The view from both sides of the table – facing angels (part II)

So, if you stand as a founder in front of potential investors and especially in front of angels what is going on on the other side of that table.  You have done your homework:

  • You know the job for which your technology is being hired
  • You have clear focus
  • You know your audience
  • You are avoiding that big technical uh-oh moment
  • You display complete confidence in achieving the dream

And you stand and deliver a solid presentation.  It is obvious to you that you are well equipped and ready to turn angel money into pure profit.  Will they say yes?  (I sure hope so but probably not)

Let’s face it, most deals do not get done.  So what is happening with investors?  Well perhaps a few lessons from the angel side of the table are important to understand.  Again, I am no top notch investor so I will defer to better resources on the topic like, among others.  No, I will just share from experience and hope that helps.

Lesson 1:  Great financials do NOT equal investment!

I contend that the early, early angels are motivated for many reasons and it often involves a perfect storm of events and a little bit of luck.  Let’s start with a common believe that the numbers are the beginning and end of the story!  Sure, absent clear lines of sight to exit and a solid financial story you may have issues.  But as Brad Feld describes in an excellent book, Venture Deals, “your revenue forecast will be wrong, your cash flow forecast will be wrong.”  In other words, the magic spreadsheet is not the beginning and end of the story.

It is in fact a complete fabrication – and everyone knows that.  How you present it, however, says a lot about how you think through business issues and hedge toward success.  Do you understand the burn rates you are looking for and how to control them?  Do you account for lagging cash flow?  Have you placed money to work in key spots that drive the business forward or tend only to the knitting?   In fact, many successful stories brag about not having monetization methods.  Can you get away with such a story?  Well, before you decide check lesson 2.

Lesson 2:  Hey, I like these guys

One of the thoughts that strikes me as I ready sites like pandodaily, techcrunch, uncrunched, maskable and others is the closeness of the entrepreneurial community – almost family – complete with bitter fighting and self important praise!  What does this have to do with the angel on the other side of the table as you pitch?  Well, much of an early decision is about WHO you know.  The company you keep.  Let’s face it, if a good friend asks for help to move from one house to another you are more likely to say yes then to that “jerk” down the street.  [Except for me because I just don’t like moving, but that is another story].

If you connect on an emotional level I believe your are in a far better position to win. (Too obvious?) Case in point (sorry I don’t have a reference):  I was just browsing around blogs one day when I came across a post about a new entrepreneur in residence at a major Silicon Valley VC firm.  The post literally bragged that this individual had largely failed in previous ventures but had great talent and was an idea factory.  So, the firm provided an office for this person until they all decided what was best to pursue together!  They wanted this leader.  Do you think that raise was difficult?

If you can find ways to avoid the cold pitch then I find it always goes better.  It may be a casual referral or known friend willing to help.  It may be you have to work your way into the active angel group by seeking advice (no pitch, no strings attached) from its members.  Anyway you can try to connect emotionally and reveal your character and commitment (which I am sure is stellar) will benefit you when it comes to pitch time.  We have all heard it:  “I would rather invest in an A team with a C idea, then a C team with an A idea.”  Cliche?  No, human nature.  We bet on each other.  We are in relationships no matter the business like terms and we want to root for success for those we believe in personally and that is often something that cannot be fabricated.  I have witnessed several instances of this over the years of attending pitch days and know personally that going in with a warm handshake and hearty recommendation can be a major boost!  Find ways to connect!

Lesson 3:  It solves MY problem

Several years back in a Live Fire event I sat and watched a respected set of investors respond to founder after founder.

In one case, a founder with a rich history and literally a life saving product (as in cure for cancer life saving) was up in front of the group.  The enthusiastic response from the team:  We never invest in life sciences, you need to find people ready and willing to do just that.  Good luck.  Wow!  I mean this solves a potential MY problem, no?  Certainly, it does – but in this case life sciences investments which tend to be capital heavy with long cycles just did not fit the investor profile and exercising that investor discipline meant it fell into the NOT MY category.  Goes back to knowing your audience – and to be honest – this founder was speaking towards a bigger assembled crowd and knew the panel may not be directly interested.  I can say I was ready to invest!!

In another, a company was pitching GPS enhanced audio tourism.  One of the judges said, “I travel in silence and like it this way.”  Instead of just moving on the founder pushed the issue and kept drawing back on the amazing opportunity.  Finally, a dismissive, “I would NEVER invest in anything like this.”  That is not a feeling you want in the room.  In this case it simply did not hit a pain point for this investor.  When that happens, understand and move on!

Finally, I heard the story of a local investor running across a pitch around bicycles.   It so happened that the investor was an avid rider.  The investor agreed to make a few introductions and eventually a deal was struck!  It solved (or at least appealed greatly to) that investor’s interest.  Nice.

So, if you have more then a hockey stick spreadsheet, connect on an emotional level and provide a simple, clear solution that solves an investor’s problem you have the beginnings of that perfect storm.  But make sure that simple, clear problem is big enough!

Lesson 4:  It solves a BIG (enough) problem

This loops back around to the financial story.  Please realize that bootstrapping might be the best way to build a successful start-up and make sure you really need investment before you seek it.  As soon as external money (beyond friends and family) gets involved then returns (despite other lessons) become important.  It may be that you really are better at providing consulting services or that visionary product is simply an app that will generate a nice yearly income for you and a few friends.  But when money starts to go to work, it is hungry for return.

I have first hand knowledge of an organization that is very successful but not wildly, exit ready successful.  Why?  Well, to make the story short when the curtain was pulled back on the target market and focus moved away from overall market size the real market simply did not have enough juice.  Sometimes that is easy to see but often it really is not.  Continue to challenge yourself to know your REAL markets.  Do not let vanity metrics, see Lean Startup, blur your vision.

Solve a BIG (enough) problem.  You don’t have to change the world to succeed but it is a nice goal.  If you can close less than 10% of sales, build-measure-learn lots of times and still have plenty of space to make an impact then you are trending towards the right size problem.  Hint:  If you are looking at an 80% adoption by your target clients in order to generate profits then your problem is probably not BIG (enough).

Little Lesson 5:  Wow, that was way better than the last pitch I heard

And finally a personal note.  I simply did not practice enough.  Nail that elevator speech and know your presentation!  Helps with all the other lessons. Remember, angel groups and investors are constantly being pitched.  No shortage of ideas and people who want to separate wealth from the wealthy.  So, you may be a little off on financials, market and idea but you are flat out the BEST in the room!  Think that being the best in the room will not be a difference maker? Investors have an expectation of quality and want to fly to it.  So, while it may not get you through final diligence on those terms, making sure you have your game together and care about your audience can at least leave you with one more conversation!  And plenty of founders never get that far!

The view from both sides of the table – facing angels (part I)

Recently I had the unique opportunity to observe an organized angel group listen to two new companies pitch for seed stage capital.  In this particular club, each angel is welcome to invest independently but the group must decide if it makes sense to engage in due diligence first.  This is certainly not an unusual setup.  What was unusual is that instead of presenting as a founder, I was on the angel side of the table watching the presentations and Q&A unfold.  As the companies presented I anxiously observed every word.  I know that for those presenters everything is being laid bare:  passion, drive, ideas.  It took me straight back to my times in front of such groups – and unfortunately – my less than successful times.  I knew as I listened why I failed to strike the right note for seed funding.  At least five lessons where on display, for good or bad:

Lesson 1:  Know the job your technology is being hired for

It is tempting to say ‘solve a real problem’ here but instead I will take a tip from Innovator’s Dilemma.  You see, my partner and I had created award winning technology.  We had clients and pushed the foundational technology on which we built our product to its limit.  We were going to change the way data was integrated, used and understood:  on the fly!  Sweet!  But I was technologist first and business problem solver second.  Oh, we did have a job our technology could be hired for and it would perform that job better than any existing solution back in 2007 and would still do a pretty decent job today.

You see, we had already won business in disease management and vulnerable population tracking.  We could grab mobile health information in the field and analyze it in real-time alongside a multitude of other health related data streams without every compromising the integrity of any given source of information.  Participation in data visibility with complete control for each participant.  The only problem:  it was on SLIDE NUMBER THREE!  If we were going to win the hearts and minds (and believe me you need a story that generates passion) we needed to tell a compelling solution story, not a technology story!  We needed to know that job and lead with it!

Instead, we were all too happy to share how our technology not only worked to perform that job better, but solved all kinds of problems.  Too numerous to count, so many it boggled the mind.  Which leads me to lesson two…

Lesson 2:  Clear focus

I know you think you have it as a leader, as a founder.  10 slides that follows the Guy Kawasaki formula (timeless).    You know the market, competitors, competitive advantage, barriers to entry and you even have a perfectly formed hockey stick of revenue with no end in sight.  Oh you have it all.  Including a message that tries to say it all.  In 20 minutes.  That weaves a complex story of technology, meets market demand, meets overnight star!  And it is just the tip of our ‘bowling pin’ plan. [Yes, I have used all those phrases and tried to tie off every detail in every area without taking a breath] See how many different use cases (did I really say use case, yes) we fit with our unique solution?  And after a confident presentation you step up to face the first question from the crowd:  What are they selling again?  Why exactly do I need this?  I see where you are going but…?

What happened.  Did you fail to live in the harsh world of the 5 second impression?  The 140 character tweet that must say it all.  A post from notable investor and business thinker Vinod Khosla’s Five-Second Rule challenges the limits of clarity, simplicity.  I know for a fact I failed the five second rule (and still struggle) – can we have 10 please?  And no matter what you think about explaining complexity you should never try to boil the ocean!  Even if you have a really large pot.

Share your passion – just make sure you share it clearly, with the focus and dedication it deserves.

Lesson 3:  Know your audience

Remember that presentation.  Full of awesome sauce!  You have practiced it a 100 times (and yes, I stopped in the 20s, another bad idea).  You have it nailed, it states that problem and your solution with crystal clarity.  You can bring it out time and time again.  But should you?  Do you know your audience?  I certainly could wax poetic about “mash-ups” and “semantic integration” but I failed to understand my audience did not always appreciate the nuance of lightweight, web service integration.  (Or even want to) No, they had another agenda.  Understanding how this turns the precious working capital they are about to fork over into a positive return.  Now that was what they wanted to know!  If I wanted to make a technology pitch then find technology-centric investors!

In short, know the audience first and while you still may need to check the appropriate boxes make sure you understand what they NEED and CONNECT with them first and foremost.

Back to Vinod Khosla (yes, I am a fan) for a little more insight.

Lesson 4:  Avoid that live demo thing

Ok, lesson 4 falls in the practicle category.  Before you throw over to your partner to show the ‘cool live demo’ remember you only make a first impression, once.  And you don’t want that impression to be a dropped wifi connection or “this was working when we practiced” comment followed by dead space.  If you have a compelling solution that is clearly great for the job it is designed to do, a clear focus and a bead on what your audience needs to know to help make you a winner don’t drop the ball by relying on the potentially reliable.  Should you have something real, no matter how small?  Probably!  Can it be a video demonstration?  Yes.  Pitched effectively from a few compelling screen shots?  Maybe. Then let yourself of the hook and run to toward simple!  And make sure that demo is telling the same story you are telling (with that clear focus, know your audience stuff)!

Lesson 5:  Never let them see you sweat

And one last note (one I actually did know way back when) – if you are going to ask for money, be confident, believe in your team and demonstrate your determination to win.  Transparency is fine but avoid dropping to one knee and begging.  Believe me, it will feel right sometimes when you look at that bank account but it rarely is!