Category Archives: Angels

Getting Past First Impressions

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My last blog on first impressions matter focused on the Gust platform application process that most angel groups use. After loading information on Gust, you will receive a pre-screening call. With some Angel groups there is a presentation involved in the process. I have previously discussed the components of making a good pitch and here. However, in preparing your pre-screening or screening presentation there are a number of important elements upon which to focus.

Entrepreneurs first need to understand each Angel group’s process. For example, how they make decisions and how much money is provided per round is essential. However, of key importance is discovering your chief advocate in the Angel group. Remember that in most Angel groups, this is a competition with only one or two winners.

When making your presentation, always focus on the whole story of your company, from value proposition to target market and product market fit. Investors will also want to know whether there is a large market and a great, pressing need for your business or innovation and if you have evidence of good progress in establishing your business. There are other things Angels will be looking for:

Does your plan provide an exit and a reasonable return on investment?

Do you understand the industry and how your competitors fit in the marketplace? Do you know their strengths and weaknesses? Who are their customers and why do they buy from your competition? Why will customers buy from you instead? Have you delighted your current customers?

How will you use the funds? Do the funds you seek match your plans to scale the business? What will you do if our group is unable to complete the funding round with sufficient cash? Do you have a sound plan for the future? How do you currently make money?

Is there anything that might raise a red flag? Is there any criminal record or bankruptcies on the senior team? Any pending litigation against the company or key players? Are any of the co-founders in a personal relationship? Disclose early and don’t be afraid that these issues are deal killers. They are not necessarily. Disclosing the warts early only strengthen your position as an honest person and leader. Failure to disclose can and would likely be a deal killer.

While you present investors are watching to see whether you have the moxie to be an effective leader and have the ability to execute on your plan. This usually comes up during the question and answer time. Angels want to see how you respond to questions, how articulate you are in your response to posed questions, and how well you understand the ability to scale your business. Another principal concern Angels may have is whether the rest of your team is flexible and adaptable to changing market conditions. It’s your job to demonstrate that by showing their experience, savvy, and ability to engaged under changing conditions.

Tell your story engaging all of your pitch points. Using a customer’s point of view, talk about your company with a script format. Prepare it like the screenplay for a movie. One colleague of mine used the story arc ABDCE:

  • Set the Action
  • Build the Background – this is the setup
  • Develop
  • Climax – Why you are a winner (in the movies, the end of the second act)
  • Execution

Remember, this is showtime! Show energy and enthusiasm.

First Impressions Matter

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We are in the process of evaluating the applications for Angel funding for our current round. Like most investor groups we use Gust as the platform for entrepreneurs to load their company information. Overall, I must admit I am disappointed in many of these applications. Many of the applications look strong in terms of idea or concept. Some apparently have traction. Some claim to have traction, but don’t support that claim. However, the real problem is that for more than 90% of these applications, it is the first time I am exposed to you. The application is my first impression. And first impressions matter! Here are a number of items that are problems.

Incomplete applications. Gust is a standard format platform. The executive summary, financials section, team composition are all fairly straightforward. Missing items or incomplete items leave a bad first impression on me. If an entrepreneur does not provide all the information by the deadline, then it requires substantial explanation. Leave a note somewhere on the document telling me when the document will be completed, and why you require the additional time. I understand, we are looking at a moving target, but at some point I need to review a snapshot.

Financials Section. On Gust, the financials section is where the entrepreneur asks for funding and offers a summary of projections. It includes a place to upload documents. Upload your documents. I expect to see a spreadsheet with details of the projections.

  • I don’t want to see a pdf file. With pdf I really can’t see the basis of your numbers. Load an Excel spreadsheet with assumptions and a polished look and flow.
  • One tab of sales projections is not enough. In addition to the assumptions tab, there should be at least tabs for a cover summary, a cash flow projection, hiring guide, balance sheet and revenue models. You need a minimum of five and don’t overwhelm me with 20. I don’t need that level of detail…yet.
  • Hidden tabs that include details I need to review are a minor inconvenience. Why should I work harder on your application? Make your data clear and easily accessible.
  • On the positive side, I have seen a few spreadsheets, that have a nice summary up front, a tab with an assumption table linked into the spreadsheet, a hire/HR table and clear, bottom up projections that go over time until past cash flow positive. The revenue projections are important and should not be overlooked.
  • Spreadsheets are a complete topic for another blog. For now, I will admit that spreadsheets are something of a work of fiction, because they are guesses. But the closer the entrepreneur comes to being correct about these numbers, the higher my confidence level in the venture.

Articulating the Value Proposition. Don’t make me guess what your real value is to customers. If you are not perfectly clear in articulating the product to the target market, then how will I know you will be able to effectively sell the product/service?

Proof Points – Gust does not ask for this, but it is important that you be very specific as to the stage of your venture’s development. This will come out in due diligence. But if you have a finished product or channel partners already lined up, that leads to a much better impression for investors.

Know the Rules of the Game. An understanding of how our Angel group operates will benefit the entrepreneur immensely. For example, if our average investment is $400,000 and you are seeking $900,000 then be certain how you can fill out the rest of the round. I don’t particularly like building piers. I want to build a bridge to the next round. If you have funding that supplements ours, then great. However, know that we prefer to lead rounds unless the terms of the other funding is sufficient. So, be careful uploading the other term sheet – know what we like.

Stage of Development. Don’t hide the point that customers aren’t paying or you don’t have any customers yet. Be honest and forthright and just tell us exactly how you will conquer the world. Make me take a bet on you through truth telling.

Traction. Traction is right. Traction works. Traction clarifies, cuts through, and captures the essence of the evolutionary spirit. Traction, in all of its forms …has marked the upward surge of saving the world (thanks to Gordon Gekko for the quote).

Traction is the basis of all that is good in a startup. Traction is the market validation of a value proposition with its target market. Traction shows proof points on its business model. Traction is based in real sales (not a give away product) and has evidence of other proof points – channel partners, a supplier base or existing value chain.

No Faith Based Entrepreneurship. I am really not interested in what you believe. Save that for church. Show me the proof. All that matters are evidence based startups.

Get these right and investors will be your friend.

Disclaimer: These are my own views and not those of any investor group that would have me as a member.

Pitching Dominates

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Pitching Dominates In Baseball & Entrepreneurship

Successfully Pitching to Angels

Last year in baseball was called the year of the pitcher—and good pitching dominated the game. The same is true in entrepreneurship. A startup is always pitching—to investors, strategic partners, channel partners, in an elevator, to potential employees, etc. I previously wrote about pitching form and what makes your pitch stick.

Today we discuss content in the pitch and what will impress an investor. First of all, remember that the goal of any pitch is to get to a second meeting. Just say enough to get investors interested in your business. Enough to want more information.

If you are pitching before angel investors then remember three major points. The first is that you must have proof of concept. This is usually a technical point: The technology works, beyond paper theory, and you have developed a minimal viable product, in the form of a prototype. An even better situation is to have customers lined up willing to test and purchase the product, called traction by investors. The second point is to show proof of market: Does your solution show evidence of a large market? The third major point is you must show evidence that positive cash flow is easily possible within a reasonably certain time span.

Be articulate, short and to the point. Use the KIS (Keep it Simple) method, as you never know for certain who in the audience, and who understands the technical points of your solution. Keep the technology talk to minimum. With regard to technology, a good pitcher only needs to show that their technology works and has protectable intellectual property.

There are a number of other points that will score points in the eyes of investors. Does your current team, not those that will join after you are funded, have the horsepower to execute and scale the company? Investors usually bet on the jockey (team) and not the horse (technology).

Here are a couple of recommended slide decks and don’t forget to put in a title and ending slide along with your contact information.

  1. Problem/solution
  2. Market potential
  3. Team
  4. Channels and got to market strategy
  5. Competition
  6. Financial projections
  7. The ask and use of funds
  8. Always have backup slides (these are slides that answers the first few most likely asked questions)

And here is alternative, similar version:

  1. You address an important problem
  2. Your proof that this solution is complete and a magnitude better than others
  3. There is a large market for the solution
  4. The solution is better than others and why
  5. You have demonstrated good progress
  6. The team can execute on the company
  7. The investment provides a reasonable return to investors

What else might impress a potential investor?

  • You know the rules of the game. For example, you understand how the investor operates, the investor’s average investment, you have completed your due diligence on the investor or group, your average valuations to prior investments, and what excites them about an entrepreneur. In other words, you understand their process.
  • A flexible management team, good potential returns and an idea when an exit might occur
  • Good use of the proceeds from the investment
  • Good and frequent communications
  • Delighting early customers
  • You listen and learn well
  • Good qualitative and quantitative milestones
  • You measure progress religiously

What are some of the pitch or deal killers?

  • Lack of clarity and not being articulate
  • Demonstrating lack of leadership qualities
  • Lack of appreciation for the competition
  • A pitch long on history and technology but lacking an execution plan
  • Generic assumptions
  • Underestimating the barriers to entry, or overestimating those for your competitors
  • Weak marketing and/or sales plan
  • Unrealistic financials
  • Unrealistic view of capital requirements

Pitchers rarely hit it out of the park. But that is your challenge, and your goal.

Altruisms

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Words for thought. I’m taking a brief respite from serious writing to offer you some of my favorite lines about entrepreneurial thinking.

The true economic stimulus exists in the entrepreneurial spirit.

Customers buy success, entrepreneurs sell benefits.

There is a fine line between perseverance and obstinance. Entrepreneurs need to know when to adapt and change direction.

Tom Hanks once said there is no crying in baseball. Entrepreneurs know that there is no sleeping in startups.

The faster you drive a car that you don’t know how to drive, the more likely you are to crash.

Killing time murders opportunity.

Spreadsheet: a matrix showing how many days of the month you have to eat PB&J sandwiches

Spreadsheet (2) – what startups do before they bed down in their office

Messaround Round: Venture capital obtained by a company that really doesn’t need the money but wants it just to “make sure” of things (& then they promptly spend it on ill-advised items).

Dude Diligence: Investigating the one-owner, one-person business (or dudette diligence, in the feminine).

Small Business Disvelopment Corporation = a very poorly managed SBDC.

Non-intellectual Property (NP) = an invention that’s, let’s face it, not very good.

Entremanure: A client whose business plan stinks

Benchmarks: Sweat left at the gym while avoiding facing issues in your business.

Innervation: Tremors and sweating associated with starting a new company

Fornivator: Someone who screws up your program, as in, “The county commissioners really fornivated us in the new budget.”

An entrepreneur is one that leaves a 9-to-5 job with a steady paycheck, vacation and sick time with limited responsibilities in order to become an owner of a business, working 24 hours a day 7 days a week with uncertain income, no vacation and placing their life savings and family time at risk, all in the name of personal freedom.

A mentor is a person whose hindsight becomes your foresight.

Entrepreneurship is rarely a do it yourself sport.

There is no finish line in entrepreneurship.

Remember that you are unique, just like everyone else.

Learning happens when you have the courage to invalidate your hypothesis.

If you have the data then let’s look at the data. If all we have is opinions, then let’s go with mine.

Instincts are experiments. Data is proof.

Markets that don’t exist don’t care how smart you are.

Finally, wrapping up with a quote from Theodor Geisel,  AKA Dr. Seuss:

“Congratulations!
Today is your day.
You’re off to Great Places!
You’re off and away!

You have brains in your head.
You have feet in your shoes
You can steer yourself
any direction you choose.
You’re on your own. And you know what you know.
And YOU are the guy who’ll decide where to go.”

The Champions of the World

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Early in my career, I worked for a commercial bank. Most of the new Lending Officers hated the dreadful Wednesday morning Credit Committee meeting. There, the Officers presented client requests to the members of the Credit Committee, which consisted of the President, the senior risk officer, and a few other top lending officers, and hoped they were approved. But hope is not a plan.

The seasoned Lending Officers had a plan that was usually successful for their clients in these dreaded meetings. They understood risk and the likely questions that the committee members would ask at the meeting—and they always had an appropriate plan. Due to the limits of time during their presentation some item or characterization would be bypassed. They included anticipated questions in the lending documents. There may have been a request for additional collateral, a higher interest rate, shorter tenor or term or personal guarantees. The seasoned Lending Officers almost always had the client approval before the committee meeting and these additional requests were in their “back pocket.” As a result, when the conditional approval went through, the Lending Officer often had all the required additional documentation before the credit committee members returned to their office.

How were these lending officers so successful? Yes, in part due to experience. Mostly, it was that the loans were pre-sold (not in the mortgage way) to the credit committee members before entering the meeting. The deal was pre-shopped, and championed by one or two credit committee members. Walking in, the lending officers knew approval was in hand.

Entrepreneurs going to Angels also need to find their champion and pre-shop their deals. They need to find someone on the inside who will be the evangelist for the deal. Entrepreneurs need to get past the Angel’s investment committee. This is usually the investors’ spouse.  The pitch by the entrepreneur must be clearly articulated to ensure investors clearly understand the value proposition and can articulate how the investor can get investor committee approval.

If an entrepreneur can articulate their value proposition and demonstrate that their team is the best to execute on the new venture. Then go—and pre-sell the deal. The entrepreneur will appear confident, clear and worthy of investment of the Angel’s time and money.