When You Pitch Angel Investors, Focus on the Investment Opportunity
by Eugene Carr
As a serial entrepreneur, I’ve pitched hundreds of angel investors. At the time, I believed these investors were open-minded risk takers who simply wanted to help founders get innovative businesses started. Though that may be true, there’s a reason it’s called angel investing. The vast majority of angels are looking for outstanding early stage investment opportunities.
Unfortunately, many presentations fail because founders pitch their businesses well, but not the investment opportunity. It’s well known among angel investors (and documented in books such as Angel Investing by David S. Rose) that the vast majority of investments will not pan out.
Thus, during every pitch, angels hear a voice in the back of their head saying “are you going to lose all your money on this investment?” As such, I’m recommending you make the focus of your presentation all about how angel investors will achieve a solid financial return by putting their capital into your business.
Imagine the first minute of your pitch (after introducing yourself) using a template something like this:
We are solving a big problem [____] by offering [_____]. This is a large market [$__] and I’m here seeking an investment of [$___] to help us grow our revenues from $[__] this year to [$__] within the next [___] years. Exit valuations in our industry are typically [___ times] multiple of [revenue (or EBITDA)]. When we get to [$___] revenue we believe our angel investors will see a return of [___ times] their initial investment. During the rest of this pitch I’ll describe how we will achieve this goal.
As you consider the above, know that angel investors are going to want you to touch on these points, even in a cursory way in an initial pitch: :
- What are your current metrics? What is your revenue last year, this year and projected out at least one or two years into the future. How much does it cost to acquire a customer? What are your margins, and are they going down or up? How fast is your top-line growing and why?
- How big is the market and is it growing? Don’t fall into the trap of saying “it’s a $500M market and if we have 1.5% we’ll be a …..” Educate us as to the market and competitors. Is this a “winner take all” market? How many competitors are there and how will you get a sustainable market share? Demonstrate that you have a believable plan to get there.
- How much runway will the capital you’re raising last? Angel investors assume you’ll need more rounds of financing and want to understand if you’re raising enough to provide time to get to your next round. There’s nothing worse than funding an early stage company that needs lots of additional capital to get to a meaningful milestone which may lead to a down round or a recapitalization if things don’t play out the way you expect.
- Valuation: This is the silent achilles heel of many failed pitches. I often hear angels lament “I liked the company and the founder a lot, but at that valuation I’m out.” Back up your valuation with how you got there and why it’s realistic for your business.
- What type of investment vehicle are you proposing? The New York Angel members do not typically invest in SAFE notes. Though popular, this instrument has a structure that does not protect early investors in some scenarios and thus convertible notes or priced rounds are preferred. (If you propose a SAFE note to New York Angel members, it will simply add an unnecessary speed bump.)
- Provide realistic revenue projections: We often see financials that are incredible to the point of not being believable. If you show an astronomical growth curve, be prepared to back up that projection with data and solid reasons why you can achieve it.
There is by far not a comprehensive list of things angel investors will want to know about as they evaluate your investment opportunity. But, I hope that this post helps persuade you that when you’re pitching angel investors, the most compelling part of your pitch should be nailing the story about how your investors will make a terrific return on their investment in your business.