Advice: For Entrepreneurs From Angel Investors
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We’re running a series of “Advice” pieces. Previously we reached out to Entrepreneurs who have been through the startup journey and asked them “What advice would you give to an up & coming entrepreneur?” If you missed those be sure to check them out here and here.
For our next run of advice we’ve reached out to some super successful angel investors and asked that they too offer up some knowledge to help budding entrepreneurs in their quest to build a company and raise capital.
David S. Chang – Chief Operating Officer, PayPal Media Network
My quick advice would be on what to think about when pitching to a potential investor. See below for my personal checklist when meeting with an entrepreneur. This list evolved out of something I started using simply to keep track of new companies I met (originally for when I was interviewing for a job myself), and it has since become the list I use to evaluate potential angel investments. For each of the boxes, the entrepreneur should have a clear answer (can we explained in 30 seconds or less), and more importantly, they need to be consistent with each other when strung together. For example, if the product is a high-priced luxury product, then the target market needs to be high-end, and the promotion needs to be budgeted for.
I’ve used this to evaluate lots of startups over the past few years.
Follow David on Twitter @Changds
Having been an angel for several years now, with my share of great exits and promising startups that didn't make it, here are some things I can share:
Team: Initially I preferred to invest in companies where I could be very involved and hopefully add a lot of value. While I still help founders I invest in with any area they need, I've learned that sometimes needing a lot of help is not a positive indicator. I've also seen people with tremendous drive run into obstacles due to team issues. So now I look for a balance of a team that is driven and receptive to ideas, but also that has a clear enough plan and most of the skills it calls for and can articulate it.
Space and Business Model: While I think trying to compute precise IRR of a seed-stage startup is a waste of time, I'm a very analytical guy and feel that you definitely can learn and predict a lot about your company's prospects with a bit of research. While pivots are often possible, they're very costly, and I've seen great founders fail because they didn't take the time to model basic things like realistic addressable market size, ARPU and attrition. It's painful to see smart people spend a year or two working incredibly hard only to then realize that even if their idea works, it's not likely to result in a viable business. This is certainly a lesson I've had to learn in my own startups.
Edge: While the two areas above are somewhat quantitative, I've also learned that you can't predict everything, in fact you can't predict much. A smart VC friend is very frank when he admits that typically they make an investment decision based on some quantitative factors but largely on their gut feeling and then build a narrative and model around it to validate it after the fact vs. the other way around. So while that is human nature, one thing I've learned to look for is some type of edge that the founders have. It could be rare knowledge of the problem space from having been in the trenches in a certain field. It could be an excellent eye for design, user experience combined with the advocacy and leadership to make them actionable. Whatever the particular unique quality or "unfair advantage" of a given team, it can go a long way toward helping make an investment decision.
Follow Roy on Twitter @RoyRod
I look for teams that have thought about distribution as part of their strategy. Anyone can build a better mouse trap. It’s the startup that can get everyone to use theirs that matters.
Follow Wayne on Twitter @Wayne
What’s the best advice you’ve ever received? Leave a comment below or tweet it to us @VentureFizz! The more advice we can spread around the better off all entrepreneurs will be!
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