In more than For two decades as an angel investor and a budding business scout, I’ve met hundreds of entrepreneurs seeking funding and gone through an equal number of slidedeck presentations.
You could say I’ve seen everything. From my point of view as an angel investor and former entrepreneur, here are five essential factors I look for when considering my next investment.
Offer a game-changer that stands out
To attract the right angel investor, make sure you present a compelling technology or product offering that solves a critical customer problem. Be sure to showcase your unique competitive advantage – incremental improvement over the competition is not a winning formula for attracting investment.
Add key market metrics such as TAM, SAM, and SOM. TAM (total addressable market) is the total revenue that would be possible if a product or service were to achieve 100% market share. TAM answers the question of who would theoretically buy your product or service. It describes the total revenue that a company could earn if it had a comprehensive monopoly with total market share for its product or service.
The TAM for the non-alcoholic beverage category, of the many categories I invest in, covers the total global non-alcoholic beverage market, looks at all revenue from beverage purchases, imagines sales in all countries in the world and assumes no competition except tap water. SAM (Service Addressable Market) is the TAM segment within geographic range that you can target with your products or services. Finally, SOM would de market share that a company might capture over time.
Present solid financial data
When presenting to angels, it is critical to demonstrate proof of concept, product/service development traction and revenue. Knowing your company’s financial condition and presenting your numbers to investors is paramount, as is making sure the old and current numbers you present are accurate.
Investors want to see revenue, gross margin and net profit margin. Don’t be tempted to exaggerate or hide bottlenecks; it’s a huge red flag that investors will see through, sinking your prospects of getting investments.
Founders tend to associate a much higher valuation with their company in a good economy. Resist the temptation! Marjorie Radlo-Zandic
Example: Two venture capital groups recently pulled out of a groundbreaking SaaS business investment because the founder radically ramped up financial data and misrepresented the product development stage.
Provide a realistic five-year projection that includes profit and loss – a medium-level projection that is not too optimistic or too conservative is best. These financial projections give investors a glimpse into the future of your business sales, cost of goods, operating expenses and revenue. They become a collection of estimates and forecasts that provide a data-driven view of your company’s financial future.