VCs only spend about 3 minutes looking at the pitch decks of pre-seed startups they invest in. This new DocSend report reveals how startups can stand out.

• DocSend, a cloud-based document sharing startup, released a report Tuesday that revealed what can make or break a pitch deck for early-stage startups.
• The report found that pre-seed funding rounds have gained popularity and influence among startups and investors.
• However, this is a notoriously difficult round for founders to raise, DocSend CEO Russ Heddleston told Business Insider - since it has become more institutionalized with dedicated VC firms, founders are expected to meet a higher bar to receive funding, he said.
• One of the biggest differences among pre-seed and later rounds, according to the report, is where investors spend time looking at the deck - if an investor spends more than 4 minutes looking through the deck, they are less likely to invest, the report found.
• Although this data is commonly shared among investors, Heddleston said it's an opaque and frustrating process for entrepreneurs, who often go in blind.
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The startup pitch deck is commonly thought of as more of an art than a science, an outlier in Silicon Valley's engineering-driven tech scene. But according to a new study from DocSend, there's a method behind the madness.

The startup, which specializes in cloud-based document sharing for things like pitch decks, released a report Tuesday that it hopes could provide transparency to the opaque fundraising process. Tuesday's report looks specifically at pre-seed fundraising, often one of the earliest rounds a founder will raise - and likely the hardest to nail down.

DocSend CEO Russ Heddleston told Business Insider this is just the first report in a series DocSend will release that focuses on what works at different stages of a startup's fundraising journey.

"It was a really hard process, and it was a really opaque process," Heddleston said of his own fundraising journey. "It's never from the entrepreneurs' perspectives. It's always from investors' point of view, so entrepreneurs don't know what on earth is going on. The few that do know how to play the fundraising game are better at it."

The DocSend report used data from 174 startups that self-identified as within the pre-seed guidelines, although the lines are more blurred than ever between rounds, Heddleston said. In all, DocSend analyzed what worked - and what didn't - for the 174 companies that submitted pitch decks to Silicon Valley VCs via DocSend. The startup's software tracks how many times an investor opened the files, how long they spend reading the deck, and which parts of the deck they spent the most time reviewing.

Investors only spend 3 minutes on successful decks

Overall, the report found that investors spend roughly 3 minutes, on average, reviewing decks of companies they end up investing in prior to an official pitch meeting with the founding team. But as Heddleston pointed out, founders aren't planning their decks with a time constraint in mind because the average pre-seed deck includes 20 slides. Some back-of-the-napkin math shows that averages out to roughly 9 seconds per slide.

"You do see the bar raising," Heddleston said. "It's more about, can you build a product than what's your initial traction. It's a lot more about the product than it is in the other stages."

According to the study, the product slide is the single most important slide to include, but only 83% of founding teams included it in the deck sent to investors. Investors want to know what the product is, even if it's the minimal viable version, before moving forward. In later stages, investors expect the product to have already achieved some level of traction and are instead looking for how the team will monetize it.

"Pre-seed isn't pre-idea," Heddleston said. "A lot of people who ask for advice tell me, I have this minimal viable PowerPoint, but the data says if you are going to raise $500,000, you need to have a product."

Angel investing has gone institutional, and that's a boon for unconventional founders

Many founders think, because early rounds max out around $500,000, that the fundraising journey is quick and easy, but that isn't the case, according to Heddleston. On average, it takes about 20 weeks to close a pre-seed round, another indication that it has become a vital milestone for startups.

"Pre-seed isn't the new seed," Heddleston said. "We are seeing that, for a particular range of companies, there is a logical range of money you need if you aren't wealthy enough to prove out the metrics to prove out the company. It's a formalization of the angel round."

That can be a partial source of disconnect, Heddleston explained. Angel investors are typically wealthy individuals with day jobs who invest within their personal and professional networks. Angels rarely get pro rata, or agreements to invest at later rounds, which limits their exposure if a company does well. When founders pitch angels, it is typically a less formal experience than sitting in a boardroom with a group of interested professional investors.

"A lot of the ideas are not coming from Silicon Valley anymore," Heddleston said. "They don't come from an angel's network. The institutionalization is so good for that."

The report found that startups outside Silicon Valley benefit most from pre-seed funding going institutional, with the biggest winners coming from the Midwest and startups with unconventional founding teams.

"Our data doesn't support the idea that entrepreneurship is a young person's game," Heddleston said. "People always talk about ageism in Silicon Valley, but a lot of these companies are built by older founders."