Understand how VCs make money to Elevate Your Pitch Deck

March 2025, updated in July 2025

I review 100s of pitch decks every year and mentor 100s of start-ups; over 90% of them don’t tell the story of how they’re a venture-scalable business that VCs can get an ROI for. For the longest time, I was in the same boat! Here’s what this means, why there’s a need for an ROI, and how to tailor your pitch to talk about this.

TL;DR: Joey Pham's takeaways from this blog post.

Background: Why Funds Exist

High-net-worth individuals and other investors, referred to as LPs (or Limited Partners), invest in a VC fund to diversify their portfolios, for example, as an alternative to the S&P and other traditional investment opportunities. These LPs expect a 2.5x+ return on investment; in return, fund managers charge management and fees on profits (also called carried interest), typically as a 2 and 20 fee breakdown structure.

One of the metrics funds are evaluated on is the TVPI (or "Total Value to Paid-in," a ratio of how much money an LP receives relative to how much they invested in the fund, with more examples and additional metrics available here).
Carta's summary report shows that in 2017, the multiple was 3.5 times for funds in the top decile; it was slightly above 1 in 2023.

Background: Fund’s 2 and 20 Fee Structure

As a simple example, suppose a VC fund has $10M to invest in start-ups. LPs pay 2% of that amount annually in management fees, which are used to cover salaries, health insurance, and other fund administrative costs.

Suppose there are any start-up exits (such as from IPOs, M&A, or sales on the secondary market) within the fund’s lifecycle, LPs typically first get back the money they’ve invested (or ~$10M in our example). Any remaining profits are then (typically) split 80/20, with LPs get 80% of the profits, and the fund receives 20%.

All of this is outlined in the legal document called LPA between each LP and the fund.

What is a Venture-Scalable Business?

For example, if an investor gives you $1M for 10% of your company and your exit is $10M, they break even. Actually, the LPs lost money when adjusted for inflation! If LPs had made money if they had just invested in the S&P, they’d be more hesitant to give the fund money to invest in their next fund. Then there’s less funding for start-ups! So we know VCs need to imagine (and see) a bigger exit, but how much bigger?

We also hear that at least 90% of start-ups fail. If a fund invests $10M into (for simplicity) 20 start-ups, then about 1-2 will succeed and ~18 will fail. This means that for LPs to see any profits, the fund needs to get back more than $10M from their 10% ownership stake for LPs (and the fund) to see any profit!

That is, if you exit for $100M (within the fund’s lifecycle) — which is objectively a lot of money — you’ve “only” returned the $10M fund, and the LPs have broken even. Actually, the LPs lost money when adjusted for inflation!

Takeaway: Tell your Venture-Scalable Start-up Story

VCs evaluate each start-up as an opportunity to return the fund, from your TAM/SOM/SAM to your traction to your growth milestones, with an eye towards how you’re de-risking each step along that path and thinking about the business growth with those exit targets in mind.

Omri Drory, PhD, GP at NFX, shares a formula for you to consider:

(# Sell) x (Cost) x (Gross Margin) = $100M+/year

Now you know that your pitch deck should focus on how your product — and its milestones along the way — will become the next unicorn, with a $1B+ exit, so investors get multiples of their money back, get LPs to invest in their next fund, and back your next start-up! Good luck!

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