When your pitch is all said and done and you’ve successfully navigated the Q&A portion, what is it that investors talk about after you leave the room? Often times, angel investors will break out into what’s known as a “mind-share” meaning they discuss what they like vs. what they didn’t like about your startup or innovation. We asked angel investor John J. Jacobs from the Pittsburgh chapter of the Keiretsu Forum and Pitt School of Law alumnus, the top questions that come up after they hear your pitch.
1) Does the founder or CEO have a track record of successful exits with other startups? Every great entrepreneur had his or her first startup, but this is a significant extra hurdle that a new entrepreneur has to overcome, because the risk is greater for investors if the founder doesn't have a track record.
2) Does the CEO or founder have his/her own money invested in the company? If not, that is a red flag for me. A founder or CEO with "skin in the game" is more likely to be driven to make the company succeed.
3) Is there a viable market for the product or service? Does the startup specialize in a "solution that is in need of a problem?" If your product doesn’t provide a solution to a real problem (i.e. one that is commonly experienced by more than just a handful of people), there really won’t be a market for the product. It’s hard to know for certain how big any market might be, but stats can be persuasive.
4) Is there a well-designed plan to deploy the funds that are being raised? As you probably know, a well-designed plan should specify the purpose(s) for how the new money will be used. Will it be used to hire new sales staff or to increase production? One red flag is being too vague in how the funds will be used and another is if any of the funds will be used to supplement the founder or CEO’s salary.
5) Are there some existing (and growing) sales? Sales should be growing significantly. In the early stages, a business cannot survive if it is only growing its revenues modestly. Modest sales growth is acceptable for a mature business, but not for a startup.
6) What sort of experience and expertise does the rest of the startup's team possess? Are they people with expertise in the technical aspects of the business, or are they just MBA's? Do the other team members have track records of success with other startups?
7) Does the startup provide an opportunity for a "home run?" Startup investing entails substantial risk, so investors need to swing for the fences to justify the capital commitment. A company that does not have a lot of upside potential is probably not worth the high risk.
John J. Jacobs has broad experience with private investments, and a successful track record of growing and managing emerging businesses. His specialty areas include financial services, alternative investments including venture capital and private equity, cybersecurity and legal services. In his current role as a Senior Principal Consultant at ACA Compliance Group, John provides advice to hedge fund and private equity clients regarding financial compliance and regulatory matters, and also manages the electronic correspondence surveillance department and the vendor due diligence team. He oversees, trains and coaches a team of supervisors and analysts, and helped grow ACA's Pittsburgh office from 8 to 56 employees in three years. John often makes presentations at conferences and on client webcasts, and is an individual investor in multiple early-stage companies. He is a Founding Member of the Pittsburgh chapter of the Keiretsu Forum, the world’s largest angel investor network, and a member of the Angel Capital Association.
Blog by: Karen Woolstrum, Marketing Coordinator