Sunday, April 25, 2010

Talking to Angels (angel investors, that is)

We all have angels of one kind or another. As a Tech-preneurs you have at least one kind you may wish to talk to ("pitch to" in the parlance of the angel investing community). The good news is that to learn to talk to those angels you do not need to retire to Nepal spinning prayer wheels or to Rome chanting psalms in Latin for years.
Angel investors are easy to "pitch" if you understand some basic rules:  Like all angels they are in high demand, hear requests for help almost continuously so they develop a short fuse.  Your "prayers" better be short and to the point, present facts clearly, use facts to support your claims and plans rigorously so that they are more than hopes.  Most importantly remeber that this "business" type of angels respond primarily to credible promises of significant rewards in return for their help.  Emphasis is on credible and significant.  It's that simple and we'll see how to "talk" to them in their language later on.

Angels, like all beings run in packs and cluster in places, so they are easy to find.  Universities, business schools, departments of commerce and other entrepreneurs, all know where to find them. In Arizona, this is your path to the Arizona Angels Venture Group of which I am part along with the Thunderbird Venture Fund, ATIF (Arizona Technoligy Investor Forum), the MIT Enterprise Forum, ASU Technopolis Invest Southwest Capital Conference.

Once you find them, follow carefully their instructions (rember the short fuse) on how to make contact and how to present your case.  Most often their rules are clearly published in their web sites.  For the above groups that I am familiar with, below are guidelines on how to present.

To avoid wasting your time, however, understand clearly what kinds of businesses stand any chance (see how).  If you don't fit their expectations, save the effort and frustration and find another route to get your business into the INC500. There are other alternatives, some published in my blog (e.g. SBIR grants, etc.)

Guidelines for Companies Presenting to Arizona Angels Venture Group
PowerPoint Presentations

General Guidelines
  • Presenter must be the CEO.
  • Presenter remains at podium throughout presentation.
  • Presenter must wear formal business attire for presentation (not required for screening committee presentation)
  • Use of props or demo products is up to the company.  Realize that small items may not be visible to everyone in a large room and circulating items will be distracting from the overall presentation.
  • Presenters changing their own slides is preferred. Automation or outside helpers are risky and prone to untimely failures.
Guidelines for 10 Minute Presentation
  • Presentation must be 10 minutes or less, NOT more..
  • Must be in Powerpoint 2003 or 2007 versions with no extra software for animations. (animations are uncontrollable, risky and not recommended)
  • 10 to 15 substantive slides for presentation (excluding cover page and thank you/Q&A)
  • The 10 slides below are required for the Arizona Angels screening panel presentation and strongly recommended (few more if you must) for the full presentation.

1. Statement of the problem
  • This should identify the customer pain and the Company's solution for that pain.
2. Product or Service Description.
  • This should be a balance of information that gets the essential product/service idea across
  •  If the product/service falls within a recognized category, it is generally useful to identify that category.
  • Include proprietary protection, if that is applicable (e.g., patent owned or applied for).
  • Recommended: 2 minutes out of 10 of total presentation. A common mistake is to get stuck on ths overmuch.
3. Current Status Description (with historical information, if relevant).
  • Give a brief picture of where the Company is with relevant information (number of employees, development stage, early revenue, number of customers, etc.). 
  • Include historical information if it is helpful to understanding the current stage.
4. Description and Sizing of the Target Market.
  • This is one of the most important slides, because the investors will use it to determine if they have any interest in even thinking about the Company.
  • Their interest depends upon whether they think the market for these products and services is big enough to support the growth of the Company into a big company.
  • The information should be as pertinent to the Company as possible (i.e. the market information should relate to the market for these products and services and not a larger market of which these are a subset.). To the extent possible, use third party information (e.g., Gartner's, or IDC). If third party info is not available, make educated guesses, and indicate that the info is Company estimated.
5. Business Model (how we make money).
  • This also is extremely important. The investors want and need to understand how the Company makes money (e.g., licensing model, service offering, whether there is recurring revenue, etc.).
  • The Company’s "go to market" strategy: how it plans to manufacture, sell, distribute, support (e.g., distribution model—direct or indirect; partnering; go it alone; brand play for penetration; etc.).
  • How soon will it make money with that strategy? Until then the cash-burn-rate will work to kill the venture.
  • Common mistake is to be unclear either in the mind of the entrepreneur or in the explanation to the audience or both.
6. Competition.
  •  Identify who the Company's top competitors are and how the Company's believes it is positioned to successfully meet that competition.
  • Remember: a. doing nothing is always an option if there is no compelling reason to act,  b. the company with no competition does not exist
  • What is the company sustainable competitive advantage against competitors.
  • Barriers to entry?
7. Management Team Slide.
  • This is a very important slide. It should highlight relevant domain knowledge of the team and prior experience as a team. This is not a resume, do not over do the slide. MUST BE LEGIBLE
  • Advisory Board: valuable are domain experts and members with key industry contacts to open doors and willing to do so.
8. Historical and Projected Financial Data (1-2 actual, 5 year projected P&L).
  • Don't be too granular. Include current financials. Generally, all that is needed are Revenues Gross Margin, Expenses, EBITA, cash burn. More at your risk – MUST BE EASILY LEGIBLE.
  • Identify key assumptions orally.
  • The information should summarize (and be consistent with) the Company's underlying detailed plan.
9. Amount of Investment Funds Sought; Use of Proceeds.
  • Generally, this is a simple slide showing planned use of the money by 4 or 5 categories, and total being sought.
  • Call out unusual uses, such as for an acquisition, paying off loans, buying a building or expensive production/test/laboratory equipment.
  • Your proposed pre-money valuation. Articulate why you think is justified.
  • State if more raises will be necessary before exit 
10. Most likely way to exit and rationale for expected valuation

  • Do the math for the investor. How many times their investment will they get back, what ROI
  • Restate why it is believable (IP, team, experience, market dominance, market growth)
  • How have you covered the downside risk

General Guidelines
  • The presenter/team determine the order of the slides, and if more than the above are necessary to tell the story then use them, but experience shows: (a) the fewer the better, and (b) more than 15 total slides is not likely to work well.
  • The openingtitle slide and last (Thank you/Q&A) do not count.. The 10 minutes time limit begins when the CEO begins his/her presentation.

Some Insights and Caveats from Experience

  • Investors respond to a compelling story of a serious need for which you have a (nearl) unique and practical solution that will deliver strong market position or dominance that justifies your projections of fast growth and ROI that lead to a successful exit where you AND the investors cash out of the deal.
  • Stay focused on your target audience and be courteous to a fault. Help everyone understand why you are excited about what your company is doing and how it will impact the world. Do not “dumb” your presentation down.
  • Communicating is YOUR responsibility, the audience owes you no duty to easily or quickly understand any of it, but they have the funding you seek.
  • There are potentially only a few people in the audience who may be deeply familiar with the technology and the competitive landscape in the area you are addressing. They are your most likely investors and it is most critical that you convince them that you are on the cutting edge of the market and/or technology.
  • Keep the slides as simple as possible; cluttering is distracting, and investors are quick to be distracted. When busy reading or making sense they tune you out. Font size must be readable from the last row. That translates to about 3-4 bullets per slide, about 8-10 words max per bullet. Less is better (see
  • Use graphics carefully, strategically and sparingly. If they do not communicate better than word or numbers, they are distracting (e.g. pie charts with too many undistinguishable slices are useless). Make the numbers and elements of graphs readable or skip them

Now that you have the roadmap, qualify your business for fitness to the angels' criteria (see how) and go angel hunting (begging is more like it).  Good luck, and ask for help, many angels are passionate about helping you succeed.

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