Make your fundraise a grand slam: how to court angel investors
The following article has been written for IdeaSquares by Scott Haughton, COO at Envestors.
Sophisticated investors are just that – sophisticated. They’re undoubtedly experienced, they know exactly what they’re looking for in an investment opportunity and they’ve seen it all before - both faults and deuces. So, if you’re pitching for equity finance from angel investors, you have to be pitch perfect and match ready as they’ll ask you about everything. Here are the top five points you’ll need to ace in your pitch if you are to net an expert angel:
1. A pitch worthy of Centre Court
There are record numbers of growth businesses in 2019 – 672,000 founded in the last year alone - and if you’re to beat your opponents to win the funds, your pitch needs to be succinct, focused, and unencumbered by unnecessary details. Angel investors are flooded by deal choice; to love you and back you, you need to grab their attention and keep it. There is always the temptation to tell them all about your business. After all, it’s your baby and you love it, but what potential investors want to know is: what is the investment opportunity? So, while you will need to tell them what problem you are solving and the potential value of that in terms of market size, be sure the majority of your pitch is focused on the investment opportunity.
2. It’s a team sport
Every sophisticated investor agrees that they’d rather put money into a great management team with an average offering over an average management team with a great offering. So first up, investors will want to know who you and your team are. You’ll be asked about your experience, any successful exits, your motivation, your capability to execute the business plan, whether you’re planning to scale the team in the next year, your commitment, your passion… experienced business angels know that it’s all about the people and they’re going to want to know that your people are right. Having ‘skin in the game’ is also a match-winning tactic – in other words, if the management team has invested in the business, they are playing a serious game.
3. What’s the score?
Financials are, quite simply, as important as match point. Investors are looking for one thing: the opportunity to make money. You’ll be asked about projections, the company’s present financial situation – such as how much equity or debt you have – and if you’ll need more funding in the future. Your pitch, whether with gleaming graphics or space-age pie charts, will be useless if you fib about your financials – experienced angels will catch you out. Similarly, they’ll ask about your start-up’s valuation and whether you can justify it, so be prepared – unless you’ve been exceptionally conservative – for some questions here that might feel like a double fault. On the BBC show Dragons’ Den, it’s made very clear that if there’s one thing the dragons despise, it’s a high valuation business with zero sales. They will want to know how much you’re wanting to raise, how these funds will be used and how this will benefit the business. Unless you want to hit the net, you’ll need to have credible figures and truthful answers. Uncertain if your valuation will win them over? Click here for Envestors’ online valuation calculator.
4. What’s the advantage of your product?
Your pitch requires nifty footwork here. You’ll need to demonstrate that your product or service is unique, scalable – such as new key features or later versions you plan to release – and you may have to provide a demonstration of how it works. It is crucial that you can answer these questions in full, as your responses will be a measure of your commitment and passion. Also, you’ll need to be able to provide information on your copyrights, patents/patents pending and any violations of rights. Finally, you’ll be required to paint a clear picture of the market, the percentage you credibly think you can capture and critically the competition. Your growth potential is a significant feature in attracting investment and if you can’t prove that you’re unique or can offer a competitive advantage, you’ll crash out in the first round.
5. Game, set and match.
Sophisticated investors describe themselves as people who walk into rooms backwards. In other words, they’re looking for the exit. It might seem counterintuitive, but the moment they're investing, they're looking at how they can get out, and what that might look like in monetary terms. A plausible and realistic exit strategy is a must – remember, they’re in the investing world to make money and you must show them exactly how you’re going to ensure they win the big prize.
Need a winning strategy to court sophisticated investors? Click here to learn how Envestors can help.
About the author, Scott Haughton:
Since co-founding Envestors in 2004, Scott has led investments totalling over £50m in over 100 high growth companies. Having gained his degree in Economics and Business and consequently an MBA, Scott spent 16 years working in senior sales and marketing roles for multi-national blue chip FMCG corporations, including Mars Confectionery and GlaxoSmithKline. Scott then left big corporate life to set up a unique, premium quality family leisure concept, personally securing funding totalling £680,000, which included venture capital backing, business angel investment and a DTI Small Firms loan. Outside of work, he now spends most of his time either skiing in France, playing club cricket or actively watching Saracens Rugby Club.