Beyond the Pitch
7 Ways To Make Your Deal Look More Appealing to Angel Investors
Bill Payne, international angel leader, was in town last week conducting a workshop on creating and anchoring new wealth in Central Ohio.
In a session like this, there’s a lot to learn from the audience. My take-away was that there are many entrepreneurs who could benefit from a better understanding of what’s going through the minds of the angels and fund managers listening to your business plan as they consider (or don’t) your deal.
1. “Please don’t waste my time or yours with a lifestyle business that has no potential to scale. Unless the angel is a close, close friend or family member, there’s no business plan imaginable that would entice investment in a restaurant, retail business, or construction company.
2. “Hockey season was over weeks ago.” Don’t, don’t, do not forecast the hockey stick. Focus instead on how your marketing and distribution strategy will leverage early adopters to become referencable in the industry. Don’t base your sales on hiring a direct sales team; talk instead about relationships you are building with resellers who have relationships with your prospects already.
3. “Does this entrepreneur understand that I have no interest in using my money to pay her (him) a six-figure salary? Many angels are cashed out entrepreneurs. They understand the extra commitment and push that comes when the entrepreneur has skin in the game.
4. “This guy (gal) seems to have the technology down cold. That’s fine for now, but I wonder how hard it will be if we want to bring in a more customer-minded CEO. It’s common that the company founder isn’t the right person to grow the business once the job is more about creating revenue and booking early customers than it is about the technology. CEOs who can’t develop their skills and interests beyond technology need to accept the likelihood that they’ll end up being CTO instead of CEO—and that’s not necessarily bad, especially if they hold a significant percentage of equity.
5. “Does she (he) have any idea that there have been less than two dozen IPOs in the last 24 months?” Express a willingness to IPO, but lead the discussion with a list of potential companies that might acquire your firm and why they would pay enough—because of your feature set, early revenue, market position, IP, or your engineers—to give your investors a 2-3X return before the next turn of the century.
6. “Why should I put in my money when he (she) hasn’t? Use your resources first. Mortgage your house. Pony up your savings. Tap your 401K or IRA. Talk to you banker. Consider your credit cards. Sell assets.
7. “Who does she think she’s kidding? Few pre-revenue companies are worth more than a million dollars pre-money. Investors know average valuations. If you are out of line, they will move on to the next more eager entrepreneur. If you change your mind later on, there probably won’t be a second change.
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