How to Pitch an Angel Investor
Every month, I receive dozens of financing questions or requests that are more or less detailed. Almost all have something interesting in them. However, as my time and financial resources are limited, the ideas that I plan to use are only a few every year. I am not the only professional investor who has in mind a set of criteria according to which we validate an idea. Following is a list proposed by me. When making it, I have tried to be as objective as possible.
- Start off with the essence, define the idea in a sentence. Do you know what USP or Unique Selling Proposition is? It is a concept from advertising and refers to the sole benefit proposed by your product. Maybe, you know that I have invested in Vector Watch and together with the other investors I have enjoyed its success, when it was sold to the famous Fitbit. From the very beginning, Vector Watch is a smartwatch different from the rest, whose battery lasts for one month. This is the starting idea and it is clear, even though there are several other aspects to add afterwards.
- What is your business plan? How do you monetize? This article does not aim at giving you tips on how to make a business plan. What you should note, however, is that an excellent idea, without the steps leading to it putting into practice is as good as null. Gutenberg invented the printing press by putting together already existing innovations. The printing press was taken over from the vineyard people, whereas the print with block molds had already existed in China for over 1000 years. And still, he revolutionized the world as he was intelligent enough to put all these together and turn them into a functional technology.
- What is your market? Good start-ups mean creative, or even disruptive ideas, but they do not work by themselves. Vector Watch was an innovation on the smartwatch market and Gutenberg’s printing press replaced the medieval manuscripts, so they turned up in an existing background. Show your financer in what area of products or services you fit. They will all the more appreciate your innovation.
- Growth opportunities/strategies/exit. If you don’t know yet that angel investors provide financing in order to get benefits at a later date, you should read business literature seriously. Your business may turn, logically, into a listed company and it may skyrocket by the subsequent contribution of an investment fund or it may be sold to a market giant. This evolution is also dictated by its nature and also by your personal preferences. Where do you see yourself in 10-year time? As CEO and minority shareholder of the company created by you, as Steve Jobs? Or maybe developing a quite different business? Relying on your exit money to invest in other people’s businesses, therefore acting as an angel yourself? You should answer all these questions and then send your answers also to possible investors.
- Clearly state to your investor what/how much you. Of course, the answer to the question “How much?” is the most important. Shyness has no place here, the well-grounded figures are strictly necessary, even if you won’t start with them, but with the idea. However, the financing pace/calendar is also important: if need be, a professional investor may rely not only on their money, but they will also know how to attract other resources.
- Do your homework. It’s not necessary to suffocate with data the potential financers from the very beginning. However, if you have manage to arise interest by the initial presentation, you must be ready to answer any question. If you don’t have the answer in your mind, you can resort to notes, telephone, laptop. If you nevertheless happen to not know the answer, don’t try to mislead your interlocutor with phrases such as “We’ll see”. Not knowing a minor aspect is pardonable, but superficiality isn’t.
- You will always need an attractive Powerpoint presentation, even if it is an informal pitch meant to arise interest. Assuming that you have managed to arise interest from the very beginning, the presentation is the second stage. However, be careful, as there are two types of presentations: those meant to be designed, which come as a completion of speech discourse and the self-standing ones, which are meant to be sent by e-mail. Ideally, you should prepare both versions.
- Personal recommendations. These are certainly the most effective, although in Romania we tend to pay too much heed to them. Two things are worth mentioning here. Firstly, it is most serious if you disappoint the author of the recommendations. If you do that, no one will take it out on you directly, but your failure risks to be mentioned in the private talks between people who matter. If, on the other hand, you manage to make your potential partner enthusiastic about your project, it is a success: your personal recommendations might turn into endorsement. If you can turn a financer or a famous partner into an endorser, that is quite an achievement for you.
- Industry events. The same as, in our country, personal recommendations are overrated, events are underrated. You have often heard that, at specialized conferences, it is the networking that matters, not the presentations. If you invest a few thousand euros in the participation in an event of the Mobile World Congress class, you will head home with a few dozen of business cards. If you manage these contacts well, some of them might become your business partners or financers. The thing is that events are very useful for a first contact, which you then need to cultivate by other means.
- Online, in 1:1 conversations. By “1:1 conversations” I mean whatever can be conveyed via social networks or e-mail. LinkedIn is very appropriate for this purpose, as long as you know whom you are addressing and what you are asking. Don’t be shy, but avoid suffocating your potential partners with generalities, standard messages, so called spam. Of course, those who make their e-mail addresses public do that because they are open to proposals. If the e-mail is written well, it will receive an answer, especially from the potential foreign partners – even if it is a negative one.
- Online, by public financing requests, such as Kickstarter or Patreon. It may seem that the crowdfunding platforms are meant for charity or cultural projects, financed with little by many, but this is not exactly so. A successful campaign on a platform of this kind is a good argument for a more significant investor. Even more, even as part of these campaigns, sometimes there is significant financing from individual investors, besides the “little” financing from “many”.
The question does not refer to the time of day or the year when you make the proposal, but to the degree of maturity of your idea. Writing this article, I have started from the idea that you have incorporated a startup, in other words, you have the capacity of founder and entrepreneur. Well, in order to attract an investment, you must have already proven your reliability to a certain extent. This means a functional business, even if of a small scope and without profit. Professional investors are attracted by more than plans on paper. As long as they will entrust you with their money, they expect guarantees that you will know what to do with it and the safest guarantee is that you have already achieved something with your own forces.
Wall Street was preparing itself for a terrible earnings season.
It’s not all bad news
The negative influence of the Covid-19 pandemic has been deemed to be anything between dire and desperate. And, for most, this already is, and will surely be, the case.
The exceptions are, by proper definition, exceptional. I'm talking by bigger-than-Earth companies, enterprises with revenues more massive than most countries' GDPs, behemoths in their own right: most, if not all, from the tech sector: Microsoft, Alphabet, Amazon, Facebook, Apple.
For them, the lockdown, the social distancing, the increased online presence, the overall feeling of insecurity, fear, anxiety, and maybe even boredom is yet another reason for people to use their services and, all in all, for them to generate more revenues from their core, and secondary, and tertiary businesses.
Tech sector breaking records
It might be Wall Street's worst-kept secret that the tech sector is, and has been for at least the last decade, on everybody's lips, in everybody's mind and, sooner rather than later, in everybody's investment portfolio. And by everybody, I mean all social classes, all levels of interest towards capital markets: from your hairdresser to Warren Buffett's humongous investment conglomerate.
The reason for this is simple: if you'd have invested $1,000 in Google stock ten years ago, you would've yielded a hefty 475% return, 590% for Microsoft, 1,700% for Amazon, 1,000% for Apple, and 550% for Facebook.
image source: cnbc.com
They're all rocket ships on their way to trillion-dollar market capitalizations (the Trillion Dollar club already includes Apple, Microsoft, Amazon, and Alphabet). And there's not much that can stop them. At least not yet. Not in the first quarter, not by the Coronavirus, not even the containment measures.
Their earnings for the first quarter looked better than expected, and, for sure, better than those from any other market sector, be it retail, banking, automotive, travel & tourism, or commerce.
*special mention for Tesla
Its stock price marked an astounding 3,500% return on the last decade. Although it’s seen a slight decline in the past months, it’s still reaching for higher highs and will, according to most market analysts, reach and top the historical max value of $917/stock.
Long term forecasts for TSLA stock price are close to $1,100, according to CNNMoney, which means an additional 35% ROI from current stock prices.
I’ve included Tesla here because the behavior of the company, and implicitly, of the stock, mimics those of tech companies, not of automakers. They’re constantly innovating in terms of business, budgeting, marketing and financial positioning and I see them being one of the top performers of this decade, as well.
image source: cnbc.com
*special mention for Zoom
What else is there to say about Zoom apart from the fact that, taking full advantage of the unconventional ways of doing business brought up by the pandemic, it exceeded 300 million daily meeting participants, up from last December's total of 10 million. That’s a remarkable 3000% jump.
Analysts at seekingalpha recommend Zoom as being a “buy and hold” stock for the long run. CNNMoney see Zoom’s stock reaching $200 – a potential increase of 20% from present day prices.
EARTH 2.0 – the mandatory condition to digitalize businesses and embrace and prepare for the future. Today. All companies below are prime exponents for this business model, and it paid beautifully until now. Just as the Industrial Revolution rearranged the balance of powers almost 2 centuries ago, we are witnessing history in the making with the current the Technological Revolution:
- Alphabet (mother company of Google): revenue of $41.2 Billion (13% higher than the previous year)
- Facebook: revenue of $17.7 Billion (18% higher than the past year)
- Amazon: almost $76 Billion in revenue deriving from an 18% increase in international sales
- Microsoft: revenue of over $35 Billion, extremely positive outlook on the medium and long term
*Tesla: not much in terms of revenue, but a substantial ascending stock trend (it rose more than 200% in 2019)
*Zoom: 12% share increase after revenue more than doubled in the quarter
A stubborn, poorly adapted, conventional business model is, and has always been a recipe for disaster. On all accounts, Microsoft should have been on the losing side of things, if it weren’t for Satya Nadella, the CEO who brought openness and collaboration to what is once was a sinking ship.
Comparing well-established enterprises with the tech cousins from above:
- JP Morgan – profits dove 69%
- Bank of America – profits plummeted 45%
- McDonald's – earnings fell 17%
- Exxon – 7% stock decrease on account of weak earnings
- Boeing - $649 million loss, 10% workforce dismissed, revenue down 26%
- Ford - $632 million loss, 15% slid in revenue, shares dropped 42% this year
- General Motors – 87% decrease in income compared to Q1 2019, 6.2% decline in revenue
The gap between winners and losers grows more profound for now.
It's my undivided opinion that all four major tech players that right now are laughing all the way to the bank will have to turn their smiles into frowns once Q2 earnings are released. They took advantage until now from the increase in the cloud business and the work-from-home movement.
But the economy forgives and forgets no one – in the USA alone, more than 30 million people filed for unemployment benefits in the last seven weeks, and the future does not look too rosy for the job sector.
No matter how much money the Fed might helicopter-throw unto the economy, the consumers are scared, cautious with their finances, and, in some cases, even hungry.
In these circumstances I see the Q1 earnings success for the tech giants is a temporary victory. I firmly believe they will be caught from behind by the huge wave that already smashed retail, banking, services, commerce, oil, entertainment, or travel.
The future is grim
Q2 earnings will be an eye-opener for all market optimists across the board.
Goldman Sachs expects a US GDP contraction of 34%, unemployment soaring to 15% - no happy-end is in sight.
US retailers are stopping payment to hundreds of thousands of workers in a desperate struggle to cope with the slump in demand, the four rounds of economic stimulus from the Fed seem to make little to no difference until now.
On the long run, in an inter-connected global economy, everybody's in the same boat: decrease in consumption and demand from commerce and retail brings lower ad revenue for Google, which in turn brings down the cloud business revenues, which in turn influences the hardware demand, which in turn affects producers…and so on. The cycle cannot be broken without every integral part being affected.
Turn coal into diamonds
Provided the virus is ephemeral, maybe even more or less contained in Q2, the global economy might start to pick-up and rise from its ashes in the second half of 2020.
As always, being in close touch with the state of affairs, being up to date with the news, keeping your head clear and thinking straight on how to turn this fallout into an opportunity is the best advice I can give you.
The harder the containment measures strike, the bigger the economic shock, the larger the recession that will entail, and the more considerable the investing opportunity!
It's challenging to keep your cool now, but I'm confident that those who adapt, those who look for alternative investment means (be it art or safe-haven assets such as gold or platinum or even fintech companies) will enjoy one hell of a ride.
I’ve split the final chapter into two categories: my personal vision and my professional endeavor.
I’m an investor myself and I see this crisis as an opportunity to short the market on businesses that have not yet adapted to the new world and, in order to practice what I preach, buy Tech Companies (F.A.N.G.) for the long run.
Protect my businesses and my employees; the measures I already took (work-from-home for 99% of my workforce, consolidation measures for capital flow, redirecting of investment flows, budget reframing, alternative investment areas, enforcing my business' technology core) will continue to prove successful and inspired.
Even though we’re constantly expanding, having more than 250 employees all over the world, I want to continue behaving and acting just as a start-up; I see in this the right way to consolidate our position, and conquer new markets and alternate areas of investments.
“The beginning is always today,” said Mary Shelley two centuries ago
She was quite optimistic, which comes as a surprise from a leading Romantic era exponent. Of course, she was talking about the excitement of an interesting adventure, a fresh day, a brand-new start.
In the trying times of Coronavirus, I keep my right to be realistic. There’s growing talk about the post-corona era, about how everything will come back to what it once was, how society will restart and pick-up from where it was left a few months ago, how economies will put all crisis behind and rise from the ashes. I’m confident that what we’re going through right now is just the beginning of a new epoch, the epoch in which nothing will be the same anymore.
The new normal
I’ve come to this conclusion by observing behaviors around me. From the muted cry of small entrepreneurs who try to find comfort in insufficient government stimulus programs to central banks that gave their all and then some, printing money out of nothing and throwing it in the face of the virus in the hope that this, the last weapon in their arsenal, will start making things right, economies rejoice, and people enthusiastically consume once again.
The underlining note in all of this is one thing: FEAR. Manifested in different forms and with various influences and vectors, but all in all, the same feeling: pure, unadulterated fear.
Business-wise, fear makes or breaks actions and thoughts, dismisses investment plans, smashes development budgets, fires employees, cuts innovation, research, development, affects investor sentiments, turns economic tigers into tame pussycats. Mind you; this is not a presumptuous forecast; this is the reality we’re living in now. This is the new world.
The Wuhan precedent
Let’s not kid ourselves; this is not an exercise of imagination; this is what some already tried. The best example is the lockdown relaxation and economic restart measures in what was, not long ago, the epicenter of this new world: Wuhan, China.
For them, after a 76-day total lockdown, with draconic measures taken to keep them inside at all times, the April 8 announcement of travel bans being lifted came as a literal breath of fresh air.
One month later, and shops are still closed, restaurants are turned into takeaway booths, businesses generate close to zero profits, production is still in shambles, bankruptcy is the new status quo. Already, the local economy contracted by at least 40% and prospects are grim.
Regardless of state-backed stimulus programs, zero-rent programs, employee cost covers, and many more, the economy does not seem to pick up.
The once-thriving 11 million people city is still in mental lockdown. Anxiety is the name of the new game.
Employees that had the luxury of being able to work from home don’t want to return to the office. People no longer frequent gyms, restaurants, cinemas, spas, salons, arcades, shopping malls, travel agencies, beauty parlors, neither the personal nor the professional life of most Wuhanese is now what it was a few months ago.
Authorities, even despotic, autocratic ones as the Chinese are, have no idea what’s going to happen, how to prepare for it, how to tackle it, and what to do if all else fails. It’s a trial and error process for Wuhan, for China, and pretty soon, for the rest of the world.
A mixed bag of information
So far, the pros and cons list contains most, if not all, measures and steps you hear about all day long, every time you turn on your TV or web browser:
- It surely works!
- It might not, it’s too soon to tell, look at the USA, see the protestors!
- Essential for life support during these trying times!
- Actually, studies are showing they don’t make much of a difference!
- The magic drug that’s going to cure us all!
- Trial test after trial test showed that it has no positive effects and might, in some cases, even make matters worse!
- Some guy says it cured him!
- Intensive medical studies find no relevant connection between it and Corona evolution!
Smokers are better protected
- Their lungs are more accustomed to harsh breathing conditions!
- How could that be, smoking kills, it says so on the pack!
Flattening the curve is the way to go
- Sounds smart and might work!
- There’s no proof yet this is the way to go for acquiring mass immunization!
For each contradictory affirmation, there are hundreds, if not thousands, of articles, pseudo-studies, reports, analysis… And with each of those, the general uncertainty about the future grows a little bit stronger.
For the average Joe and for Billion and Trillion-Dollar businesses:
- revenues and incomes plummet
- earnings are reaching new lows
- tens, if not hundreds of millions have already or are very close to losing their jobs
- productivity is sinking
- motivation becomes a scarce commodity
- people invent reasons for staying inside, in the comfort and safety of their homes
- entire market sectors close up
- the business world is transforming and all of us together with it
Until the Holy Grail, the vaccine, will be on the market, I see the anxiety described above as an ever-growing sentiment for all of us.
What does the future look like?
Covid-19 is here to stay, even the most optimistic medical scenarios don’t approximate a delivery data for the vaccine closer than 18 months.
Bracing for the second wave is easier said than done, because, in the end, in this new world, nobody knows what the future holds.
Caution is the word of the year, and it should be displayed both in a personal and a professional sense.
Not all people react the same way, and not everybody can work from home, cultures differ, lockdown measures affect each of us differently, central banks intervene in various ways in the markets, government policies that work in Wuhan might not be appropriate for Milan. We’re different, all of us, and now we find each other united by a common enemy and a common goal: survive, adapt, thrive.
Stay safe; stay healthy!