Show Us the Momentum: New DocSend Report Reveals VCs Pushing Seed Startups on Business Model, Traction and Financials
In Record Fundraising Era, 31 Seconds of VC Attention in a Seed Pitch Deck Can Equate to $150,000 in Funding
DocSend, a secure document sharing platform and Dropbox company, released a new report detailing critical factors for startups raising money in the increasingly competitive seed round. The report shows that seed pitch decks have to demonstrate clear momentum in the market by articulating a sound, repeatable business model, market traction and financial viability. The report is part of the DocSend Startup Index which provides data-driven insights about founder actions and investor reactions throughout the process of successful and unsuccessful pitches.
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The new report, The Seed Round in 2020-21: Make or Break Moment for Founders, analyzed seed round fundraising in 2020 and the first half of 2021, one of the most active fundraising markets in recent years. It found that the seed round has new competitive stakes that can impact a successful raise. According to the report, investors spend on average 31 seconds scrutinizing the business model section of a successful pitch deck. Based on average seed funding, this added scrutiny alone could equate to approximately $150,000 of funding at play within the overall round.
So far, 2021 has been a record year for deals and funds raised: the average seed funding amount in H1 2021 was $2.5M in comparison to 2020’s total average of $1.7M, a 47% increase, according to Crunchbase. As larger deal size and volume create even more opportunity for startups at this stage, it also means investors are busier reviewing pitches, adding to the pressure to deliver a strong, concise pitch deck.
With an increased volume of funding activity across the board, VCs have become continuously more efficient when evaluating pitch decks, spending just 3 minutes, 18 seconds on average per seed deck. Investors paid more attention to decks they ultimately went on to fund, (3 minutes, 20 seconds), which is 24% more than the time spent on unsuccessful decks.
“The market is red hot right now, and while VCs are competing with each other to court earlier-stage startups, seed stage startups still have to work hard to pitch their business and raise money,” explained Russ Heddleston, DocSend Co-Founder and Head of Commercial, DocSend at Dropbox. “Startups are reaching out to more investors than ever before and are under pressure to demonstrate clear progress of their business. And despite businesses returning to some in-person meetings, the virtual process of fundraising is here to stay, keeping the pitch deck front and center.”
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From Business Idea to a Business That Endures
The seed pitch deck sections that held the most weight in the minds of discerning investors were the business model and market traction slides. VCs spent 94% more time on the business model sections of successful decks than on unsuccessful decks. Investors also spent 78% more time on the traction sections of unsuccessful decks than on successful decks.
“When you are in fundraising mode, you are constantly hustling to prove yourself and your business,” said Nyasha-Harmony Gutsa, CEO of Billy and member of DocSend’s Fundraising Network. “There are many hurdles in fundraising, and knowing what makes a successful pitch deck, from financials to product readiness, can help make the process smoother and more successful.”
Show Them The Money, Get the Money Faster
The research shows that the financial section is not always included in seed stage decks, but if there are viable financials to share, investors will look. In 2020/21, investors spent 236% longer on this section in successful decks (those decks that received funding) than unsuccessful decks (those that did not receive funding). And when successful in fundraising, 73% of companies went from term sheet to money in the bank in under 6 weeks (up from 15% in 2019). Showing early proof of fiscal discipline and realistic plans for the use of future capital can make a difference in the speed and success of today’s seed-stage fundraising.
Additional Insights
The report includes additional findings and data cuts such as founding team makeup, exploring gender and race from a fundraising perspective and geographical considerations and funding duration, including number of VC meetings, and average equity costs at the seed stage. It also breaks down the typical seed pitch providing insights into deck length and successful slide order.
