business Bank's Future Fund. The deadline for applications has just been extended as announced here.

Happy reading!