I’ve been investing in and mentoring startups for about ten years, and see the same misunderstandings and mistakes over and over. So I’m putting together a series of articles each week to help entrepreneurs understand everything you need to know to pitch your startup effectively to angel investors and early stage VCs. The first articles will start by explaining what investors look for in the pitch itself. Later articles will review individual topics that frequently arise like setting a valuation and deciding on a convertible note vs. an equity round. I hope you find these useful. I’m also posting the entire series on my website at pitchingangels.com. Please sign up to receive your article each week.
Before we get into details of the pitch, it’s important to see the big picture. To pitch effectively to potential investors, you have to see the world from our eyes. What do we want, and why should we invest in you and your business? In most cases, the simple answer is money — we invest money to make money, but that’s not the entire story.
Your parents and your rich uncle Bob are investing in your business to support you. They’re unlikely to argue over valuations or care if the investment is a convertible note or priced round. The same will likely be true to various degrees among your other early investors. They’re friends who trust you, colleagues who previously worked with you, or advisors who appreciate what you’re doing and think it’s something that needs to be done. This is especially true if your startup has a social benefit, such as saving energy or reducing waste or enhancing the prospects of underserved communities. But even a new B2B SaaS platform can get someone like me excited if it solves a problem I’ve personally struggled with. Customers and industry experts, people who really get what you’re doing are great early investors as well as bringing a wealth of knowledge to help you get started. Among early investors, who you are and what you’re building is far more important than details like the size of the market opportunity or your competitive moat. I’ll go into more detail later in articles on building your friends and family round, but it’s a different group of people with different motivations than later investors, and a different type of pitch.
Your investment rounds, starting with the seed round, are usually filled with “investors” and that’s where this series will focus. But even then, motivations can vary. The partners at venture capital firms need to justify their investments to their limited partners in quarterly report, especially the ones that aren’t going well, making it easier to invest in the same areas as all the other VC than go out on a limb and invest in something nobody else is touching. Angel investments come out of our own checkbook which gives us more flexibility, but makes us conservative in a different way. More topics I’ll go into detail in later articles in this series. For the moment we’ll stick with the assumption that the primary reason an angel or VC will invest in your startup is because you’ve convinced them that you’ll make us money. How much? That’s an entire topic unto itself, so for now, I’ll just answer that it has to be commensurate with the high risk.