Sequoia Investment: Stephanie Zhan's Rec Room Pitch Deck Breakdown

Sequoia's Criteria for Consumer Startups

Sequoia is widely recognized as a leading venture capital firm globally, attracting a significant number of startups vying for investment.

During a recent TechCrunch Live session, Stephanie Zhan, a partner at Sequoia, and Nick Fajt, the founder and CEO of Rec Room, detailed the firm’s evaluation process for consumer-focused startups.

The discussion included an examination of Rec Room’s initial pitch deck, which ultimately secured funding and propelled the company to raise close to $150 million.

Key Insights from the Discussion

The session highlighted the specific qualities Sequoia prioritizes when considering investments in companies targeting consumers.

These insights offer valuable guidance for entrepreneurs seeking to capture the attention of this prominent VC firm.

The ECL Pitch-Off

The event also incorporated the ECL Pitch-Off, providing a platform for founders in attendance to present their ventures.

Our expert guests, including Zhan and Fajt, offered immediate feedback on these pitches, creating a dynamic learning environment.

The complete episode recording, along with Rec Room’s original pitch deck, is available for review below.

• Access to the full TechCrunch Live episode provides a deeper understanding of Sequoia’s investment philosophy.
• Analyzing the Rec Room pitch deck offers practical examples of successful startup presentation strategies.

The Significance of User Engagement

When evaluating consumer-focused companies for investment, firms like Sequoia consistently prioritize a single crucial element: demonstrable user affection. This strong connection between users and a product is considered paramount.

Several methods exist for gauging this user love, encompassing NPS scores, retention rates, engagement levels, and product reviews. These metrics collectively offer insights into how users perceive and interact with a given offering.

Shortly following its initial release, Rec Room exhibited impressive user engagement, with individuals averaging 26 minutes per session and approximately 90 minutes of daily usage. This indicated frequent return visits and sustained interaction.

It’s important to note that these figures weren’t based on a massive user base initially. However, even with limited numbers, the product clearly resonated with its audience, suggesting potential for broader appeal. This was a key factor that attracted Sequoia, as Zhan emphasized that user love is the most important indicator she seeks in consumer ventures.

“The observed activity wasn’t simply users briefly logging in and then exiting,” Zhan explained. “There was genuine, sustained engagement, even within a relatively small user group. This was the most striking aspect – the true indicator of potential.”

In addition to session duration, Sequoia utilized Rec Room’s “high-five” feature as a metric for assessing user enthusiasm.

These high-fives hold no intrinsic value within Rec Room’s gameplay; they don’t contribute to winning or earning rewards. Nevertheless, the frequency of high-fives increased alongside the growing user base.

Zhan further clarified this point:

However, even with compelling data to share with investors, company founders must effectively articulate how current achievements can translate into future growth. For Fajt, this meant positioning the pitch deck as a supplementary resource rather than the central focus.

The Rec Room pitch deck, available for review below, largely consisted of visual media and artwork, rather than extensive textual information. This deliberate choice reflected Fajt’s intention to initiate a dialogue, not simply deliver a presentation.

He described the deck as a means of stating, “This is our current position.”

Fajt recalled dedicating significant time to discussing the company’s future trajectory and platform evolution. “The element of timing was something we explored verbally,” he stated. “I focused on outlining our long-term vision, explaining the underlying trends, and justifying the timing and inflection points within the software landscape.”

By verbally conveying his vision and predictions for software, gaming, and VR, while showcasing the platform visually, he enabled investors to develop their own convictions and experience the product firsthand.

Zhan found this approach effective. “From the outset, there was a very distinctive artistic style,” she noted. “This demonstrated a company with a clear personality, which we greatly appreciated. It was enjoyable and playful, creating a positive atmosphere for social interaction.”

The Sequoia team was impressed not only by the game’s aesthetics but also by its underlying mechanics.

“At the time, achieving seamless interactions in VR was a significant challenge,” Zhan said. “The realistic physics of a ball in motion, interacting with a racket – that was truly remarkable, especially considering the common complaints of motion sickness associated with VR headsets.”

Rec Room Pitch Deck by Jordan Crook on Scribd

Addressing Challenges and Future Prospects

Rec Room benefited significantly from its compelling design, robust functionality, and enthusiastic user base. However, uncertainties surrounding the broader virtual reality (VR) market remained a key consideration.

Fajt frequently faced inquiries regarding the potential trajectory of the VR market and the implications of a slower-than-anticipated adoption rate. His prior experience with Hololens had demonstrated the risks associated with premature market entry.

It's important to recall that this period coincided with substantial VR headset development efforts from major technology companies like Facebook, Google, and HTC.

“Nick’s pragmatic assessment of VR market timing was particularly noteworthy,” Zhan observed. “He refrained from predicting immediate success, acknowledging the realistic timeline for development. He demonstrated adaptability in his thinking regarding the future.”

Fajt leveraged his industry knowledge during discussions about the VR market, while also openly admitting the limits of his understanding. “I emphasized the team’s resourcefulness and flexibility,” Fajt stated. “The progress showcased in our presentation was remarkable, considering we had only launched the company three months prior. We had been developing the application for approximately 100 days, with an investment of around $50,000 to $70,000.”

He articulated that the team possessed the capacity to pursue multiple strategic directions.

“We are committed for the long term, even if progress is slower than expected,” Fajt explained, recounting his discussion with Sequoia Capital. “Our lean structure allows us to navigate periods of market disillusionment. Should a shift in strategy become necessary, this team is agile enough to adapt the product accordingly.”

He avoided definitive predictions about the future of VR, instead focusing on the team’s inherent capabilities. In retrospect, both he and Zhan value the early commencement of these conversations, even before the seed funding round was finalized, as they continued to shape their strategy for years to come.

Zhan further commented:

The complete episode, including the pitch competition, is available for viewing in the video provided.

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