I see questions about angel investors and fundraising all the time, so I developed this list of the most important things they look for in a pitch. I originally created this for my blog and YouTube channel. Both are free and un-monetized. Links are down at the bottom. They have some graphics and diagrams that may be useful.
Part of the startup fundraising process is pitching angel investors. But when you are putting together a pitch deck, it would be great to know what that audience wants to see. Rather than simply use my list, I reached out to a bunch of other angel investors to learn what they wanted. All of us wanted to see similar things.
From that, I developed this list of nine things angels want to know before committing to a follow-up meeting or starting due diligence.
Full disclosure: this is what we say we want, but might not reflect how we actually make decisions. Emotions and other subjective factors often weigh heavily in our considerations even though we like to think we are making purely logical choices.
#1 Problem or Need
We want to understand who your customer is and the problem or need your company addresses for them. Frame this as what the customer wants, vs. the idea you have. The problem is all about your customer's world. Tell us about how much pain the lack of your solution is causing to this marketplace, or how eagerly they desire what you offer. If we are not familiar with this market, it helps if you can show that other thought leaders recognize the magnitude of the need.
#2 Your Solution
Having laid out your customer's problem, what are you going to do about it?
Describe your solution quickly and clearly. Addresses how your offering solves the problem you described.
Don't get bogged down in details. If you were pitching me the telegraph, I would want to know what it can do, but would I care much less about how it does it. Implementation and technology details are almost always better left for due diligence. We need to have a general understanding of what your thing is, but not at the level of detail you would use if you were selling it to us.
At the end of this, I should be able to picture your customers using your solution to solve their problems.
#3 Competitive landscape
There is always some kind of competition out there. Somehow, your potential customers are making do without your product right now. Their alternative might not be another startup, but just some widely adopted improvised solution. I often see companies where that alternative is just spreadsheets, which work remarkably well for many things. Convince us that your offering will win in the market.
A lot of competitor comparisons are just a list of features. Unless we are your target customer, we may not know if those are exciting features or not.
Suppose you founded Spaceman Spiff's Rockets. You might use this chart to show why you are better than Space X or NASA. The problem is, I am not in the market for rockets, so I have no idea if your customers will value those differences. Do they care that Spiff's rocket has a "freem drive", whatever that is? Is vertical landing a significant differentiator? Who needs a mertilizer beam, and will they pay more for it?
In contrast, I can see why exploring the galaxy rather than just the near-earth orbits would be a big deal. I can imagine that vaporizing enemies might be desirable to your launch market of supervillains.
Frame your comparisons in terms of why they are better for the customer, not in terms of features. It does not matter that you care about or are proud of them if they don't motivate your customers.
Show us how your solution is enough better than the incumbent solutions that users will switch. Switching is usually painful, so that is a high hurdle.
Your solution might be better than the competition right now, but how do you stay ahead once they see how awesome your product is and start copying it? Let us know about any barriers to entry that will prevent them from competing? Can you create a moat to protect your business from business marauders?
For example, are there network effects that allow a first mover to grab enough of the market to block later entrants? Do you have some unfair advantage that can't easily copy?
Does the company have enforceable intellectual property?
Strong intellectual property is much more than just having a patent; it needs to be one that competitors can't easily circumvent and that you could plausibly enforce against likely infringers. Don't lean on patents as your primary defense unless you know that they will stand up to scrutiny during due diligence. Otherwise, it makes you look naïve.
Most angels put a lot of weight on the quality of the team. A common saying among startup investors is "bet on the jockey, not the horse." Unfortunately, team slides are often the worst in a deck. They are just a list of names and photos, sometimes with corresponding companies or roles.
This slide is your chance to sell us on your team. Why is this the group of people that will win, even if you have to pivot a few times first? If you have prior experience in your space, it means that you have intimate knowledge of the needs and complexities of the industry. That is important, tell us about it. Also, highlight any team members that have a track record of success in leadership positions in other startups.
Highlight all your team's outstanding skills: technical, human, leadership, and communications.
Some things about the team can be an explicit part of your pitch, but others will only come out in interactions and conversations. We are observing and judging your listening skills, coachability, and humility as we interact. Coachability matters a lot to most of us because we want to stay involved in helping you.
Through your presentation style, angels want to see that you exhibit focus, high energy, and enthusiasm for your company while being flexible and adaptable in the face of challenges.
In your deck, your presentation style, and all other interaction, make sure these qualities shine through.
#6 Business Plan
We need to see a business plan, but we don't want a formal MBA style written plan. We need to understand your strategy and tactics for your business to succeed.
How are you going to make money? Maybe not right away but eventually.
How are you going to get into the market? What is your marketing and channel strategy? Avoid just a list of the obvious: social media, keyword ads, word of mouth, PR, etc. Everyone says that. Demonstrate that you have thought about this, have some insight, and maybe have done some tests already. We are looking for any glaring holes or unwarranted assumptions in your plans that would make us say "no."
Show that the opportunity is big enough for angel and VC investment? In a past blog, I talked about why we need the possibility of at least 20x returns.
When you talk about the size of the market, I want to know about the size of your portion of the market, not the whole thing. If you sell seatbelts, don't quote me the size of the entire auto industry.
We need to see some financial projections. I also did a blog on how to create appropriate forecasts for early-stage startups. They need to show us your cash requirements and projected future funding rounds. We worry about dilution in later funding rounds if you need a lot more money, and possibly running out of money if those rounds are late. If you say nothing, we will assume the worst.
Finally, do you have a grand strategy for the long term? Where is the company going in several years once you own the initial market?
What have you achieved so far? Do you have a concept, prototype, MVP, or full product? We need to know what actually exists right now before this funding.
Can you demonstrate customer traction and interest? Do you have sales, paid or un-paid pilots, testimonials, or surveys? Your valuation depends on the maturity of the company and the tangible and intangible assets you have created.
From that starting point, tell us the immediate next steps?
#8 The Deal
You are pitching us because you are looking for investment in your company. Don't be coy about it. You must be very clear and concise in describing the deal on the table, or honest about the lack of current terms. We need to know:
How much are you raising in this round?
What is it that are we buying? Preferred stock, Note, SAFE?
At what valuation or conversion cap?
What will this cash be used for?
We want to know how much you have raised in previous rounds, and what you have committed on this one.
If you have any well-respected lead or key investors, be sure to mention it? Investors can be sheep and like to follow a trusted leader.
#9 Exit Strategy
Finally, we need to understand how we will make money on this investment. Typically, we get paid when your company is acquired (most often) or goes public (rarely). Therefore, we want to know if this an active space for acquisitions. Do you already know of companies that are likely to be interested in you? If so, do you already have strategic relationships with any of them? What are common multiples for acquisitions in the space for companies like yours?
If we get paid in some other way, make that crystal clear. I see this most often in real estate investments where the company makes regular payments starting. Otherwise, non-standard payouts are usually a turn-off. Angel investments are risky enough without introducing unnecessary uncertainty and doubt.
On to due diligence
While it is always possible that any individual investors will have some hot button issue not on this list, if your pitch delivers on all of these nine areas, you have a strong chance of getting that next meeting and potentially getting funding.