A Successful Angel Investor Presentation: The Last 5 Minutes (Part 4/4)
In this fourth installment I continue to breakdown your Angel presentation into sections, each part being equally important to the overall presentation. As stated in my last post- I do this to allow you, the entreprenuer aka the soldier, an opportunity to begin pacing yourself in preparation for (and also during) the presentation aka the war (don’t forget that stopwatch!). To refresh, please read parts 1-3 again before continuing.
So guess what? Those first 5min that just flew by were great, but the war is just ¼ over my fellow entreprenuer- there’s the 10min presentation followed by a 10min follow-on Q&A session. Therefore, you must remain focused as ever when transitioning into this part of the presentation. The first 5min was meant to give the prospective investors an overall “gist” of your venture. It’s great that you’ve gotten this far soldier, however, recognize the next 2min necessitate a complete gear shift and are vitally important to whether an investment is on the horizon or far off into the sunset.
Fifth Minute – Seventh Minute:
During these next 2min you need to be mentally prepared to keep your presentation on a macro-level, essentailly skimming over the highlights. Read again….only macro-level and only skim…. do not fall into the trap of regressing back into the micro to explain additional points you may have missed previously or feel are important to parlay to the Angels now. You don’t have the time to divvy away from the macro at this point and resist the urge to do so at all cost. Here you’re not trying to get into the nitty gritty- because like I’ve stated, you simply don’t have the time. Furthermore, you will be drilled during the Q&A on points you may have missed- I can gurantee you of that.
Choose just a few key points to touch upon (but only macro-level) which reinforce 3 things:
- The validity of your venture
- How and when the investor will recoup their original investment (projected)
- How and when the investor will exit at 10x -15x their original investment (projected)
As you transition into this 2min phase take a deep breath and realize you need to present a completely different case for investing in your venture then during the first 5min. During the first 5min the Angel Group wanted to hear how, where and why you’re going to capture and solve a need of the consumer. Now within these next 2min you need to hone in on how you’re going to grow your product/service into a venture with a multi-million dollar top line in revenue. Do this by emphasizing, leveraging and hammering home the key points you’ve chosen and relate/intergate them into the 3 things outlined above.
The best way to transition into this gear change is to simply talk dollars and cents with your respective audience of Angels. The most effective key points to articulate and briefly touch upon in a macro-level capacity in my opinion are:
- Initial target market for your product/service and the descretionary dollars they possess
- The total market (keep in mind the macro-level impact of your product/idea as referenced in post 3/4- ie “taking XYZ drug”) and the descretionary dollars they possess
- The name/grouping of your market. This is extremely important because your market is what drives the multiple investors will value your company with. For example, a media services company normally has a cash flow top line multiple of 1.2-1.5x, meanwhile a media content firm has current multiples ranging from 10x-12x. Therefore, it’s extremely important to understand the broad market your product/service fits into.
Now my reccomendation here on how to present these 3 key points is acutally opposite of what most Angels/Consultants/Investors will tell you to do- almost everyone is used to, shown and given macro-level presentations which are eventually boiled down to the end consumer (“top-down” approach). I disagree with this way of presenting your venture. As the founder and expected domain expert for your venture, you need to tell me how you’re going to efficiently, effectively and precisely grow your business from customer #1 through customer #10,000 and beyond. If this isn’t clearly articulated, then how can any Angel trust you with their hard earned money? Of course there is the long-term “big picture” of where you want the venture to go. But hold on there soldier- you need to walk before you can run- meaning every Angel wants assurance (seen as a risk mitigator) that your head is not already in the clouds and that you understand ramping up your venture is a hard fought battle not won overnight. You need a clientele base before you can even remotely ponder your 100x exit, so focus on building a strong foundation with your clientele base as the anchor, while also continually churning out the same high quality transaction each and every time. Because a strong foundation is anchored by a solid clientele base (which is vitally important in a start-up) the “bottoms-up” approach is much more of an appropriate (and immpressive) presentation technique.
Next I will detail how you should present your “bottoms-up” approach to the Angels who are hopefully now listening quite intently (if you’ve kept their attention to this point it’s almost a given because in the end it’s all about ROI!!). As previously stated, your multi-million dollar vision is a byproduct of consumer tastes, interests, viewpoints, etc so present strong concrete evidence to the Angels (which you should leverage) to explain why consumers need your product/service (we’ll call it XYZ reason). Whatever the XYZ reason for your product/service, you’ve now identified your initial target market (the “bottom”). In addition, you should be able to comfortably estimate:
- The number of consumers who will have the same XYZ reason to purchase your product/service
- The cost/benefit consumers see with your product/service versus other ways and/or competitors which solve the same XYZ problem/issue for the consumer
As a side note: The bottom line is that you must have an immensely well defined scope of where, what and who your business will target from day one and also as far as four and five years down the road. Angels want to see a roadmap of where you’re going to start based on XYZ reason and how your pipeline of innovation to the original product/service offering(s) will generate increased expansion into a larger and more diverse consumer base. The larger and more diverse the target consumer base, the better, as Angels only want to see ventures with a total available market >$500MM. Why? Because that size of an available market is a huge risk mitigator for your venture and the investor- the more consumers available to target, the more likely you’re able to attract and retain the necessary 3%-6% of consumers who will make your venture a success.
Then detail your overall total market drivers- what is going to make consumers buy your product/service besides their initial XYZ reason? This is a more generalized (or higher level) description of the XYZ reason that the consumer is going to buy your product/service, which could be (but not limited to):
- First Mover Advantage
- Convenience
- Marketing
- Distribution
- Price
There must be at least something (and hopefully numerous things) uniquely different about your product/service that distinctly separates your venture from the competition. If there is no direct competition and you’re creating a new vertical, then explain how your firm intends to address (and eventually differentiate from) the flurry of competition that will undoubtedly enter the marketplace. Don’t be naive enough to think you’re the only one with this idea- chances are 20 others have already thought of it, but didn’t have the time, resources or know-how to execute. Therefore, realize once you hit the market- others will know their idea is worthwhile because its now been vetted, verified and legitimately proven since its launched in the marketplace. Thus, others who haven’t yet acted upon their initial ideas will now do so, with a great case to go back to their family & friends, Angel Group or local VC Firm to get funded. Then, poof… within no time you’ve gone from entering (and creating) a new vertical to struggling to keep market share in a hypercompetitive marketplace. In addition, competitors will attempt to outdo your venture by studying the first mover mistakes you’ve made with the intention of catapulting themselves past your venture (whether it’s through price, service, distribution, etc) based on what they’ve learned from you! This has happened many times throughout history and across many industry sectors where the first mover becomes a learning tool for the second and third entrants; who ultimately, because of the lessons learned through first mover mistakes, end up as the long-term winners in a the marketplace. Point being- no matter whether you’re in a hypercompetitive marketplace or creating a new vertical- competition will come and it will be fierce- so be prepared soldier (this is why strategic planning, and especially its execution, are vitally important).
Last is your market category (the “top”). This is an increasingly broad and macro-level description detailing essentially what business your product/service is in and your positioning in the minds of consumers (and also against the competition). This description should be the launching pad for your sales and marketing plans. In addition, it will also function as a metric for the investor when determining an appropriate cash flow multiple- utilized to produce a valuation that’s as accurate as possible. In addition, this is where the aforementioned roadmap becomes extremely valuable. Investors are quite fond of visual aids in a presentation and here is where you satisfy that craving by drawing now (DO NOT PRE-DRAW) a diagram of how your venture stacks up against the competition in your specific market category. The main mistake entrepreneurs make here is spending time discussing competitors- Angels aren’t there to listen about competitors; they’re in attendance to hear about your venture! Therefore, focus on:
- Your Company’s Strengths: On one axis of the diagram begin to draw (and also verbalize) the metric you’re going to use relating to an aspect, such as a core competency (and not just intellectual property), that your venture encompasses and will produce/execute on exponentially better then the competition. Make sure to draw out a projection of where/how competitors and the marketplace will change over time based on your entrance. Investors will critique your drawing/diagram/projection by asking themselves:
o If the metric relates directly to the product/service
o If customers will realize its value for XYZ reason (and retain your product/service because of it)
o If your projections are achievable (DO NOT SHOW A HOCKEY STICK PROJECTION!)
- Your Company’s Weaknesses: Don’t be afraid to admit at least one challenge your venture will have to endure/overcome based on this graph- believe it or not, investors appreciate that you realize (and are willing to admit) that the venture has downfall(s) because it exemplifies an impressive level of maturity and strategic thinking. There’s nothing wrong with admitting that you don’t know it all. However, you must have a well thought out reply to your weaknesses in relation to scaling the business model because they’ll be apparent to any domain expert in attendance (you’ll get hammered on it in the Q&A). Investors are not just random people giving you $$$$, they’re domain experts with specific competencies who bring value to the table through what are called “value-added services” such as coaching you on how to overcome your venture’s weaknesses based on their prior experiences in the space. Any entrepreneur that says either: 1) They don’t have competitors 2) They don’t have weaknesses- is immediately discounted by an Angel Group and looses most (if not all) credibility.
As a side note: Do not pre-draw the diagram. Investors, as previously stated, can loose focus easily if you throw too many bells and whistles at them upfront (hence why you don’t hand out any materials at the beginning of your presentation). Thus, you want to draw the diagram on a white board as you verbalize your story. You want the Angels to follow the story with dual attention: both visually and through attentive listening.
By no means are any of these 3 segments easy to articulate in a short, concise and impactful manner. Usually most companies present this section from the “top-down.” In addition, most entrepreneurs utilize overly broad data, leading to an overly broad target market, which steamrolls into a venture that cannot correctly identify its target category- leading to a venture that all of a sudden encompasses just one marketing plan with one sales approach and a product/service offering that supposedly suits all- which obviously isn’t fathomable.
By far this is the hardest section of the presentation to get through. Segmenting your market is nowhere near as easy as it sounds, which is why I estimate that less then 3% percent of entrepreneurs relay this information in an impactful and memorable way which flows (and connects with) the rest of the presentation. Most Angels “go to town” on this part of an entrepreneurs presentation because there are almost always numerous dislocations between what’s projected as the available market for XYZ reason a consumer desires your product/service and what the projected available market actually is and/or turns into going forward once vetted out through due diligence.
Seventh Minute – Eighth Minute:
In this next section, remember the phrase “less is more” because in one minute only (yes you read that right… ONE MINUTE ONLY) you need to clearly articulate:
- Marketing Strategy: Choose your top marketing strategy (ie- branding, promotion, public relations (pr), web presence, how you’re going to market, etc) and support it with evidence-based reasoning for choosing that specific path. Do not get bogged down by going into detail thinking an investor needs to hear every little point behind why you chose a certain strategy- if there are questions (which there undoubtedly will be), they’ll come in the Q&A section. If you’re somehow ahead in time at this point, give a macro-level “taste” of your second/follow-on marketing strategy.
- Sales Strategy: Describe what verticals you’re attacking (not “seeking” as most entrepreneurs state- but attacking!!) and the way(s) in which you’re going to get there- ie through a sales force (hourly/salary/commission) or other distribution and/or sales channel strategies. Be clear and be short. In addition, detail the precise time it takes for a sales cycle currently (or upon investment) with your existing target consumer and how that lead-time changes going forward. Also detail your pricing structure and how it changes with volume, over time or through innovation. Focus extremely hard on this section- when articulating this strategy most entrepreneurs give the impression that they care more about creating and evolving their product/service then actually selling it. Angels care about selling the product/service because that’s the only way they’re going to get a ROI- so please don’t leave a bad taste in their mouth by gingerly glazing over this important section.
- Product Strategy: Here once again is the roadmap concept referenced previously. Show an openness to future tweaks, critiques and redirections of your product/service offering and its pipeline of innovations. Investors want assurance you’ve thought about how to attract, target and retain additional target segments and that you’re also willing to accept other viewpoints on what’s ultimately best for the venture. Therefore, quickly detail what you envision as the future for your venture and how you see it maturing and evolving as the market adopts your product/service.
Trust me, one minute is more then enough time to spend on this tri-strategy section. These parts of your venture will be hammered upon in Q&A and mostly likely are already deeply understood by your current audience. You’ll be able to rely on this audience for advice upon investment in relation to this tri-strategy section because it’s in an engaged Angel’s best interest to take the time to “flush out” these strategies for the best holistic long-term result.
Eighth Minute – Ninth Minute:
Any investor will tell you that the management team is one of the most paramount reasons for investing in a venture. I’ve actually known some Angels who’ve invested in companies they knew were going to fail because they wanted to be at the forefront for investment in an entrepreneur’s next venture. Why? Because they knew the entrepreneur would learn great lessons from that failure and next time out would develop a rock solid company.
Some investors are fond of having an entrepreneur speak about their own background upfront- when the presentation first starts. I disagree with utilizing this tactic to keep investors attention because without anything in front of them (since you didn’t hand anything out yet/the projector is still off/etc- as I advise) they have nothing else to focus on but you.
Based on what you’ve already collectively stated and portrayed through your mannerisms, the group has a good idea of your competencies, strengths, weaknesses, background, charisma and personality in general. Now they want to know the entire management team’s competencies, backgrounds and qualifications; as well as what specific value each team member brings to the table. Here you’re not establishing credibility for your venture, but personally for yourself and the rest of your management team. In addition, you must explain your Board of Directors and specifically why each person was chosen. There must be specific value-add reasons for each appointment including: experience, competencies, connections or even for investment purposes.
Most Angels are weary of the team you project and will focus on vetting each member out during the Q&A and also after the presentation (usually through other connections)…Why? Because many start-ups think it’s fine to place hallmark names onto their management team or board who in reality are only working part-time (or on a limited basis) at the venture. The entrepreneur thinks this raises the profile of the venture considerably, with the outlook that it’ll bring a heightened investment success rate.
This is completely false, and to tell you the truth- the more of a hallmark name brought into a venture, the more that person will be vetted out by investors in the Q&A session. Every investor has seen a venture where a hallmark name is supposedly intimately involved, when in reality they’ve just signed on as a non-employee and defacto-advisor. During the Q&A session, investors will focus on this person and continually drill into their capacity at the venture until they’re sufficiently satisfied (it doesn’t take long to figure out whether they’re truly involved or not). Do not give a lineup of players whom you think will simply impress investors. Names don’t impress investors. However, a truly intimately involved hallmark name certainly is impressive and would be seen as a huge risk mitigator- unfortunately most of the time the situation turns out to be the latter.
If you cannot relay this section credibly, then you’ve shot yourself in the foot and wasted the past eight grueling minutes. Only 25% of entrepreneurs get through this section unscathed because surprisingly this is usually where the most “puff” is within a presentation. Normally everything in an entrepreneurs presentation is backed by well thought out, solid and evidenced-based fact; however, in this section somehow entrepreneurs feel inadequate, and a need to essentially “puff up” their management team and advisors. Word to the wise: DO NOT do this under any circumstance. Sadly though, many cannot resist the urge to do so and face a barrage of questions that ultimately bring the truth to light quite quickly.
Ninth Minute – Tenth Minute:
This last minute is a tough one I’m not going to lie to you. In the span of just one minute you need to go through macro-level financials (DO NOT have a 3 page excel spread sheet- investors want 5 columns and 5 rows at most), the investment required, the deal structure, exit strategy and most importantly- overall recap and a strong close on your audience. Yes, your presentation will mostly likely run over about 30 to 45 seconds; however, if your presentation has told the correct story and you’ve captivated your investor audience- they’ll be more then willing to forget the 8% time overrun (to be honest they probably won’t even notice you’ve gone over if they’re that engaged in your presentation- which is obviously the goal here soldier). The fact that your time overrun is or isn’t acknowledged/recognized serves as a good barometer for the Angel’s level of engagement in your presentation.
Thirty seconds, that’s all you need to describe a macro-level version of your financials. As previously stated, financials should be no more then a 5×5 square- short, concise, easily readable and easily referenced. Of course projections can be an immensely long discussion simply by themselves, but that’s exactly why you only have thirty seconds now- because in the Q&A you can let the investors drill you time and again without affecting the quality of your presentation. With financials it’s quality not quantity- ie 3 page excel spreadsheets impress nobody. However, well thought out, evidence-based assumptions that you’re ready and able to defend which are condensed into a 5×5 square are quite impressive to an investor. In this square you need to have either 3 or 5 year projections on revenue, gross margin, earnings and cash flow- that’s it. In addition, it would be useful to have a note regarding when the venture is going to achieve its break-even point. Overall, your financials simply need to make sense in these thirty seconds (again AVOID THE HOCKEY STICK) and the rest can be discussed during the Q&A.
These next thirty seconds must focus on the investment. Any Angel who’s been around the block a time or two will tell you that they’re most concerned about the “cram down” their initial investment may incur during follow-on rounds (simply stated- a decline in the value of their initial investment due to a follow-on investment at a lower valuation). Obviously follow-on investments at a higher valuation make the company worth more, increasing the value of an investor’s original investment.
Therefore, the best way to approach this normally uneasy subject is to strap up your shoes tight and flat out state (with confidence) what your valuation is and how much you think you’re going to need to raise in total to reach positive cash flow. For example, in an equity scenario- you project having to raise X amount now, XY amount in two years to reach positive cash flow (called a Series A Round) and XYZ amount in year three to scale infrastructure (called a Series B Round) before exit in 4-5 years (there may also be a Bridge Round somewhere in there). Either way, in this part of the presentation heed my advice and be forthcoming in your valuation, your capital structure (detailing current shareholders with percentage ownership), what you’re willing to give up and why. The big question here: what is the fair value of your current early-stage venture based on the projections you’ve provided, the market and comparables? To ensure you’re valuation is of “fair value” Angels look for your valuation to be reinforced in one of three ways, based on:
- A multiple to last years revenue or profits
- A multiple to next years revenue or profits
- A recent comparable transaction
The third valuation methodology is usually quite rare since ventures are hardly ever similar enough to justify a reasonable valuation based on a specific transaction. Either way, the agreed upon valuation isn’t determined during this presentation or the Q&A- it’s decided at a later date after investors complete their due diligence process. End this part by alluding to your exit strategy and the time frame the investor can expect for monetization of their investment.
As a final note- don’t be shy with your valuation but don’t be overly aggressive. In either instance you’ll be hurting your credibility and ultimately turn investors away from investing. Instead, have a solid valuation that you can justify with solid fact-based evidence- and stand tall against the firestorm you’ll face on this front during the Q&A session.
Lastly, it’s time to recap and close your audience. Its been one heck of a fight so far soldier, I certainly know trust me. But do not loose focus simply because you’re so close- the best salesmen make the sale in the last few minutes and close like a shark- not during their presentation. Therefore, this is the time when you proudly state why the story you’ve detailed over the past 10min is best of breed, why you and your team are credible and the right individuals to lead this venture forward as well as why your product/service deserves an investment from this specific group of Angels. This is important- do your research upfront and close with a specific reason or two why this exact group MUST invest- whether it’s their backgrounds, past investments, current portfolio companies, etc. Other ways to close include: alluding to the fact that you’ve given a compelling value proposition by XY, a multi-pronged growth initiative with steps 123, you’ve mitigated risk through XYZ and your valuation is fact-based and reasonable for all parties involved based on WXYZ. Say this confidently and with conviction. Stand up straight, annunciate and look each investor in their eyes while rotating around the room- believe in yourself at this moment and also in your venture. If you don’t- trust me, it will be apparent.
Sadly, it has been my experience that very few entrepreneurs present this section successfully. To be honest I can think of only 3 out of hundreds who’ve taken this opportunity and used it to their advantage. Every other presenter has either lost me somewhere during the presentation or simply reiterates information they’ve already stated within the past 10min of the presentation. This is an opportunity to close your audience one last time with new invigorating arguments and information- leave a lasting impression, don’t be the closing dud that most turn out to be.
Here is it soldier… the home stretch…. but guess what? You’re only half way done- 10min up and still 10min of Q&A to go. Stay strong during this upcoming line of fire soldier, as stated in previous posts, it’s the investor’s job to try and pick apart every weakness, bottleneck and loophole they see in your venture. Just because you’re berated with questions doesn’t imply the Angels aren’t interesting in an investment. In reality, most of the time- the rule of thumb is the more questions you get (and the more in-depth and thought provoking they are) the more likely you are to get that long sought after investment.
Never forget that your odds of receiving an Angel investment are roughly 1 in 10. A gambling man would say these odds aren’t the best and a little luck certainly plays into these odds. Therefore, always remember that luck is an accumulation of hard work. If you put in the time and effort, while following the steps I’ve outlined, your presentation will be a blockbuster that will blow away investors. Furthermore, as an ancillary byproduct of following this outline I’m confident you’ll gain a much more in-depth understanding of your venture and its marketplace if nothing else.
As stated in my first post, the top 10% in presentation quality is where you want to be soldier. The big bucks are given to those in the top 10% because they’ve presented an efficient, effective and concise argument for investment. Best of luck in being the next venture funded- either way it’s a ride you’ll never forget and something you can hang your hat on for the rest of your life.
