Still looking for an angel investment in your startup? Part II in our “What Angel Investors Want to Know” series offers some more insights to consider when pitching to angel investors.
Building a Connection with your Investor
Does the investor already know and like the entrepreneur? Or has the entrepreneur been referred to the investor by a colleague? It’s a significant advantage to building a professional relationship. If the entrepreneur doesn’t know the investor, the best way to grab their attention is to get a trusted and warm introduction from a colleague, including other entrepreneurs, lawyers, investment bankers, other angel investors or venture capitalists. Angel investors’ inboxes typically get filled with unsolicited executive summaries and pitch decks. Often, these solicitations are ignored unless they are referred from a trusted, noteworthy source.
Interesting (But Professional!) Pitch Decks
The investor will first expect to see a 15-20 page investor pitch deck before scheduling a meeting with an entrepreneur. The pitch deck must feel engaging yet professional, so it can keep the investor’s attention while giving them an idea if they’d like to discuss the company in more depth. They’ll expect an interesting business model that emphasizes the commitment of the entrepreneurs and provides big opportunities. Ensure you have vetted your pitch deck by having trusted entrepreneurs, lawyers and colleagues look it over. You might want to start by reviewing other pitch decks and executive summaries can help you assess your own. A Guide to Investor Pitch Decks for Startup Fundraising is a great resource of examples.
Calculate the Potential Business Risks
Investors hope to understand the risks that come with the business. They want to know the entrepreneurs’ thought process on the precautions you can take to mitigate those risks. There will be risks associated with any business plan, but it’s important to stay prepared and answers the following questions thoughtfully:
- What are the principal risks to the business?
- Do you have any legal risks? Does the business model comply with applicable laws, including expanding privacy protections?
- Are there any technology risks associated with your business model?
- What are the regulatory risks, if any?
- Are there any product liability risks?
- What process will you take to mitigate these risks?
Startups that can show they have reduced or eliminated any technology, sales, product or market risks will have a better advantage when fundraising for investment capital.
Understand Why Your Product is Great
Entrepreneurs must clearly understand their products and why they have the power to stand out in a crowded, competitive market. They must be able to articulate why their company’s product or services consist of and why they will have longevity. They can expect the following questions from angel investors:
- Why will consumers care about your product or service?
- Have customers favorably reviewed your product/services?
- What are the major product milestones?
- What are the key differentiating factors of your product or service compared to your competition?
- What are your key takeaways from the early versions of the product/service?
- List two to three features you plan to add.
- How often do you plan on enhancing or updating the product/service?
Showing How to You’ll Use Funds and Charting its Progress
Right off the bat, investors will want to know how their capital will be used to support your company’s product/services. They’ll also want to know your proposed burn rate so that they can understand when you’ll need the next round of funding. This will help investors test out whether any entrepreneurs’ funding plans are reasonable given the capital requirements of the company. If you allow the investors to envision whether your cost estimation (ex. tech/engineering talent, marketing costs, office expenditures) is reasonable given the investors’ experiences with other companies. Angels will want to ensure that, at the minimum, entrepreneurs have enough capital to meet their next milestone so these startups can raise more funding.
Check back soon for Part III in our series!