The DIY Rollup: Nailing investor pitch – by Michael Seibel @ Y Combinator

Software rollups are a highly lucrative yet niche asset class. For those of us founders / operators not affiliated with deep pocketed institutional investors, this means one thing: a lot of pitching. You end up fundraising continuously as you work through that capital. You’ll have to endure lots of awkward moments with audiences that are not familiar with rollups per se – and/or with your chosen sector or platform thesis. 

The good news is, we’ve got you covered! 

At SaaStr I dropped in on a session by Michael Seibel. Michael is a Group Partner at Y Combinator and the Managing Director of YC early stage. He is also a co-founder of Twitch. I found his pitching tips as helpful for serial acquirers as for YC startups. In fact, I know of a couple of rollups that have recently graduated from YC, and I expect their numbers to grow. 

Overall tip: be concise and easy to understand

“The number one reason why a company is difficult to understand is you”.

As Michael put it, “if you need a designer to prepare your deck, you’re doing something wrong”. 

Structure the rest of your pitch to address these 6 points: 

1. What do you do?

2. Team

3. Traction

4. Unique insights

5. Market size

6. Ask for money!

Michael covered each one of these in detail. 

#1: What do you do?

Michael suggests starting the pitch with a simple two-sentence description of what the startup (rollup…) does with a specific example. Often the example provided by the founder is too generic and does not illustrate the problem / solution. Another slip-up is not confirming that the investor understands. 

Rollup folks: why do you keep including the Constellation case study in pitch decks for thematic PLG rollups? Instead, focus on explaining why you want to pursue a roll-up strategy. Don’t shy away from discussing multiple arbitrage. Are there cost synergies? Are there cross-sell opportunities? If you’re pursuing an industry agnostic HoldCo strategy, talk about the benefits of decentralization. 

#2: Team

Common issues with the team slide: 

• No titles

• Not clear who writes code (i.e. who’s doing tech DD / CTO of your rollup)

• Telling long stories vs. listing facts

• Missing specific accomplishments relevant for the pitch

#3: Traction

On the surface, this might seem less relevant for rollups which tend to acquire established businesses. Not necessarily! Think about topics such as:

• Depth and quality of your origination research, and how it translates into an M&A pipeline

• Lessons learnt from being in the market

#4: Unique insights

Michael gave the example of Airbnb. Their unique insight was processing payments, which none of their competitors were doing. 

Implication: be specific. Use numbers and facts. Rollup specific: explain how you create value and why you are uniquely positioned to consolidate SaaS vendors in industry X. 

#5: Market size

Don’t quote random reports that are too high level and do not capture the exact opportunity you’re going after. Show the math. 

Let’s say you’re going after a sector play. What is the addressable market size? How did you calculate it? How many proprietary, company-level data points do you have? What % of TAM is SaaS vs. transaction based income vs. agency / consultancy services (billed hourly)?

#6: Ask for money!

“You will be shocked how many pitches do not ask for the money”. In Michael’s experience, 70% (!). Make sure you specify how much funding you need, debt vs. equity mix, and when it will be phased in. Debt providers will want visibility on your ability to absorb the funding reasonably quickly: show them the M&A pipeline. 

Next, in order to maximise the chances of being funded, make sure you specify: 

• How much are you raising

• What milestones you will accomplish with this raise

• Talk about who you’ll hire & what revenue these hires will generate (and how quickly)

To adapt the above to a rollup fundraising use case, share the detailed math behind the ask:

• Target unit economics (average revenue X, EBITDA margin Y%, organic growth Z%)

• Multiples at which you’ll be buying businesses

• Use of proceeds split between overhead / HQ and M&A

Concluding remarks: presentation skill tips from Michael

Order equity story highlights from most to least impressive. Don’t leave the good stuff until late!

Don’t ram through the pitch to get to Q&A: engage with the aspects of the pitch that the investor finds interesting. Conversely, skip the bits that the investor finds boring.