How Not to Pitch an Angel Investor

February 8, 2012

9:12 am

Hi! I’m a recovering nice guy.  I’m on the 3rd step of my 12 step program to get more direct and less nice.  Thankfully, as an angel investor, I have lots of people helping me.

Let’s start at the beginning. I have a full time job, and I donate much of my time in the noble pursuit of improving the state of entrepreneurship in America. In my free time I do some opining on Tech Cocktail and my blog, Forward Thinking.  In the 15 minutes left over in my life after that, I dabble as an angel investor.  Now if you happened to read my angel investor web page, it clearly states right there on the home page:

Stardust Venture Partners is an early-stage seed angel investment firm focused on technology companies headquartered in the Washington DC Capital Region. We invest in highly leverageable B2B technology companies. We only co-invest, never lead, and source our own deals.

It doesn’t take a rocket scientist to read that and understand that I invest in companies that are in the DC metropolitan region, and that those companies are B2B companies (not B2C, or biotech, or renewable energy, or Nigerian princes).  “We source our own deals” means “don’t call me, I’ll call you,” but apparently this warning label doesn’t resonate with everyone.

A couple of days ago I received the following email, which I altered to protect the guilty and remove some of the more ridiculous parts that would only make this post appear farcical.

Do you or someone you know have a possible interest in investing in an internet start-up?  The internet start-up is a website based search engine called “Dr. Ignorant Search” [Author’s Note: yup, he named it after himself]. If yes, please contact Dr. Ignorant at XXX-XXX-XXXX [Author’s Note: the area code is 1,000 miles from DC].

The internet start-up is a website based search engine called “Dr. Ignorant Search”.  The search engine is free to use.  It is geared towards anyone of all ages who seeks “enjoyment and, or knowledge.” [Author’s Note: wow, you can’t get more niche than that].

[Blah blah blah with absolutely no information that details the pain this product solves or what the monetization plan and business model are.]

The goal is for the investor to receive a return of their principal in-full plus an additional 10% of their total investment (for example $10,000 interest from a $100,000 investment) from revenue generated by the search engine website.  The associated risk is that the investment capital and, or interest, whole or in part, may not be returned and paid to the investor due to the advertising revenue falling short.  On the value side for the investor, the goal of Dr. Ignorant’s search engine size is that of Google Search, which has excellent annual revenue from advertising.

We (myself, my assistant and my website search engine developer) are available to answer your questions by phone, Skype or email.  Upon request we will send to you the website address containing a working prototype of the search engine for your trial use.  Again, this search engine is free for all to use.

Thank you,
Dr. Ignorant

Now getting spam like this is easy to ignore, but this person then hunted me down and called me on my mobile while I was having dinner with my son.  Dr. Ignorant would not get off the phone until I promised to read his email and call him back the next morning.  So I promised to read the underwhelming email, and I replied with the following advice:

Dear Dr. Ignorant,

Couple things, suggestions and criticisms meant to help you in the future so that you won’t burn anymore bridges as you did with me:

  1. You took an extremely naive approach contacting me, which would only make any potential investor question the ability of you and your team to execute a complex business plan.  If you have not mastered the art of targeting investors properly or refined the pitch, how is any investor expected to trust you to master competing against competent business people?
  2. Blind pitches rarely work – find a way to get a warm introduction.
  3. Angel investors tend to invest within their geographical region. I’m not in your region, and my web site says I don’t invest outside my region.
  4. Further investigation (like reading 1 paragraph) would have told you that I only invest in B2B, and this is a B2C play. Investors tend to invest in a sweet spot. You’re not in my sweet spot.
  5. My website clearly states that I source my own deals, which means “don’t call me, I’ll call you.”
  6. Your pitch is not compelling in any way. It does not address the pain in the market, the revenue model, the size of the market and the qualifications of the team.
  7. And with all that you’re offing a .1X return? You’re not looking for an angel investor – just get a loan from a bank.

I recommend that you check out the Founder Institute, an organization dedicated to educating entrepreneurs so that they have a higher chance of success with investors prior to burning any bridges.

Best of Luck,
Mr. Cranky

The lessons here:

  • Investors tend to file unsolicited business plans in their circular files – get a warm introduction.
  • Do a little research, before asking for that warm introduction.  Make sure you’re aiming at the right target.  Does your intended investor invest in companies in your stage, sector and geography?

How you perform when you approach and pitch investors is a leading indicator of how you will execute your business plan.  Don’t be an ignorant dufus.

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Glen Hellman (@glehel), is an angel investor, serial entrepreneur, and works for venture capitalists as a turn-around specialist. He is the Chief Entrepreneureator at Driven Forward LLC, frequently muses on his blog, Forward Thinking, and works with entrepreneurs to help them figure out what to do and get them to do it.

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