Silicon Valley’s image as a shiny, money-spewing beacon on a hill of boundless opportunity has gotten a bit of a readjustment over the past year. The fundraising landscape has been utterly brutal. Yes, VCs are still sitting on a lot of dry powder, but as the entire economy shifts, many are nervous about where their next fund will come from.
It seems that we’re heading into a perfect storm, where more and more VCs are moving downstream, investing in slightly later-stage startups with less risk.
While this caution might stifle some innovation, it might also pave the way for a more sustainable, value-driven ecosystem. Data from Dropbox DocSend seems to indicate that as the venture landscape recalibrates, the next wave of unicorns will likely be those who can navigate this new terrain of skepticism and scrutiny.
In 2022, 25% of successful fundraises were completed in six weeks or less. For this year, the number is 13%. Deals at the earliest stages of the startup journey have been hit especially hard; at the pre-seed stage, year over year, investment was half in Q2 2023 compared to the year before. We’ve spoken to the investors about this and looked deeper at the investment cadence in the first half of the year, but however you spin it, it hasn’t been pretty.
Compared to H1 2022, so far this year, VCs are spending 12% less time poring over pitch decks, but founders haven’t slowed down: 16% more decks were sent out.
“It’s surprising that founders are still looking for funding, despite the volatility,” DocSend research lead Justin Izzo told me. “The founder activity stayed high, year over year. Relative to pre-pandemic levels, things haven’t really changed. Maybe it’s because of all the tech workers who were laid off and started companies of their own.”
Still, what are founders to do? If you’re going to start a company, and you want to go the VC route, it’s gotten harder, and diligence is much tighter than it was. Although maybe a market correction isn’t such a bad thing. But a year’s worth of DocSend data shows how founders should structure their pitch decks in order to gain maximum attention, and hopefully maximum fundraises.
The “why now” is important
One of the major shifts DocSend saw in terms of engagement is that successful pitch decks include a lot more context than before. Opening slides tend to focus on a company’s purpose and how it wants to change the world. From there, the “why now” slide, positioning the company historically, is crucial. Having a product that can generate revenue sooner rather than later, and a business model that makes sense, are also key elements of landing a VC meeting.
Emphasizing “why now” makes sense psychologically, as a way to cook up a little bit of additional FOMO. If you could have built your company five years ago, why didn’t you? If it can wait five years, you should wait till then, too, when the market will have recovered. Including a tight narrative that anchors the company in the now makes a lot of sense when investors are trying to build a resilient portfolio.
Time for some ruthless editing
Oh, and as we’re talking about time, let’s talk about brevity.
“Pre-seed founders have responded to the investor pullback by creating shorter decks. They are rearranging the opening slides in ways I hadn’t seen before,” Izzo said. “They are heading right into the ‘why now,’ here’s our product, and here’s how we’re going to monetize that product. It makes for very abrupt reading — I’m used to a little bit more [narrative] — but pre-seed founders these days know that investors aren’t spending much time on the decks.”
Founders have to be ruthless, both with the number of slides in a deck and the number of words on each slide. From 2022, the average slide deck dropped from 19 slides to 16.
Mark Twain’s “I didn’t have time to write you a short letter, so here is a long one instead” might work for people who are willing to give you the time of day, but keep that 16% bump in number of inbound decks in mind: Investors want to get the info they need to make an early decision on whether to spend more time with a company.
From 2022 to 2023, VCs are spending almost 20% less time (2 minutes 12 seconds now, compared to 2 minutes 42 seconds a year ago) reviewing pitch decks. If you’ve got 2 minutes of their time, make it count. How much does this matter? Data from DocSend indicates that 40% of successful pre-seed teams had shorter-than-average decks, and 65% of unsuccessful teams had decks with more slides than average. Statistics don’t lie: shorten those decks.
Longtime profitability
Growth is still the name of the game, but there’s some evidence indicating that investors look favorably at startups that can regulate the flow of cash into a long-time sustainable model. DocSend saw a shift toward companies that can reach break-even and profitability earlier in their life cycle.
Overall, according to the data, investors are spending almost 50% more time on business models and 25% more time on traction slides compared to last year. Perhaps even more telling, for unsuccessful pitches, investors are spending twice as much time on traction and 85% more time on the business models. If you don’t have revenue yet, pay extra close attention to how you express your traction slide.
“Even at the pre-seed stages, investors are looking for signs that the business is set up for success and that the founders have thought about what their path to profitability looks like,” Izzo said. “That makes perfect sense to me. It might be a response to concerns about the viability of companies.”
In an industry with 10-year fund cycles, it’s hard to find leading indicators for success, but it’s particularly hard right now, in a market where the noise-to-signal ratio is off the charts. On the one hand, it makes a lot of sense to ensure that companies can survive if fundraising gets even harder for a while, but on the flip side, VCs don’t want a bunch of “zombie companies” (i.e., startups that are not growing exponentially but that are also not burning out and going out of business) on their books.
Focus on the financials
Of course, financials and profitability go hand in hand, but which traction metrics are presented can be a powerful indicator for how founders think about their financial journey.
For successful pitch decks, investors are spending 60% more time on the financials section of a pitch deck compared to a year ago. Finding a compelling story — both in words and in terms of a sensible operating plan that shows the financials and key milestones — goes a long way.
DocSend’s data suggests that well-presented, meaningful traction metrics can be the difference between success and failure on the fundraising trail. Responsible historical spending and a plan that shows a degree of getting leverage out of the funds spent can help.
Of course, the trick here is to find a balance: If your financial plan shows an overly conservative spend resulting in a slow growth trajectory, you’re spelling out a recipe for becoming one of those aforementioned zombie companies.
Weariness about AI
The hype cycle about AI has been loud and going strong, with investors fighting to lead rounds in AI startups, but there seems to be a note of caution evolving on that front, too: There were 60% more pre-seed companies working in AI in 2022–2023 compared to the year before. That opens opportunities for investors, but separating the wheat from the chaff becomes more challenging in a nascent market where it’s tricky to differentiate the real business cases for the tech from the ballooning hype.
“VCs are wary [about AI], and they should be,” Izzo said. “LPs are wary, and they should be. And yet, there’s a kernel of excitement for founders who are doing things with generative AI that go beyond window dressing for the sake of a pitch deck.”
In other words: If you’re going to slap AI/ML on a deck, it had better be because leaning on new technologies gives you a real, measurable advantage for your startup, not because it is the newest, hottest thing. Painting a layer of AI on top of a product that doesn’t need it is a contraindication: It shows that founders don’t know how to stay focused on the challenge at hand.
There’s a lot of noise in the data out there at the moment, and there are a few very strange narratives happening all at once right now. There are a bunch of VCs sitting on dry powder; LPs still willing to write checks are there, too.
“In the comic strip ‘Calvin and Hobbes,’ they play this game called Calvin Ball where you’re making up the rules as you go along. It’s never the same game twice,” Izzo said, suggesting that the fundraising landscape is a lot like that at the moment. “As long as you understand that the only rule is that there are no hard and fast rules, regardless of whether you’re a founder or a VC, the money can flow to you. Figuring out how to do that in a way that sounds organic and genuine and not like you are a bullshit artist is the real key here at a bunch of different levels of the ecosystem.”