We use a structured approach to evaluating companies and your presentation should describe the following areas:
1. Market Opportunity
We look for companies with the potential to rapidly increase sales within a sizable market. Market size and adoption rate are key data points, but we also consider barriers to entry, switching costs, and general industry structure. Small markets seldom deliver the opportunity to build big companies. We prefer companies that can deliver revenues of $10M to $100M within a four to five year period.
You should provide an accurate analysis of your competitors. Do not say “there are no competitors” or “other products are grossly inferior to ours” unless those statements are absolutely true! Investors want trustworthy information from management and respect frankness. If our due diligence later reveals a substantially different picture of the competition, it may erode confidence in other management claims and negatively affect our willingness to invest.
The management team should consist of the key individuals that can execute and achieve the critical milestones necessary for success. Angel investors are more inclined to invest if they believe that management is talented, passionate and prepared to work tirelessly for the company’s success. At the same time, management should be open to input and collaboration with angel investors since the relationship may last several years. In some cases, especially when the founder is a scientist or inventor, management must be open to hiring an experienced CEO as the company grows. However, it is not necessary to have a fully mature management team in place and certainly too many C-level titles may be undesirable for a startup company.
5. Sales and Marketing
A great product has little value unless your company has the ability to sell it. We will study your sales forecasts, market analysis, marketing plan, and if available, reference accounts, as well as sales and retention rates. Prior industry experience and sales success are a big plus.
6. Technology & Product
The product or service offered should be unique and solve a customer problem or meet a need. The value propositions should be clear and the product should not require significant behavioral change on the part of the customer. Ideally the product will have IP protection or other barriers to entry. We will assess product development, design, product readiness as well as the experience and qualifications of the technical executives.
7. Financial Evaluation
Your business model should be sufficiently detailed as to allow us to carefully study the assumptions underlying your forecasts and thereby evaluate the feasibility of your milestones and future capital needs. Your model should show the financial details of how the company will fund rapid growth while achieving increasing profits over a multi-year period. While some investors have an appetite for businesses that require large amounts of capital, we prefer investments that can achieve an exit with angel funding alone rather than those that will need multiple rounds and/or VC funding.
8. Exit Strategy
In most cases, angel investors and founders will realize the return on their investment only when the company is sold to a strategic acquirer as opposed to IPO or financial buyer. We are impressed by a founder who can identify future potential acquirers and explain the company’s plan to become a valuable asset for a strategic buyer. Strategies that are industry specific are better than general statements such as “We expect to be acquired by Google or Microsoft.” Prior to investing, we ask founders to agree to an exit strategy that includes a specific time frame and target exit price.