When Good Decks Go Bad
Today we're covering a very specific topic: the use of funds slide. What is it, what mistakes do founders commonly make, and what should you focus on instead?
This is likely what comes to mind when thinking about the use of funds slide: a pretty little pie chart showing a bunch of percentages (often made-up).
It gets slapped into a ton of decks but means nothing to early-stage investors. When I asked some of my VC friends about this, they all told me they completely glaze over this slide- and yet a lot of founders still think they need to include it. I dug deep to try and figure out why this is.
Outdated Practices
Let’s draw an analogy for better understanding. Imagine if we took medical technology from the 1800s, never evolved and just kept using the same tools today. Instead of precise lasers and robotic instruments, we’d still be using knives and hacksaws to do surgery. That would be absurd, right?
In the '90s, the world of VC looked more like private equity. Investments were made in companies that were more well-developed, with plentiful data to examine. VCs would dive into the weeds around numbers and how dollars were being allocated.
VC has evolved over the last 30 years and founders are trying to raise rounds at a much earlier stage. But because the use of funds slide has become so ubiquitous, founders think it’s something they’re just supposed to include even if it means broad generalizations and making up a bunch of numbers to fill out the pretty pie chart.
Rethinking the Value of Use of Funds Slides
Let's pause here. If a "use of funds" slide were to actually add value, what point does it need to make and what would an early-stage investor actually be interested in? Let’s push beyond surface-level, made-up numbers and into something that will genuinely resonate with investors.
What does an Early-Stage Investor Need to Know?
There's a point I often emphasize: when raising capital, an investor needs to know you’re going to accomplish at least one of only two things. Nothing else matters.
- Get to Profitability / Break-Even
- Accomplish specific goals / milestones that will make your narrative more exciting, qualify you to go out to the next set of investors, and raise the next round of capital
It's common to think that demonstrating a potential for an exit strategy (like selling the company) is beneficial, but this can be seen as a negative. Investors want to see a roadmap to sustainability and growth. If you’re planning on selling right away, investors will likely think it’s a a waste of time and capital.
Strive to Simplify
I see a lot of founders following the use of funds slide up with a timeline slide that looks like the example template below.
What is actually important for the investor to know? I’ll often see timeline slides that add tons of detail about the smallest thing a company did 3 months ago - launched a Version 1, then a v2, then a v2.3, etc. VCs will just be skimming your initial deck and not poring into every little distracting detail.
I’d much rather you get clear about how much you’re asking for and what milestones you’re going to achieve with those funds. Don’t clutter your slides with excessive details about minor product updates. If you really do think that a detailed timeline and product roadmap will be valuable for a specific investor, save it for the appendix. Just don’t put it into the main slides where it can distract from the main story of, “Here’s the big problem and why it’s a huge opportunity. This is why we are the ones to solve it. And this is how we’re going to solve it in the next __ years.”
Once you get them leaning in and wanting to learn more, that’s when you can go into the open discussion around details and double-click on your appendix slides.
Be chased,
Jason
