The usual scenario is similar every time: an eager entrepreneur walks into my office, laptop at the ready and their eyes shining. Their enthusiasm is apparent, as is sense of palpable nervousness in meeting an investor whose decision could change their lives.
The first challenge the angel investor faces is that, if left unbridled, the entrepreneur will talk incessantly about their idea, product or service with no structure to their presentation whatsoever. Thus, the first problem is immediately apparent: the entrepreneur’s ability to pitch effectively. Pitching is an art, one that must be perfected by everybody. An effective pitch will get the attention of investors, partners, employees and all stakeholders. Entrepreneurs must learn and perfect how to deliver a 1 minute, a 3 minute and a 10 minute pitch, as well as a full deck presentation. You may not know it, but it is extremely frustrating for an investor to listen to a bad pitch. It can also be incredibly boring! Once I was listening to a pitch that was so lengthy, without structure and delivered in a monotone, that I almost fell asleep. Needless to say, the entrepreneur was not re-invited to my office, nor was he able to secure funding!
The second challenge is that each eager visionary truly believes that their idea is a game changer with the capacity to impact on the lives of everyone. In truth, more often than not the entrepreneur has given very little idea to their competitors. In fact, whenever I ask the question, “who are your competitors?” the most common response is “I have no competitors”. This is the wrong answer. Allow me to explain why, especially if you’ve not fully appreciated that, no matter how brilliant or unique your idea is, you do have competitors. Thus, when Henry Ford invented the automobile, of course, no other cars existed. However he still faced competition from bicycles, horse drawn carriages, and horses. It’s healthy to have competition, and it’s in the eyes of an investor it’s preferable to see that there are competitors.
Why?
Because this is the first indication that your concept is a valid one, and that a problem already perceived as existing in the marketplace is being solved by other players. In a way, competition can be seen as your very first proof of concept. However, please note, that if your competitor is the market leader with a strong brand, you’ll need to overcome huge challenges to infiltrate their space and take some of their market share. However, knowing who your competition is allows you to position yourself with your investor as a potential unicorn, or as a potential acquisition target. I will expand on this concept later but for now, simply remember that unicorns are defined as companies that reach a valuation of over $1 billion, and that the reality is that less than 1% of the startups succeed. Investors are well aware of these facts and on that basis, understand the chances and evaluate opportunities accordingly.
The third challenge is that many of the entrepreneurs who sit at my table sorely underestimate what it takes to sell their product. Often they have initially presented their concept to a few family members and friends, who then go on to praise it very enthusiastically and who naturally confirmed they’d definitely buy whatever that product or service is. This, in turn, encouraged the entrepreneur to pursue their dream. However, there’s a huge difference between receiving well intentioned warm words of encouragement from friends and family to then convincing a set of strangers to part with their hard earned cash. Furthermore, the size of your market is of paramount importance. You may have the most interesting and profitable idea, but if it solves the problem of only 100 people in the world, then I’m sorry, you don’t have an investible idea.
Have you asked yourself if your idea solves a real problem for a significant number of people?