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.
It used to be the case that one would have some money, and they would go to an advisor who would then, in turn, research different markets and make a recommendation. That person would charge their client a fee for managing the money and a success fee should the placement of funds generate a profit. While the former would vary from, generally, 0.5% to 2% (with the rule being that you pay less when you place more money), the latter could go to up to 20% of your profits. And while, in the old days, one would pay for the work the advisor does behind the scenes to research and get top-notch information in a market, the alternatives nowadays no longer justify paying such high prices to place one’s money. The advisor is slowly being replaced by a user’s own research, online investment management companies, or even Artificial Intelligence.
The price for investing your money has also gone dramatically down, with the rise of more and more digital companies using advanced software to analyse data and generate attractive portfolios.
Stock market investments are also an attractive alternative. However, without experience in the field or a fee-hungry advisor, this can prove to be a problematic choice. The issue is two-fold: on the one side, picking the stocks to “bet” on can be extremely difficult, as it takes serious market research to identify the potential long-term champions; and then, of course, there is the approach that some companies might skyrocket when they are launching new products or tapping into a new market. However, this comes with significant risk, as overnight success is rare, and massive failures have been generating headlines since before we can remember.
One could think that actively investing one's own money is a bold move, but the old-fashioned “keep your money in the bank” option is now a money-losing option.
It’s been 12 years since the modern financial sector started to show its weaknesses, and 11 since the sequence of events that started with Lehman Brothers collapsing nearly destroyed the world economy. The new reality is one of lack of trust in the banks from the younger generation, and of negative interest rates. Yes, in many countries it actually costs you money to have banks take your placements.
As such, it is no wonder that it actually makes sense to find alternative ways to protect and expand one’s wealth. However, there is one significant risk that one should always consider: while not being tied to big institutions such as banks is what has made these alternatives attractive to younger generations in the first place, the downside to that is that, if anything were to happen to them, they will not have an entity behind them to bail them out, which poses an increased risk to customers. As such, research and caution are highly desirable.
Over the last 2-3 years, the shared economy model, championed by the likes of Uber, has been adopted in more and more industries, including the financial one.
More and more platforms are offering the option for people to create portfolios using small amounts of money, relying on the power of the crowd to create strength when put together.
So, here are a few of the options that are out there, and a bit on how they work:
- FinTech is always an exciting field. Have a look at players such as Robinhood and Sofi.com, which offer lending, mortgages and investment to categories of people who would not always qualify for support from a traditional bank.
- Peer-to-peer lending (P2P) uses marketplaces or platforms to match borrowers (people) lenders (also people) - see Mintos, Grupeer, Peerberry, Lendermarket. Those interested can “buy” a share of a loan on the platforms.
- Startups: new and exciting startups are in the news almost daily. Two of the ones that have piqued my interest are forgeglobal.com, seedrs.com. If you have a more serious amount of money to invest, getting “in on the action” at ground level can be incredibly rewarding, both in terms of supporting an entrepreneur who’s just starting out, as well as potentially getting a significant return for your investment. But, as with everything, make sure you do your due diligence and ample research in the space you are about to invest in.
- If you want to go industry-specific, there are now marketplaces for investments in real estate. Don’t have enough money to buy and flip a piece of real estate? That’s okay. You can pair up with other investors, crowdfund and get involved that way. Crowd Estate, for example, promises 17% annual returns.
Please note that I am an investor in some of the companies I have mentioned in this article. This article is not meant to provide investment advice, it is merely an investor’s perspective on alternative investments available. Capital at risk.
If you’re a startup or scale up founder, or if you are working up to launching your idea, events can be useful to see how others do or dit it. It’s useful to see what worked and what didn’t for successful entrepreneurs, how they think, their approach to business.
It can take a lot of time and energy to attend business events, and the gains aren’t always immediate, but success doesn’t happen in isolation – entrepreneurs need a certain vibe and energy to keep going, they need networks, need to be connected to their markets, their competitors and their peers.
I go to a few events every year, and I choose those where I am likely to see new ideas put into action, meet smart people and explore different sectors. I do focus on my key areas (property, fintech and medtech), but I keep my eyes open for what’s going on outside of there areas too. So here is what’s on my list currently.
- Central European Startup Awards – happening this week in Bucharest!
Conflicting agendas mean that unfortunately I’m not going, but I’ll follow it with interest.
This is a regional program run by the Global Startup Awards. In Romania they’ve partnered with Impact Hub, one of the biggest co-working spaces and entrepreneur networking platforms. Annually, they select and award startups in tech / web industries. After the national phase of Central European Startup Awards competition, the winners of each of the 10 countries (Austria, Poland, Czech Republic, Slovakia, Romania, Bulgaria, Serbia, Croatia, Slovenia and Hungary) participate in a regional competition, whose winners are announced on November 21st in Bucharest.
2. Disrupt Berlin – 11-12 December, Berlin, Germany
Organised by TechCrunch, Disrupt Berlin showcases emerging trends in the business of technology and is a great place to meet or find information about game-changing founders, startups and technologies.
There are a multitude of conferences, workshops, networking opportunities and companies from all aspects of tech, but focused in on several category tracks. I'm looking this year at Artificial Intelligence/Machine Learning, BioTech/HealthTech, Blockchain and FinTech, but there are a few others.
3. Bucharest Tech Week – May 2020, Bucharest, Romania
5 days of conferences hosting international & local speakers, and a B2C gadgets and tech expo. Conferences are focused on innovation (seems to be an umbrella theme, which can fit anything these days though), HR, some coding conferences but also Fintech.
4. Wearable Europe - 13 - 14 May 2020, Berlin, Germany
Conference and exhibition focusing on wearable technologies, applications, and their commercialisation progress. The conference is part of the IDTechEx Show, a series of synergistic events on Printed Electronics, wearable, sensors, IoT, graphene & 2D materials, energy storage, electric vehicles.
5. EU-Startups Summit – 28-29 May, Barcelona, Spain
Some of Europe’s hottest startups and successful European entrepreneurs - over 1,500 founders, startup enthusiasts, corporates, angel investors, VCs, and media from across Europe. The two-day event is a great opportunity for networking, and a meeting point for aspiring entrepreneurs and investors who are aiming to build international tech companies.
6. London Tech Week - 8-12 June 2020, London, UK
A 5 day technology and innovation marathon, with events on connecting global markets, cybersecurity, digital transformation and innovation, for startups and scaleups.
7. Webit Festival Europe - 17-20 June 2020, Valencia, Spain
A huge event, Webit is a B2B and B2C festival and tech fiesta: 15.000 delegates, 450 speakers, 1,500 selected startups, 500 investors, international media.
With specialised summits for many verticals, I particularly am interested in the summits for health, fintech and blockchain. Other summits focus on cybersecurity, mobility, growth, future of food, or digital entertainment & media.
8. Techsylvania – 20-23 June 2020, Cluj, Romania
One of the biggest tech events in CEE, Techsylvania has tens of events, workshops, keynote speakers and panels. It can be very informative and great for networking and for benchmarking ideas, because it has almost 4.000 attendees - engineers, founders, investors, executives and CEOs of IT & digital companies, banks and startups.
There is a startup competition at Techsylvania too, Startup Avalanche, for early-stage startups, which get to meet international VCs and investors as they compete for the Grand Prize – €100,000 investment.