Adequately addressing these 8 factors in your pitch to an angel group will build confidence in the minds of the investors, improving the ultimate probability of funding.
Your Company has completed the initial filtering, screening and preliminary due diligence review of an interested angel group and you and key members of your team have been invited to present your opportunity. What will be the source of their questions, after you complete your pitch? Are there questions that are showstoppers? How should the entrepreneur prepare?
Questions at investment presentation meetings tend to focus on a few critical factors. The potential investors utilize the time to assess the market opportunity, the management team and expected efficiencies related to the use of potential investment funds. Remember that should the group move to the next stage, the due diligence process, they are committing significant time and resources to a potential investment. Should they not move forward with an investment after this follow on stage, this represents lost opportunity. As such, they desire to consider critical aspects of the opportunity as early in the process as possible.
The result is a focus in understanding of the following major factors. Should you, the entrepreneur, not appropriately address these issues, or not “know their stuff”, your potential for an investment from the group diminishes significantly. For this reason, it is important that the founder and team members be prepared and “in the know.” You should:
- Know Your Customer’s Needs –
In the beginning there was an idea. The idea was likely generated to address a pain point, a customer need. Validating that customer need and obtaining a thorough understanding of it, and how you as an entrepreneur can add value by addressing / solving that need is the foundational issue that the founders should be prepared to address.
- Know Your Product / Service Solution / Market Opportunity –
Does the product or services solution address the pain point or problems encountered by the customer? How does the entrepreneur know this? Is it customer focused and does it create value for the customer by enabling her, reducing her cost or use of other resources? Can the founder crisply articulate their solution explaining to the investors how value is added to both the customer and the company? Is the opportunity large and the solution scalable without significant incremental per unit capital? Successful entrepreneurs will be able to address each of these questions confidently.
- Know Your Product / Service Cost –
Knowing the incremental product or service offering cost on a unit basis is critical, as is having an understanding of the scalability of the startup’s offering from a cost perspective. Additionally, the management team should have a crisp understanding of their cost to acquire each new customer. These estimates don’t have to be perfect, so long as the entrepreneur is able to articulate her assumptions and those assumptions appear reasonable. Identifying and addressing the risks to those assumptions can be an added confidence builder to the investor.
- Know Your Competition –
Indicating “we have no competition” is one of the quickest ways the entrepreneur can lose the confidence of the potential investor. There are usually substitute products or services even if your concept is not being pursued by others. At a minimum, you should be able to demonstrate you have been through an exhaustive search process and were unable to identify any competition; adding that certain companies may have the ability to bridge to competitor status. Ultimately, it is likely competition exists; you just have not been able to identify them yet.
- Know Your Channels to Market and “Go to Market” Strategy –
As an example, simply stating “we are pursuing an on-line social media strategy” is insufficient! To obtain the confidence of the investor, and their ultimate investment you must peel back the layers of the onion and share how you will do so. Which platforms, (i.e.; Facebook, Twitter, LinkedIn) will you utilize and why are they the best platforms to promote your opportunity? Within the platform, which capabilities or tools will you leverage? Have you developed specific program experiments and tested the tools to determine their ability to meet your desired outcome?
- Know Your Team –
The founder should know her team, their strengths and weaknesses. She should have a comprehensive understanding of their capabilities, including their potential to execute as well as the impediments to execution. The founder that understands how they plan to address the startup’s gaps and weaknesses, is a founder who will obtain the financing.
- Know Your Potential Investor –
Would you take your spouse out for a formal celebration dinner at the corner hamburger franchise? Of course not! The hamburger franchise is lacking in atmosphere, service, quality of food, breadth of offering, etc. Like restaurants, angel investors are not all alike. They invest in different geographies, industries / sectors, in differing amounts with different return expectations. A shot gun approach wastes their time, and more importantly yours! Understand the investor and their criteria; only pursue investors which have criteria which match your needs!
- Know Your Use of Investment Proceeds –
Entrepreneurs seeking investment will be asked what they intend to do with the proceeds of the investment. If she indicates the monies will be expended to further develop the product and to grow revenues, it will increase her opportunity to obtain the funding requested. However, if the majority of the funds will be utilized to pay off debt, funding previous growth, or adding administrative overhead that do not drive the growth of the company, the probability of funding will decline precipitously.
The entrepreneur’s objective in the investment presentation meeting is to sell their project to the investors. This sale should be accomplished by demonstrating the validity of the customer need, the scalability of the product and size of the market opportunity, and the ability of the team to execute. Adequately addressing the factors herein will build confidence in the minds of the investors, improving the ultimate probability of funding.