....thoughts and advice from a bunch of angel investors on all kinds of topics!
Foothills Angels Wisdom ;-)
Pitching to investors: Part 3
With the short pitches that most Angel groups and Venture "dating" forums allow, you have to really focus your content and use time and space wisely. So remove the agenda from the pitch (everyone knows what kind of content you have, or should have), make sure that your slides look professional and the color of the text against the background can easily be seen in a light room. Powerpoint provides enough free templates.
Use the title on each slide to highlight a conclusion from your slide discussion (e.g., Market Size of $2 Billion rather than just Market). Keep the font size large.
And perhaps most importantly, at the very beginning, be sure to very clearly state in terms your grandparents would understand, what you do. Sometimes that is very easy, sometimes very difficult. But you must do it, otherwise the audience will spend most of the time trying to figure it out, rather than listening to you (see Part II).
Pitching to investors: Part 2
One common mistake we often see in pitches -- too much information is put on slides. This can create a couple of problems: First, cramming information to get all the points across invariably means the font size is small and we cannot read it. But since you put it there we will try and then become distracted from what you are saying, thus losing track of your presentation. Second, if the information is not complete or it's complex it sets us thinking or struggling to figure something out. Again, we're not listening to you.
Bottom line: keep the slides very simple (animation is OK for something complex but be sure its done well and each step itself is easy to follow and understand).
Investors want to see you in action and listen to you hit the highlights of your business. Don't make us think, or read for more than about 5 seconds, on each slide.
How much....and why?
I've seen at least 10 entrepreneur pitches over the past month or so, and what struck me as odd was not a single one of them had a slide in their deck with two key pieces of information: how much they were raising, and why they needed it? First, every entrepreneur pitching a group of angels should have a clear idea of how much money they are trying to raise. Second, what are you raising the money for? OK, to you maybe it seems obvious, you are raising the money to keep the company going. However the main reason the angels want to know this information is so they can understand what key business milestones you are planning to achieve on their nickel! They want to be certain (as should you) that the amount of money you are raising is going to be sufficient to extend your runway long enough to achieve key business milestones that will enable you to raise your next round of money at a much higher valuation, hence minimizing future dilution. Next time you pitch to angels (or VC's) make sure you have one slide in your deck with how much money you are raising and what you plan to do (accomplish!) with it. Good luck!
Pitching to investors
Entrepreneurs always think that short pitches (like 10 minutes at an Angel group meeting) just don't give enough time for them to "sell" the deal. Au contraire! The goal of your first pitch is to intrigue and interest the audience in the business to get another meeting. This follow-up meeting, with a group that has already declared interest, will you give ample opportunity and time to elaborate on your deal.
Although it takes a lot of work to boil your entire business into ten minutes or so, a well done presentation really sets the stage. Remember, it is not so much about the product but the way of doing business with the product. There is plenty of advice on the web what such a presentation should include – reckon you need only about 10 content slides and a few miscellaneous ones with contact information and your introductory logo.
The same holds true for your first meeting with a VC. The chances are you will first meet with an associate who filter deals for the partner to see.
Debt or Equity?
A common question we get from entrepreneurs is whether we prefer debt or equity when making angel investments. The answer is: it depends! Convertible debt used to be the predominant method used to raise money from angels in the past, however today we are seeing a continuing trend towards angels (ourselves included) preferring equity (i.e. stock) over debt. Why? Well, while convertible debt tends to be easier to raise for the entrepreneur, many investors feel that they are investing "against themselves" with convertible notes. On the positive side, a convertible note is less expensive and quicker for the entrepreneur. However, on the negative side, angels feel that the entrepreneur is using their money to create more value so they can raise more money down the road at a higher valuation. Obviously this isn't the greatest for the angel investor, but you can compensate for this by offering some "sweeteners" to the early angels. Sweeteners include accrued interest, warrant coverage and/or a guaranteed discount when the debt converts to equity.
As for equity, the beauty of this is the valuation of the company is agreed to and set from the start. There is no question as to the cost/value of the shares being sold, both sides agree to it from the start. The issues to be mindful of here surround being sure to set a realistic valuation at a time when it is usually the most difficult. As an entrepreneur, you'd like to set the value as high as possible (to keep as much ownership of the company as possible), but not set it so high that either a.) the angels don't want to invest in the deal, or b.) the next investors (usually VC's by this time) who are more experienced in setting valuations decide the valuation of the angel round was too high, resulting in the next round being set at a lower valuation (a "down" round) and thus creating a big disappointment for your initial investors.
Whether you are offering a convertible note or stock, the important thing to keep in mind is what the expectation of the investor is for returns down the road. Investments made by angels in seed rounds are perhaps the riskiest investments out there, so be mindful that the investor will be expecting a very high level of potential return in exchange for investing at this very volatile stage!
Come with money!
Why would we say come with money? Because most angels don't really want to be the first money in a deal. Here's how the thought process works. You come and pitch a room full of angels. You show your team, your board and your advisors. Then one of us in the room asks "how much have you already raised from your current friends, family, board, advisors, etc.". You answer "...uh...none yet". So why would you ask a room full of strangers for money if you haven't been able to convince people in your personal circle, or people involved with the company to put some of their money in. If you are coming to us looking for money, make sure you can answer that question correctly! In a coming post we'll opine on what we like to see from team members and your advisors....
You only have 4 weeks!
We were talking today about what might be some good advice to give entrepreneurs who are trying to raise money from angel groups (like us!). So here's what we came up with first. Most angel groups meet monthly. If you are pitching to an angel group, you have just 4 weeks to capture some interest. Why just 4 weeks? Because 4 weeks after they meet with you, they are having another meeting with more entrepreneurs just like you. If you haven't gotten traction with an angel group within that 4 week window, it's highly unlikely you have a chance. Save yourself some time and move on to the next target!