In my profession I meet with a lot of investors, mainly venture capitalists and angel investors. When meeting with many of these investors I like to learn their thought process of determining whether or not a company is worth their time and resources. Monty Kersten, Independent Board Member and Angel Investor told me the following in regards to deciding which companies he chooses to invest in.
1. The Market
“There must be an explosive market trend, unstoppable, a massive wave you can get on and surf for years…Market kills a lot of ideas that would sound great otherwise.” You could have a good solid business plan, a great service or product and high projected income but without the market being open and ready to receive such a company, an investment would not be wise.
2. The Team
The investors will look at those in charge of the company, the leader(s), founder(s), and CEO. They ask themselves the question, “[will they] do everything it takes, devout all their energy wisely, and listen to others as they forge ahead?” The leadership can make or break a company. Take Netflix for instance, the company had the potential to totally take over the video industry and were well on their way in doing so, yet one critical mistake cost them a large portion of their customer base. A company’s leader must be willing to listen and take advice given to him/her. Investors are very busy people and don’t have time to waste dealing with stubborn, unmotivated investees.
3. The Idea
“The idea should have some break through potential, and has to be good enough to be critical mass size,” says Kersten. Is there a need for this product/service? Investors must be sold on the idea and furthermore must see a way in which your company can reach large sums of people. The idea for a company must be solid, feasible, and backed by a strong business plan. Angel Investors look at the idea third, the two most prominent factors are the market and the team. This does not mean that the idea is any less important. Even if your idea is the greatest thing since sliced bread (and it very well may be), you must have the market on your side and a strong team to make your company a reality.
Now that you know what Angel Investors look for in a company, how do you sell them on your idea, service or product? Monty Kersten says the following: “[Thinking] wishfully is the most dangerous thing a startup can engage in, instead I would urge you to prepare. Winning funding from investors is much harder than you think it is. You need to look professional and look polished. You want to get introductions at the partnership level to investors.” He continues to say, “You need to have a crisp one hour pitch that is going to cover all the aspects the investors care about.” First impressions are everything when pitching your idea, you must be prepared.
While talking with Monty, he gave a little insider’s secret about investors, “Venture Capitalists often only invest six times a year, but they see three companies a day.” Doing the math, investors turn down around 774 company pitches every year. In order to be one of those six, you must do your research on the market, form a strong team, polish your idea and give a stand out “killer pitch.”
To view my full interview with Monty please click here