Finding investors who believe in your vision and trust how you’re going to make it happen is not an impossible task, by any measure. There are plenty of investment opportunities around and there’s plenty of room for you in the growing space. Being prepared ahead of pitching will give you the best chance of success in the boardroom and on the term sheet.
James Church is the author of Investable Entrepreneur: How to convince investors your business is the one to back, and co-founder of Robot Mascot, a UK-based pitch agency. Church is frustrated by founders struggling to raise capital because they’re unable to convince investors, and works with them to present a clear, concise and credible business case to investors. He has conducted mentoring and mastermind sessions at Google Campus and numerous universities.
The reason why “too many entrepreneurs fail to raise investment,” said Church, is simple. “They’re unable to communicate effectively with investors.” At the heart of creating a compelling business case is understanding your investors. He explained, “almost all entrepreneurs need to better understand their audience. Not the audience they’re selling their product to, but the audience they’re selling their shares to.”
Once you know the seven investor archetypes, you can better understand them and, therefore, sell your shares to them. Here they are from Church’s experience.
1. The non-technical investor
Although the non-technical investor may not fully understand the technology behind a brilliant tech idea, they will have plenty to say about the business model. They will form their own opinions on the strength of your business based on their vast business experience, but the technical prowess will be left to others.
When you realise you are in the presence of a non-technical investor, Church advises you, “keep things simple and talk about your complex technical process in just three to five simple steps.” Most importantly, said Church, “don’t over explain. Innovation is supposed to make life simpler, but when you over explain your technology, you risk investors believing the opposite is true for your brilliant concept.”
2. The eagle-eyed investor
After a pitch meets this investor’s expectations, they will scrutinise every aspect of a business plan and financial projections. “They’ll probably want to meet you several times and they’ll execute heavily during due diligence.” These people don’t miss a trick, so transparency is key.
Church advised “prepare extensively, so you are confident that your business plan and financial workings demonstrate a credible and investable business model.” When under their eagle eyes during due diligence, “anything you can do to make their lives easier, such as providing well-presented, detailed and easy-to-digest funding documents, will show that you understand what they’re looking for and can be trusted.”
3. The follower
The follower investor type will want other angel investors to commit before they consider investing in your business. Perhaps they are relatively new to investing so they rely on the judgment of their peers. “They’ll never lead a round but are more than happy to follow a lead investor they trust,” added Church. This can work in your favour.
“Once you have one of the other types of angel investor on board, circle back to the follower investors to see whether they’re ready to join the party,” says Church. Initial reluctance could turn into a willingness to sign once they know who else has said yes. Church adds that “these investors are worth building a good relationship with.” Think of them as bonuses for convincing your first few angels.
4. The insightful investor
It’s common for an angel investor to fall into this category. “Rather than just giving capital, they want to share their experience and expertise with a founding team that inspires them,” explained Church. “They want to be part of your success on a deeper level, offering insightful advice and making introductions that will accelerate your business.”
Before going down this route, decide if additional expertise is what you want. Are you looking for capital or connections? From whom will you take advice? Investors that come with heaps of experience and a little black book can be worth far more than the money they invest, so consider that as part of your investing strategy.
5. The equity grabber
“Not all investors agree with the first valuation that’s brought to the table, and they may ask for more equity than you first proposed,” explained Church. “The equity grabber fits this bill.” They will always ask for more, and you need to discern the value and adherence to your plan.
Church knows that “there’s nothing wrong with negotiating,” but advised that you “take your time before signing any deals at a lower valuation.” Don’t rush to sign and give away more than you had planned. He added that, “if you’re consistently challenged over your valuation, it’s likely that you’re attempting to raise too much money for the stage of your business development.” Going in with a fair and defensible valuation is the key to negotiating with this type of investor.
6. The spent investor
The spent investor has no cash to invest in your business right now. “It’s possible,” said Church, “that they lost out on a few investments or they have invested further cash into a rising star in their portfolio.” They will, however, “be accepting pitches to keep their finger on the pulse.” Don’t make the mistake of dismissing this person, however. “Most investors have a network of other investors, so word of your opportunity will spread following a solid pitch.”
Not all investors will have cash available to invest at the moment you approach them, but they may come in at a later round. “Keep them sweet,” said Church. Every interaction forms part of your reputation and personal brand and you never know what might happen in the future.
7. The pessimist
The pessimist angel investor might show interest in your business model but openly doubt you as the founder. They might question your experience, conviction or capability. “This can understandably feel pretty personal,” said Church, “but don’t take it to heart.” This investor is simply doing their due diligence and scrutinising every part of their investment, including the human being standing in front of them. Remember it’s just business, and you’re likely doing the same with them.
The pessimist can be overcome, reassured Church. “By demonstrating that you have a solid strategy on how you’ll deliver success you should be able to alleviate those doubts. By having a believable business plan, credible financials and a perfect pitch you’ll be able to convince even the most doubtful of investors.”
Before entering the den, understand your investor so you can tailor your pitch to their requirements. Whilst one pricks up their ears and another rubs their hands together in glee, a third may have glazed over because they require a different approach. Finally, added Church, “remember that angels are human too. They have strengths, weaknesses and quirks just like the rest of us.” Appreciating the differences between angels and talking in their language will set you up for a successful investment round.