Southeast Asia’s startup funding hit a record high of $10.9 billion in 2018 according to a Cento Ventures report. You can find the original report here. This shows that the region is becoming an increasingly attractive market for foreign investors, but we also know that more startups are entering the market as well.
More startups mean more demand for funding, which ultimately leads to investors being inundated with pitch decks from startups. Therefore, developing a concise and compelling pitch deck is crucial to a growing startup.
From our research and founder feedback, the main challenge that most startups face with their investor pitches is developing a convincing narrative. This is crucial, because like a sales pitch or trying to impress a date, you’ve got a really small window, so you need to use that time wisely.
We looked at some common problem that many startups face when pitching to investors.
Potential market does not mean the whole market
This is a common issue that every startup faces and, let’s be honest, deliberately overstates to play up the importance of the market. As media, we see this on a daily basis and pitches to us showcase a multi-billion dollar single market opportunity. However, that’s not really your potential market.
Investors know this and if you speak to any investor, they will tell you that it reeks of naivety and inexperience. You need to look at the market in the following manner:
- The total addressable market
- The serviceable available market
- The serviceable obtainable market
These provide your potential investor with a good opportunity to see how big your industry is, what you think it a viable target and how much of you think you can capture. These are practical metrics that smart investors want to identify.
Most startups in the region with funding often tackle their local market first, to prove the concept and iron out the details. Once they have gotten the initial traction in their local market, they can replicate the success in other markets and achieve scale.
Scalability is a big factor for investors, as it is relatable to return on their investment, while practicality in understanding your market size shows them they can trust you when it comes to growing your business.
You somehow have no competitors
Guilty as charged folks. Here at Tech Collective, we have no competitors to our analysis and insight… Well, maybe we have a few, but let’s not get into that now.
If you are a startup, that tells investors that there is virtually no competition in your industry it can be a bit of a warning sign for the potential investors. Whether this is ignorance, misplaced confidence and reluctance to mention a competitor, it comes off as troubling to potential investors.
To investors, this is what the lack of competition means:
- You don’t have enough customers to warrant a challenger
- You may lack understanding of your own industry
- You did not do any research
- Or your idea is so new, it might be a high-risk investment
It is highly unlikely to be the last, as most startups tend to disrupt existing markets or copy well-known models from developed markets.
Having competition is a good thing for most investors as they see validation in your business and industry. They can then look for angles or ways to target a potentially new segment of the market or carve out a significant niche in order to make that investment viable.
This is why many startups from the US and EU are moving into Asia, as they see potential to target new audiences and scale outside their home market.
Lack of storytelling ability
Sometimes too much information isn’t the best direction to go. This can be confusing and provide data, but not the context or too much data and context to be useful.
We hear a lot of feedback that founders in Southeast Asia try to overcompensate with so much information in order to justify their business to the investor. This might be an issue that Asians have with selling or a slight lack of confidence.
Especially with emerging technologies like blockchain or complex markets, startups struggle to articulate the issues and business models effectively. There is no simple or easy answer, but here are something that you can do to improve clarity.
- Reduce the use of jargon, because it may not be understood by every investor
- Use references – are you the “Grab for your industry” or “the Tinder of some service” – this provides an easy frame of reference for people who are not familiar with your service
- Headlines matter – if it goes over a single line or seems to be a standalone sentence, then it is too long
- In fact, make everything short – investors value their time above all else, so don’t waste it by giving them unnecessary information
Upsell your founders and yourself
Investors have to trust your business and more importantly have to trust you and the people who run it. Chances are that you might not have a household name as an investor, so you need to really sell the investor on your experience, knowledge and business know-how.
Here’s what investors want to know about founding teams:
- Who they are and what do they do
- Have any of them run successful companies before?
- Have they held positions of leadership before and were they successful?
- What is their relevant experience level?
These need to clearly and concisely stated, so the investors know they are investing in teams they can trust.
Your deck doesn’t fit the funding needs
If you did all of the above and you are still failing, you might be pitching for the wrong round.
Depending on the round and at what stage of growth you are, investors expect certain things in terms of revenue, infrastructure, and expansion. However, some startups tend to focus on the wrong aspects of their business during the pitch without adapting to the funding round.
Here’s a simple guide developed through our research and feedback from investors:
- Seed or angel Round: There is less focus on revenue and more on the infrastructure and team involved in your startup. This round is meant to give you the impetus required to reach a strong recurring revenue.
- Series A: These are usually for startups that have strong or growing revenue and are now looking at fast scaling of the business. Investment at this stage is meant to catapult growth, extend your runway and test new revenue generators.
- Series B and above: Investors will assume you have a proven model that makes money and are now looking to add fuel to the fire as you grow your business. Many startups raise at this point at a high valuation as they feel they have de-risked the company in many ways.
By following a few simple steps and putting yourself in the shoes of an investor, you can remove the uncertainty or confusion around your pitch deck. Focus on providing the right information at the right time, and you may be amazed at how different investors react to your pitch.