How to get automatically rejected by an angel investor(entrepreneur.venturebeat.com)
entrepreneur.venturebeat.com
How to get automatically rejected by an angel investor
http://entrepreneur.venturebeat.com/2009/11/04/4-ways-to-get-automatically-rejected-by-an-angel-investor/
21 comments
That really is a must read. Thanks for posting this. The nice thing about it is that the author really has seen both sides of the table and is in an excellent position to make these points.
some things that have been significant turnoffs for me:
- unable to explain what the product is/does with any sort of clarity
- founder or founders currently a student (esp an MBA student)
- no technical founder
- no working prototype
- might have a working prototype, but won't let me actually touch it
- unable to explain what the product is/does with any sort of clarity
- founder or founders currently a student (esp an MBA student)
- no technical founder
- no working prototype
- might have a working prototype, but won't let me actually touch it
I think with a five year projection, he's missing the point. It's purpose isn't to show where you'll be in five years, but rather to allow you to show your assumptions and understanding of the market. Are you plucking number out of the air, or have you derived your figures in a logical and well-thought out manner with the assumptions clearly identified ?
But as a entrepreneur, Do you really know that data? What are your sources? What are your tools to make the forecast?
Yes, generally you do not have any of them and they know that. Your forecast is just a very empirical calculation with a large margin of error.
Thanks for posting this.
I disagree slightly with the point on 5 year projections. With any economic model, garbage in means garbage out. I think everyone knows this. In addition to re-packaging your model to answer more relevant questions as Jason suggests why not also have a conversation on your assumptions/inputs, defending them with the logic used and comparable examples.
I don't have vast experience pitching to angels, but I've helped large enterprises size markets for new products and offerings. I've found that having a good conversation on your inputs helps tremendously in getting past that initial "smell test." Most of the time, people just need to hear the reasoning behind using such and such multiplier, growth rate, etc.
Yes its all crap. But thats the nature with any model. Showing that your crap smells less than others may be a good starting point to consider.
I disagree slightly with the point on 5 year projections. With any economic model, garbage in means garbage out. I think everyone knows this. In addition to re-packaging your model to answer more relevant questions as Jason suggests why not also have a conversation on your assumptions/inputs, defending them with the logic used and comparable examples.
I don't have vast experience pitching to angels, but I've helped large enterprises size markets for new products and offerings. I've found that having a good conversation on your inputs helps tremendously in getting past that initial "smell test." Most of the time, people just need to hear the reasoning behind using such and such multiplier, growth rate, etc.
Yes its all crap. But thats the nature with any model. Showing that your crap smells less than others may be a good starting point to consider.
I recall having a conversation about this with an investor in the early 90s or so. He told me that a five-year projection was horse-apples, but he also insisted we do one because the exercise of guessing is valuable in and of itself, and he wanted to see evidence that you tried to think things through.
"In preparing for battle, I have always found that plans are useless, but planning is indispensable." –General Dwight D. Eisenhower
"In preparing for battle, I have always found that plans are useless, but planning is indispensable." –General Dwight D. Eisenhower
There's a similar concept in PhD programs when they make you present a timeline for future research. Every grad student knows that over the course of 2-5 years things will break, experiments will fail, people get discouraged, interests change, money runs out, whatever...but for the sake of completeness and forethought, they require you to detail future milestones. This stage of planning proves to people that you are committed to what you are doing and are in it for the long haul.
I think there are different monsters. One thing is to project what are you going to do in the next five years and another completely different is to forecast what are you going to "sell". I think the post implies that the later is crap. For the former I imagine that all of us know that things are going to change (as I think you imply too about a PhD program).
Good point.
During the time that I was pitching I flat out refused to do 5 year predictions, and my 1 year predictions came with a fair amount of bandwidth. Initially my partners thought I was crazy but in time we came to the conclusion that it is better to be honest and say that you can't predict further out than that rather than to make stuff up that can be shot down in no time at all.
And it did work, we did find 2 investors, one for 100K and another for 200K.
And it did work, we did find 2 investors, one for 100K and another for 200K.
I'm not defending 5 year projections. Simply arguing for a different pitch method.
Projections are fine so long as the inputs are reasonable. If people don't buy your assumptions they won't buy your conclusions. 1 year, 5 year, or 10 year.
Projections are fine so long as the inputs are reasonable. If people don't buy your assumptions they won't buy your conclusions. 1 year, 5 year, or 10 year.
The problem here is that when you're pre-launch or just launched you do not know your product life-cycle yet, so it is absolutely impossible to get this right.
You can make a stab at it but until the first year is out there is going to be so much change to that projection that even if your input data was valid at the time you made the projection it will look like advanced science fiction by the time those 12 months roll by.
You can make a stab at it but until the first year is out there is going to be so much change to that projection that even if your input data was valid at the time you made the projection it will look like advanced science fiction by the time those 12 months roll by.
Fair. But you don't need to be accurate, just within reason.
Explaining your inputs logically is important for other people to see at your level. Plus as another posted mentioned, going through these motions helps you better understand your product and target audience.
Explaining your inputs logically is important for other people to see at your level. Plus as another posted mentioned, going through these motions helps you better understand your product and target audience.
At a meeting with a major VC firm I asked: "Aren't we supposed to have a business plan?" (they had called us because they were interested in our product). One of the partners at the VC firm laughed and said: "If I need a business plan I'll write it myself! It will be much better than any business plan you could write. What we want from you is your capacity to create new products."
On 5-year projections,
Oh wait, you say it’s a “conservative estimate?” No, the conservative estimate is that you burn through all your cash in nine months and start taking on consulting gigs to delay a return to a “real job” in corporate America.
Oh wait, you say it’s a “conservative estimate?” No, the conservative estimate is that you burn through all your cash in nine months and start taking on consulting gigs to delay a return to a “real job” in corporate America.
I'm not sure about this one:
People rarely buy on the basis of “most features.”
It very much depends on the market. If people buy an 'object' then sure, they'll compare lists and figure out 'value for money'. Cars are a good example where that goes.
If they buy in to a service it changes. For instance, when shopping for web hosting you take for granted that the 'basics' are all there (bandwidth, power, AC, a working server with X ram, HD and CPU) the differentiation then sits in things like support quality and other intangibles.
The 'feature' list is exactly the same, but the quality of some of the features will be what will swing a customer one way or the other.
For instance, I pay a significant premium on some of my hosting simply to get peace of mind, 24x7 instant help.
And other parts are not that critical so those go to cheaper providers. On paper the 'features' are exactly the same, but in practice you find out that 24x7 support can be two very different things.
And if it is a web service that is essentially free the whole thing changes once again. You are no longer 'selling' anything, you can't compete on price (unless you start giving money for signups ? (it's been done)), so you have to compete in a different arena, such as ease of use.
It's hard to make sweeping statements like that and not have a whole pile of exceptions, it probably would have been better to say these things with some context.
But the essence is valid for the target audience, which I interpret to be for-pay services either b2b or b2c.
If they buy in to a service it changes. For instance, when shopping for web hosting you take for granted that the 'basics' are all there (bandwidth, power, AC, a working server with X ram, HD and CPU) the differentiation then sits in things like support quality and other intangibles.
The 'feature' list is exactly the same, but the quality of some of the features will be what will swing a customer one way or the other.
For instance, I pay a significant premium on some of my hosting simply to get peace of mind, 24x7 instant help.
And other parts are not that critical so those go to cheaper providers. On paper the 'features' are exactly the same, but in practice you find out that 24x7 support can be two very different things.
And if it is a web service that is essentially free the whole thing changes once again. You are no longer 'selling' anything, you can't compete on price (unless you start giving money for signups ? (it's been done)), so you have to compete in a different arena, such as ease of use.
It's hard to make sweeping statements like that and not have a whole pile of exceptions, it probably would have been better to say these things with some context.
But the essence is valid for the target audience, which I interpret to be for-pay services either b2b or b2c.
True, but not all features have the same value. Not to mention "whats the best deal" is highly variable across user profiles and needs. Veblen Goods are good examples of how twisted definitions of value can be.
Having tried to raise money years back with a previous venture this advice really rings true to me. It's rare that an angel levels with everybody, this is an important article.
unknowns are just the nature of the business, if everything was known, then there won't be any risk and everyone will pounce on it. I completely agree with the author that best thing entrepreneurs can do to help their cause is to be honest.
This sounds eerily similar to Mark Andreessen's biggest concern at TC50: distribution. He said "how to get customers" is usually the most glaring missing piece in so many pitches he hears.
Listen to these guys.