Recently I was with a small group of angel investors. We were assembled to hear three entrepreneurs pitch their companies. Despite their polished presentations, two of the pitches lacked essential elements required to secure funding. The third entrepreneur nailed it.
Presentation 1: Business or Research Project?
“Is this a business or a research project?” I asked.
“We are proposing a business,” he answered.
“The problem you defined is huge. It would take an immense amount of resources in people, network and money to solve it. Only after you successfully complete this step can you begin talking about creating some kind of business from it,” I said. “This doesn’t need angel funding. It requires government funding. That’s why I asked if this was a research project.”
It was time for the next presentation.
Presentation 2: Who Will Pay?
He identified a problem which immediately resonated with the investors in the room. A couple of them even jumped in with a personal story which legitimized the problem presented. This was really good news for the entrepreneur. He had them.
Then he proposed the solution. It was genius. I believe we were all impressed. Further, he had the tech guy right there who was creating the solution. Even though the product wasn’t completed, it felt doable, and therefore would be completed.
But who is going to pay money for it and why? This part of the presentation turned into a discussion. As soon as this happened, I knew the entrepreneur was finished.
The questions turned to suggestions. Which predictably ended with the angels saying, “When you are further along, get back to us.”
It was time for the next presentation.
Presentation 3: Just Right
The third presentation was a winner. She will get funded. No doubt in my mind
She presented the problem using industry terms. This made us all believe she knew the industry because she had worked in it before. Not only was the problem real, but so was the entrepreneur.
The solution made sense as expected. I say as expected because of the credibility established by the entrepreneur in defining the problem. The entrepreneur came from the industry, and the solution was practical and elegant. It just made sense. As an investor, I was ready to hear how the company makes money offering this solution.
She knew the customers she was selling to and why they would buy it. The entrepreneur outlined exactly what it was worth, in dollars, to the prospective buyer. The return on investment was very high. In fact, it was a whole new revenue stream for the prospect.
Then she closed the deal and had the investors in her pocket. She showed them the prospective market was already buying. The dogs were eating the dog food, as we say in angel investor talk.
The questions to this entrepreneur were all about how much money this business will make and how fast it can grow. Some of the investors asked questions around competition and threats to the company’s growth. All positive.
When presenting your company, be sure you clearly know who will be at the presentation. Define in writing, “What is their motivation for hearing about my company?”
3 Essentials for Presenting to Angels
Presenting to angel investors is all about investment opportunity weighed against sustainability risk. Angels want to make money, but they want to moderate their risk. They don’t want to lose money. Angels moderate risk by believing the company will make money within some reasonable amount of time.
1. Narrowly define your problem
The first entrepreneur identified a big market problem. But there was no evidence he could solve it. Further, there was no thought as to how this company would make money. It was assumed if he did solve the problem, everyone who invested would be rich. All the questions were centered on the problem definition. This means the problem was too broadly defined.
2. Know your solution
The second entrepreneur treated the investors as advisors. Because of this, the discussion centered on the solution and who might buy it and why. The entrepreneur wasn’t sure, so the angel investors jumped in to help. Once this happens, you know these people won’t invest. At least not now.
3. Keep the focus on business building
The last entrepreneur nailed it. The questions were centered on building a business. Not the problem or the solution, but the business.
When the investors are asking these questions, you know you got them!