By David Friedman, President,  Orange County Tech Coast Angels

At the Meet the Angels event in Irvine, CA last month I had the privilege to talk with many of the 170 would-be entrepreneurs in attendance.  I hosted about 25 of them in a separate breakout session to answer specific questions they had regarding the angel investment process and other activities surrounding building a start-up.

Many entrepreneurs, especially those just starting out, have an impression – or mis-impression of the angel investor.  Because of the hit show “Shark Tank” many people believe that angel investors sit around and make instant decisions and throw money at companies.     That is theater and entertainment.  Let’s also not minimize the fact that the “sharks” DO invest and many companies in which they invest become successful.  However, angel investing is a little more than having many mini- shark tanks around the country where entrepreneurs come to champion their ideas.   

During one of the panel discussions one entrepreneur asked “what do the investors want to hear during a pitch.”  On Shark Tank the investors seem to ask the same questions and want to hear answers particularly relating to current revenue and revenue growth.  So I thought I would compile two lists of what I heard- and what I also believe- are things we angle investors want to hear, and things we DON’T want to hear.

Things Angel Investors Want to Hear

  • How the background of the CEO/Founder relates to the opportunity
    • Does the CEO/Founder have experience in this industry and market?
  • Skills and competencies of the management and advisory team
    • Ideally, has that team been in place for 6 months or more or better yet has this same team been successful in the past on a previous venture?
    • Is the team virtual, distributed or in one place
  • Skin in the game from the founders and early executives
  • That the entrepreneur and team are “all-in” committed to make it work.
  • A team that can execute to plan
  • Commitment and passion of the Entrepreneur (see my previous blog on this subject — click here
    • One entrepreneur I know developed a medical device for insulin delivery because he would be able to use it for himself and his background was in medical devices
  • Strong product concept
    • What is the concept and why is it a strong one?
    • Has it been tested with customers in some manner?
  • Extensibility of the product concept
    • Is this a one trick pony or does the product have legs to spawn new products or be applicable to other markets?
  • Solid go to market plan
  • Identification of the ideal customer
  • Reasonable valuations
  • Credible evidence that the market will accept the product and it is scalable in some manner
    • This could include trials, early betas, partnership agreements, letters of intent, earlier funding.

What Angels Don’t Want to Hear

  • We are going to be the next Google and have a market cap of over $100B in only 2 years.
    • Or our valuation today is $100M because we have a solid concept and a breadboard design.
  • Our product is unique and we are alone in this space
    • It might be and that would be great but help us understand that. You might be the next SNAPCHAT and we don’t want to miss that opportunity!!
  • We have IP and no one can copy that?
    • This might be true but if you tread on the grounds of a giant company do you really want to pursue IP litigation over the next 7 years at a 7 figure cost?
  • We have a lot of downloads and freemium users
    • That is a great start but can you tell us about your conversion plans to paid users?
  • We have no competition
    • There is always competition or alternatives to your solution. The issue is how you will market the differences to get people to use your product or service vs another option.
  • Trust me; we know what we are doing
    • I am very attached to my dollars (my little financial soldiers so to speak) so I trust only those that have proved themselves to me in the past.

Certainly every start-up and entrepreneur is different.  In the early stages of a market, the team and the ability to execute is more important than the product per se in terms of sustainability of the business.  Early on, the management i.e. the CEO should have a clear view on the product, the vision for the product and business and a plan they can execute because we investors will track that to see if you make your commitments.  There should be clarity on what the ideal customer looks like.   For proof of concept, the angels would like to see functionality, a 3D model, capabilities comparison, market research to the extent practicable, feedback from current users if there is a product or input from lead users suggesting that the product or service in question makes sense and they would be interested in buying it.

We would be glad to hear from entrepreneurs on their concepts and ideas.  TechCoastAngels is always looking for deal flow and we would be glad to entertain those ideas.  Feel free to submit an application on www.techcoastangels.com.    And I would glad to talk with entrepreneurs who actually do have the idea for the next Google or Facebook!!