The magic world of investors (VCs & Angels)
There comes a time on a project’s or entrepreneur’s life where we have to go out there and ask for help in the form of money! After a first round of angel investment that helped us develop a minimum viable product and test it with our first customer, in Plaiding we’re confident that with the support of an investor we’ll make a great business to help the world. We know we have to officially start the search for an investor that fits us. While managing MBA classes and leading Plaiding’s strategy and execution, I have had to start learning about the Angel and VC world here in Boston.
Today I would like to pass to you what I’ve learned by talking to different kinds of investors. I’ve been to different events in the area in order to star understanding the VC and Angel world. From assisting to Babson’s Entrepreneurship classes with guest VCs, the Babson Entrepreneurship forum, Butler Venture Accelerator Investor sessions, Lean Startup Challenge, Harvard Entrepreneurship Conference and pitch competition, to participating on HACK MIT, volunteering in the New England Venture Summit, and so many others (if you live in Boston you know how overwhelming the event schedule can be), I’ve gotten a good picture of what this curious money makers want, if we can tell they really know what they want:
The search! Some entrepreneurs seam to pitch their idea to whomever they have in front, they know all investors in the area and maybe in the country. I’ve seen this approach work, however, if you value your time, I would consider the following:
- Research and Choose 10 VCs, define why they are perfect for you and then pitch it strong to their faces. Don’t visit every VC, make your homework and find a fit.
Approach: I’ve seen many different approaches to VCs and Angel investors; you’ll definitely need practice or natural talent for this, so get ready to jump into the water. I see this stage as the approach you use when dating the most beautiful girl you’ve seen… you have to be clever, different, and there has to be some chemistry for the relationship to go further.
- Ask for a meeting just to meet and warmly introduce. Investors I spoke to receive an average of 75 monthly applications, you want to make sure they know who you are before anything.
- Make your pitch as much as a conversation as it can be… ask questions like what do you think? How do you see this?
- If you send e mails, always include an executive summary on the body of the e mail, and also tell them what you want from them.
- Mentors are a great tool to meet investors; their introduction will help you a lot at this stage.
What’s your favorite pitch? Answers to this question vary largely, investors are humans, yes, like you and me, and like every person, they have different points of view, different opinions and different ways in which you can surprise them. However, from what I’ve heard, I think you should consider at least the following on your pitch:
- 10 to 12 slides (surprisingly, I heard some VC loving the idea of a 40 page business Plan, others said that was something of the past).
- Choose your best horse to run the race. Effective leader pitching, someone that knows exactly what he’s doing.
- If you don’t know the answer to a question, be honest, and then follow up answering after conversation by mail in more detail.
- Product demos are always the best way of explaining your startup. If you have it, use it!
- Answer what is your sustainable advantage? How are you going to survive?
- Always talk about the team
Remember these are only thing they remembered of their typical favorite pitches, however, you should also consider the basics of any pitch manual
Customers: Customers should be the clue to us as entrepreneurs as it is for investors. If we don’t have willing to pay customers, then we just have a good idea. If we manage to have willing to pay or paying customers while we’re raising money, this will make investor’s eyes shine and will make them curios and hungry to know more about your idea. They will always look for:
- Value on customers
- Are your customers happy?
- Are they willing to re purchase?
- Concentration vs dilution (do you depend on 1 or 2 customers?)
From VCs that invest as low as $200,000 to Angels who invest as much as 2 million (Which I found surprising for an Angel Investor). All want different things, and we could make a list of one thousand tree hundred and ninety nine rules for raising money. That would be boring and unrealistic, so from what I’ve learned I’ve identified 3 GOLDEN rules that all investors seem to agree upon:
RULE #1 à Talk to them before asking for money. They like warmly introductions rather than a pitch to their face asking for money. Establish a relationship with potential Investors, get to know them, then ask for money.
RULE #2 à Make your homework, research them before you talk to them. Apparently VC’s ego is an important part of the deal. They actually want you to know who they are, what they like, who they know and surprise them with a customized pitch.
RULE #3 à They will always put special attention on the team. The idea is important, but they usually invest in people, not in projects.
Bonus rule# à once you get the money, don’t show off telling stories about how much you got in cash, show off telling how many customers you have and how much are you selling, that will get you the next round of investment.
Finally, remember not all investors are looking for the next Mark Zuckerverg, some are down to earth and are just looking for good ideas on their comfort zone. Believe in yourself, in your team and your idea… Close your eyes every now and then and imagine it happening.
Jorge Gutierrez Alvarez
Chief Plaiding Officer