If there is one slide founders get spectacularly wrong in their decks, it’s this one. Sometimes known as the “the ask,” others call it the “use of funds” slide—this is where you reveal how much money you are raising and what you’re going to accomplish with the money.
Figuring out how much to raise
Many founders will calculate how much money they need to get through 18 months of development and put that on the slide. Some include a pie chart of how much will go to marketing, overheads, research and development, and so on. The problem here is that venture capital is exceptionally goals oriented. Your company surviving for 18 months is a good sign, of course, but doesn’t show specific progress.
Some founders omit this slide altogether. Some founders just stick a number on there. Some add something like, “We are raising $2m at a $20m valuation.” None of that works; this slide isn’t about you or your startup—it is about what the investor is going to get for the money they invest. Or, put differently, if I write your company a $2m check, what is my money going to buy me? I’m not talking about the number of shares or the percentage of the company. I am talking about progress and milestones. What are you going to accomplish with $2m?
You would be surprised at how many of my clients don’t have clarity on how much money they should raise. Often, they think they should be raising a “seed round,” take a look at TechCrunch to see how much similar companies raised as a seed round, and then put that number on the deck. Investors will ask, “how did you decide how much money to raise,” and poor quality entrepreneurs won’t have an answer. The problem is that more often than not, that means they are raising far too much capital—or far too little. Even if the rest of the pitch is excellent, this is an enormous red flag. If the founders don’t know how to plan, why should you trust them with money?
You need to know how much money you need to raise. How? Simple: you need to know what you’re going to do with the money. Realistically, the amount of money you raise should be enough to get you to the next round of fundraising. That sounds obvious, but how do you know how much that is? That is where your ops plan comes in. In fact, I usually advise my clients to forego an “ask” slide in favor of an operating plan slide instead.
Creating SMART milestones
Your slide needs to answer one question: what milestones do you need to hit to raise the next round of funding?
Once you have clarity on your milestones, you can map them out in a spreadsheet. What resources (time, money, staff) do you need to reach each milestone? Are there dependencies in your plan? Add it all to the sheet. Now, you’ll have clarity on what you need to accomplish, how long it will take, and what it will cost.
Bingo. That’s the perfect “the ask” slide for your slide deck.
Oh, and remember how I asked you to find the poor “ask” in Figure 15-1? “Expand operations in LA” is bad—because it doesn’t define what “expand” means—so it’s hard to judge whether or not the goal is completed.
Milestones to consider
Product – What product milestones do you need to hit in order to raise the next tranche of money? In particular, this includes beta or full product launches, major feature sets in the product pipeline, or integrations with partners.
Traction – What business metrics do you need to hit to raise more money? How many units do you have to sell? How many subscribers do you need? How many customers do you want? Other metrics may also be helpful here—your net promoter score (NPS), monthly active users, and so on.
Market validation – What can you do to prove that there’s a real market out there willing to pay for the product or service you are peddling?
Key hires – In order to reach the above goals, you probably need to hire. Who do you need to hire? When?
Map out those milestones, and figure out what resources you need to hit them. That’s how much money you need if everything goes to plan. Add 30–70% as a safety buffer (depending on how good your planning is and how predictable your business is), and that’s how much money you need to raise. If an investor asks if you have a safety buffer built into your funding round, be honest: they know you’ll need it, and good entrepreneurs know that the best laid schemes of mice and men often go awry. You do need to be able to defend the size of the buffer, though – much more than 30% would be an indicator that you don’t really know how to plan.
From milestones to a fundraising goal
Don’t go into too much detail in your operating plan—you can’t predict things that happen 24 months from now, so there’s no point in trying. Keep your numbers round and easy to read, and make sure that the next 12–18 months of your operating plan are reasonably detailed. As the founder, that’s roughly the amount of time you’ll need to hit your milestones and start the fundraising for your next round.
For your pitch deck, you will be able to distill all of the above into a simple table. Use one column per month, and mark out the major milestones and cost centers for your development.
Finally, make sure you do a logic check—in other words, is what you are proposing even possible? If you are going from 10 customers to 10,000 customers over the next 18 months, can the staff you have support the extra customers? Does marketing spend seem reasonable? Does the scale of the operating expenses make sense along with the number of customers? If all of those things look right, then you’re probably on your way to having a solid operating plan.
One final thing, if you don’t have a term sheet in hand, don’t include a valuation on the slide; that’s all up for negotiation anyway.