Author: Abu Cassim
9 September 2020
Doing a thorough assessment of a business is always a challenging task, more so under current conditions where first engagements are often hosted virtually on Zoom.
To fund or not to fund? There are many factors to consider before saying the three-letter magic word, Yes. First impressions go a long way in defining the journey ahead. We get an average of 150 applications for funding a month and have met the entire spectrum — from the arrogant, know-it-alls to the unassuming. We’ve listed a few simple things to look out in those first engagements. They may seem obvious, but remarkably a number of startups forget them at home.
The 4 P’s are as relevant when meeting the team in person as they are to a virtual pitch. Important for any investor is to take notes throughout all your engagements so that you can reference them and avoid any biases.
This is usually your first real engagement with the founder or founding team. Assessing the preparation level of the pitch is a key step to understanding their work ethic and ability to execute on their plans. Ask yourself a few questions as you listen. Have they gone the extra mile in any way for this pitch to be a success? Is there a story-like flow to what they are saying? Was their material concise, informative and aesthetically pleasing? Do they come across as a team you could work with? Take note of the team’s chemistry and the strength of the management team. These are indicators of the way they work and approach challenges.
If it’s a one-on-one pitch, you’d also expect the team to have done some research on you as an investor and why you’re a good fit for their business. Remember, it’s not just about the capital but also the knowledge and networks you’re potentially bringing to the table.
Startups have a tendency to spend a lot of time talking about their solution, but it’s important to assess their entire business model. Other areas that should be covered in the pitch or subsequent discussions are:
- Their understanding and knowledge of the industry. The competitor landscape is an extension of this. Understanding the barriers to entry and where the bargaining power sits will give insights on the penetration they are likely to have.
- Details on how the funds will be used and the runway it’s expected to provide. This will give you a sense of when the next round of funding will be needed.
- Confirmation of the problem-solution fit. Does the solution solve the customer’s pain point? Is there evidence of product-market fit? Do customers want this solution?
- Their go-to market strategy and the channels through which customers will be reached.
Simon Sinek speaks extensively about the “Why” — the purpose behind the business. This needs to come through in the way they speak and present themselves. Many people swear by the power of positivity and understandably so. Optimism and the “Why” can make a rough road seem much smoother.
How easily can you feel their passion for the business; do they truly believe in it? Jordan Belfort, the Wolf of Wall Street, explains that sales is simply the transfer of emotional certainty. Do you buy what they are selling? Be wary of any unrealistic plans or statements though. Positive while pragmatic is the combination you’re looking to find.
The startup culture has seen the rise of hoodies and branded t-shirts. Professionalism is not always portrayed in what the team are wearing, but in the finer details like were they on time and did they use appropriate language. These are indicators of how driven the startup is to make a good impression. There are no second chances at first impressions. Once created, it will be hard to forget.
On the flip side of that coin, jargon can be a hiding place. It was Einstein who said, “If you can’t explain it simply, you don’t understand it well enough.” You’ll often hear the term disruption or a big addressable market, but it’s important to cut through all that and understand the logic.
Based on the energy of the pitch and your gut feeling, have you connected well with the entrepreneur? While it would take additional meetings for the two of you to get better acquainted, try to look out for the key traits of a good entrepreneur. Remember you are investing in this person as much as in the startup. Have they shown signs of integrity, leadership ability, flexibility, passion, long-term vision, and commitment? Do you both share an understanding of the compelling reason to invest? Also ask yourself the question: “can I move the needle on this business through non-financial support, such as knowledge and networks?”
Easy enough to remember, these 4 P’s are a general guideline to assessing a pitch, the team and the potential for you to join them as an angel investor. With time, your skills as an angel investor will sharpen and you are likely to intuitively run through this list during a pitch. You may even add a few more factors from your personal experience. For the best experience possible, it’s important to be inquisitive and thorough at the onset. This will help you filter out any teams that are either not well prepared or a good personal fit.