pitching

Hints and tips for founders getting started with angel investment

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I’ve spoken on this theme a few times lately.  First for the GMIT Empower conference back in September & more recently for Republic of Work in Cork at their weekly lunch and learn.  It’s an interesting topic because raising investment really is one of those lessons that isn’t easy to learn from a text book.  Of course there’s loads written about the process and how to go about it … but in truth the hardest part of all is finding the right investors in the first place, right at the very beginning.  And this can be a bit of a dark art.  Why?  Well because a lot of it is about people, and as everyone knows, that’s always the trickiest part of any business transaction.

Angel investors themselves tend to be either very well known or completely hidden away.  You’ll all know the famous ones who are prominent in whichever city or county you happen to live in.  Some of them are full time & professional angel investment is all they do and they approach it very much like a job.  They’re active in the angel networks (like HBAN here in Ireland) or they’re members of the UKBAA or EBAN or the like.  They welcome approaches from founders & may well advertise or promote how they want you to engage with them.  Maybe they’re connected with one of the accelerator groups and you can access them via that route.  They’re clear about what sorts of companies they’re interested in investing in and may even publicise that information.  If you fit their profile then you’re golden and Bob’s your uncle – it’s a fairly clear path & they’ll either like your proposition or they won’t.  If they like it you’ll either agree on a valuation and investment terms or you won’t.  If you like them and what they bring you’ll either take their money or you won’t.  Job done.

In truth many of those well known angels tend to invest in the same types of companies that are already in the accelerators and on the government programmes and marked out early doors as companies with high potential for rapid growth and on a pre-defined trajectory to investment.  They tend to move in the same circles as the VC firms and they all know the same people.  It de-risks everything for them as the companies have already been through the mill in terms of copious amounts of expert due diligence performed and money is being thrown at them from all angles.  Often it’s a lot about tax breaks and managing their portfolios. 

But what if you aren’t one of those companies?  What if you don’t move in those circles?  What if you’re very early stage?  Then where do you start.

Again, like most things in life you start with your network.  (As an aside, if you’re an entrepreneur or a startup founder and you’re reading this and realising that you don’t have a network, you’re in serious trouble and you need to take speedy affirmative action.  That’s a blog topic for another day.  As a quick fix, buy Kelly Hoey’s book “Build Your Dream Network” and read it immediately).

As a founder or entrepreneur you will probably be part of a number of networks with other similar founders.  I would start there.  But before you do that, pause and have a long hard think about the sort of investor you’re looking for.  Do you want dumb or smart money?  Do you want to use this as an opportunity to bring expertise onto your Board and into your company?  Are you looking for someone that’s well connected into the investor community who will be able to bring in your next level of investment when you’re ready for the big cheque?  Do you want someone who has successfully sold their own company and might be able to help you do the same?

Remember that angel investing is a team sport and you only really need to find the first appropriate investor & convince them that you & your company are interesting & a good bet.  If you can do that, they will likely bring their friends.  When I look at my own investment portfolio, in 7 of the 10 companies I’ve invested in I’ve brought other investors in with me who didn’t know anything about those companies.

Once you’ve identified your ideal investor or investors, draw up your long list … and then make a start on your homework.  Against the names on your list you will need to research the following as a minimum:

  • Is the angel actively investing currently?
  • If so are they looking at new investments or focusing only on existing portfolio?
  • Do I meet their investment criteria? (For example, I have 3 criteria before I’ll usually even look at an opportunity – has to be female founders, tech for good & something I can add value to)
  • What size of investments do they usually make?
  • Do they invest alone or as part of an angel network?
  • What other investments have they made in businesses similar to mine?
  • Does the person welcome cold approaches?
  • If not, who do I know who knows them?

You can avoid this step by pitching to the angel networks.  This may save you time.  It may also result in you missing out on some of the more niche (and maybe appropriate) angels who aren’t part of the networks.  You will also be at the mercy of the angel network’s timetable in terms of pitch dates, pitch format and so on.  It’s perhaps worth mentioning that whichever of these paths you start with, there’s a good likelihood you’ll end up doing a bit of both routes.

Pitching to the formal networks saves founders a lot of time and legwork.  The organisers are super-experienced and may well help you get investor ready, explain the enormous amount of jargon that surrounds business investment, finesse your pitch & business plan, guide you in terms of the forms of investment itself that are open to you (it’s not all straight equity any more), narrow down your valuation range … some of them even do all the paperwork.  However, for some types of business they may not have many of the right types of investor in the network and this can lead to founder disappointment when no tangible interest materialises and a feeling that time has been wasted.  Weigh it up and have the conversation with the organisers of the angel network.  They’ll be keen not to waste their own time either.  Final point on this – there’s no guarantee or obligation on them to even allow you to pitch so this route may simply not be available to you for any number of reasons.

I’m going to pause here for a moment to cover off how I believe you should go about contacting angel investors for an initial conversation.  This is completely & utterly my own opinion.  I mentioned earlier that many angels welcome cold approaches.  I don’t and these are just a few of the more common ways that people I’ve never met or spoken with contact me:

  • They email me cold & include their pitch decks (& often bizarrely add a note to say if I’m not interested can I forward their deck onto others in my network who may be … WTF … dream on)
  • They send me Twitter DMs with a link to their pitch deck
  • They include me in desperate scattergun cold approaches via LinkedIn
  • They corner me at in-person events and try to pitch to me

When this happens my response ranges from deleting the email & ignoring the person to offering constructive advice to just plain being blunt or rude, which I don’t like to be.  None of these methods will ever result in me investing in that founder’s business and I say that with 100% certainty. 

I generally only have initial conversations if the founder comes to me via a structured introduction from a mutual respected & trusted contact.

I’ll leave you today with three pieces of advice and 3 pitfall areas for anyone who’s fundraising or about to start.  Advice first:

  1. Start looking early.  Start the process way before you think you need to.  There’s a lot you can do to get ready but the main activity will be building your network, starting to make connections and having early conversations.  Your first fundraise will likely take 6-9 months but it often takes longer and false starts are fairly common.
  2. Do your homework.  On investors as mentioned above but also in terms of your own prep.  Decide on the sort of investment you are seeking.  Go online & watch as many others pitching as you can.  Learn the jargon.  If you’re not an accountant, learn about balance sheets and cap tables at least so that you understand why investors are interested in them.  Think about your valuation and how much equity you’re prepared to part with.  On this, expect valuations to be under further pressure as the Covid period extends again (I’ve heard of term sheets again being rescinded in the last few days since more national lockdowns have been announced).  Start working on your pitch deck early as it will go through a lot of iterations.  Before we leave this point, make sure you’ve accessed all the free money (i.e. grants) that you can.
  3. Raise enough.  Especially now.  The process of raising in itself is extremely time consuming and a serious distraction to business as usual.  And who knows what the world will look like in 12 or 18 or 24 months time.  Watch out for tyre kickers who will talk to you until the cows come home but never get any closer to investing.  One of you needs to pop the question during this type of long courtship.  I heard last week that a number of funds are no longer doing smaller investments of less than £1m.  This trend is likely to spread & really early stage money is likely to get more & more scarce … so if you’re thinking about fundraising real urgency does exist.

And now some pitfalls:

  1. Don’t let the process go slowly because you aren’t prepared.  Get your due diligence documentation completed early and in order.  Business plan in the correct format and split into chapters, labelled & ready to send out to anyone who asks.  Share register clear & up to date with no anomalies.  Customer contracts in order & available, financial information up to date and company filings done.  Forecasts available in detail and ready to answer any questions on the underlying assumptions.  Board minutes written up.  No last minute surprises.
  2. Giving away too much equity too early or to the wrong investor/investors.  This will either put future investors off or maybe cause you a lot of heartache/embarrassment getting those shares back off a friend or family member who helped you out early days but doesn’t add much going forward.  Really do your homework on investors, and not only angels but VCs too.  Talk (as in speak, not email with) to the founders of other businesses they have invested in & ask if they delivered what they promised and find out what they’ve been like to work with.
  3. Not being prepared for the change that will occur post investment.  You may still be the figurehead but the company is no longer all yours.  Maybe things were very informal previously but now have to be more structured as you have investors that you’re accountable to.  Over time they may even decide to replace you although you will still own shares and make money when they company is sold.  You may decide to replace yourself.  There are many examples of both of those events happening.  This links back to your reasons for starting a company in the first place and is a little reminder from me that investment shouldn’t be rushed into or taken lightly.  Sometimes it’s better not to take it at all.

That’s all for today folks.  If you’re raising & would like a slightly different perspective from a founder who’s raised recently, then I recommend watching this video from Cerebreon’s co-founder Gillian Doyle recorded at August’s AwakenHub event.  20 minutes long and more useful than most MBAs.

Please do post any questions in the comments and I will attempt to answer them all & thank you for reading.  If you enjoyed this blog then please do share with your own networks.

Pitching for success – some lessons from the Demo Coach Nathan Gold

Nathan Gold the Demo Coach

Nathan Gold the Demo Coach

Last week I attended my first Tech London Advocate Women in Tech event at the Telefonica HQ in Piccadilly and what an event it was.  We heard from a number of interesting speakers (Nikki Watkins especially) but the highlight of the evening for me was listening to Nathan Gold deliver a 30 minute version of his longer workshop called “Pitching for Success”.

Nathan is a San Francisco based demo coach.  He spends his life getting people or companies prepared and ready for high stakes pitches.  He helps people make their pitches and presentations more memorable and more compelling & his specialism is doing this for people who are in situations where they cannot afford to miss or fail.  Wow.  Think about that for a moment.  No pressure Nathan.

Anyway – I’ve listened to a fair few of these sorts of presentations over the years and would class myself as a hard to please audience member as well as a bit of a cynic, but honestly – Nathan was fantastic & I learned loads & loads of new stuff.  I’ve checked with him & he’s happy enough for me to share some of his hints & tips with you. Having said that – my recommendation is to go & see him yourself if you have any opportunity to do so and accelerators/regional development agencies/investment readiness programmes – book him now to run a session for your companies – it’ll be worth every penny.

Nathan’s methodology includes a lot of stuff that many of you out there who are getting ready for pitches yourselves won’t like, for a whole number of reasons – but mainly because you are going to have to do some thinking & also some work. More on that later … We start with a useful mnemonic:

VP + (SAME)2

You need a killer value proposition.  As well as forming the basis of your elevator pitch you can use this for so many other things – so it’s worth investing however long it takes to get it right.  Nathan uses Steve Blank’s “We help X do Y by doing Z”.

Value Proposition Matrix from Nathan Gold

Value Proposition Matrix from Nathan Gold

If you’d like to brainstorm this then you can use a VP matrix (see photo). I can’t tell you how useful & important this bit is.  Half the people I meet can’t explain their business to me in less than 5 minutes never mind in a single sentence.  Keep in mind that you have to get to a place where you’re going to be able to pitch your entire business in an initial investor meeting that may be no longer than 10 minutes.  Brief and simple is good.

Before I move on, a word on elevator pitches. Nathan recommends that you have three versions – a 30 second, 60 second and 90 second elevator pitch.  I’d never heard this before but it makes perfect sense and it’s very useful to have these rehearsed & in your kit bag, ready to trot out as required.

Still related to explaining what you do, use a Simile – “A is like B”.  Use this when you’re explaining in more & more detail & people still don’t get it.  Nathan’s own version of VP + S is “I help people prepare for high stakes presentations by rehearsing them as if they were in a Broadway show”.  See how effective that is.  Even if you’ve never been to a Broadway show you can immediately imagine how much work goes into the rehearsing.  When he said it, I imagined a couple of founders standing in a room in front of Nathan, going over & over & over their pitch until every word & image had been scrutinised, every aspect of it discussed in full and until their delivery of it was flawless!

Or if it’s easier, use an Analogy “A is to B as C is to D” – to illustrate this Nathan used the example of a company in San Francisco who’ve launched an electronic surfboard.  They explain it using this analogy “We do for surfing what the chair lift does for ski-ing” – see how easy that is to understand now as opposed to wondering what on earth someone would use an electric surfboard for…

A Metaphor works like “A is B” and the last bit of the first SAME is Examples – use them appropriately & drop in an S an A or a M to bring them to life.  Remember – investors see a hundred pitches a week, plus all the stuff they look at online & on video via the angel networks.  Out of the thousands of companies they see pitch, they invest in a handful.  The hardest bit when you’re starting out is getting noticed & being given an opportunity to pitch.  You will make it easier for yourself if you’ve really, really thought about your VP & how that sounds to the audience you’re presenting to.

Onto the second round of SAME.  When you’re presenting – whatever it is – start with a Story.  Don’t jump straight into factoids.  As your company grows, make sure you collect and share those stories so that everyone in the team knows them and can use them.  Nathan uses a Story Matrix to collate and classify the different types.  I like this.  We collected stories for every occasion as we were building Learning Pool.  They’re so useful.  Everyone loves a story and everyone warms to a storyteller – as long as you’re honest, authentic and real!  In the Story Matrix use the same layout as the VP Matrix.  Your column headings are Company, Sales, Support, Me, etc & your Row headings are story types – so Success, Failure, Fun, Legends, etc. Legends are the stories that are really hard to believe but which you can prove if challenged!

Nikki Watkins

Nikki Watkins

The next A is Adjective, and it’s the one you should add to your job title when people ask you what you do.  As well as coach, Nikki Watkins describes herself as adventurer, evangelist, believer.  I know they aren’t adjectives but this A is about being more descriptive about yourself upon introduction so that you will be remembered.  Nathan used a nice example “I am an entrepreneur with the soul of a dancer” – the entrepreneur in question has a dance related business.

Next we get onto one which is great when talking to customers but not so good for hard nosed investors…it’s a sprinkling of Magic.
The final E is Enthusiasm and your ability to communicate the passion you feel for your product, service, idea, company, life itself.  If you don’t have this then don’t present because this is the number one ingredient in your presentation.

Anne Winblad as quoted by Nathan Gold

Nathan left us with a great quote from Anne Winblad of Hummer Winblad Venture Partners “If the CEO doesn’t appear to be a good communicator we don’t fund the company”.

I’ll leave you with a famous story. During a visit to the NASA space centre in 1962, President Kennedy noticed a janitor carrying a broom.  He interrupted his tour, walked over to the man and said, “Hi, I’m Jack Kennedy. What are you doing?”

“Well, Mr President” the janitor responded, “I’m helping put a man on the moon.”

Really think about your messaging, especially when you’re pitching.

Thank you for your insights Nathan and for sharing VP + (SAME)2 with me.  I hope everyone finds this as useful as I did.

A blog about pride…

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Last night I attended the awards evening for SeedComp 2011 – a Digital Derry initiative to uncover the North West of Ireland’s most promising digital business ideas.  The process has been ongoing since late March & has resulted in 30 or so new business ideas emerging.  This type of competition is a fabulous way for any town to encourage & promote some innovation & entrepreneurialism.  The overall prize kitty last night was £10,000 and included a £1,000 prize for the most promising student idea – so it’s a very cost effective way to get some ideas moving in your community & get especially your young people thinking about starting their own businesses.  Most brand new ideas only need a tiny amount of money to get started.  We’re lucky to have our own Digital Champion, Mark Nagurski, in Derry to come up with competitions like this and then put in the hard graft to make them a success.  Definitely worthwhile if your town doesn’t already do something like this.

12 fledgling ideas were shortlisted at the start of May and the new promoters presented yesterday.  The judging panel included some tech industry veterans, one of Facebook’s senior executives, a couple of local entrepreneurs and a (friendly) VC.  A terrifying prospect and indeed one of the competitors shared with me at last night’s event that although he’s presented to both Steven Spielberg and James Cameron in his career so far, he was more nervous going into the room yesterday.

It was therefore with great pride that Paul & I witnessed our very own Breda Doherty pick up a prize as part of her new venture with her business partner Catherine Morris.  An all girl geek team.  What could ever be nicer?  Breda & Catherine met on the Invest NI/Digital Circle funded mission to this year’s SXSW event in Austin, Texas (thanks Matt!) and they’ve wasted no time in coming up with a new business idea & putting together a plan.  Their new idea has elements of the passion of the original Craigslist (Breda interviewed Craig Newmark at SXSW) and it uses Bill Liao’s homespun advice on marketing messages (Breda interviewed Bill in Washington DC); I’m hoping their relentless execution against plan will show that Breda has maybe even learned something from Paul & me along the way (good stuff only Breda!).  She’s certainly a different person today than the one who walked into the Learning Pool office in April 2008 to bring order to the chaos that existed at that time – more self confident, more informed about technology and investment, more assertive, more aware of how to get things done, more experienced, more of an all rounder…but still as sweet, still as stylish and still universally loved by her school chums, the whole of team lovely, our entire customer base and basically anyone who ever meets her.

Go Breda & Catherine – we’re all rooting for you & we can’t wait to see where this takes you.

Addendum to this blog (11 June 2011)

A few people have asked me why Paul & I are so supportive of one of our own star team members thinking about starting her own business…hmm…being a small business owner isn’t just about finding people & extracting your pound of flesh from them over the time they work for you.  It’s also about adding to your local community & giving back where you can, providing careers & challenge for your people and equipping them with the skills they need to go on & do something else.  Learning Pool is 5 years old this summer and we are lucky to have a high performing star team that’s the envy of many other companies.  But after 3 years in a job, people are entitled to try their hand at something else and if they go on to take a stab at being an entrepreneur themselves, Paul & I see that as a perfect 10 scored for ourselves – our work is done & we’ve achieved one of the things we set out to. 

The other day a local entrepreneur I met at a lunch told me how he’d had someone come in to arrange the desks in his company so that everyone could see each others screens – his reason for doing that – so that no-one would be on Facebook during the hours of 9-5.  What did I do – I just sighed a bit to be honest.  He wasn’t interested in what I had to say anyway.  Old fashioned companies with old fashioned opinions – think on.  Your days are probably numbered.