Fundraising

Getting Ready to Raise Series Pt. 3: Investor Pitch Decks: Dos and Don’ts

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Below are a few guiding principles to keep in mind when creating a pitch deck for investors. Please note that these considerations are not meant to be comprehensive and are only intended to provide general, high-level guidance with respect to the antifraud provisions of U.S. securities laws, the application of which is specific to the facts and circumstances of each company, its investors, and its fundraising efforts and communications. Therefore, this summary does not cover all such concerns for every company and every situation. If you have any questions, please reach out to a Perkins Coie team member.

THE PITCH DECK IS YOUR FIRST OPPORTUNITY TO BUILD TRUST WITH INVESTORS

Your pitch deck sets the tone for your relationship with your investors. Presenting yourself and your company as sensible, fair and balanced will instill confidence and trust with your investors from day one. Identifying assumptions and the basis for statements in your pitch deck can help preempt investor questions in the fundraising process, making the process run more smoothly. Minimizing “puffery” demonstrates that the company takes the fundraising process seriously. Also, eliminating statements that overstate the current status of or facts about the company demonstrates integrity and prevents the need for embarrassing conversations if statements are later shown to be exaggerated.

ANTIFRAUD PROVISIONS OF U.S. SECURITIES LAWS

In addition to starting off with investors on the right foot, thoughtful drafting of your pitch deck is important to mitigate the risk of liability under U.S. securities laws. In part, U.S. securities laws protect investors from any false or misleading statements or the omission of material information when investing in securities. These laws and regulations are referred to as the “antifraud” provisions. In general, statements given by companies when soliciting investments must not be false or misleading or omit material information such that an investor could claim that they were deceived as to true facts about a company and its true prospects for profitability. A company selling securities must ensure that any statements about the company and any projections used in pitch decks or other materials provided to investors are based in reality or, in the case of projections, assumptions that have a reasonable basis and represent a balanced view of the company.

USING “PROJECTIONS” IN A PITCH DECK

Everyone recognizes that any forward-looking statement in a pitch deck is subject to uncertainty, as no one can predict the future. If you do include projections in a pitch deck, they must be based on realistic assumptions, and those assumptions need to be disclosed to investors along with a balanced view of the risks and uncertainties surrounding them.

Ideally, the board of directors would critically review the assumptions included in any pitch decks with input from management and any financial advisors engaged by the company. Selectively revealing certain metrics that reflect positive trends and not disclosing projections that reflect known or likely negative trends (e.g., increased costs relative to growth) is impermissible. Ensure that you are contemporaneously documenting assumptions underlying your projections and retain these records.

If projections are used in an investor pitch deck, that deck should also disclose:

  • known uncertainties, if the occurrence of such an uncertainty is reasonably likely to result in substantial deviations from the plan or budget; and
  • material assumptions, if the failure of such an assumption to be true is reasonably likely to result in substantial deviations from the plan or budget.

For example, if the projections reflect that the company’s cash position will increase substantially in a given period, disclose the assumptions that are required for such increases. If the projections assume future fundraising or other cash infusions, the timing and amount of the company’s fundraising goals as described in the pitch deck must match those used to calculate the projections. Timing and the aggregate amount of any fundraising included in projections are material assumptions that should be disclosed in the pitch deck.

As you may be thinking by now, the level of disclosure needed when including projections can be quite burdensome, and for that reason it is often better to exclude projections from your pitch deck altogether.

General guidelines:

DO DON’T
  • Make accurate claims, especially when you are using pitch decks for fundraising purposes
  • Make sure claims can be supported and backed up with documentation or other credible evidence
  • Disclose the assumptions behind projections and any applicable risks/uncertainties that could cause them not to happen
  • Provide a full picture of the company and its prospects
  • Differentiate between plans and completion by using forward-looking descriptions, like the product “will be designed to” or we “intend to” include this feature
  • Use reasonable launch dates
  • Disclose gating items and possible delays to bringing your product/service to market
  • Include ambiguous statements or omit important information that, in hindsight, can be viewed as false or misleading
  • Make “guestimates” that are not reasonable, researched, or balanced
  • “Stretch” the truth
  • Make projections without disclosing assumptions or risks/uncertainties surrounding them
  • “Cherry-pick” facts or projections while omitting material problems or downsides
  • State or imply that something is done or complete if it is currently under development
  • Use operating or performance metrics (e.g. Daily Active Users) unless they have a reasonable basis and are calculated consistently across periods, and you include a clear description of how the company calculates them
  • Suggest that a technological solution will be instantaneous if additional R&D or regulatory requirements require additional time for completion
If you are going to disclose an important business arrangement with a customer, vendor, or supplier:
DO DON’T
  • Obtain approval from any party whose name or relationship you are disclosing
  • Clarify the stage of the arrangement (e.g., indication of interest, term sheet, final agreement, long-standing relationship)
  • Clarify the specific entity with which you have a relationship (in the event there are multiple relevant entities housed within a large parent) especially if some of the entities are licensed/regulated
  • Be ready to provide details and documentation supporting claims of business arrangements with important market players, including who was involved from each entity and what was provided
  • Socialize information with investors in ways that are both accurate and do not require any third-party consents that you can’t get
  • Be specific about the types of customers you are targeting and products/services you intend to sell
  • Use a name or logo in a fundraising deck without permission or in violation of an NDA
  • Say that you have a “partnership” or use the word “partner” to describe parties with whom you have business relationships unless you have a documented joint venture or partnership agreement
  • Add graphics or logos that imply an endorsement of the company’s products or services, or an association or business relationship, that does not exist in reality
  • Say “best” customers or “best” or “most valuable” services and features
If your product is subject to regulatory oversight:
DO DON’T
  • Disclose the relevant regulatory framework and substantive process that has been, or needs to be, undertaken
  • Ensure that you have a viable, regulatory plan to move forward and disclose any uncertainty
  • Gloss over a regulatory review because it has not been completed, thereby creating the impression that no compliance is necessary or that all steps have been taken
  • Ignore costs of a regulatory review in creating projections