6 Keys to Evaluating a Startup Pitch

As an angel investor, it is quite likely that you have encountered some very unique investment opportunities. While some may have offered significant promise, others may have been more reminiscent of an umbrella company in the desert.

Whatever the concept, you know that certain things will peak your interest for a variety of reasons: it was always a dream of yours to develop that concept; you once ran a similar company; or it sounds much like the old family business.

You are much more likely to go with your gut, but your gut is sensitive to the risk involved in any investment. No matter how much nostalgia or even excitement an opportunity offers, it isn’t an opportunity if it can’t make money. It’s your job to determine if it actually will. The best way to do that is to get past the icing in a pitch to get to the meat of the proposal.

In Entrepreneur, Scott Gerber shared his recommendations on the 6 keys to a perfect pitch. Let’s look at his guide from the perspective of an angel and determine how you can use the same advice given to entrepreneurs to make your next investment selection. [1]

1. Succinct and to the point -

This first key is definitely on target. You get excited about new ideas and opportunities, not listening to long, drawn-out presentations. Besides, you know at what point you tend to stop listening and it is pretty early in the meeting. You either like the idea or you don’t and no amount of talking is going to change that initial reaction. The “elevator pitch” is crucial to this interaction. [2]

2. Look for what they’ve done –

Let’s face it; before you are ready to start signing checks, you want to know what is in it for you. Not all your motives are purely financial, but if that incentive is lacking, you wouldn’t be at the table. Without proven marketability and even a few dollars already generated, you are less likely to get involved. Don’t look for what the entrepreneurs think they can do; look for what they have done. [3]

3. Ignore hockey stick projections –

When an entrepreneur pitches an opportunity that they can “prove” will grow from US$100,000 to US$100 million in just 3 short years, the meeting is pretty much over. You are likely drawn to investment opportunities in industries with which you are already familiar and you know very well what it takes to achieve profitability at all. Hockey stick projections depict a wannabe entrepreneur who hasn’t really done his homework and is more likely to fail. [1]

4. Ask how they’re going to use your money –

It is essential that entrepreneurs be respectful with your money and not view it simply as their own to do with what they wish. You are not only investing in their idea, you are investing in their ability to make your money grow. It is not always a deal breaker when the one requesting the money is a little off in the estimated amount; but it can be detrimental when they don’t know what it will be used for and just feel better having it on hand for higher salaries or a pool table in the conference room. This isn’t good use of your money and it demonstrates poor planning and execution. [4]

5. Look for proof that the company can crawl before it can walk -

Be weary of those entrepreneurs who have unrealistic ideas about how quickly their company will grow and achieve profitability. When projections are too far from reality, they have not done their homework. Make them prove to you that the company can crawl before it can walk; otherwise, they have missed a crucial step that will break the company before it even gets off the ground. [3]

6. Look for coachable entrepreneurs –

You know from experience the value of surrounding yourself with industry experts. If an entrepreneur has failed to do the same, they are too confident in their own ability and closed off to the possibility of gaining value from others’ experiences and knowledge. This can be a dangerous place to be when trying to launch and grow a company. No man – or woman – is an island and this illusion should be a clue to run the other way. [1]

Those entrepreneurs who pitch their ideas to you that can pass each of these key components have not only done the grunt work in preparation for their presentation, they also have a keen understanding of what is necessary to get an angel investor on board. It is not necessarily a slam-dunk, but it does put you both one step closer to closing the deal.

Notes:

[1] 6 Steps to the Perfect Pitch

[2] Wooing And Choosing The Right Backer

[3] The Essential Components That Appeal To Angel Investors

[4] Corporate Angels – Ideal Startup Investment