19 Mar, 2019E27.CO
For any angel investor, having access to quality-deal-flows will always be a key priority.
This is because, as compared to the stock market where all investment opportunities are readily available for you, it is not as easy to find the best startups to invest in.
Thus, most angels will need to be active in seeking out potential investments, such as meeting entrepreneurs through events and conferences, attending demo days, joining angel groups etc.
Over time, when an angel becomes more active and well known in the ecosystem, they are likely to receive direct investment opportunities from startups or their individual networks. This is a relatively easy process as compared to what comes next — meeting the founder one-on-one.
Through my experiences hearing both founders and investors, here are some useful things you should know when conducting a meeting with a founder.
During fundraising, the key challenge for founders with high-quality startups will not be about convincing angels or VCs to invest. Instead, their challenge lies with knowing which investors they would want on board instead.
As an angel, it is important for you to understand the value you can bring to founders. Money aside, founders will look at what each potential investor can bring to them, be it your networks and contacts, industry experience, skillsets, etc.
For example, the value of two of AngelCentral’s Partners, Der Shing and Shao Ning, will be their past experience as founders themselves, having grown and ultimately exiting their startup.
Because of this, they are able to understand the challenges other founders are going through and be able to advise and help based on their own experience.
During your meetings with the founders, as much as it is important to use that opportunity to find out more about the company, you will need to know how to sell yourself and the value you can bring for the startup.
Thus, the objective of a founder meeting is not just about choosing the right company to invest in, but also persuading the right founders to accept your cheque in the first place.
As Jason Calacanis stated in his book, “Angel: How to Invest in Technology Startups”, it’s not just a simple Google Search.
In order to make the best of time during each founder meeting, it is key you conduct some preliminary research before it begins.
You should research on information such as reviewing the product itself, going deeper into their target market, info on their competitors, customers’ reviews and testimonials, etc. Most of the info should hopefully be in the pitch deck that you would have already received beforehand, but you should not be taking everything the founder claims at face value.
Juicero, a US-based startup that raised more than US$97.4 million in funding from prominent investors such as Kleiner Perkins, Google Ventures and even the Campbell Soup Company.
However, it closed after four years when a video from Bloomberg showed that their produce packs were essentially giant ketchup sachets of fruit and vegetable pulp that you could scoop straight out of the bag and squeeze with your hands.
If investors were able to try out the products for themselves even before the meeting, they might not have made such a “foolish” mistake.
As angels, it is important for you to know the right questions to ask the founder. This is because while any (sensible) question you ask will be answered with much gusto and passion by the founder, you both have limited time.
Thus, according to Calacanis, the four most crucial questions you will want to have answered after the first meeting is:
– Why has this founder chosen the business?
– How committed is this founder?
– What are the founder’s chances of succeeding – and in life?
– What does winning look like in terms of revenue and my return?
If you do not like the answers to these four critical questions, you do not have to proceed with the more tactical or operational aspects of the business.
You also realise that three of the four questions are closely related to your assessment of the founding team, in line with what we have been sharing at AngelCentral: that the team is the most important factor when assessing a startup.
Some founders are excellent salesmen, and their charisma and persuasiveness will entice you to say yes to investing in them right away.
As it is a good practice for angels to say yes only when they are absolutely certain they will invest, it is important to remind yourself to inform the founder of your decision in a few days time via email, and not instantly.
I have heard of cases where investors have committed to investing in a startup, only pulling out at the last moment because they realised the amount of competition in the market was a lot higher than what they initially assumed.
This is also why the previous point of making preparations before the meeting begins is extremely useful.
It is hard to conduct a perfect meeting with a founder when doing it for the first couple of times.
However, you will be able to conduct such meetings a lot more effectively through enough experience over time.
Meanwhile, to start off, it will be useful to sit in meetings conducted by more experienced angels or attend pitch days that have a high level of interaction between the audience and founders.
These would help you get a better sensing of how to go about asking questions and assess the team.
Lastly, many angels find this part of the journey the most exciting, as this is when they get to learn about new industries, be exposed to cutting edge technologies, and meeting exciting individuals.
So, do enjoy the process while you are at it!
Image Credits: torky
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