You have a great new business idea, you have built the minimal viable product (MVP), you have some initial revenues -- and now you want to raise some angel funding. What do you do next? Before you reach out and apply to every angel group in town, consider the following.
1. Determine how much you need to raise and the milestones you will hit
Founders “sell” milestones to investors and leave it to investors to ask themselves two questions: 1. Will this team hit these milestones with this amount of capital raised? 2. If they hit the milestones will they be attractive to the next round of investors?
Be cautious about how much money you ask for in this round. Ask for only enough to prove the next level of market and product traction, building in a bit of a contingency. If you shoot too high you may have to score with multiple angel groups, spend the next six months fundraising, and risking having to return the money if you do not complete the round.
2. Create your elevator pitch
Write a 30 second pitch that you could deliver in a ride in the elevator, with no props. Try it out on people and refine it until it is just right. This pitch could be your outline for your pitch deck, which avoids the common problem of including slides in a deck just because the writer already had some great graphics rather than whether they help make the case succinctly. A great elevator pitch is also a smart way to start a presentation, speaking it while the title slide is showing. It is vital to get your audience’s attention in the first 30 seconds to keep them from glancing at their phones or going to other distractions. If your punchline happens 3 minutes into your pitch you may have already lost their attention.
3. Write a brief and compelling pitch deck
Start with the Guy Kawasaki outline hitting all the key points investors will expect, then customize the arrangement to play up your particular strengths. Be specific without being detailed. Most investors will prefer that you show how you will win a targeted market segment and then paint out a broader potential vision near the end of your pitch. It is often far better to be the recognized market leader in a $1B market than to be one of many in a $100B market, especially if you are coming in late. Try to avoid selling your business as part of a revolution or the next big thing; yes it helps to be current, but investors do not want to count on a rising tide lifting all the boats. If you have market traction, shout it out loud, as traction is a great leading indicator that: i) your product fills an unmet need, ii) you are able to tell your story to customers, iii) your product works, and iv) the team is able to sell. Above all make it clear how you will money and how investors will make money for themselves.
4. Adapt your pitch format to fit the need
Many angel groups have companies apply by submitting their pitch decks and perhaps a summary profile. Understand that if you have written your deck to be presented they will not have the benefit of your oral presentation. A general topic sentence with a nice picture of a flower will likely confuse your audience. So many times when deal screeners review vague pitches they are forced to make guesses about missing information, and too often those guesses are unfavorable to the company.
I highly recommend you read Duarte’s presentation on Slidedocs, and follow this advice. You may adapt the Slidedoc format to Google Slides, Powerpoint, or any other presentation vehicle you want to use. (see earlier blog post). Some angel groups permit teams to submit links, and some require specific electronic formats such as .ppt or .pdf.
5. Practice your pitch with live audiences
There are several practice pitch nights a week in many cities, which is an opportunity for founders to practice in front of investors and other founders, and in many cases get valuable feedback from a panel. At worst it is live practice. Even better is getting helpful feedback. And at best founders sometimes meet investors who invite them to apply to angel groups, help make introductions, or perhaps invest themselves.
6. Find sponsors at angel groups
Ideally you can find sponsors who are members of angel groups, who can describe the investment process and keys to success, and who can ensure your pitch gets proper consideration within the angel group. You might meet these sponsors at practice pitches or through networking. Having an inside coach is far better than applying blind. Be sure to keep your coach informed of your steps and timing; avoid surprising him or her by jumping the gun on your application before the coach has reviewed it. Teams have done this to me several times, and there is little I can do to save their applications when it happens.
7. Be flexible on your deal structure
You will find that different investors may prefer different deal structures for the angel round. Some are happy with SAFE notes, some work well with Convertible Notes, and some may insist on a priced round. As CEO you will want to listen to concerns and preferences, especially from whichever group will lead the round, and make the right decisions. The same is true for your valuation, where you may find getting too greedy results in no funding. Remember that your goal is to build a company; within reason everybody can win if the company succeeds almost regardless of the ownership. You will find most angel investors want the founding team to succeed, and to have an incentive to succeed, so will negotiate in good faith.
8. Prepare for due diligence
When you make a successful pitch you may be lucky enough to end up in due diligence faster than you thought. Congratulations! When it happens you may wish you had started preparing early for it. When founders have all their paperwork completed and well-organized it sends a powerful message to potential investors. The documents to include in your “deal room” should include: certificate of incorporation, articles of incorporation, capitalization table, board meeting minutes (whose resolutions align with the cap table), employment agreements, bank statements, patent filings, customer contracts, and more. When investors can check off documents from their checklist and perform some spot checks, they can feel comfortable. On the other hand, when the documents are incomplete or inconsistent, investors feel the need to go deeper, which takes more time (for you and them), and may cause them to sour on the deal.
9. Use the tools that will enable you to scale fast
Another aspect of due diligence is many investors want to see that the company employs tools that will support scaling with more team members and multiple locations. Showing them your active CRM, financial management, and project management tools will help build confidence. Those companies who track all their work on a whiteboard or post-it notes stuck to the wall risk scaring some investors away.
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I am an angel investor and review dozens of pitches a month. The ones that do this level of preparation get our attention, and in some cases our funding.