Pitches to angel investors – those individuals willing to shell out money in exchange for equity in an early start-up – are becoming part and parcel of entrepreneurial life.
Last week, six Irish start-ups pitched to the Bloom Equity syndicate for funding ranging from €250,000 to €350,000. They were Gamesparks, Pharmapod, Fijowave, Green Letterbox and Iconic Translation Machines.
The business angels were impressed with some pitches, and less so with others. So what were the angels looking for, and where did the entrepreneurs go wrong?
Akin to most Irish people, the
business angels like a good story. They want that story to explain the need for the product or service, the opportunity that exists for the business and the high-value problem the business is designed to solve.
One start-up story that the investors were impressed with was that of Pharmapod’s chief executive Leonora O’Brien. She was quick to establish the purpose of her business and her experience.
“We have developed a cloud-based software for pharmacists. It helps address legal compliance, medication errors and adverse drug reactions. We’re not just a software company – we’re professionally led. I’ve been a pharmacist for 16 years.”
One mistake that some of the entrepreneurs made while giving presentations was not explaining their idea clearly. The content was either too detailed or the information was too technical.
This was the case with Griffin Parry and John Griffin of Gamesparks, with several investors still unsure of their business following the pitch.
“I think having listened to them, I’m still finding it difficult to understand what they do,” said one potential investor.
“They didn’t do a good job of clarifying it for us. We asked them a few times. The jargon content was high,”said another.
As well as a story, the angels were also looking for a plan. They wanted that plan to include a means of distribution, the target market, how the product or service will be delivered and how the company's reach can be expanded. The pitching entrepreneur was expected to know their target market well and their competitors'.
One start-up that was quick off the mark with identifying the market and customer base was digital postbox Green Letterbox.
“Our target market is Ireland and the UK. We have numerous customers already signed up including the HSE and eFlow.”
The angels were not so sure though. “They need all the big operators on board if it’s going to work. People won’t sign up if they haven’t all the big guys on board,” said one.
The angels were also unsure of the strategy of Iconic Translation Machines, with another investor saying: “I’m sceptical about their market segmentation. They really haven’t figured their go to market strategy at all.”
Founders who had a history of accomplishment
seemed to appeal to the angels. This is most likely because the entrepreneurs were selling themselves as much as their idea.
Essentially, the investors wanted to see evidence that the business they were thinking of investing in was in capable hands. As a result, they wanted complete management teams with strong leadership ability in place. The presence of team members with strong marketing capability seemed to be very important for the investors.
Fijowave's chief executive Michael O'Keeffe was quick to point out the founding team's experience: "I have 27 years experience in engineering at Lake Communications and Mitel. Our CTO Dave Lochrin has 20 years experience as a senior wireless design developer."
While the angels were impressed with their technical experience, they would have preferred the presence of a marketing/sales person as well.
“The guys have incredible engineering capability but their pricing model is awful. There is a real value proposition there. They need to have a strong marketing person on their team,” said one.
The angels were very impressed with the team of Iconic Translation Machines, and the fact that founders John Tinsley and Páraic Sheridan both had PhDs. "I was impressed with the two guys. They were both bright guys," said one.
“I’d say they are guys that you could work with, but they didn’t differentiate their business enough,” said another.
The angel investors wanted to know the track record of both the company and the people pitching. Entrepreneurs should have sales figures ready to show angels, as they are vital to giving the pitch credibility.
This was something Gamesparks did well. Very early on in the pitch, Griffin noted the successful track record of this team-mates: “John and Gabriel sold their company for over $100 million.”
He also noted the track record of the company, which had more than 40 developers on board already: “We are ahead of our projections.”
Angels love validation. They were particularly impressed if a customer, journalist or industry analyst had validated the product.
They also liked to see patents and licences, believing them to add further validation. The same went for sales figures. They were far more interested in actual sales figures and cash flow, as opposed to projected ones.
Pharmapod’s O’Brien impressed with the validation in her pitch, demonstrating IP ownership, actual paying customers, and awards.
"We are an award-winning company. We were the European winner of the global Cartier women's initiative awards. We were a finalist at the ESB Spark of Genius awards at the Web Summit."
The part of the pitch where the investors' ears really perked up was the investment amount. The angels wanted to know how much money was needed and how their money would be used. They were also keen to know how they could get their money back and earn a profit.
The entrepreneurs that impressed most were the ones that showed how their business model could translate into good revenue streams.
The investors wanted to know whether the business model involved per-unit sales, premium subscriptions, advertising or recurring revenues.
Iconic Translation Machines did this well, setting out how much money their IPTranslator is bringing in, and how much money they needed to scale the company.
“We charge by volume of words translated and we sell to language service companies.”
While Fijowave was able to show revenues, the angels weren’t so impressed with their business model: “It would be really interesting if you could develop/generate recurring revenues. At present each product has just a unit price. There are no recurring revenues in the business model,” said one.
At the end of the day, there was no start-up that all the investors wanted to invest in. For the most part, they came to the conclusion that more information was needed before an investment decision could be made.
There were several reasons why various angels opted not to invest in particular start-ups. The angels were unsure why anyone would buy the product or service being pitched, they didn’t understand the problem the product solved, and sales projections weren’t supported by actual sales history.
Furthermore, the entrepreneur didn’t explain how the company is different from the competition, or the benefits the business will provide customers.
Lastly, the angel didn’t believe or buy into the entrepreneur’s business plan.