In more than two decades as an angel investor and early-stage company scout, I’ve met with hundreds of entrepreneurs seeking funds and sat through an equal number of slide deck pitches.
You could say I’ve seen it all. 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 to present a compelling technology or product offering that solves a critical customer problem. Be sure to showcase your unique competitive advantage — an incremental improvement over the competition is not a winning formula for attracting investment.
Include key market metrics such as TAM, SAM and SOM. TAM (total addressable market) is the total revenue 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 revenues a company could make if it had an all-encompassing monopoly with total market share for its product or service.
The TAM for the non-alcoholic beverage category, among the many categories where I invest, takes in the total worldwide non-alcoholic beverage market, looks at all revenues 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 geographical reach that you can target with your products or services. Lastly, SOM would be the share of the market that a company could capture over time.
Present solid financials
When presenting to angels, it’s critical to show proof of concept, traction with regards product/service development, and revenues. Knowing your company’s financial condition and presenting your numbers to investors is paramount, as is making sure the past and current numbers you present are accurate.
Investors want to see top line, gross margin and net profit margin. Don’t be tempted to overstate or hide trouble spots; it’s a huge red flag that investors will see through, sinking your prospects of attaining investment.
Founders have a tendency to peg a much higher valuation to their company in a good economy. Resist the temptation! Marjorie Radlo-Zandi
Case in point: Two venture capital groups recently pulled out of a game-changing SaaS company investment because the founder radically inflated financials and misrepresented the product development stage.
Have a realistic five-year projection that includes profit and loss – a mid-level projection that isn’t too optimistic or too conservative is best. These financial projections give investors a look into the future of your business sales, cost of goods, operating expenses and bottom line income. They become a collection of estimations and forecasts that give a data-backed view of your company’s financial future.
