At AngelCentral, our Partners, who have all been active angel investors for many years, meet close to 500 startups annually. As such, they have met a diverse group of founders with extremely different backgrounds and personalities, and been pitched a wide range of business ideas and opportunities. While we believe that the quality of startups and entrepreneurs have been increasing over the years, there are still many common mistakes and areas that entrepreneurs should take note of when pitching to angels. Here are some important things we believe that founders should understand before approaching an angel investor:
You are the most important part of the pitch
During the many investor meetings I have sat in, many founders like to go straight into pitching their business. Yes, while many founders get it right by sharing important areas of focus such as their product, market opportunity, traction and the like, they usually skim or worse yet, miss out on the most important thing that many angels focus on: the founders themselves.
When evaluating an investment opportunity, most angels like to make sure they are extremely confident that the founder(s) is the right person to make the idea work. Of course, many founders will share about their past study and work experiences, skillsets and abilities, projects they have worked on, etc. However, it is also useful for investors to know the entrepreneurs’ vision not only for the business, but as an individual. This includes sharing about their values, mission, and goals in life.
A couple of months back, I joined an office visit meant for angels who have already committed to investing in the startup. During the Q&A session, an angel asked the founder her reasons for doing the startup in the first place. The founder spent about 10 minutes giving a spirited sharing about how succeeding in the startup would help to achieve her goals, dreams, and her mission in life. Everyone present could sense the passion and excitement from the founder when doing so, and not only did it solidify many of the angels’ commitments, a couple of investors even decided to increase their investment sums after hearing that sharing.
This is not to say that you need to share every personal detail of your life, but a crucial part of any pitch towards investors. is you should always give reasons for angels to invest in you as a person, and not just the business.
Investor rejection is going to happen; Make full use of it
No matter how much research you have done for your financials, preparations you have made for the most effective deck, and number of rehearsals to perfect your pitch, there will always be investors who reject you. This is completely normal. There could be a thousand reasons why an investor says no, and not one of them could have been within your control. It could be that your business does not fit into their investment thesis, they have already invested in a similar business, or they have maxed out their portfolio allocation for the year. Of course, it might be because they do not believe in your idea or business.
Don’t be disheartened. It is normal. Some of the biggest names in the US’ startup world such as Mark Cuban, Chris Sacca, and Bill Gurley, missed out investing in companies such as Uber, Airbnb, and Google. Yet, they are still considered as some of the most successful investors of all time! If even the most renowned investors can miss out on such opportunities, it means that being rejected by any angel would mean that your idea is bound to fail.
Thus, instead of taking it personally or feeling down that your investment pitch was rejected, you can make full use of it by asking for three simple things. Firstly, you can ask why they rejected you in the first place. Some founders, having been rejected by potential investors, decide not to communicate with them anymore. Instead, you could use it as a huge learning opportunity by finding out why your pitch was rejected in the first place. This can help you improve and increase your chances of getting an investment in future pitches.
Focus on securing a (reputable) lead investor
From my experience, most angels in the region generally prefer to invest only after the startup already has a VC or super angel leading the round already. This could be due to the variety of reasons, perhaps that angels here are more risk adverse, or trusting that the lead investor would have made an extensive amount of due diligence and evaluation and thus trusting his/her judgment, etc. Either way, if you have secured a reputable VC or super angel to lead the round, it usually becomes easier to secure the commitments from other investors.
Do note that the key word here is reputable. You would generally want a lead investor that has a good reputation among the ecosystem. He/she must have had some experience in investing in or leading previous deals, be known for being both founder and investor friendly, whether that involves being responsive, helpful, participating actively, or issuing fair terms for both parties.
By securing a good lead, fellow angels will actually be a lot more confident in investing in your startup and it is likely you will gain a lot more interest than before, as it signals credibility that a reputable investor would want to lead your fundraising round. It will help you to secure investment commitments from fellow investors a lot easier.
A great product does not mean it is a good investment opportunity
When speaking founders, one thing I found is that many startups tend to focus on how great their product is, or the number of partnerships or customers the businesses have secured as a proof of its validation. While all these info is great, it does not necessarily translate to a good investment opportunity. This is because other areas such as, the projected financials (incl. sales) of the business, along with the target valuation of the company at that fundraising round, are usually important factors for angels to consider when deciding to invest or not. There are many times where the startup’s solution is solid and there is actual validation from the market, that angels still decide to pass on the opportunity because the valuation just does not make sense from their POV.
Thus, it is important for angels to highlight the company’s projected financials for the next 3-10 years, and how it will bring about a positive ROI for the angels. Yes, while it is true that many angels do not just do it for the money, it is important to show that you as a founder, have thought of a clear path on how your angels can profit in the long run by investing in you as well.
Through this piece, I hope that founders will have a better idea of some things they need to look out for when fundraising, and help create a better experience not only for themselves, but for investors as well.
As part of what we do in AngelCentral is to create a smooth fundraising process for startups when pitching to angels, do check us out if you are a founder looking to fundraise, or an individual who wants to find out more how to become an effective and competent angel investor.