When I asked to sit in on a screening meeting of the Tri-State Private Investors, I thought it would help me learn about what angel investors are seeking in the companies they back. Instead, I learned how to get angel investors to roll their eyes, chuckle, and throw their hands up in frustration. The mistakes entrepreneurs made in their presentations were sadly predictable. Here’s what you should do instead.
Timing is (almost) Everything
Ellen Sandles, the group’s executive director, was very clear in laying down the guidelines for each company. Entrepreneurs were to have seven minutes to make their case and eight minutes for Q&A. Only one entrepreneur got anywhere near the end of their presentation in seven minutes. The rest were left stranded around slide eight when the timer went off. Now, think about this: Where’s the meat of your presentation? By slide eight, have you presented the competitive landscape? Your financials? How much money you need, and why? Only one of the entrepreneurs who presented yesterday managed to cram any of this into the first half of their presentation. So please, rehearse those slides one more time—with a stopwatch.
Talk Turkey, Already!
You have to put a valuation on your company, and you have to be upfront about it. One entrepreneur, asked about valuation, responded, “My view is the market sets the valuation.” That produced groans all around. When pressed, he said he thought the valuation would be $2.5 to $3 million at the angel round and maybe $5 million at the venture capital round. That seemed to placate folks, but also invited a common follow up question: If you do go on to successfully raise a VC round, what anti-dilution provisions would you put in place for your angel investors? The entrepreneur had no answer. As one of the investors said to another CEO: “My friend, if you come to a group like this, we want to know about valuation and dilution. That’s all I want to know. That’s the reason you’re here!”
Don’t think that just because the angels don’t ask about valuation that they don’t want one. By the time four or five entrepreneurs had omitted the entire topic of valuation, the angels had sort of given up asking. They figured if you didn’t present a valuation, you didn’t have one in mind. Not good.
One entrepreneur wanted to use about half of a $3 million raise to buy more inventory. But the company was still sitting on inventory from Christmas, and didn’t present evidence to show that an increased marketing spend was actually going to drive demand to require all that inventory. Another entrepreneur, with an Internet-based business, wanted $1.5 million, mostly for sales, marketing, and operating costs. One angel’s response: “Web companies are getting going for 50K nowadays. This is a business that should fund itself.” Can yours?