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The Birth of the Pitch Deck

What Is a Pitch Deck?

A pitch deck is a series of words and images that illustrate a venture’s story and business model.

Pitch decks do three things: they get people to understand, they get people to care, and they get people to take action.

Entrepreneurs have used them to raise money, recruit employees, and close customers, partners, and suppliers. They are one of the most powerful tools early-stage entrepreneurs have at their disposal. They represent everything that is valuable about the startup—the vision, the team behind that vision, the core elements of its business model, and the insights into the customer that the venture plans to take advantage of and the industry that the venture hopes to disrupt.

There are two kinds of pitch decks:

1. Presentation deck. A visual to assist your oral presentation in an investor meeting or on stage at a demo day.

2. Reading deck. A more thorough and detailed deck that can be read and understood without you there.

A Short History of Startup Funding

If you were an entrepreneur in the 1960s, your options for funding were slim. Today, the startup landscape is overflowing with options.

It’s not just in tech and health care. In 2014, $24.1 billion were invested into 73,400 ventures in angel investment alone. Add another $48.3 billion in 4,356 deals from venture capital. Then, double that from friends’ and families’ investments. Simultaneously, crowdfunding sites like Kickstarter and Indiegogo have opened the door for entirely new ways for entrepreneurs to fund and validate a business. With the passing of Title IV of the JOBS Act in 2012, almost anyone will be able to invest and receive equity in startups, not just the ultra-wealthy among us. We have moved from a few venture capital firms investing a few million dollars in startups to an almost infinite variety of funding sources collectively investing big-time money. The funding that many visionaries and entrepreneurs need is more available than it has ever been. You probably already know all this.

You also probably know something else: getting funded is hard. Depending on whom you talk to, it’s either way too hard or not nearly hard enough.

You can guess what an entrepreneur would say. Entrepreneurs hate being held back. For a founder struggling to get funded, the problem is that there isn’t nearly enough money to go around. Investors, on the other hand, hate losing money. Yet, they know that most of the startups they invest in will fail. For them, there aren’t nearly enough good startups to go around.

Both sides agree that there needs to be a better way for the startups that have the best chance of success to get in front of the right kind of funding. To get there, entrepreneurs and investors look for ways to date each other—opportunities to charm or size up those on the other side of the table. Often, though not always, this means entrepreneurs spend their time wooing the investor while the investor plays the role of coy mistress, oscillating between flirtation and outright rejection.

The Age of the Business Plan

For years, the de facto entrée into this dating game was the business plan.

Originating with companies like DuPont and GM that had large government contracts with the US Department of Defense during World War II, the business plan takes cues from strategic planning within the US military. After an exhaustively thorough analysis of the industry, the competitive landscape, and target and potential markets, aspiring entrepreneurs would create a play-by-play of the business from launch to exit, articulating every detail of the marketing and operations plans, year-by-year growth in revenue and costs, and, ultimately, the amount they expect the market to value the company when they sell it or take it public.

This “business in sixty pages or less” gave entrepreneurs everything they needed to execute the venture. All that was left was for the right investor to come along, see the value of the plan, and pour a ton of cash into it. The idea caught full steam in the 1980s when every business professor, consultant, and professional coach in the nation published books to get the everyday Joe to become the next Steve Jobs or Bill Gates through one simple tool: the business plan. Sounds great, right?

Business plans for startups turn out to be one of those great ideas that fall apart in real life. Serial entrepreneur and Stanford professor Steve Blank puts it this way, “No business plan survives first contact with a customer.” Plans work fine when all the information you need is available and all you have to do is execute. By definition, though, a startup exists in an environment of extreme uncertainty. A startup, as Steve Blank puts it, is an organization in search of a business model, not an organization with a plan to execute. Between 1982 and 1989, in the middle of the business plan craze, 79 percent of the companies in the Inc. 500 were launched without a formal business plan (including Apple and Microsoft). A more recent study found the same conclusion: business plans aren’t critical to a startup’s success.

Over the last ten years, and with the encouragement of books like Eric Ries’s The Lean Startup, more and more entrepreneurs are abandoning the business plan as an opportunity analysis and launch tool in favor of tools that give them the flexibility to test and iterate the critical assumptions of their business model—assumptions like the problem you are solving, the cost of acquiring a single customer, and your defense against competition.

The Rise of the Pitch Deck

Entrepreneurs weren’t the only ones to realize the business plan didn’t work. With the explosion of venture capital starting in the 1970s, the investment banking industry found itself faced with ever-increasing stacks of potential deals. Tossing the business plan, it began to adopt new methods to quickly screen and pitch the opportunities before it. By using new presentation software like PowerPoint, investment bankers could replace the business plan with a series of slides that displayed big ideas, data, and other visuals while they gave a short pitch for the venture.

These presentations became known as “pitch decks.” In addition to being shorter, this new way of presenting the business had several other key benefits. Pitch decks could be easily revised and customized, for example. A business plan took months to draft and redraft, but with a pitch deck, you could swap out individual slides for others and rework your entire presentation in a few minutes. You could also create a readable version of the presentation with the script written down on the slides so it could be printed out and sent to an investor ahead of time. Investors loved the new format, using the short presentations to filter out the obviously unqualified prospects and clue them in to opportunities where they could do a more thorough process of due diligence.

Perhaps the greatest advantage of a pitch deck was that it allowed the presenter to tell a great story. Investment bankers, like all great salespeople, knew that the data they had on a company wasn’t nearly as important as their ability to tell a compelling story about that company. Like a filmmaker crafting the arc of a great movie, investment bankers made their living telling stories of how awesome the world would be if ACME Corp. bought AJAX Corp. to make the super-company ACMAJAX (the marketing department would sort out the naming). Pitch decks became the medium to tell that story. By the time Loomis entered the “Analyst Class of 2004” at a bulge bracket investment bank on Wall Street, his company devoted nearly a month of its three-month employee training program to Power-Point. (You read that right.)

The next year, a serial entrepreneur named Paul Graham launched a three-month summer camp for startups. In it, very-early-stage startups would get access to mentoring, connections, and a small amount of seed money. The focus of the program, which Graham named Y Combinator, would be what he called “Demo Day,” an all-day event where each team pitches its startup to a room of investors using a short presentation and a slide deck. As for business plans, “Not for us,” the company writes on its site’s FAQ. “We love demos, but we never read business plans.” By 2011, that summer camp had become the “tech world’s most prestigious program for budding digital entrepreneurs,” according to Wired magazine. By then, it represented just one of as many as 200 startup accelerators in the United States.

That same year, the Wall Street Journal posed a question to a forum of startup mentors: “Where do founders go wrong with business plans?” The short answer: when they make one. The response from one of the mentors was to say, “Burn your business plan—before it burns you.” Instead, the mentors said, focus on two things: your business model and your pitch. In another response titled, “Your Business Plan Isn’t a Fundraising Tool Anymore,” venture capitalist Paul Lee writes: “The best pitches come with a 10–12 slide PowerPoint that succinctly explains the business, with a link to the working service or website and the entrepreneurs biography/past experience. That’s it.”

Despite the cries from a remnant of business professors, consultants, and bank officers, the business plan was dead. In the world of startups, a new kind of tool had been born.

The Pitch Deck as Your First Prototype

You’re at work, doing what you do every day, when, all of a sudden, this brilliant idea pops into your head.

“What if I . . . ?” or “Why isn’t there a . . . ?” or “Wouldn’t the world be so much better if . . . ?” That seed, once planted, grows so invasively that it’s impossible to ignore and you can’t help but do something about it.

Now, that first moment of insight might be totally wrong (it usually is). But what is most certainly not wrong is the questioning—that burning, impossible to ignore “why?” The hidden power of the pitch deck is its ability to infect others with the “why?”

Think about the excitement you feel about your venture. You probably can’t help but tell people about it. There’s a good chance your husband or wife is jealous. Let’s be honest; you are obsessed. In another time period, you wouldn’t be an entrepreneur; you’d be a crazy person. That’s the kind of excitement you want others to feel when you pitch them. But getting others that excited about your idea will be maddeningly difficult if you don’t know how to communicate it.

Getting Clarity on Your Idea

Too often, people passionate about ideas have articulated them across scraps of paper, e-mails, and thoughts in their head. This constellation of notes looks a lot like the way the idea looks in your brain: thousands of neurons firing thoughts, making connections through synapses in a web of what were once disconnected memories and inputs. But if you want someone else to understand that mess of a web, you’ve got to find a way to get it into something more accessible.

Committing a business model to paper is the first step to making the model better. It forces the entrepreneur to break down the business into each of its components and to articulate those components clearly. You might say you can’t make a business model better until you actually have the business model written down.

For first-time founders, advice on their idea is more valuable than money and is likely to be a precursor to it. There’s an old cliché we heard often while interviewing investors and entrepreneurs for this book: If you want advice for your startup, ask for money. If you want money, ask for advice. To succeed, you will need both.

You owe it to yourself and anyone you meet with to have a description of the vision and business model of the venture ready to send in advance. This artifact then becomes something others can react to, comment on, and add or subtract from. There is no faster or cheaper way to iterate your venture when it is in its earliest stages than to create and revise a pitch deck. For many pre-seed-stage startups, the pitch deck literally is the startup, the very first prototype. It articulates the critical assumptions of your venture, and almost more importantly, it gives you a chance to practice telling others why they should care about it.

So how do you create a pitch deck for your venture? The basic anatomy of a pitch deck is surprisingly simple. It aligns with the critical questions investors ask themselves when looking at a potential opportunity. We introduce you to them next.