After selling my startup, the first big “purchase” I made was an investment in another startup.
I loved the idea of angel investing; I wanted to give back to the community that supported me when my startup was little more than a crazy idea. I wanted to be involved with promising startups outside of my own space. And, of course, I wanted to make more money.
I’m still just a baby angel, with a lot left to learn. But what’s surprised me most about my foray into angel investing is how much it has taught me about being a better fundraiser. Here are 10 things I’ve learned about fundraising after becoming an angel investor myself:
Tell a Good Story
Storytelling is the most effective way to convince someone of something. A powerful narrative captures our attention, tugs at our heartstrings and makes us vulnerable. Investors have to sit through a lot of boring meetings. Make it easy for them to pay attention.
Be Crystal Clear About What You’re Selling
It’s always surprising to me how many entrepreneurs are unable to clearly explain what they’re selling. If after reading through your pitch, watching your video, perusing your AngelList profile, and speaking with you for half an hour, if I’m still unable to explain to my husband in two sentences what you do, I’m not going to invest.
If you can’t explain what you do in two sentences, how will I?
It doesn’t matter how complicated your technology is, or how obscure the problem is that you’re trying to solve. You must find a way to distill it into something an intelligent layperson can understand. If you’re unable to do that, my assumption is you can’t explain your product to your customers either.
Make Your Presentation Pretty
Design matters. For the same reason good design matters for your product, it matters for your presentation. Investors are just as impressionable as your average consumer. Pretty slides send a signal that you know how to build a good product. (This may matter less in hardcore technology or enterprise startups, but it certainly doesn’t hurt.)
Good design alone won’t get me to write a check, but it will impress the hell out of me. I’m a sucker for pretty pictures, just like everyone else. Use that to your advantage.
Anticipate Their Questions
As you’re developing your pitch, try to anticipate the questions that will arise on each slide. For major questions, address them head-on. For smaller questions, be prepared with a good comeback, supported by data.
Be Clear About Your Goals
I want to feel confident that you’re going to put my money to good use. I don’t need to see detailed financials (in fact, I probably don’t want to), but I do want to have a sense of what my money will help you achieve.
The best presentations specifically lay out exactly what they plan to accomplish with the current round of funding. Be explicit with your goals, and it will instill confidence in the investor that you have a clear vision and will spend the money wisely (even though all good investors know that plans change).
Hook Them in 10
Angel investing is by and large a gut-driven activity. For every investment I’ve done, I made the decision to invest more or less instantaneously. I still listened to the pitch, asked a lot of questions, and (somewhat) rationally evaluated all the information before committing to invest. But, if I’m honest with myself, I can see that the decision was always made with my gut. And it was usually made before I had any details.
Recognize that investors make snap judgments, and do your best to hook them at the outset.
This one is obvious, but it’s so important that I felt I had to include it. Confidence is everything. It’s a fine line, of course. Don’t be arrogant. Be respectful and personable and kind. But you have to believe in yourself and your startup. And you have to make me believe that you do. Investors sniff out doubt like hound dogs.
Find Investors Who “Get It”
I’ve passed on a lot of investments that fit all the obvious criteria: they were playing in a market ripe for disruption, had a great team, savvy founder, innovative product, lots of other reputable investors, etc. But I still passed.
Why? Even though everything looked great on paper, I just personally wasn’t excited about what they were doing. It wasn’t something I wished I had thought of. I know that many of the opportunities I’ve passed on will go on to be very successful. And I’m fine with that. Because for me, angel investing is not primarily about making money — it’s about participating in startups that I find exciting. I believe this is the primary motivation for most entrepreneurs-turned-angels.
Don’t waste your time pitching to angels who are not likely to just get it — not because they’re idiots, but because, for a million and one reasons, it’s just not their thing.
This is probably one of the hardest things to do consistently, but it matters a lot. I will never, ever write a check to someone I think has lied to me, even if it was just a little white lie.
I’m as guilty as the next entrepreneur for pretending to know a number when I don’t. It’s hard to be honest when you’re under pressure. But I have so much more respect for a founder that just fesses up when her dirty laundry is uncovered (or better yet, reveals it herself) than one who tries to cover it up with an obvious lie. Lying sets a bad tone for your relationship with your investors and it also betrays your self-doubt. If you’re truly confident in your ability to succeed, you have no reason to lie.
Accept Rejection Gracefully
I know how frustrating it can be to hear “no.” You’ll probably hear “no” more often than you’ll hear “yes” throughout your fundraising process. As tempting as it is to be a jerk to an investor that rejects you, you have a lot more to gain by being gracious. This is almost certainly not the last round of funding you’re going to raise, or the last startup you’re going to do.
Investors don’t like to say “no” any more than you like hearing it. It’s hard to let down an eager entrepreneur, especially if you’ve been in their position before. It’s the one thing about angel investing I truly hate. When a founder responds graciously, my esteem for that founder rises tenfold. It even makes me question my decision to pass. And it certainly makes me want to keep tabs on the startup for the next round.