Tonight I attended the NYC Venture Capital and Angel Showcase. It is a much hyped event sponsored by Funding Post among others. I was one of the 37 angel and venture organizations that were there to hear short entrepreneur pitches. Tonight in particular I was representing NY Angels.
My job was to spend a couple minutes with each entrepreneur to determine a reasonable business opportunity, a realistic view of the capital requirements and decide if there is a potential fit with The New York Angels. If the answer to these 3 questions turned out to be ‘yes’ I needed to make sure that the entrepreneur was invited to put their information into Gust, (the portfolio management system many angel groups use) and given a proper screening by the broader angel group.
Here are my stats: in 80 minutes time I screened about 20 companies (about 4 mins. per). Of those 20 companies, 4 were strong candidates, 2 were questionable and the remaining 14 were either not properly developed, not properly pitched, unrealistic or a bad fit.
One might expect that a 20% plus hit rate is pretty high, but in reality that is low. The reason is that these entrepreneurs had to pay for the privilege of pitching investors. That means they should have been bringing their ‘A’ game – or else they were wasting their money. And if they had all been top-notch pitchers, chances are the hit rate would have been higher.
Here’s what I was looking for:
- Concise description of the business – if the investor consistently interrupts you while describing the business you are not concise enough.
- High level competitive differentiation. In the world of ‘speed dating’, the answer should be “We are most differentiated by X”. That’s it. No more unless asked to elaborate.
- How do you generate revenue? This is not an answer that needs context. Advertising. Subscriptions. Direct sales. Then wait for a follow up. Let the investor drive the conversation. He/she knows what they have to find out to qualify an investment.
- Back of the envelope math. Be able to answer some financials like expected revenue this year, expected revenue next year and normalized gross margin and operating margin. The investor is just trying to get an idea of how profitable the company can be.
- Most important: How much are you raising? Again, just answer the question. The correct answer is, “we are raising $xxx,000 to build out our xyz.” The incorrect answer is, “well that depends…” or “I’d like to know what you think”, or “I’m open to a conversation.” And it is absolutely not, “I’m not really raising right now.” As an entrepreneur, know what you want you to accomplish and the inputs required to do so. Have a vision.
Of course there are many more potential question including:
- Tell me about the competition.
- How do you expect to exit?
- What’s the IP?
But if an entrepreneur can’t perform strongly on the bigger questions above, the subsequent questions don’t matter.
What I find is the entrepreneur knows a ton about his business and wants to communicate everything. This is not a situation where a brain-dump works in the entrepreneurs favor. Stay short and sweet and leave them wanting more.
Moral of the story… if you choose to speed date, be prepared to do it well enough to get asked for your digits!