What do Angel Investors Want?

What do Angel Investors Want?  

Rockies Venture Club Angel Investors Unplugged

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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.

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