Pitch Deck Red Flags – What Makes Investors Walk Away?

What are the pitch deck red flags that can make investors walk away? Every entrepreneur asks this question at some point in their career. Fundraising is a challenging, uphill task, and you’re likely to encounter multiple rejections before securing your first investor.

While exploring what makes pitches successful and attracts investor attention, you’ll also need to focus on what not to do. Keep in mind that investors receive hundreds of pitches nearly every day.

Experienced VCs can generally make decisions about whether to support a startup within about three minutes of viewing the deck. Your deck must be impactful enough to create the right impression within this time.

Every pitch is unique, just as every investor has their own criteria for evaluating the deck. One or two red flags, according to their standards, may not necessarily be deal-breakers. However, just be sure they don’t start to pile up.

Let’s dive into the essential pitch deck red flags you absolutely must avoid when presenting to investors.

Unimpressive Founding Team

Investors encounter numerous intriguing business concepts. However, transforming those ideas into viable products that resonate with customers and succeed in the marketplace is a different story. Only the right business savvy and industry-specific expertise can make this transformation happen.

This is why investors are particularly interested in the founder and their core team. While solopreneurs can be undoubtedly successful, they generally benefit from an experienced, well-rounded team with diverse skill sets to help run the company.

Having a single entrepreneur at the helm can lead to poor decision-making. Conversely, an excessively large team may cause a dilution of focus and a lack of coordination.

Investors seek assurance that the team can navigate market downturns and unexpected challenges efficiently and pivot successfully if necessary.

Not only should their skills complement one another, but they should also be passionate and dedicated to the concept they’re developing. Streamlined communication is vital for fostering a collaborative atmosphere and strong team dynamics, ensuring everyone is aligned.

Founders are increasingly encouraging their teams to approach investors and pitch the company for funding. Moreover, investors now observe more team members at the presentation table addressing questions related to their specific areas of expertise. The dynamics of fundraising have evolved.

Make sure to showcase a balanced and well-rounded team when delivering your pitch. Also, ensure that the team slide clearly outlines the roles assigned to key members, such as the CEO, CTO, and CFO. Well-defined roles indicate stability, clarity in decision-making, and accountability.

Focus on presenting a strong core team supported by references and data about successful track records. The absence of such a team could serve as a potential red flag in your pitch deck.

Missing Cover Slide and Tagline

A strong tagline is a top priority when your goal is to make a resounding impact in the first three minutes. The tagline is the highlight of your cover slide and should portray your concept as disruptive and a game-changer.

A well-crafted tagline grabs attention and lingers with investors long after they’ve left the room. It should be clear and concise, communicating the value proposition immediately. A single phrase should convey what the company does to your investors—and later, to potential customers.

This slogan forms the cornerstone of your advertising and marketing efforts—for fundraising and making sales.

Airbnb’s tagline, “Book rooms with locals rather than hotels,” is a strong example of how to create a memorable impression for investors. It’s catchy, engaging, and represents the business sector.

Pitch Deck Red Flags – Vague Use of Funds Strategy

The Use of Funds slide is one of the most crucial and often overlooked aspects. Designing it correctly can transform it into a valuable green flag, offsetting any other red flags you might have missed. When reviewing the pitch, investors want to have a key question answered–What do you need the money for?

Answer this question by providing accurate data and numbers regarding what you aim to achieve. Responses such as hiring developers for the website, bringing on a tech team, or spending on aggressive advertising are too vague. Investors want to see clear strategic goals and projections that encourage them to write checks.

The Use of Funds slide should highlight tangible and quantifiable milestones that investors can use to gauge progress. Accurate data allows them to calculate the potential returns they can expect. It also helps them assess whether the company can effectively execute its plans.

For instance, you need to raise $20M for new equipment and improving production facilities. At the end of 12 months, you estimate manufacturing 500,000 units of the product. You’ll include data about advance orders, the current market price per unit, and the revenues you’ll earn.

If the numbers indicate revenues worth $25M at the end of one year, that points to excellent profits. Investors can clearly see the short-term goals and Key Performance Indicators (KPIs). They can do the math of the estimated returns in, say, 5 years or more after an initial $20M one-time investment.

Don’t forget to include market validation and traction in the pitch deck. For instance, the number of customers you’ve served, positive customer reviews and feedback, and lower customer acquisition costs. Also, demonstrate the response your Minimum Viable Product (MVP) received.

Missing Value Proposition – Does the Product Solve a Real Problem?

Like great concepts and ideas, companies launch numerous new products and brands into the market. The more significant issue is the actual problem that the product is attempting to solve. Products can be innovative and disruptive, but they also need to be strategically timed.

A product that’s ahead of its time is unlikely to interest customers who may not understand its benefits. Additionally, the price points of new technology could be too high for customers to want to invest in it.

Some of the most interesting examples include the Microsoft Tablet and Xerox Alto, the first personal computer released in 1973. Another example is the 1999 LetsBuyIt.com, an eCommerce platform that was a precursor to modern-day Groupon. Not many people are aware of these products today.

New products can potentially create an entirely unique niche for themselves. However, it is crucial that entrepreneurs identify a market and customer base for them. For instance, portable water purifiers, biodegradable packaging solutions, meal kits, and reusable notebooks.

These innovations tackle a genuine problem for which customers need solutions. So, as you’ll see, the lack of a product-market fit is one of the critical pitch deck red flags VCs fixate on. Counter the downside with extensive market research and present metrics that validate potential demand for your ideas.

Don’t make the mistake of developing products that no one wants. Furthermore, ensure that your product addresses a specific problem and focuses on a solution for that particular customer issue. Avoid generic problems that are typical of the industry as a whole.

The ultimate question is–what startup entrepreneurs look for in entrepreneurs before investing? Check out this video in which I have answered all your questions.

Lack of Customer Reviews and Feedback

As an early-stage company poised to accelerate growth, you might not have an established customer base yet. However, it’s essential to show interest in your brand and products. To do this, include reviews and feedback from users of your beta versions.

This strategy demonstrates that you’re engaging with real consumers to design products they will actually use. It also highlights that you’re continuously communicating with them and are open to incorporating feedback to improve the product. Be sure to discuss the improvements and new features you’ve added.

The product you’re releasing at this point might not be perfect, and investors understand that. They only need to see that you’re taking feedback seriously and have the technical capabilities to address it. Additionally, discussing competing products is a key strategy.

Your competition slide will not only demonstrate that the concept has a market that is being served; it will also indicate that you are aware of existing products and are actively working towards developing a unique selling proposition (USP). You’ll use this slide to discuss the product features that set it apart from competing offerings.

Also, discuss why customers will prefer to purchase your brand, such as introductory freebies and combo offers. Or, discounted trial versions available for a limited time.

It’s crucial to note that having a small customer base is not one of the potential pitch deck red flags. However, if just one customer is absorbing the entire production output and/or there are free subscribers without real sign-ups, that would be a concern.

Investors want to see paying customers contributing to revenues that can grow in the future. Consistent incoming cash flows and revenues indicate that the company is stable and worth backing.

Denying Access to the Data Room

Access to the virtual data room is indispensable for fundraising or entering an M&A deal. Refusing to share this data can be one of the pitch deck red flags investors detect. A data room contains all the pertinent information investors need to complete the due diligence process.

Make sure to load the data room and have it ready for viewing as soon as investors express interest. While you can restrict the information you’re prepared to divulge, understand that clarity and accurate data will accelerate their verification.

The data room can provide investors with in-depth details, and financial metrics is only one of them. You’ll include the pitch deck, a detailed pitch deck, a business model, team resumes, legal contracts, and a marketing plan. Also, add information about IP assets, licenses, compliance certificates, and more.

The objective is to provide all the essentials investors may need to make a decision and offer a term sheet. Remember, being prepared with a virtual data room demonstrates professionalism and competence.

Keep in mind that storytelling is everything in fundraising. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that founders worldwide are using to raise millions below.

Misalignment with the VC’s Investment Strategy

This factor isn’t necessarily one of the potential red flags in a pitch deck, but it does indicate that the founders haven’t done their homework. Before reaching out to investors, you’ll work with a professional fundraising consultant to compile a list of targets.

You’ll research their websites to understand the projects they have funded and exited in the past. This data will help you identify the sectors they prefer and the specific growth stage at which they typically invest. You’ll also develop an understanding of their approval criteria.

Understand that VCs’ investment strategy may change according to global macroeconomic and geopolitical conditions. Targeting the wrong investors at an inopportune moment will likely lead to fundraising challenges.

Most importantly, you should view fundraising as more than just securing capital–you’re also gaining strategic partners. Ensure you target investors who have industry-specific expertise and can provide you with valuable guidance, mentoring, and networking opportunities.

Your focus should be on building long-term partnerships that will support you through further funding rounds. Or when you need to pivot or make significant decisions that can alter the company’s mission and direction entirely. You’ll also need their support when you’re ready to launch your next venture.

Investors appreciate it when you’ve done your homework. It shows respect for their time and demonstrates a sound mindset and business acumen essential for securing capital.

Other Pitch Deck Red Flags – Let’s Take an Objective Overview

When you’re trying to identify and correct all the reasons why investors might reject your pitch, it helps to have an objective perspective. Review your deck and company from a third-party standpoint, and you’ll pinpoint more flaws you can fix.

For instance, investors want to know how long the company has been fundraising and its track record of successful pitches. While they understand multiple rejections, they may also see them as a red flag. It’s like the reverse of FOMO. The question arises—Why haven’t investors backed this company?

When examining the team slide, they might also focus on high turnover rates. Why isn’t the company able to retain employees?—that’s a question for which you should have answers prepared.

Here’s one more factor. Does the pitch include an exit strategy? Whether or not you should include an exit plan is a topic for debate. However, investors like to know that you have clarity and vision for the company’s direction.

So, discuss a potential IPO with a rough timeline. The possibility of a merger or acquisition in the future is also a positive point you should highlight.

In Conclusion

When it comes to understanding pitch deck red flags, all is not lost. Experienced investors can sift through the worst pitch decks and identify companies with potential that can yield significant profits. Focus on building that viable company with an excellent product that will attract customers.

That’s your best shot at securing funding for your company’s future scalability and stability.

You may find our free library of business templates interesting as well. There, you will find every template you need when building and scaling your business completely for free. See it here.