February 25, 2017
Yi-Jian Ngo, Managing Director of the Alliance of Angels, oversees the Northwest’s largest and most-active Angel network that facilitates $10MM+ investment across 20+ companies each year. For early-to-mid stage startups, understanding what investors are thinking and expect from your pitch and what founders should think about going into a meeting is helpful.
Yi-Jian’s recently offered his advice to startups at a Galvanize Study Hall, here’s what he said:
Pre-Seed Strategy: Angels vs. Individuals
Depending on the size of the round you’re raising, there are clear pros and cons to raising from individuals or angel groups. Yi-Jian suggested if you are raising a relatively small round such as $100k, it could be highly advantageous to pitch to individuals because it could only take one meeting.
However, if you are raising $500k or more, pitching to individuals becomes more time consuming and far less efficient than pitching to groups and if you are successful, it will lead to multiple investors, which is a good thing, but due diligence often takes longer.
There are different level of pitching. Yin-Jian explained that the first level of in-person pitches is the 20-120 second elevator pitch. You’ll often hear terms like the Uber for moving or Airbnb for warehouse space. The goal of this interaction is to gauge interest and request a follow-up meeting to discuss further.
The second is the demo day style pitch. This is when you have a captive audience and have the ability to take 5-10 minutes to dive into a few details to really gather interest. Once again, the intent here for founders is to schedule a follow up meeting.
The third and final in-person pitch is the investor pitch. This pitch should be fine-tuned to suit your audience and address all of the standard points. To cover the investor pitch would require it’s own entire post, but for prime example of pitch decks from some of the biggest unicorns check out 30 Legendary Pitch Decks and What You Can Learn From Them.
How Much Should You Pay Yourself?
This is a highly disputed question. Should all founders be living in their mom’s garages eating ramen? What about experienced founders with exits under their belts taking home large salaries?
According to Yi-Jian it depends on the circumstances but there is always one common factor: is the founder happy? If you are starting a company fresh out of college and can live on $2500 a month, do that. If you can live on nothing, awesome. If you have a family, a mortgage, and bills to pay, it makes sense to take $60-$80K.
In addition to the Founder Happiness rule, Yi-Jian also says that there is a common trend when raising capital. When companies raise a Series A round they are no longer on what many would consider a shoestring budget. He says that at this point a founder will usually take $100-150k salary on a $3MM round.
What metrics do investors want to see in their meetings? Yi-Jian said at the angel stage it’s not in the numbers, necessarily. There are many more variables that are difficult to measure and need to be addressed first.
Individual investors want to understand, how good is your team, what problem does your product solve, do people care, and how are you going to tell more people about it.
With that said, numbers can be the most persuasive part of any pitch that can push investing angels to say yes. Far more investors are pushed to say no by founders not able to answer key questions.
Read more advice about pitching to investors at Tech.Co.
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