I’ve noticed that some entrepreneurs seem to have no trouble attracting investors, while others with a great business plan struggle with it. The reality is that angel investors are humans, and personal traits often make or break the relationship, even before the investment is considered.
On the top line, angel investors look to invest in entrepreneurs that have an almost unwavering passion and sense of urgency. In the business, this is commonly called “fire in the belly.” If you don’t have it, you probably won’t succeed, even with funding.
Of course, this has to be in concert with a variety of visible characteristics that indicate that you as the entrepreneur have the attitude and practical skills to make it happen. Here are some key ones they look for:
- Talks and writes well. Can concisely explain the unique, compelling value of the proposed venture in written terms and in oral presentations (elevator pitch), recognizing that some investors rely more on one than the other. Listens before answering questions.
- Networked and connected. Successful entrepreneurs already have a visible network of trusted suppliers, potential customers, partners, and even investors. These are critical to any venture. A successful track record with previous investors is a home run.
- Full disclosure attitude. Clearly willing to provide details of weaknesses as well as strengths of the proposed venture, and the challenges ahead You must be willing to welcome the participation of the angel investor in the company, at least at the advisory level.
- Values intellectual property. Convincingly presents a patent, trademark, or other “secret sauce” that can create equity value, not just current cash flow for the owners. This has value now, and is critical for maximum value in a merger or acquisition.
- Not in a heated rush. Calm and self-assured, rather than desperate. Can show milestones achieved, as well as planned, which indicate rational expectations. Allows sufficient time to find capital, including due diligence time for investors.
- Realist. The best entrepreneurs recognize and accept things as they are, and react accordingly. They are quick to change their direction when they see that change will improve their prospects for achieving their goals.
At the stage during which the angel is normally investing, the entrepreneur may be all the angel has to go by to decide whether the deal is worth pursuing. The technology or product may be at an embryonic stage. There may not be any customers to talk to in order to evaluate the market need.
The investor, in order to eventually be successful, has to spot not only winning technologies but winning people, and all investors have a slightly different view of what a winner looks like. So, of course, they try to guess the internal traits, like honesty, dedication, vision, intelligence, and leadership based on external traits listed above.
If you think you want to be your own boss and run your own business, look in the mirror to see if you have the right traits to be an entrepreneur. Better yet, ask a real friend, who won’t just tell you what you want to hear. We can’t change you, but you can change yourself, if the current pain level or the future reward is high enough.
Marty Zwilling
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This is great advice once you can get in front of an angel investor.
ReplyDeleteThe problem is whether or not you even get that chance. According to the Angel Capital Education Foundation 75% of angel investor applicants are denied funding in the prescreening round. This means that approximately 3 out of 4 entrepreneurs seeking angel investment don't even have the opportunity to speak to the potential investor.
The solution is a powerfully written executive summary and a great elevator pitch. I know Marty constantly pounds in the importance of the executive summary, but I just wanted to reiterate.
I recently wrote an article on my ExecutivePlan blog titled, "The Executive Summary 10 Commandments"
Thou Shalt Know Thine Audience – Your banker is concerned about collateral, while your venture capitalist investor is concerned about growth potential and business valuation. You must be willing to change your executive summary for your unique audience or risk losing your one chance to impress.
Thou Shalt Write NO More Than 2 Pages – If you are long-winded in your executive summary you will undoubtedly be long-winded in your business plan. Nothing could turn off a reader more than knowing your business plan will be long, dry and boring.
Thou Shalt Use Bulleted Lists, Headings, Tables, and Graphs – Much like a child your banker and potential investors like picture books. If you can tell your story with a table or graph, your reader will be drawn in to learn more.
Thou Shalt Not Merely “Summarize” - If you summarize your business plan why would the reader want to continue reading? They will just assume that you highlighted all of the important information and not give your business plan a second glance.
Thou Shalt Be Intriguing – Again don't just write a boring summary. Instead you should “tantalize”. Give the reader bits and pieces of the most important and intriguing information to compel them to read on.
Thou Shalt Not Waste Words with Company History – If your executive summary starts out with, “17 years ago I had a dream about opening a coffee shop” your reader is probably already rolling his or her eyes. Sorry, but they don't care. Just cut to the chase and don't waste precious space with the entire history of your company.
Thou Shalt Leave Out Some Key Information – If the reader believes you have already disclosed all the key information for your business why would they waste time continuing to read you business plan. It is not enough to simply leave out info from the executive summary you need to make it clear to the reader in a creative way that there is more important details in the business plan.
Thou Shalt Ask Yourself “So What” - After every section of your executive summary you should ask yourself “So What”. Will your audience even care about what you just wrote? If not then change it, throw it out. Every word should be valuable and vital to your message.
Thou Shalt Write at a High School Level – Many business owners are technicians that are experts in some technology, process, or profession. By writing as an engineer to a group of bankers you are going to be way over their head. No matter how complicated the technology you must find a way to dumb down the process for a high school student to understand.
Thou Shalt Remember that One Size Does Not Fit All – Just because your executive summary impressed a banker does not mean it will impress a venture capitalist or an angel investor. Different stakeholders are looking for different things in a business plan and executive summary, so take the time to write a unique executive summary for your specific audience.
Follow these 10 rules when crafting your executive summary and you will certainly be more successful for your efforts.
Martin,
ReplyDeleteAs usual, your advice is right on target. Those are, indeed, exactly the traits that investors look for when meeting with an entrepreneur. I would doubly emphasize one of your points, and add an additional one.
You mentioned 'full disclosure attitude' and that is critical. I'll take it one step further, and expand that to cover 'integrity' in general. We see so many opportunities, and are investing at such an early stage (typically before the concept is proven and there are any significant revenues or traction), that complete faith in the integrity of the entrepreneur is paramount. Since even with the best startups in the world there are about 999,999 things that can (and usually will) go wrong, I want to feel secure that when things hit the fan, the CEO will inherently behave honorably as a matter of course. If I get the slightest whiff of anything that tells me otherwise (an inflated resume, a 'fact' that isn't quite so, repeated complaints about prior investors or partners, etc. etc. etc.) I will immediately (albeit politely) terminate the discussion...no matter how sexy the opportunity or how lucrative the deal could be. Life is just too short to deal with people who cut corners, and I invest in startups because I want to, not because I have to.
The one other point I'd add is not a characteristic in the sense that your list is, but is nevertheless pretty important. And that is the question of domain expertise. Whatever business you're getting into, *please* show me that you've got some experience that bears on the subject. We regularly see people pitching us ideas that may sound reasonable to a layman, but are completely impractical for one reason or another to anyone who knows anything at all about the field. Why, for instance, would I trust you to sell jewelry on line if you've never sold jewelry in any other context, never operated an online retail store, and have no knowledge of the jewelry industry?
Thanks again for your contributions to enlightening the startup world! :-)
-David
(And Adam, your suggestions for writing an Exec Summary aren't bad either!)
@David S. Rose, thank you very much for your clarifications and additions. I certainly agree that domain expertise is something that I and other investors look for very early. David, please send me an email at marty@startupprofessionals.com - I have another question for you.
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