If you are new to the startup space and Angel investing, you probably don’t realize that some groups of Angel investors charge entrepreneurs a fee to pitch to their groups. This practice has caused a rousing debate among key players, with some calling it a scam, and others defending it as necessary to cover expenses.
Angels and venture capitalists will not sign non-disclosure (confidentiality) agreements just to listen to an entrepreneur’s funding presentation, or even to read the entrepreneur’s business plan. Serial entrepreneurs understand this and write their plans without describing the “secret sauce.” Investors will eventually want to validate the intellectual property (IP) prior to investing, but not just to hear about the opportunity.
One of the questions I hear most frequently is how to find consultants to help with developing a business plan for investors. Often it seems as if people are thinking that the right prose and formatting could make the difference between investor interest or lack of it.
The US Securities Exchange Act of 1934, section 12(g), generally limits a privately held company to fewer than 500 shareholders. The assumption has been that companies with 500 investors are quasi-public anyway, and for disclosure and other reasons should be forced to go public when the shareholder number approaches this limit.
Entrepreneurs: if you’re looking seriously at angel investment, and you have the kind of product-market fit and management experience investors will like, you need to take a good look at convertible notes.
Do yourself and the investors you want to talk to a favor: take a few minutes and do some homework on this issue.
One of my pet peeves in pitches is the triple whammy of absurdly high profitability projections. I’ve seen entrepreneurs promising 30, 40, even 50 percent profitability in their projections.
Why triple whammy? Projecting excess profits, at rates way beyond the normal, are bad for at least three reasons:
One of the most important questions you will be asked by potential investors is how your solution beats the competition’s, not just today, but over the three to five year life of their investment. There is no perfect answer to this question, but there are many wrong answers which will immediately jeopardize your credibility.
You can’t overemphasize the stories when you describe your business. The best business plans are stories, and the best pitches are stories.
I love your optimism. What I don’t like is the complete lack of experience that’s causing it.
Ideally, a business pitch is exciting because the business potential is exciting.
Too many entrepreneurs develop a new product without regard for market demand, then build an entire strategy based on creating a need, rather than acting on an existing market need. Investors characterize this approach as a “solution looking for a problem.” These don’t get funded.
The best startups find a way to drive the market with their technology, rather than