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

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: