What Angel Investors Care About Most When They Make Investment Decisions
You’re an entrepreneur with a great idea and a lot of grit. You’ve researched your market, developed your product or service, assembled an amazing team and worked your financial models backwards and forwards. Now, you’re ready to launch your business, or to grow it to the next stage.
Related: Getting Started With Angel Investing
At this point, there are good reasons to consider pitching to investors instead of pursuing traditional small business financing. Michael Howell, co-founder and CEO of Dolly, which helps students and homeowners with micro-moves, says that in today’s startup environment, “The key currency of success is learning what works and what doesn’t as quickly as possible. Speed is critical.”
Raising funds, Howell says, allowed his own team to try more ideas and learn more quickly. “Deeper pockets allow you to hire more and better people," Howell says. "In this competitive marketplace, that can be difficult for an unfunded startup.”
According to the Center for Venture Research, angel investors are the major source of seed and startup capital for entrepreneurs. As an angel investor myself who funds startups in multiple companies, I can speak to the satisfaction angels feel when an entrepreneur nails his or her pitch. Potential investors become engaged allies at this point: We’re excited about the chance to help a business hit a home run.
What excites an angel investor?
What I’ve observed across the many pitches I’ve received, and the many discussions I’ve had with other angels, is that the most successful formula for winning investors’ hearts is a big idea with a compelling solution and an entrepreneur whose pitch hits the following three notes:
- A huge opportunity. Show that the market your company can win is enormous. This may be a relative number depending on your size, but as an investor, I can tell you that we seek large returns. You need to demonstrate why your idea is a $50 million, $500 million or $5 billion opportunity and how it will surpass the competition. Prove to me that your product or service boasts an unfair advantage by answering a problem that hasn’t been addressed in the current market.
- A breakthrough solution. Nothing excites an investor more than realizing that your business is something no one else has done -- or even better, that no one else can do. Your idea busts a paradigm or overcomes a challenge that no one else has met. Your team has the skills, experience and perspective to see opportunities no one else has seen, and to create products or services that customers will wonder how they ever did without.
- Proof that it works. Investors generally don’t fund your idea, they fund your product or service. Show us it will work. If your business has launched, provide detailed customer segment and traction metrics that chart up and to the right. If your business is still in the seed stage, then provide detailed data about the market for the unmet need, and research that convinces us customers will see your idea as the solution.
It’s not just your business we fund -- it’s you.
Ben Elowitz is the co-founder of BlueNile.com and WetPaint; he's raised over $40 million in venture financing and advised CEOs of other companies in more than 20 financing rounds. He’s also an active angel investor and says that he makes funding available based on two key areas of a pitch. The first is the business itself. “If this is a world-changing idea, or has the chance to go after a huge market, that sets my appetite high, even if it’s risky.”
The second is the person behind the business. Angels care about the entrepreneur’s character and strengths. To succeed in your pitch, you need to convince us that, as Elowitz summarizes, you’re “smart and resourceful, and have a ton of drive, creativity and adaptability. And for me to want to work with you, extreme integrity is a must-have.”
Investors aren’t just a source of funds for your business. They offer experience, acumen and perspective that can boost your success. Michael Howell of Dolly notes that investors “accelerate your learning -- they’ve been where you are and can help you look around corners, and they have connections to people who can up-level your execution.” That’s another compelling reason to craft the perfect pitch.
Mitchell Harper, the CEO of Bigcommerce, who has raised $75 million in venture financing, says of pitching, “You’ve got to tell a story, paint a vision, know your metrics and sell, sell, sell.”
What you’re selling us is not only your incredibly well-made business case and the kind of metrics that make us lean in. You’re also showing us -- with your meticulous research and your passionate, creative thinking -- that you’re exactly the right person to turn our money into the kind of game-changing success every angel dreams of.