What do Angel Investors Want?

What do Angel Investors Want?  

Rockies Venture Club Angel Investors Unplugged

Click Image for Angel Investors Unplugged Event Information

Every Angel Investor and every VC is different, so you need to do your homework to find out what kind of investments they like, what phase of business they invest in, how big their rounds are, etc.  Once you’ve done your homework on the specifics, here are a few general things I’ve observed that help when working with angels and VCs.

1)      Be Prepared.  The old Boy Scout Motto applies to pitching to investors more than ever.  Many companies are so eager to pitch that they fail to do the homework needed to have a really GREAT pitch.  If investors like your pitch, they’ll want to see your market research, your proforma, your due diligence package and more.  If you’ve got all your ducks in a row, you’re more likely keep the momentum going and to get invested in than if you have to go away for a month after the pitch to get your materials together for due diligence.

2)      Remember that you’re not selling your product, you’re selling an investment in your company.  That means that the product should typically be less than 50% of the pitch.

3)      Finish by talking about your exit strategy.  80% of pitches leave out the exit strategy, so the investor has no idea how you are going to be able to return their money to them. Let them know when you plan to exit, how, with whom and at what kind of multiples.

4)      Practice, practice, practice.   It’s easy to tell the entrepreneurs who have gone through their deck once or twice and those who have really practiced and honed the pitch.  Watch Steve Jobs presentations on YouTube to watch a well-rehearsed presentation.

5)      Tailor your pitch to your audience.  One of the best pitches I’ve seen was given twice in one week.  The first pitch was to a hardcore group of investors and the founder focused on the financials and the huge exit potential.  Two days later he pitched to a group of Impact Investing Angels and focused on the social impact of this investment.  He closed the deal in just a few weeks.

6)      Describe a Clear Path from Point A to Point B.  You would be surprised how a clear strategy makes all the difference in a successful pitch.  Companies that have a detailed strategic plan can describe clearly how they will get from being a startup to having a successful exit and all the steps in-between.  We all know that no strategic plan is followed to the letter, but companies with a plan are able to present a plausible case for success while those without a clear plan have nothing but hope.

7)      Finally, the most important part of your pitch has nothing to do with the pitch itself.  Remember that investors want to invest in PEOPLE, not an idea.  So take some time before you pitch to get to know the investors.  Ask questions about them and what kind of investments they prefer.

 

Characteristics

Companies selected by Rockies Venture Club share these common characteristics:

1)      Team: the team is experienced, connected and has demonstrated an ability to execute and work effectively together.  RVC focuses primarily on the team because we know that no company executes it plan as stated in the pitch and we look for the leadership, wisdom and experience to pivot and adjust to opportunities and threats that present themselves.

2)      Disruptive or Innovative Product: We are looking for companies with a product or service that is unique and presents a clear value proposition for its customers.  There should be sufficient barriers to entry either through trade secrets, patents or significant market adoption in order to gain and maintain their market.

3)      Large or growing market: RVC companies are growing typically at the rate of 100% every year.  They need to be in a sufficiently large or dynamic market that this rate of growth can continue for several years and provide promise of future growth for potential acquirers.

4)      Traction:  Since the fund does not invest in ideas alone, the company will need to be able to demonstrate traction.  They need to have overcome major obstacles that clearly demonstrates their ability to execute.  Furthermore, they should have positive momentum that we can see throughout the process of working with them.

5)      Profit Potential: Companies need to have a high profit margin and understand the costs of multi-tier distribution and all of the fully loaded costs.  After all is said and done, for a company to really grow we want to see a solid bottom line.

6)      Scalable: The products and markets need to be able to grow quickly and to have rapidly increasing margins as the company grows.  This excludes most service businesses and many businesses that address the SMB market and require a high-touch sale.

7)      Exit: The Rockies Venture Club focuses on companies that understand the importance of the exit and the role it plays in returning capital to investors.  We want to see an exit scenario with multiple bidding acquisition prospects, with high multiples of EBITDA or sales, and with a relatively short timeline, typically between three and five years.

 

Register for Angel Investors Unplugged

For more information on Angel Investing (either as an Angel or an Entrepreneur) consider attending the Angel Investors Unplugged event, Tuesday January 14th 5:00-7:30PM at the CSU Denver Event Atrium 475 17th Street, Denver, CO   We will have a panel of experienced Angel Investors sharing how they think about the deals they invest in, plus we’ll have four pitches from companies looking for Angel investors through Rockies Venture Club Angel Groups.

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Venture Capital For Dummies

Peter Adams is the Executive Director of Rockies Venture Club and Co-Author of Venture Capital for Dummies, John Wiley & Sons, August 2013.  Available at Amazon.com, Barnes and Noble and your local bookstore.

Tech Startups: Apply your software skills to the venture capital pitch

I meet a lot of really smart tech founders who have all the skills to create great software that adds huge value for their clients.  The problem is that these tech founders who know all about how to design software from beginning to end, that all ties together in a coherent whole and connects everything from inputs to outputs, seem to forget everything they know when it comes to giving their venture capitalPitch for Venture Capital pitch.  Here are a few tips for taking those skills and repurposing them to putting together a great pitch.

1)      User Interface – A great pitch should have a great User Interface.  Your brand shows in the way that you compose your message and the slides that convey it.  Many tech founders use awkward blocks of text and don’t convey information well.  The user experience is one of the most important parts of the pitch.

2)      Simplicity– The pitch should be easy to understand.  I’ve seen complex bioscience companies who know that they are pitching the company and not their peptides or whatever.  Explain only enough to show that there’s a market, but don’t take us through all the nuts and bolts.  Your pitch should be like well written software that looks simple, even if it’s complex behind the scenes.

3)      Tell a Story– connect each part of your pitch together so it flows logically and covers all the bases, but also ties together into a story that hangs together like a good software program.

4)      Validate your data – you know how to do this when you’re populating your databases, why don’t you do that when you’re putting your pitch together too?  Do some market research and work up a proforma with defensible, well researched numbers.

5)      Learn the rules – software development is part art and part rule based.  If you can’t get the rules right, your software won’t run.  Venture Capital has its own set of rules.  Learn how to play the game and research best practices and understand how VCs work.  Learn the rules and follow them to increase your chances of getting funded.

6)     Not just an MVP – If you want to get funded, it’s important to get all your ducks in a row to gain trust with investors.  Especially when syndicating with Angel Investor groups like Rockies Venture Club it is important to be able to create excitement and gain momentum.  You won’t be able to do this if you have to go back to the drawing board for a month or more to work up your due diligence package and basic research.

7)      Test – test – test  – You know about the importance of testing and Quality Control for your programs.  A huge percentage of your development time is focused on making sure everything works right.  Take that same attitude towards your pitch and practice on everyone you know and keep refining the pitch and above all, don’t just try to wing it.

In summary, you’ve spent years developing the craft of becoming a developer.  People respect you because of your knowledge and expertise.  Realize that seeking venture capital is not just a sideline, but is something that will take up at least half your time or more until your round is closed.  And once that’s done, you’re probably ready to start on raising your next round.  Understanding the rules of venture capital is not just a nice-to-have skill  – it’s something you’re going to use for the rest of your career, so take the time to learn and do it right.

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Peter Adams is the Executive Director of Rockies Venture Club and Co-Author of Venture Capital for Dummies, John Wiley & Sons, August 2013.  Available at Amazon.com, Barnes and Noble and your local bookstore.

Why Venture Capital Investors Should Want to See Your Five Year Financial Proforma

Many entrepreneurs and VCs alike are hesitant to produce a proforma for more than two years out into the future.  They claim that it’s impossible to know what will happen and that the third year and beyond are “just numbers.”   While I would agree that nobody expects a startup to perform according to its projections, I am heartily in disagreement with the claim that a five year proforma doesn’t tell us anything.

venture capital proforma

First of all, let me say that it’s totally ridiculous to think that even a two year proforma has some degree of accuracy.  The earliest launch dates are typically missed and the first two years are highly variable – perhaps even more variable than years three and beyond.  So, if you’re going to say that you can’t predict years three through five, I will counter that you might as well abandon the effort all together since nobody has a crystal ball that extends to two years, much less five.

Why do I want a proforma out to five years (or more)?

1)      I am focused on the EXIT.  I want to know clearly how you plan to get from Point A (where you are today) to Point B (your exit strategy).  I want to see how you think and how big you expect to grow.  If you’re only planning on growing to five million in sales, and that’s your best case scenario, then maybe I’m not interested in investing.  I want to know what you’re shooting for.

2)      I want to know if you can SCALE.  I see a lot of entrepreneurs who are good at running companies with up to twelve employees.  But there are relatively few who know how to grow a big company, develop partnerships, put systems and metrics into place and scale up BIG.  Your numbers will show me that you know what it takes to scale and the resources required to do it.  I recently reviewed a proforma for a company that projected $35 million in sales with three employees.  Even with outsourcing their manufacturing, it didn’t make sense.

3)      I want to know how you THINK.  Are you detail oriented and able to develop your numbers from the bottom up, or are you just taking a percent of your total projected sales?  Do you understand the factors that will impact your growth and the costs that will accelerate or decelerate growth?  Do you show a straight line growth curve or does it vary wildly from year to year?  Do you understand the common ratios for support staff, sales and management at each level of growth?  Even if you’ve got a disruptive strategy that operates more efficiently, I want to see that you know what the norms are and how your new methods will be more efficient.

4)      I want to know how you came up with your VALUATION.  I use five different valuation models when assessing investment in companies and three of them are based on your exit strategy and the exit value is typically going to be some multiple of sales or EBITDA.  I will adjust your sales figures to what I believe are realistic, but I also want to see how your valuation relates to your projected sales.  Are you picking a valuation out of the air or are you doing the work to research and find ratios that make sense?

5)      I want to know how long it will be before I get my MONEY BACK.  Are you planning on an early exit within two or three years, or does your strategy take five to seven, or is it eight or longer?  These numbers will be critical to my investment decision since I don’t want to be in deals that take longer than seven years to liquidity.  If you think it will take eight years, then it will probably take ten and I’m not going to be hitting my investment objectives.  I calculate my returns based on Internal Rate of Return which is a ratio of total return of capital over time, so the longer my capital is out, the lower my IRR.

So, if you’re pitching to a VC, it can be in your best interest to show all years projections between now and your exit – and most VCs are realistic in knowing that if you actually hit your numbers that it will be a miracle.

 

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Peter Adams is Executive Director of Rockies Venture Club and Co-Author of Venture Capital for Dummies (John Wiley and Sons, 2013)   Available at Amazon, Barnes and Noble and your local book store.

Venture Capital For Dummies

Measuring Impact Investing

 

Impact Investing Metrics

Rockies Venture Club Impact Investing

Impact Investing is a term that has a wide range of interpretations. In order to have credibility, consistency and clear understanding about what constitutes success in impact investing it’s important to have a clear set of metrics to understand the social, environmental and economic impacts of impact investments.

Impact is Big Business

The impact investing industry is growing fast with over a trillion dollars of investment over the next decade according to JP Morgan research reported in Business Ethics magazine.   Funds that are investing for others find more and more reasons that they need to have clear metrics to demonstrate that they are carrying out the mission of the investors.   While each fund may develop their own metrics individually, there are huge benefits to utilizing an agreed upon set of metrics across the industry to allow for apples-to-apples comparisons among funds.

Using standardized metrics provides a framework in which larger and larger amounts of investment can be made by sophisticated funds.  The result of this is that impact investing funds can eclipse philanthropic efforts in improving health, education, environment and quality of life for underserved markets.  There will always be a place for philanthropy, but research has shown many for-profit organizations have been able to bring greater impact with greater long term sustainability than those non-profits that provide one-time support.

While individual impact investors don’t have concerns about accountability or credibility, they should also be using metrics to help them understand and evaluate the deals that they are considering and to be able to hone their investing strategies to balance financial and social/environmental outcomes.  Individuals will want to understand their investing goals, but will also want to be able to select impact investments that match and support their own values.

Global Impact Investing Ratings

In 2011 B Labs worked with over 200 impact investing funds to create GIIRS (pronounced “gears”), the Global Impact Investing Ratings System and its IRIS Registry for impact funds.  Since then, GIIRS has become the defacto standard for measuring social and environmental impact on investments that are clear and verifiable by third parties.  Impact companies that want to know how they’re doing can take a free impact assessment provided by B Labs that will let them know how they are doing and to test their future strategies against industry benchmarks.  The ability to compare each company’s results based on standardized measures opens up huge new opportunities for B Corporations and for funds alike.  Just as having standardized GAAP accounting guidelines makes investment analysis for public companies efficient, having the GIIRS standard opens the door for large scale investment in impact companies.

Rockies Venture Club Impact Investing

To learn more about B corporations and hear pitches from active impact companies, , consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register

http://rockiesventureclub.wildapricot.org/Default.aspx?pageId=1349467&eventId=698729&EventViewMode=EventDetails

Impact Investing Success Stories

Impact Investing is not new and has been around since the 1960’s, if not before.  Since that time we’ve seen a lot of success stories coming from impact investments.  With these successes we’re also seeing significant amounts of dollars under management by impact investing funds with returns of 25% and up PLUS social and environmental impact.

Given the lack of early stage startup funding for impact companies, uncertainties with cleantech technologies, lack of governance in developing countries, lack of structured capital markets and exit opportunities in third world countries and the need to provide social and/or environmental impact, it’s a wonder that impact companies can return anything at all to investors.

In our research we’ve found many funds and foundations that have achieved financial success in making impact investments, but it’s sometimes difficult to find specific impact investments that have hit it big.  What is the next “Instagram” of Impact Investing?

Here is a story of a company that hit it big.  The good news is that they are not alone and that impact companies are doing well all the time.

dlight S300-Product-Thumbnaild.light (http://www.dlightdesign.com)  has created a product line of solar powered lanterns that bring light and power to third world communities where community electricity is not available.  D.light makes high quality, affordable solar lanterns that are distributed world-wide with over half a million units delivered each month, delivering light to over 20 million individuals and families.  The users pay less for solar lighting than traditional kerosene lanterns, plus  the lighting allows for greater productivity and income generation when people can work beyond daylight hours.  Students benefit from better study environments and homes are safer and healthier without kerosene fumes.  Finally, the reduction in carbon emissions is significant.  The statistics below show the social and environmental impacts of this company that is turning a good profit at the same time.

25,315,130 lives empowered

6,328,782 school-aged children reached with solar lighting

$767,644,065 saved in energy-related expenses

7,219,013,138 productive hours created for working and studying

1,794,878 tons of CO2 offset

30,807,967 kWh generated from renewable energy source

 

d.light has won numerous certifications and awards and is backed by an impressive collection of venture funds and foundations – all expecting to turn a profit on their investments.  D.light is a “B Corporation” which means that it is a for profit corporation, but that it must meet rigorous standards of social and environmental performance, accountability and transparency.

 

At Rockies Venture Club we hope to find companies like this each December at our Impact Investing Event and support local companies that are doing good all over the world.

To learn more about impact investing and to meet the founders of four great impact companies, consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register

http://rockiesventureclub.wildapricot.org/Default.aspx?pageId=1349467&eventId=698729&EventViewMode=EventDetails

 

 

Raising capital tip: Be a part of the community

Investors don’t invest in ideas, products, or markets – they invest in people.

 

Ask any investor what their criteria are for choosing which companies they invest in and the answer will be that it’s the people.  This is no secret among investors and the communities of entrepreneurs that they invest in, yet we see entrepreneurs ignore this principle every day.

 

I am continually amazed when entrepreneurs think that they can short-cut the process of forming relationships in this process.  Entrepreneurs ask why we can’t just get angels to write them a check.  These entrepreneurs will never receive funding.

 

Entrepreneurs who are successful become a part of the community.  They get to know the people and they watch how investors respond to pitches.  “What questions do they ask?”  “Which companies do they invest in?”  “How do good companies land the all- important lead investor?”

 

I don’t know many people who an attend one event and get to know all one hundred of the people who are there. It takes several events before you get to know the key players in the community.  Entrepreneurs who are serious about raising money  for their companies know that it takes time. They spend time doing the research for their company; they learn about the venture capital process; they create a great pitch and they spend three to six months or even up to a year getting to know the angels and VCs in the community.

 

Successful entrepreneurs also remain active in the community after their pitch.  They realize that the pitch is not the end of the process, but that it is just the beginning.  After the pitch, successful entrepreneurs continue attending events and work to develop a lead investor.  They are active in the process rather than waiting for investors to come to them.  Successful companies continue their involvement actively for an average of three to four months after the pitch in order to circle up their investors into a syndicate and close the deal.

 

The Rockies Venture Club offers the education and communities for those who are willing to learn and become a part of the community.  Those who get involved are a part of the club that raised over $25 million in the past twelve months.  The others are destined to keep waiting for someone to do the work for them.

 

How can you get involved?

1)     Attend RVC events and other groups in the area.

2)    Join RVC and become a member.

3)     Take classes and workshops to build your knowledge of how venture capital works.

4)    Take part in the free funding mastermind sessions offered by RVC to help you hone your strategy and learn from others.

5)    Volunteer for events to get known in the community and contribute your share to the tremendous amount of work it takes to coordinate events.

6)    Get to know the people you meet and ask them out for coffee,  beer, etc.

7)    Follow-up and stay connected even after your pitch.

 

Do these things and you will be more likely to find active investor interest in what you are pitching.

 

To get involved check out the RVC events calendar.  We offer between five and ten events every month.  Click here to learn more.  www.rockiesventureclub.org

Philanthropic investing?

Impact-Investing1December is the month in which 25% of American philanthropic dollars are donated.

December is also a month in which investors are making investments, balancing

portfolios and taking profits and losses for tax purposes.

This is a time for investors to be asking themselves whether they can accomplish their

philanthropic and investing goals at the same time.

 

Impact investing has become increasingly popular not only for foundations and family

offices, but also now for individuals.

 

What is “Impact Investing?”

 

The term Impact Investing has been coined to describe investments that have social or

environmental impacts in addition to the economic impacts for the investor’s portfolio.

There has been much debate about what constitutes an Impact Investment though,

since even the most profit minded investment may help communities with job growth

and possible environmental benefits. Sophisticated impact investors typically use

metrics to evaluate the potential social or environmental impacts, and individuals have

access to these as well, though individuals more often rely on a gut feeling to tell them

which investments they prefer.

 

Another debate in Impact Investing circles is how much, if any, reduced profit

expectations should the investor have when making impact investments. Corporate

investors and CSR (Corporate Social Responsibility) programs have developed

sophisticated guidelines for balancing the costs of social and environmental impact with

expected financial costs or returns. They use a “Triple Bottom Line” system to measure

social, environmental and economic impacts of their decisions. Individuals may use

their own guidelines that may apply to all impact investments they make or which may

be applied on a case by case basis. I have seen everything from “I’m just hoping to get

my money back some day” to those who show preference for impact investments, but

who also expect the same types of returns relative to risk that they would see on the

rest of their investment portfolio.

 

At Rockies Venture Club, we hold an impact investing event on the second Tuesday

of every December. We recruit expert speakers on the topic as well as four impact

companies seeking early stage investment. The criteria we use are very close to those

that we use every month when evaluating venture companies for investment. The

companies should have experienced and capable teams, a disruptive technology,

product or service, and a substantial market demand. The outcomes we’re looking for

include an “exit” for investors within about five years with a potential return of up to ten

times the original investment.

 

Rockies Venture Club also supports EFCO (the Entrepreneurs Foundation of Colorado)

Which helps start ups to donate one percent of their founders stock to community

organizations. In this way every company that achieves a successful exit can be an

impact company.

 

To learn more about impact investing and to meet the founders of four great impact

companies, consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register

http://rockiesventureclub.wildapricot.org/Default.aspx?pageId=1349467&eventId=698729&EventViewMode=EventDetails

Should Investors Expect Lower Returns for "Impact Investments"?

 

imact investing returnsOne of the main questions we get regarding impact investing is whether impact investing should be considered to be philanthropy with little or no returns or whether impact investing can be expected to have the same kind of returns that other investment opportunities on the market can offer. We like to think that with a good amount of deal-flow, we can provide a number of impact companies that are also great investments. Research from the Global Impact Investing Netowrk and J.P. Morgan corroborate this, with fully 65% of investors expecting market rate returns.
It’s interesting to note that 36% of those who indicated that their impact investments should return market rates also said that they would consider impact investments at below market rates. I think this is the general opinion of most Rockies Venture Club investors. They’re looking for market rate returns, but for impact companies with a great mission and an ability to demonstrate significant social or environmental impact, they are willing to consider a slightly lower return.
This attitude reflects the “triple bottom line” analysis that corporate CSR departments have implemented in which economic returns may be balanced with social environmental returns when proper metrics are in place to ensure a balanced return to the organization.
An interesting aside to this flexibility in returns for impact companies is an article in the November 25th Wall Street Journal citing a higher degree of happiness among those who regularly donated to philanthropic organizations. We hope that RVC investors who invest in impact companies have a quadruple bottom line return with economic, social, environmental and happiness impacts!

To learn more about Impact Investing and to hear speakers and pitches from Colorado Impact Companies, consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register

http://rockiesventureclub.wildapricot.org/Default.aspx?pageId=1349467&eventId=698729&EventViewMode=EventDetails

Sun Number awarded $1 million by DOE to lower solar acquisition costs

by James Lester, Managing Consultant with Cleantech Finance

Rockies Venture Club presenter Sun Number has announced an award housesof approximately $1 million to expand the geographic coverage of its rooftop solar assessment services through the Department of Energy’s SunShot Incubator program. The award also enables Sun Number to expand the scope of its services by providing additional data that solar contractors will use to grow their businesses and lower customer acquisition costs.

“Being chosen as a SunShot 8 Incubator award recipient to commercialize Sun Number data will significantly accelerate our growth as a company.  The SunShot funding will be used to quickly expand into new cities increasing the number of buildings analyzed to approximately 35 million,” said David Herrmann, co-founder of Sun Number.

Herrmann added, “The funding will also be used to integrate additional data into the analysis of properties, including data on the likelihood of a building owner qualifying for a solar lease or loan, and the statistical likelihood that a building owner will be interested in solar based on a behavioral model that will be developed.  The data that Sun Number provides brings an installer closer to being able to complete the design of a PV system from their computer in a fraction of the time it currently takes.”

According to the company, Sun Number Scores will now include the economic suitability of a property for solar. Integrating the suitability of the roof for solar with the local cost of electricity, incentives, tax benefits, and the local cost of installation, the Sun Number Score will tell a homeowner if the economics of solar make sense for their building. The new Sun Number Score will be dynamic and as the variables mentioned above change, so will the score. Homeowners with a low score today will be able to set a threshold for the future and get notified when their Sun Number Score reaches that threshold.

The SunShot Program, initiated by the DOE in 2007, has incubated the emergence of 58 U.S. startups. The program has leveraged $104 million in federal money to generate more than $1.7 billion in private sector investment, or nearly $18 of private sector buy-in for every dollar of taxpayer support.

The long-term SunShot vision is for the U.S. to get 14 percent of its electricity from solar by 2030 and 27 percent by 2050 and to drive down the cost of solar electricity to $0.06 per kilowatt-hour.

“Over the last three years, the cost of a solar energy system has dropped by more than 70 percent,” DOE Secretary Ernest Moniz said in announcing the awards. The new investments will back more programs that reduce “soft costs like permitting, installation and interconnection” and “improve hardware performance and efficiency.”

Sun Number, previously profiled on the RVC blog here, was co-founded by Herrmann and Ryan Miller after receiving a $400,000 grant last year from the Sunshot Incubator. Sun Number used the funding to develop a tool to make it easier, faster and less expensive for both homeowners and solar companies to analyze the solar potential individual properties. The tool, known as a Sun Number Score, engages consumers by providing a solar analysis of their home or office building with an easy to understand score between 1 and 100, and then putting them in touch with a local solar professional. Solar professionals are able use the tool to reduce the costs of customer acquisition, often called ‘soft costs’.

If you would like to learn more about Sun Number, visit their website or contact David Herrmann at david.herrmann@sunnumber.com

Why does RVC pitch so many companies?

Why do we pitch so many companies?baseball-vc-pitch

I like to tell the story of the first time I filled out a questionnaire about Rockies Venture Club’s activities for the Angel Capital Association.  When I got the the question about how many companies we present each year, the choices were something like 1-3, 4-7, 8-10, 11-15, 16-20, 21-25, 25+ pitches per year.   With over 100 companies pitched in 2012 and 80 in 2013, we are off the charts!

I have a huge respect for the people I’ve met at the ACA, so I began to wonder whether we were doing something wrong.  I started looking at how the different angel groups functioned and why we were different.  Here is a summary of what I found:

1)      RVC is unique in that it serves the whole community and not just investors.   We have pitch events with 100+ people watching four pitches every month and conferences with hundreds of people watching 12 or 24 pitches.  We reach out to the community through partner groups.  If you just have a few dozen angels to depend on for your deal flow, then you won’t see a lot, but if you involve the whole community, then the deal-flow suddenly becomes significant.

2)      RVC is also unique in its focus on education.  By educating both the angel investors and the entrepreneurs, we make a smarter environment full of smart investors and savvy entrepreneurs.  This means that there are more high quality deals available than if no quality educational resources were available.  Without Pitch Academy we’ve noticed that most  (but not all) of the pitches we see are pretty flat.  They’re not only poor pitches, but the thinking behind them is often thin and poorly researched.  RVC workshops help entrepreneurs to build a solid logic to their plans, backed up by good research and hard work.  This alone is not enough to succeed, but it definitely raises the bar and puts higher quality deals in front of investors who now have the tools to really evaluate the deals that they’re looking at.

3)      You could challenge our plan to pitch roughly one in ten applicants.   “Why not just pick a few really good companies and go with them?”   There are a few problems with this challenge.  The first is that in many cases you don’t know which companies are good until you pitch them and get into due diligence.  If you just goody-pick the companies with great executive summaries all you get is companies that are good at executive summary writing.

4)      What about the 75% of RVC pitch companies who don’t get funded?  I’m often surprised about what does and what doesn’t get funded.  What I have seen is that something like two thirds of the companies that don’t get funded didn’t make it because they weren’t ready to pitch yet.  They still had homework to do in order to back up their plan and to refine their message and build a sharp strategy.  Some times these companies give up and other times they go back to the drawing board and come back six or twelve months later with a new CEO on board and the funding falls immediately into place.  Giving these companies the opportunity to pitch provides them with the perspective that they need to grow and get funded – or better yet, it teaches them how to bootstrap so that they never have to be beholden to angel or VC investors!

5)      Seeing lots of companies is the best way to build your 10,000 Malcolm Gladwell hours as an investor.  Some angel groups pitch only one company per month.  It would take one of those angels ten years to see as many deals as an RVC investor sees in a year.  Which investor do you think is going to have the ability to spot the winners from the losers?  Pattern recognition plays a big part in investing and the only way to build that is to see lots of deals.

6)      Enterpreneurs benefit by seeing lots of pitches too.  If entrepreneurs can see lots of great pitches, they get an idea for how high the bar has been set in our community.  They see what investors like and don’t like and they get to see which companies get funded and go on to do great things.  In many angel groups, the first pitch the entrepreneur sees is their own.  This is a bad way to learn how not just to pitch your company, but to build a winning strategy and team.

After thinking about it, my conclusion is that, like so many things, the best solution is to reach a balance.   It’s great to pitch a lot of companies for perspective, exposure and deal flow, but you also have to be prepared to limit the companies pitching to the ability of your entrepreneurial community to produce quality deal flow.    Right now we’re seeing 80 quality deals a year, but if things slow down, 60 might be the  right number, or if they heat up, then maybe 120!

To see a dozen great pitches – and I mean it – twelve highly investable companies – attend the 25th Rockies Venture Club Colorado Capital Conference.  #2013CCC   This even will have twelve great companies PLUS presentations from four Colorado companies that have gone big-time and had huge exits this year.  Hear from their founders and CEOs to learn how they did it and what to watch out for as either an investor or entrepreneur.

November 6-7 in Denver and Golden.  The 25th Colorado Capital Conference

Register for Investing In Tech Companies event