Tl;dr: Conrad Parker just raised money for his startup Rippling. He wrote a blog sharing the material he used to raise (some of it). He extolls the virtues of writing an investment memo instead of a pitch deck. Be careful when famous people propose new ideas. Writing a memo instead of a pitch deck is a bad idea. Writing a metrics deck is a fab idea, though. Be like Conrad- write a metrics deck (Just not a memo).
Fundraising is a bitch.
It is easier for some, however. It’s easiest when you are a celebrity.
You have probably heard of Zenefits? It’s a unicorn that was founded by Parker Conrad. He was fired for lapses in a similar way Travis at Uber was. People get all nancy when you build something valuable and forget that it takes a maverick streak to build exceptional value. I hate the people that got them fired.
Parker is at his next startup again. It’s called Rippling. The reason for this blog is that he raised without a pitch deck.
I noticed they wrote a blog entitled “How Rippling Raised a $45M Series A — Without a Pitch Deck” so I want to talk about it with you before you get the wrong idea.
There are a lot of ignorant people that are just going to read the title of the blog and declare a moral victory against the pitch deck as this unicorn maker was able to raise from Kleiner Perkins without a deck, and so the pitch deck is dead and no one has to write one either. But these are the kind of idiots that also don’t vaccinate their children.
YOU are not a celebrity.
Don’t take advice from celebrities.
I’m going to take you through the blog and the material they created to help you understand what you should learn from their learnings and what you should ignore.
I’ve written about 15k words of blogs tonight, so give me a break if I’m a bit loose…!
The blog on the memo
We took an unusual approach in raising our A, starting with the fact that we had no formal Pitch Deck. Instead, the centerpiece of our fundraising materials was an Investor Memo, which laid out our pitch in prose.
Parker didn’t have a pitch deck. You do.
There are three reasons for this:
- Investors are expecting one
- Investors don’t want to read YOUR memo as life is too short
- You don’t know how to write a proper memo without sending them into a Cinderella-like sleep
Accompanying the Memo were 46 slides of metrics, projections, and detailed methodology footnotes; rather than share these as siloed Excel sheets at the diligence stage, we packaged them before the pitch. Memos are great for storytelling, but data needs to be presented visually, and this is where slides thrive.
A proper deck includes these metrics. See how Front did so in their Series-B. Their presentation deck is not perfect, but it’s the best public one around.
You don’t give an investor 46 slides of anything when you first start your process. When you escalate commitment with investors, sure, they will read your 46 slide deck.
This metrics deck is similar to a deck I came up with called a business model deck in which you explain the logic of your business model/financial model numerically. These guys just made a presentation deck with metrics.
They talk about the fact they don’t want to silo data in Excel, putting it in a presentation deck just makes life a bit easier to investors and implies you are a pro. Pro investors want your raw dataset to call bullshite anyway. Oli at GFC asks for raw data sets.
I totally disagree that memos are “great for storytelling”. PowerPoint has a great forcing function for brevity. Most decks don’t tell a story as they are done wrong. Too many founders look at the Airbnb pitch deck, or the Sequoia outline and think that is how a deck should be done. It is not. These docs do a lot of harm through misinformation. I wonder if they were planted by the Russians…
Fundraising success is ultimately driven by the business you’re building and the problems you’re solving for customers. The quality of the materials you prepare and tactics you use during the process are a much less important optimization. But we want to share our process because we think some of the things we did could be useful to other entrepreneurs and could help fundraising proceed more smoothly for both companies and investors.
You are fundable or you are not. I just wrote about this (Read: Fundable startups are fundable). Fundraising success is totally about solving a real, painful problem.
“The quality of the materials you prepare and tactics you use” aren’t that important if you have traction and are working on a cool company. Just not everyone is.
It’s cool they are sharing their learnings, but remember he is a celebrity.
Here is the memo they wrote (Edited out for confidential stuff). Enjoy:
Pitch decks are the default format for startup fundraising, but they have one major downside: they’re merely a visual aid to accompany an in-person presentation. The spoken presentation is as important as the visual one but, inevitably, you’re not always there to deliver it.
Pitch decks are the format for startups for a reason. Investors want them.
Pitch decks, however, are NOT “a visual aid to accompany an in-person presentation”. I have never delivered a presentation as a founder. I have never let a founder deliver a presentation as a VC. It doesn’t happen. If you see a deck in a meeting, it is because a partner is late, hasn’t done any work and the VP printed a copy for them. The partner flicks through the deck quickly, then pauses on the one or two slides they care about before deciding they are ready to take over the frame and conversation.
All the while the Partner is listening intently to the conversation unfolding.
Pitches are a conversation, they aren’t a presentation.
If you write a deck as a visual aid, you have written something for demo day. A proper pitch deck has real information in it. It tells the story with all the backup.
The deck needs to stand on its own. It gets you the meeting. It’s what is shared internally to get consensus and build buy-in from other partners (depending on how they are structured. All VCs are different in their own way).
The associate you meet with early in the process can’t forward the spoken part of your presentation to their General Partners. One GP will really dig in with you and understand the business backwards and forwards—but the rest of their partnership might only breeze through your deck. And something’s lost when you can’t be there to walk someone through the deck in person.
Associates have their place. Treat them well. They may be inexperienced, but they are likely smarter than you (at least academically). You may enter the firm via an associate, the associate will bug up you to the Partner for you to get a meeting. Of course, they are not going to convey everything. All you have is a warm meeting when you get to the partner. It is yours to lose now as you have been vetted.
Now you have a Partner or GP, you sell to them. They will share your pitch deck internally to build buy-in. If you have done a proper deck, then, of course, it is not going to sell. But Parker is assuming you can write a proper memo too, and that anyone will read it.
There is a reason that the investor writes an investment memo in a thoughtful and structured manner for presentation to the investment committee. If you have raised millions like Parker, and have exposure to top VCs you might know what they want to know. 99.99% of founders don’t have this experience.
Lastly, you have a full partnership meeting to present to everyone for a reason. This is the only time you will actually present. You will be presenting the visual aid Parker mentioned as the attention is on you. You will then get back to normal VC land and get interrogated.
Now let’s get into what he espouses as the advantages.
In contrast to a pitch deck, a memo has a number of distinct advantages:
- It’s standalone. You can send the memo in an email and don’t have to worry about someone reading it without you there to walk them through it.Investors can read and digest the full pitch before they even meet with you, which means when you do meet, that time can be used to dig in on questions and objections, instead of spending the entire time performing “the pitch.”
A proper deck is written to be standalone. They can take themselves through it. I’m not going to read your long ass memo unless you are famous.
VCs don’t care about you until they do. They are going to spend a few minutes reading your deck mac, how long do you think they will spend on a memo? Most VCs will glance at your deck, decide if they want a meeting or call, and will act on the call like they haven’t even received your deck (Of course people are different!). It’s rich to think an investor is going to spend hours preparing for your pitch. They value their time and not yours. Again, unless you are famous and they are dying to get in your round.
Let me emphasize I am talking about your normal founder who has an ok business and will be lucky to be funded. If you are hot shite, people pay more attention. They are still not going to put in the work for the first meeting like Parker seems to insinuate.
It requires less up front face time. Not every fundraising process is competitive but when it is, things move quickly and the rate-limiting factor is often your time as an entrepreneur.There are only so many hours in the day, and this imposes a natural constraint on the number of firms you can seriously engage with. Sending a standalone pitch memo up front helps you, and the firms you’re pitching, quickly identify whether there is interest so they can either make your company a priority, or let you focus your efforts on firms with which you are a priority.
He’s absolutely right- most deals are not competitive. Founders are just hoping to find one numpty to give them the money they are asking for! And fo shizzle, when you are hot things move. Some VCs can write a $30m check in a day for the right company (I know this to be true).
Your time is valuable to you, but a VC only agrees if they think you are a sexy beast.
Again with this memo. It’s an essay. I just don’t see anyone reading it. Not read is not read.
It aligns more closely with the material your sponsoring GP will ultimately put together about the investment. The final step in a VC’s evaluation of an investment in your company is usually a Monday morning full partnership meeting.If you’re fortunate enough to get this far in the fundraising process, you’re not the only person in the hot seat anymore.
Typically, the General Partner who is looking to lead your deal has to write a memo laying out the case for the investment. So while you’re practicing in front of the mirror on Sunday night, your GP is poring over their notes about your company and deck to prepare their memo for the partnership. If you’ve already written this for them, it makes it more likely they’ll present your company in the right way to their partners.
Absolutely, the GP is going to write a memo. I’ve said this already, but how many founders do you know that knows what goes in the material a VC writes? I bet no one. Again, this assumes founders have knowledge that they don’t.
I mean I know a lot of shite, but even I am going to struggle a bit to try to write a memo a VC would use for the investment committee. And let’s face it… you’re reading my blog 😉
It’s just incredibly presumptuous to think anyone is going to write a memo that a VC would use.
The Metrics Deck
Okies. The next part of the blog is its metrics deck.
Our memo shared the story of Rippling — the problem we’re solving and why, where we might be headed, and how we’re going to get there. The Metrics Deck showed investors a clear view of Rippling today.
This makes absolute sense. If you have the metrics, the time and can write one, do so! It’s a fab idea.
Our goal was to anticipate every question and data request that investors would have, and provide it to them up front, so firms that were excited about the opportunity would be able to move quickly and wouldn’t be blocked on us pulling material together. We didn’t anticipate every request, but most of the information investors needed was prepared in advance, which meant the most interested firms could move quickly.
Again he assumes you know a lot, do you know what questions investors are going to ask? Ummmm….
The notion of covering what they care about and having it to hand will absolutely help you move forward so long as the investor is actually interested and you have the metrics they want (that’s a big if).
Parker knows his stuff. What he os optimizing for is a competitive bid situation where he gets multiple term sheets concurrently to get the pre-money and investment he wants on great terms. That’s super smart. The whole quickly stuff is about that competitiveness.
Our fundraising metrics deck included:
A summary slide of KPIs: Total ARR, Last 4 Months MoM Growth, YoY Growth, 12 month Cohort Expansion Rate, Average NPS Score, Sales Rep Payback Period.
Core financial growth metrics: Bookings ARR, ARR Growth, Cohort Percentage of Expansion, Expansion ARR in dollars compared to the sum of downgraded and churned ARR, Gross Margins, Burn Rate.
SaaS-specific metrics: Quick Ratio, Magic Number.
Sales and marketing efficiency metrics: Demos Scheduled by Source, Quota Attainment, Average Deal Size, Cash on Cash and Sales Rep Payback, Customer Acquisition Cost, CAC Payback Period, NPS Score.
All this stuff is great and I agree. I have no complaint about making such a presentation deck in addition and providing it to investors at the right stage of the conversation.
At the end of the metrics deck, we wrote out detailed footnotes for each slide; we clarified how we cut the data, how we calculated the various metrics, and any other assumptions we made. This drastically cut down on the number of emails we traded back and forth with VCs clarifying what exactly each chart showed.
Footnotes are great. Do it! It’s work, but why not. Follow his advice. Just make sure you know what investors want! Smarter investors are going to want data though. A lot of founders lie. It’s really hard to make up fake raw data.
Finally, we included an appendix deck with additional data we thought investors might want to see, but which seemed too detailed for the main deck: sales rep ramp curves, close rates from demo by segment and cohort, revenue by industry, and a few other items.
Sure. Investors care about this stuff. Stick it in your information deck. I explained all the material I think you should have in this blog: The fundraising documents you need to pitch venture capitalists
Review of the metrics deck
For shits and giggles, let’s go through the metrics deck. There are only 17 slides so it excludes a lot of slides (he said there was 46).
The cover is fine. They should remove the prepared for VC thing as you will forget to change it at some point and you will look like a numpty.
This is a good summary slide. They are presenting one year of data. They clearly have been tracking a lot of data as you can see they have NPS.
Simple chart. ARR is growing steadily. They’ve removed the y-axis so you can’t see how much they are making. The formatting is simple.
The ARR chart adds a linear average to show the trajectory. My guess is it’s to make the ARR growth rates feel less variable than they are.
Here we have a cohort analysis. This is something I’ve found a lot of people don’t know about. They’re important so you should learn about them. SaaS investors love them.
All the numbers have been blanked out but you can see the colors. You can see they darken in the later cohorts. In Excel land, this means that the cohorts are getting better. I know this is how the conditional formatting works as they allude to negative net churn.
November 2017 seems to be strong in month 14. They probably added a lot from a customer.
The July and August cohorts seem to be particularly strong after 11 months.
Investors love negative net churn. Here they explain they have it as expansion exceeds the churn. They haven’t mentioned churn to date though.
The quick ratio in SaaS terms is a measurement of growth efficiency. How reliable can a company grow revenue given its current churn rate? There is no Y-axis again so it’s hard to see that the numbers are and to put them in perspective, so can’t say much.
The magic number is a measure of sales efficiency. It measures the output of a year’s worth of revenue growth for every dollar spent on sales and marketing. In the slide, they are saying they are growing in a measured manner.
They have highlighted “evaluate” which makes sense given they use the prudent word. It’s an assumption given there is no y-axis.
There is no data on their NPS. NPS means Net Promoter Score. They say it is 66 which is pretty good.
Their gross margins are improving slowly. They mention their fixed costs are being amortized so they are implying they will get better as they scale.
If you are in a sales business, you care about quota. There is no axis so I can’t say much.
Their average deal size is sort of improving. Not they didn’t add an average line here as I’m sure it would be a little flatter than they would like.
The payback in months is a little all over the place, spiking a lot. I presume they don’t have enough deal volume to level it out.
The numbers are getting better in the later months. I presume they were figuring things out in the earlier months.
Their fully loaded CAC is sort of decreasing. You can lie with charts a bit so you would want to see the axis to see how meaningful this is. Decreasing CAC is always good if you are growing regardless. You typically expect this to increase over time. This is fully loaded, so staff salaries can easily negate any performance optimisations.
This chart shows a bar graph. I’m guessing that is for a reason. They’ve lumped things together to game data. It’s hard to say anything more insightful with any degree of certainty without the axis.
Whatever, it’s an interstitial slide. They are just telling us they are not going to give us all the slides.
Here is an example of the footnote slides he mentioned they did. The takeaway is that they are very specific about how the charts are calculated. the quick ratio, magic number, cohorts, etc are defined as to how they were calculated. This is effectively about caveat emptor- they’re putting the onus on the investor to read everything instead of asking questions. It’s kind of smart in a way. By giving all the material they are implying they don’t want any dumb questions. This might encourage investors to ask fewer questions and just accept what they are given. That’s an interesting psychological game to play.
Don’t write a memo. You aren’t famous and you don’t know how to do it right.
Copy the idea of the metric deck if you have the metrics. It’s a smart idea. Add slides with footnotes so investors don’t ask too many questions 😉
Disagree. Let me know!
Get in the game
Free tools and resources like this shipped to you as they happen.
Really great read, much appreciated.
You’re welcome, Tatenda
Great commentary and analysis. And the major overriding point is spot on, that if you’re already famous with a Unicorn creation on your CV, you can get away with bending the rules of the funding game, sometimes by a lot. That makes for a cool story, but not one that the vast majority of founders or wannabe founders could tell.
you didn’t mention the matter of the stage of the company for its rays. That’s important, because raising A B round , or even an A round, implies dramatically different progress and credibility then a seed or pre seed round. And the vast majority of companies raising funds, by at least an order of magnitude , are seed or pre seed, with little to show in the way of deep and valid metrics , etcetera. The best of them may have done their homework on their target market, and say hopeful things about their prospects, but they have little to no proof beyond perhaps some pilots taken on by cherry picked friendly targets.
And that is why preparing a concise deck in order to get a meeting matters so much to these early stage firms. As an Angel and VC (seedmilestone.com) investor in pre-seed and seed deals, I know the thing that will spark my enthusiasm and help make up my mind is not going to come from anything other than an actual real time interaction with the founders.
And lastly, if a deal fits my investment thesis, it also means that I’ve already done my own research on the market, and almost always have access to more and better data than most founders anyway, so all the various ways of lying with statistics and charts to make success look inevitable isn’t likely to hold sway.
I’ll send you an email to follow up. I appreciate you sharing your thoughts!