How To Successfully Pitch Angel Investors
Last week Innovation Bay Angels met for their quarterly dinner to hear pitches from a chosen few entrepreneurs. This was the fourth dinner of the year, a year in which we’ve assessed over 50 Australian companies and by the end of the evening we had heard live pitches from 14 entrepreneurs seeking angel investment this year.
As active angel investors (the group has invested multi millions of dollars to date), we see a lot of deals in different contexts and one thing we value above all is a quality pitch from entrepreneurs who are passionate and who have done their homework on their industry.
Our modus has been to ask entrepreneurs to submit an initial 90-second video pitch. That may not seem like a lot of time, but remember that most television ads only run for 29 seconds!
Those entrepreneurs who are chosen to actually present to the group at the quarterly dinners are given six minutes to pitch and may answer questions from the room for another six minutes.
Why all these time constraints and formats?
We’ve tried the unstructured, open ended approach and it simply does not work. Anyone can bang together a business plan or executive summary on a word processor and make it look good – but getting a message across via video in 90 seconds takes skill.
Standing in front of a room of 40 successful businesspeople and selling a business in six minutes takes further skill, discipline and practice.
Besides, investors have only so much bandwidth to hear from an individual entrepreneur and rattling on for 15 – 20 minutes won’t solidify your investment case, nor would it be fair on others who also want to garner the group’s attention.
What should your video be aiming to achieve?
One of the best comments made recently by one of our angels sums this up succintly:
“Short, sharp, punchy. Gives enough to establish credentials. There is enough in this quick summary to make me want to found our more.”
The videos we receive are placed on a private forum and members of the group are able to ask questions of the entrepreneurs who submitted them, and they have the ability to respond. From these comments (for the last round there were well over 300 comments) and the questions asked at the dinners, we’ve collated a set of Frequently Asked Questions, which I’ve set out below.
Entrepreneurs should know the answers to as many of these as possible and while they may not be able to cover off on each and every one in their videos, we would expect them to do so by the time they finish their six minute pitch.
THE ANGEL FAQs
PROBLEM/SOLUTION
How big is the problem you are trying to solve
What is your core value proposition
MARKET/CUSTOMERS
What is your customer make up – geographically and by industry
What is the return on investment (ROI) for customers
Can you give a bottom up outline of the market size rather than “a % of a $bn market”
How do you define your target segment, how many potential customers are there in this segment and what are they willing to pay for your product or service
What is the cost to acquire customers
If you are initially targeting a niche of early adopters, how will you get across to mass market adoption
Are there any regulatory or entrenched business practice barriers you need to overcome
Is there something about your space that means we need a local solution rather than a modified US solution
Are there any analogies you can use to explain your product, eg “the Farmville of Health Education” or “Groupon meets Zynga”
If you are initially targeting a niche of early adopters, how will you get across to mass market adoption
Are there any regulatory or entrenched business practice barriers you need to overcome
COMPETITION
What is your sustainable competitive advantage
Which are your major competitors and what do you do different
Not for everyone but: why are you best placed to win in this torturously overcrowded and undifferentiated space
While your product may in fact be different from others in the market, how do you get around the perception that it is the same as other products out there
TEAM/THE BUSINESS
Who owns the IP
Who will be on the team for executing
What are your views on the LeanStartup Model
What are the backgrounds of the founders
What is your backstory – how did you come to tackle this problem/market
Does your product exist already – if so, will you be able to demo it
BUSINESS MODEL
Outline some key figures – revenue predictions, staff
How do you make money, what is your revenue model
What is your distribution strategy
Are revenues primarily from product or services. How will that change in the future.
What are your plans for scaling the business (what are the requirements and obstacles to scale)
How are/will you handle the huge amounts of data that you need to gather
THE FUNDING NEED
How will you spend the money
What your investors should contribute in addition to money
THE DEAL
How much equity are you offering to Angels
What will equity split be
EXIT STRATEGY
What’s your exit strategy
One final point – don’t go asking investors to sign a non disclosure agreement. You’ll likely get short shrift.
I hope these pointers assist you in your quest for funding and good luck growing your businesses!
June 8th, 2010 at 10:19 am
Thanks Rand for these – as someone who has been actively involved in pitching to Angels and VCs over the last couple of months in the US, I think that the FAQs you’ve outlined are excellent.
My advice to any entrepreneurs out there is make sure you have the Market / Customers section nailed, especially if you are in a competitive market place, or adjacent to one.
I’d also like to comment on the analogies piece. This is very powerful, but you also have to be extremely careful. We suffered for a while because while we thought we knew what our analogy meant, investors were actually adding 2 + 2 and getting a different answer which wasted valuable time clearing up misconceptions.
[Reply]
June 8th, 2010 at 2:05 pm
Great points Tim! The analogy for the anologies section stems from the movie/publishing industry where a movie is often pitched as x movie + y movie, or actor a meets movie c. it’s shorthand, and as such needs to be carefully thought through to, as you point out, avoid misconceptions.
[Reply]