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Mistakes When Pitching to Angel Investors

17 Feb Mistakes When Pitching to Angel Investors

Angel investors can be an important source of capital for entrepreneurs, so perfecting your pitch to this class of investors can be critical.  Whether your pitch is delivered via a quick face-to-face encounter  or in written form, the goal isn’t to close the deal, but rather to pique the investor’s interest enough to get your foot in the door for a formal presentation.

The challenge is to grab a potential investor’s attention early, but stay within about the timespan of a typical elevator ride or within the first few lines of a written pitch. Successful pitches typically describe the market, and briefly explain what problem is solved while providing evidence of a solid track record.

Here are five of the more common mistakes entrepreneurs make in delivering their pitch:

1.  Problem:  Failure to explain what problem your business solves. 
Avoid falling into the trap of spending too much time explaining how your product or service works, and not enough time explaining what problem it solves. Investors are trying to gauge your potential in the marketplace and they can’t do that if they don’t understand what need you are trying to fill. Consumers buy solutions.

Solution: Focus on why people will buy your product or service.
A business owner who cannot adequately explain what problem their product or service solves is not likely to persuade an angel investor to put money into the project. As an entrepreneur, you should be able to answer three critical questions about your startup: 1) Who is your most likely customer? 2) How much money will they make by using your product or service? and 3) How much money will you make selling it?

2. Problem: Jumping ahead to ownership proposals.
Discussing the ownership you’re willing to offer investors may seem like a logical component of a pitch, but don’t be tempted to include this in your initial encounter. If an investor doesn’t like your terms, you may lose him or her before you’ve even had the chance to sell your business opportunity.

Solution: Hold off till the follow-up.
Delay discussing who gets what for their investment until after an investor has had opportunity to finish researching your businesses. If you are asked about ownership stakes earlier in the process, simply state that you are flexible. The goal with your pitch should be to begin building a relationship, so don’t get derailed early by discussing details best left for a later time.

3. Problem: Relying too much on sales forecasts.
Estimates, forecasts and projections can’t be avoided with a startup, but early-stage sales projections don’t hold much weight with potential investors because they aren’t supported by actual sales history. These investors know many things can happen as businesses grow. Prices, revenue streams and even entire markets can shift, throwing preliminary forecasts well off the mark.

Solution: Focus on benefits for customers.
Since you aren’t likely to have a long sales history, your better option is to explain what benefits your product or service will provide customers. Also, differentiate your company from competitors. In some cases, you may be explaining how your company’s product or service improves upon an established product or service.

4. Problem: You won’t color outside the lines.
Business plan are glorious things, but if a question from a would-be investor throws you off simply because it deviates from what is laid out in your plan, investors will likely see your lack of flexibility as a red flag.

Solution: Embrace new opportunities.
Even if your business plan is sound, there are still likely to be multiple ways to address packaging needs, position a product or sell a service. Serious entrepreneurs are always open to new ideas that can save or make money. Exhibiting flexibility also shows investors you are ready to accommodate customers who may need your product in slightly different form or services delivered in a somewhat different way. Investors are looking to make your product as market-friendly as possible.

5. Problem: Offering too many facts and figures. 
Some figures, such as your sales and revenue, play an important role in your pitch as they help you to establish a track record. But be careful you don’t overdo with numbers and statistics as you being to explain your business. If your pitch is successful, there will be plenty of time to dive deeper into numerical proof and projections during your follow-up presentation.

Solution: Share a story.
Instead, paint a picture with your words. Explaining how your business products work by telling a short story can be an effective way to quickly capture an investor’s undivided attention. For example, tell a personal anecdote about how your product or service has solved a problem in your own life. Or, if you are a more skilled storyteller, use verbiage to place the investor into the story, helping him or her readily identify with the product’s use.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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