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!

Innovation Bay Pitches In, Entrepreneurs Plate Up

Last night I hosted a fun Angel Dinner together with my Innovation Bay co-conspirators. Ross Dawson has covered the event most admirably – check out his blog post of the event. I’d like to thank those who attended: the entrepreneurs who stepped up to the plate and gave excellent pitches, NICTA for sponsoring, Table for Twenty for their excellent service, but most of all, Phaedon Stough and Ian Gardiner for pulling it all together on top of their busy day jobs.

As Ross mentioned we had someone from the Federal Department of Innovation introduce the group to the Commonwealth Commercialisation Institute. That someone was Donna Valenti and I am most grateful to her for making the trek down from Canberra.

I’d asked Donna to come along as a way to kickstart a dialogue around what the formula for success should be for the CCI. They are in a process of consulting the start up community and it was good to have her share their current thinking.

The key questions for me, with respect to the CCI are: How best can the Australian tech community (in its broadest sense – ICT, bio, nano – researchers, entrepreneurs, investors etc) leverage this incredible opportunity to ensure Australia punches well above its current commercialisation weight? What precedents exist that we can point to, what are the measures of success and how can the Government adequately gauge sufficient economic, social and other ROI for its decision to deploy $196m initially and then around $80m annually? And finally, how can we create an environment in which entrepreneurial magic happens, continuously?

As you can imagine, I have some strong thoughts about these questions, but I’d very much like to hear your thoughts and aspirations – in an ideal world without constraints, how would you envisage the CCI unfolding?

I’d also like to hear from folks, especially in Silicon Valley, who have thoughts around how best to leverage up the current funding for the Institute so that it extends the ramp further for Australian start ups.

Innovation Bay: Mike Cannon-Brookes Shares His Atlassian Adventures

Mike Cannon-Brookes, the CEO and a Co-Founder of Atlassian, spoke at an Innovation Bay breakfast session last week. You can listen to his entire talk here.

Atlassian is 6.5 years old. They have 12,500 enterprise customers in 105 countries and did about $35.5m in sales last year and are aiming to hit $60m this year. In total they have 200 staff spread between Sydney, San Francisco, Kuala Lumpur and Poland. They are opening an office in Amsterdam in August.

A few nuggets:

  • They didn’t know what product they were going to sell when they started the company. They had in mind the type of business they wanted to run, they knew the sector (sell enterprise software) and they knew a little bit about how they wanted to sell, but they didn’t have any idea what software they were going to sell. They started with about 3 or 4 different unique prototypes that they built. One of these took off a little more than the others, so they focused on that and it is now their leading product – Jira, which has 9,500 of their 12,500 customers.
  • They knew they wanted to build an enterprise software company, but as encapsulated in their mission statement: a different kind of enterprise software company. This is not a contrarian stance, rather they like to evaluate everything they do and not simply follow what other businesses do unless it makes sense. “A little commonsense goes a long way as an entrepreneur.”
  • All of their products have been built because they fundamentally needed them and because they felt there was a large enough market that wasn’t being addressed. They have yet to build or buy anything they don’t actually use as a company.
  • Starting a second product was the smartest thing they did as it stopped them being a single product, single feature company. Today they have seven unique brands/products, developed by 12 different software teams – some of the products are sold in different ways. “Being a single trick pony as a business is very, very dangerous”.
  • As an online business they have found that the speed with which they are able to respond to customers makes a marked difference in their propensity to buy software. Their goal is to be able to respond within four hours to every single query they get from anywhere in the world — this ties into their strategy of opening a key European office in August as it give them the ability to respond around the clock.