The Key to Success with Angel Investors: Respect Their Culture
We are all trained to be sensitive to other cultures, but tend to forget those lessons when meeting investors. You are so anxious to get your story out, that you don't pay attention to the cultural norms on the other side. If you want to succeed, learn how to connect with your Angel audience.
Everyone has heard how to pitch: 1) great idea, 2) big market, 3) hockey stick revenue chart. Angel groups (such as the Pasadena Angels) even publish their requirements online. It's not enough to have the killer idea and a great pitch. You have to know your audience, and speak directly to them in ways they understand.
You can do it in a few simple steps.
Learn their process. Most Angel groups will allow you to attend a screening or pitch meeting. This is your chance to learn how they work and meet the key players. I participated in a Pasadena Angels screening meeting last week, and there were several entrepreneurs in the room learning how we work. They will have a huge advantage when making their pitch—they've seen it done, heard the questions, and gotten a feel for the sophistication and knowledge base of their audience.
Find an Angel to be your guide to his/her group. Find an Angel who's willing to look over your presentation and offer advice. If there's a problem or opportunity to do better, find out NOW. Before you are in a roomful of potential investors and blow it.
Listen to your friend's suggestions. They are a reflection of what the rest of the group is thinking and feeling. Also remember, you are being tested on “coachability”. If your friendly Angel discovers that you are ignoring their advice, you could get rejected for the sin of being “uncoachable.”
There are plenty of Angels who would like to help you, just for the bragging rights to say “yes, I helped that founder with his presentation.” Appeal to their egos—we all have one.
Learn the market valuation for companies at your stage. Investors have a general idea of reasonable valuations for companies at a given stage. For example, a company that is just at the idea stage might be valued at under $1mm. One with a proof of concept might be at $1.5mm-$2.0mm. A company with low six figure revenues might be worth $2.5-3.0mm. Ask yourself honestly where you are in this spectrum of development and seek out an estimate of market value.
Talk to Angels or other investors to get a feel for valuations at your company's stage, and give that as your desired valuation. If you come in with a $10mm valuation on a concept company, you will be laughed out of the process. On the other hand, if you come in with a market-based approach, you'll get points for being rational and well informed. Don't give away the store, but start at a reasonable answer plus 15%. Unless you can convince investors that your company is the next Facebook, you be valued just like other companies at your stage of development. The large increases in valuation come after you have demonstrated that you have a real business.
The most valuable secret: Listen, Listen, Listen. We all talk too much and listen too little when we pitch. Don't argue with your audience. Instead, try to identify the REAL objection. Use an old salesman's tactic. Answer an objection with a question: “You don't like our UI? Can you give me an example of one you really like?” “You think the market size is smaller than we suggest? How large would it need to be to convince you? What proof would satisfy you?”
You are trying to find out what they think, not win an argument. If you understand them, you'll be able to convince them.
Think of your Angels as a new culture, and act accordingly. Visit and learn their customs. Find a native guide. Demonstrate that you respect their values. Listen to them and find out how they think.
Armed with this knowledge, it's easy to get to “yes”. Angels want simple things: entrepreneurs who understand the process, are easy to work with, have reasonable expectations, and show concern for their issues. It's not that hard.
Steve Reich is a veteran entrepreneur and Angel investor in Southern California. Through his experiences with Digital Insight, LeisureLink, and Treasury Services, he has been with startups from launch to IPO. Reich has been funded by VC firms such Clearstone Venture Partners, Mission Ventures, Menlo Ventures, and General Atlantic. Steve is also an active member of the Pasadena Angels, and regularly mentors young companies. Steve’s expertise includes leading winning sales teams, brand marketing, and operations management. He has extensive experience in business to business sales, SaaS technology, and eCommerce. Follow steve at his blog at http://granitecreekblog.wordpress.com/.