An Investment Proposition is more than a pitch deck

Raising capital is a critical task for any founder. To do this they must create a compelling 'investment proposition' that makes them stand out from the crowd.

The proposition must enable investors to believe what the founder already believes - that their breakthrough idea is not just going to make the world a better place but will unlock big financial returns.

When we think about what constitutes an investment proposition, we are immediately drawn to the pitch deck. This document is designed to convey a vision of a different kind of future. It captures what the founder believes through a sequence of key messages backed up - where possible - by supporting evidence.

But any deck, taken in isolation, is a document full of ambiguity. To keep the messaging clear, content has been minimised. Best practice recommends simple statements and visually appealing images, with a focus on numbers and metrics. Nothing too busy with lots of white space. Less is more.

To avoid ambiguity, the 'proposition' must clearly be more than just the deck. It must also include the founder's narrative, the verbal overlay. This is the story that binds all the ingredients together. It is the founder's interpretation of the pitch deck content. It provides the context and brings the story to life.

Early-stage investors will say it is the narrative that matters most. The content of the pitch - the product, customers, growth strategy etc. - will inevitably evolve over time, even to the extent that it may change out of all recognition before scaling finally begins. But the narrative, in so far as it reveals the founder's insight, their intellect, their ambition, and their ability to persuade, does not.

Experienced founders will go so far as to say that the deck is only there to support the narrative. The slides are just a tool, a backdrop to enable them to passionately convey their belief and invite investors to join them in this belief.

But if the narrative is so crucial, why do we so often rush to create the deck and only worry about the narrative later? Often, founders will obsess over creating the perfect deck but put relatively little time into crafting the story. Perhaps we have fallen into the trap of thinking the pitch deck is the story. It is not.

Why do we not prioritise the narrative above all else? What risks does this pose? And how can we change our approach?

The danger of starting with 'the slides'

There is a great deal of comfort in starting with some form of pitch deck template. The internet is full of suggestions, with most providing variations on a basic core theme. Templates provide structure and bring some order to the thinking. Surely this is a great place to start.

But a template, with its generic slide headings and suggested flow, can quickly become a distraction. It can unwittingly create a constraint, obscuring the true story. The true story is the emotional journey the founder needs to share. It's why they believe what they believe.

Belief is much more than just a series of facts or truths captured in some slides. These alone will not persuade.

Becoming a slave to the template or worse, some other successful founder's pitch deck structure, forces the creation of an 'alternative narrative'. This may be far from the instinctive narrative that sits in the founder's mind.

Founders must find a way to capture their own story before they write the deck. The method itself is not important; notes, bullet points, long form essays, whatever feels right. This is not the creation of a script per se but an exercise in sifting, testing and clarifying our own thoughts so we can communicate them effectively.

We are distilling everything that could be said into the essence of what must be said.

And this technique becomes increasingly valuable over time. It hones an essential CEO skill. For example, in growth stage rounds and IPOs, conveying your belief through the written word becomes ever more critical.

When the stakes get higher

Pitch decks, even with a verbal overlay, are not enough as the investor audience gets bigger. If you eventually take your company public or even raise a round of growth funding, investor expectations rise. They want a much fuller level of disclosure - with a paper trail.

For example, to undertake an IPO you will need a 'prospectus'. This is a regulatory document required by law. It introduces the company to public investors. It's a complete package of information incorporating the company's business plan, financial statements, risk factors, governance and legal information, as well as future plans.

The prospectus is a written document and is the extreme version of the narrative. It is typically 150 to 300 pages long, often containing between 50,000 and 100,000 words. CEOs will not have the opportunity to pitch the company to all potential investors, other than those who may attend the IPO roadshow. The prospectus is thus a key investor document.

For growth stage investments, typically Series B and later, CEO's will almost certainly need an Investment Memorandum (IM). This is much less onerous than the detailed IPO prospectus. You are likely only selling shares to sophisticated private market investors who will undertake their own due diligence before investing.

Even so, the IM, much like a prospectus, provides a written account of the investment proposition. In a sense it's like a souped-up version of the investor pitch. In the heady investment years of 2020-22, investors became ambivalent about receiving an IM, but this has all changed.

Creating such a document feels impossibly onerous to an early-stage founder at Seed or Series A. Understandably so, especially when the content may be so quickly evolving. But when the business is scaling and you are asking investors to part with $10M's or even $100M's, there is simply no choice.

And there is a positive flip side. Having been there in a previous life we can truly say the process is cathartic. Writing it all down focuses the mind like nothing else. You will test every ounce of your belief - before allowing anyone else to.

Avoiding ambiguity

Kyle Harrison, in his excellent blog "The Storytelling of Investing", describes how certain organisations have built cultures around effective communication based on writing. Amazon, Stripe, Berkshire Hathaway, Bridgewater and many others are all using writing internally to emphasise their values and make decisions.

In Brad Stone's Amazon Unbound, there are countless stories of writing at the centre of how people communicate inside Amazon: "PowerPoint decks or slide presentations are never used in meetings. Instead, employees are required to write six-page narratives laying out their points in prose, because Bezos believes doing so fosters critical thinking.

'PowerPoint is a very imprecise communication mechanism,' says Jeff Holden, Bezos’s former D. E. Shaw colleague, who by that point had joined the S Team. 'It is fantastically easy to hide between bullet points. You are never forced to express your thoughts completely.'"

And Harrison highlights how some of the greatest investors have deep writing cultures. He says the absolute best argument for this is Mark Seller's Harvard MBA address entitled So You Want To Be The Next Warren Buffett? How's Your Writing? So what makes a great investor he asks? It's not reading a lot. It's not a Harvard MBA. It's not even having experience. He lays out seven characteristics that make a great investor: things like obsession with the investing game, ability to stand by convictions in the face of criticism, and others. But the most important?

"..I believe you need to be a good writer. Look at Buffett; he's one of the best writers ever in the business world. It's not a coincidence that he's also one of the best investors of all time. If you can't write clearly, it is my opinion that you don't think very clearly. And if you don't think clearly, you're in trouble. There are a lot of people who have genius IQs who can't think clearly, though they can figure out bond or option pricing in their heads."

Financial Model

Just like the pitch deck, the financial model is also a key part of the investment proposition. And here again it's the narrative that is so important. Why?

Firstly, investors love numbers. A pitch deck - in fact any slide - without numbers will just not cut through. Numbers are unambiguous. They quickly demonstrate insight, progress, scale, and potential. They grab attention.

Secondly, and rather oddly, in the end it's not about the numbers per se, especially at early stage. No investor ever believes the numbers. Ever. It's about the assumptions that drive the numbers.

It's the discipline of how you are forecasting. The factors that influence the financial outcome. In due diligence, investors are not so much stress testing your numbers as your assumptions. And it's the narrative that lays out the rationale behind these assumptions.

In his book "The Psychology of Money" Morgan Housel explores the complex relationship between people and money, emphasising how personal biases and emotions influence financial decisions. He puts it like this: "One way to think about this is that there are always two sides to every investment: The number and the story. Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow."

The quote reflects the idea that financial valuations are not just numerical but are also shaped by the narratives we create about the future.

In summary

The investment proposition will never be much more than a series of facts and figures unless accompanied by a compelling narrative about the future. Facts alone are rarely enough to persuade.

In other words, it's not about creating a truth. it's about creating something that someone else can believe in. Truth and belief are 2 different things.

Create a narrative that is completely unambiguous. One that tells the story of why you believe what you believe. This invites investors to come on board if they also believe - otherwise known as 'gaining conviction' - and pushes them away if they don't.

It doesn't matter how the narrative is created, provided it is authentic. Be aware of creating a false narrative because it has been crafted to fit someone else's pitch construction.

Let's talk!