Recruiting investors is challenging for any startup founder, not just because of what’s physically required; the hours of pitching, networking, and meetings; but also because of the emotions that come with handing over a stake in your business.
Mathias Kopp, co-founder of investor group Sydney Angels, says you need to be sure you’re ready to take investors on before going out and pitching.
“If you’re not sure, you shouldn’t talk to an investor,” says Kopp.
“You need to go and do your homework. After that you need to be sure you’re confident.”
Investors want a strong founder
Kopp says investors will look at a few things when considering a potential investment. First, an investor needs to like the entrepreneur. He says an investor will ask themselves things like: “Can I work with the entrepreneur? Do they know their stuff?”
Investment Director at recently announced Australian venture capital fund Blackbird ventures, Richard Baker, says a good founding team is critical.
“We’re looking for a strong founder, or even better two or three founders,” says Baker, who heads up the fund backed by successful Australian entrepreneurs like Mike Cannon-Brookes of Atlassian and Niki Scevak, co-founder of StartMate.
“They need to have a unique or authentic connection to a problem that others don’t have.”
Baker says that could be someone who has been “deep in subject matter”; having researched or worked in an area for a considerable period, or it could be someone younger “who knows the uni crowd really well.”
Checklist: are you ready to pitch to angel investors?
The more items you can check off, the better your chances of success…
- Are you solving a big problem?
- Do you have an original idea?
- Is your team deep in the problem and knowledgeable about the customer?
- Do you have a team ready to commit 100% if funding is available?
- Do you have a product or service prototype?
- Can you be arranged to be introduced to investors by more than one advisor or mentor they know?
- Do you have an investable entity? (a company structure that can offer equity to an investor)
Hitting the right market
Baker says another thing an investor will want to know is whether a startup has found a “big market with a big problem that users suffer.” Secondly, they’ll want to the founder to “have a solution”.
“We like it if they have off their own back produced a product, to start to get proof of their assumptions.”
For Kopp, that means they need something unique. It’s “preferable if there some IP involved”. A startup with a patent on an idea, or a patent-pending is even better, he says.
An ability to pull together good people
Kopp says too many entrepreneurs make the mistake of thinking that bringing investors on board is all about the money.
“The personal contribution an investor will make is at least as important as the investment.”
Another mistake is when an entrepreneur “thinks they can do it themselves”.
“If someone doesn’t recognise their own personal limitations, it’s a recipe for disaster.”
“A team is more than one person. An entrepreneur needs to surround themselves with good people; employees, board members and at the advisory level.”
Baker agrees: “It is really important for founders to demonstrate they are capable of pulling together a good group of people around them.” He says it doesn’t matter whether that’s the people they have working with them, their development team, their advisers or their investors.
First impressions count
There are a few mistakes that people can make when they seek investors. Baker says a “warm introduction is so much better than an email that comes cold”, and demonstrating an ability to find “us through multiple connections is always favoured.”
Being prepared is also important: “we do get a bunch of founders who are not fully able to articulate their pitch quickly and clearly.”
Another mistake he sees when founders seek out investors is when they are still approaching their startup as a hobby.
“They wanted a kickstart so have sort out investors. That kickstart hasn’t come from them quitting their job and giving it their all.”
Both Mathias Kopp and Richard Baker are speaking next Wednesday 10 October at TieCON Sydney.