It is important to remember that you often have only one opportunity to make a good impression on potential investors, so you need to ensure you have a compelling business and understand what angel investors are looking for in an initial presentation. Over the last ten years, I have heard hundreds of entrepreneurs make presentations to my angel group or in business plan competitions. As I listened to those presentations and coached CEOs to improve their presentations, I developed the following recommendations to ensure that pitches have a better chance of gaining interest from angel investors.
Pitch the Plan – Not the Product
The most common mistake I see entrepreneurs make in their initial presentation to angel groups is that they pitch as if they were selling a product to a customer. The product story represents 90 percent of the message to customers, but that doesn’t work with experienced angels. To investors, the product is merely the vehicle to their real interest – return on investment (ROI). Frequently we see entrepreneurs devote three quarters or more of their allocated time (and persuasive opportunity) telling the story of how great the product is, often in excruciating detail. It is essential that you communicate in such a manner that within the first two to three minutes, the prospective investors understand:
- what business the company is in,
- what important need it fulfills,
- why the solution is superior to competitors,
- why the plan and management team are credible,
- how the management team’s relevant experience will influence the execution of the plan, and
- why the plan is a superior opportunity for the investors, compared to the other deals under consideration.
The primary purpose of this first meeting is to establish credibility with the angel investor audience and attract enough interest so they want to hear more at a later time. Once their interest is peaked, angels will make the effort to attend follow-on meeting(s), participate in due diligence, and learn all the details about the technology, intellectual property, product, and sustainable competitive advantage.
If one accepts that establishing credibility is the first order of business, then it follows that avoidance of hyperbole is good practice. “We really have no competition” is heard far too often and is rarely, if ever, believed or true. Angels expect you to have thought deeply enough about your target market, to identify and analyze alternative competitive threats, and to articulate strategies that represent credible and sustainable competitive advantages.
Investors know that satisfactory ROI depends on good execution. Therefore, the quality of the key players is of primary interest to investors yet frequently given minimal coverage in entrepreneurs’ presentations. A credible management team often represents a fundable business and is THE critical evaluation factor for most investors.
Another element of establishing execution credibility is identifying key milestones. Too frequently entrepreneurs present the investment transfer function as “here’s my great idea/product, followed by the number of zeros of the market size, and a nearly assured IPO or acquisition in three or so years; therefore, an investment of X dollars now will virtually automatically result in 10X-100X in three years. Trust me.” Allocating priority time to identify clearly the when and how of meeting your company’s crucial milestones is enormously helpful in gaining early credibility with investors.
Demonstrate Your Coachability as a CEO
Experienced angel groups realize that startup companies have some gaps in their knowledge, management team, and/or execution elements of their business plans. To mitigate the investment risks that these nearly inevitable gaps represent, angels look for evidence that the entrepreneurs are coachable. Some of us have opined that our most costly investments are those in entrepreneurs who did not know what they did not know and were not willing to take advantage of the sound business acumen of their early investors.
As angels become more sophisticated, their radars are set to recognize this problem in entrepreneurs. They will not invest in uncoachable entrepreneurs and may link entrepreneurs they identify as coachable with a mentor investor. Early recognition and correction of this problem by entrepreneurs can significantly improve the probability of success in the search for angel capital.
You can demonstrate your coachability in a number of ways. A good start is learning what you don’t know from an advisor before you ever present to the angel group and then acknowledging gaps during your presentation. It is also important to listen to suggestions of investors during the question and answer period of your presentation and be open to exploring those suggestions as you refine your plan.
Bob Goff Founder and President Sierra Angels