The three forces investors are balancing

We talked recently about why an Angel Investor might decide to put some of their hard earned cash into your business. If you haven’t read that one yet then you probably should - it’s here - because this one follows on quite nicely.  In this article we’re going to look at what is going on in their head when they consider that decision in more depth.

In effect the previous article is looking at why a business might be of some interest, this one is why your business takes them from mild interest to (hopefully) a decision to invest.

The first thing your investor is going to be wondering is whether this opportunity is too good to miss.

There is a lot to unpack here, so bear with me while we try to work through it all.

The first thing we need to address is the way that question is phrased.  It’s really important that it is framed the way it is.  They aren’t wondering whether what you are asking is reasonable for what you are prepared to give away. In fact this first unspoken question is very clearly about the fact that you are presenting them with an opportunity.

You are not asking them for money.

I can’t stress this enough.  You are offering them an opportunity to be part of something.

It may be that the opportunity is clearly financial.  That they can see that what you have is a genius solution to a common problem and that the potential monetary gains are simply too good to pass up on.  But as we mentioned before, pure money is rarely the driving force behind Angel Investors.

Perhaps your proposed business is going to change the world and they simply want their name to be part of that.

Perhaps they are still kicking themselves about missing out on something amazing recently and you are allowing them an opportunity to correct that mistake.

Perhaps your personal story simply fits with exactly their driving mission in life.

Perhaps they have listened to your pitch, they have taken on board all you have said, and they can see a level of possibility that you haven’t even considered.  They can see that your idea could be big, and with their help it will be even bigger.

But please remember that opportunities to invest are pitched to potential investors constantly. There is almost no risk to them to pass on something.  So while serendipity always plays a part, the more you can frame the opportunity you have for them as too big to pass up on, the more likely they are to want in.

One of the biggest driving forces here is FOMO (Fear Of Missing Out). If someone has already invested this will make the deal so much more appealing, especially if that person is someone the potential investor knows and will have to speak to about this in the future. 

Investors are people too.

However that is not all there is to it. Even if you have the best idea in the world and have pitched a truly brilliant solution to a global problem to an investor, they aren’t going to give you a penny if you haven’t managed to persuade them that you are able to deliver.

A plan is nothing more than insubstantial words if you don’t have the ability to deliver. So assuming that you don’t have a product at this point, you have no customers, and you have generated no revenue they can only judge this on you and your (proposed) team.

It’s fair to say that part of this will be a gut feel on their part.  Every investor out there prides themselves as being a great judge of character and they will likely have decided whether they trust you within minutes of meeting you, but even if this first impression isn’t favourable it can be changed with clear and concise evidence that you have previously delivered on what you have promised, and if you have taken any money in the past that you have used it sensibly and effectively.

The third question that is likely to be buzzing around in an investors head when you pitch your idea to them, is how much money does this need to be successful?

All things being equal, an investor would prefer to own more of a successful business than less, and so they will be quickly trying to estimate how much money you are going to need, how close that is to what you are asking for, and how much of that they are willing and able to provide themselves.

If they feel that they are staring down the barrel of multiple rounds of funding, each with some pretty hefty dilution, then that is likely to make them less keen. (Unless of course the opportunity is truly great - Ed). If you are pitching a digital product that you already have the ability to build then they are likely to be very interested. A truly online business selling an online service is very cheap to run, and the most expensive cost - hosting - is scalable. You only pay for more when you are already making money.

If however you are looking to set up your own manufacturing plant here in the UK and want to hire thousands of people then they are much more likely to consider the potential dilution a deal-breaker.

So in essence you need to present a great opportunity, you need to make it clear it is an opportunity you can deliver, and that in doing so you won’t exclude them from the future profits.

If you can do all of those things, then you may well be in with a chance.

Creating a winning pitch is part science, and part art, and demonstrating that pitch in the right deck is tricky at best.  If you’d like to talk to someone who has been involved in many winning pitches please give me a shout.  I’d love to hear from you.