Venture Capital Case Study – 60-Minute Seed Round Investment Recommendation –
SOLUTIONS
You are an Associate at a software/tech-focused early-stage venture capital firm.
A new prospect in the AI/data/automation space, PitchBookGPT, has just submitted its pitch
deck to you.
Based on this pitch deck, your knowledge of the market, and the criteria that early-stage VCs
typically seek, would you recommend investing in this company’s $2 million seed round at a $20
million post-money valuation?
You may use any resources you wish to answer this question and make your recommendation,
but you have 60 minutes to read the materials, decide, and write your answer.
If you recommend investing, please also explain the key risk factors in the deal. If you
recommend against investing, explain what might change your mind.
Your answer should be 1 page or less.
SOLUTIONS: No, we would not recommend investing $2 million in PitchBookGPT at a $20
million post-money valuation because this company is unlikely to reach the $2 billion valuation
for the 100x returns multiple that early-stage VCs typically seek; even a $200 million valuation
(for a 10x multiple pre-dilution) may be a stretch.
Productivity plugins and templates for PowerPoint and Excel are proven markets with paying
customers, and there is room to use technologies such as AI/ML and OpenAI’s GPT to improve
these tools by automatically generating more content.
However, at a $2,000 per month price point, the company is unlikely to capture more than a
small percentage of the total addressable market, such as ~10-20% of boutique banks, which
might generate $10 – 20 million in annual revenue. At the 5 – 10x revenue multiple that many
public SaaS companies trade at, this equates to an exit value in the $50 – $200 million range for
a returns multiple of 2.5x – 10.0x, far below the levels targeted in seed rounds.
The key problems are:
1) Too Much for Small Banks – Many boutique banks would look at this software as overkill
and wonder what value it adds over simple templates and previous presentations. It
saves time, but it’s not essential for the Analyst job (unlike Capital IQ), and firms do not
care much about making Analysts more efficient.
2) Lack of Revenue Uplift – The pitch deck claims $4 million in additional potential revenue
per boutique bank, but this claim is questionable because small banks typically win deals
via long-standing relationships, not detailed pitches (i.e., more pitching does not
necessarily equal higher fees).
3) Too Difficult to Sell to Large Banks – Large banks would be reluctant to purchase this
type of service because they have their own internal tools and presentation databases
and do not like to share proprietary data with 3rd parties. Many banks do not even let
employees run external macros!
This service would also be quite expensive to sell since dedicated sales reps would be required.
That said, this business has potential, the uses of funds seem reasonable, and the team is well-
qualified, so it’s not a terrible idea – it’s just that it’s not a venture-scale company.
The Counter-Factual: We might be more interested in this business if the pricing were different
(e.g., per-seat licenses or large banks willing to pay more), if it boosted revenue, or if the asking
valuation were much lower. For example, if the post-money valuation were closer to $5 million,
a $200 million potential exit value might be acceptable. Finally, something that replaced
Analysts/Associates could result in huge cost savings for banks and might be an easier sell. But
this product cannot do that – it’s a productivity enhancement, not a human replacement.
