Bank of America's Small Business Community had a good article on May 9, 2014 about how to approach investors. I concur with all of its major lessons. I'll add my own thoughts to the important points covered.
A "pain point" is a vexing problem that existing products and services don't solve in a given market. A disruptive innovation solves this problem. One pain point in the finance sector is the ability of hedge funds to front-run all other investors by using high-frequency trading (HFT), as Michael Lewis describes in his latest book Flash Boys. The exchange that slowed down orders solved this problem for large institutional investors who were losing out to the HFTs. Serious venture investors watch for startups that have done their CustDev homework on solving major points in very large verticals.
My equity stakes in startups vary by the stage of fundraising they are in when I invest, and by the amount I put in. There is no usual percentage for angel investors. Large venture capital (VC) funds can pretty much dictate how much of an equity stake they will get because they invest tens of millions of dollars in any given round. I invested in a medical device company and got less than 1% of its outstanding shares, but my investment was structured as a convertible debenture with warrants that accrue more shares the longer I own it. If I own it all the way to IPO (which is looking very likely) I will still have less than 1% . . . of a very large company. Investing as early as possible brings the greatest return but with very high risk of losing it all.
Here is some common sense for business owners. Entrepreneurs should know their target investor's portfolio so they don't waste time with someone who won't be interested in their particular segment. In other words, a mobile payments startup won't get attention from a VC who only invests in biotech. Entrepreneurs should condense their fundraising pitch into a tight structure, like Guy Kawasaki's 10-20-30 rule. Investors don't have the patience to wade through dozens of PowerPoint slides. The pitch must get them sufficiently interested to perform more detailed due diligence and then commit to making an investment. Entrepreneurs should NOT lie, ever. Last year I attended a pitchfest where one solar energy startup lied about their appearance at a very prominent trade show, and they couldn't even answer my basic question about whether their technology was flat panel or thin film. That's a pretty basic distinction in solar energy.
Keep watching Alfidi Capital for more signs of such pure genius.
A "pain point" is a vexing problem that existing products and services don't solve in a given market. A disruptive innovation solves this problem. One pain point in the finance sector is the ability of hedge funds to front-run all other investors by using high-frequency trading (HFT), as Michael Lewis describes in his latest book Flash Boys. The exchange that slowed down orders solved this problem for large institutional investors who were losing out to the HFTs. Serious venture investors watch for startups that have done their CustDev homework on solving major points in very large verticals.
My equity stakes in startups vary by the stage of fundraising they are in when I invest, and by the amount I put in. There is no usual percentage for angel investors. Large venture capital (VC) funds can pretty much dictate how much of an equity stake they will get because they invest tens of millions of dollars in any given round. I invested in a medical device company and got less than 1% of its outstanding shares, but my investment was structured as a convertible debenture with warrants that accrue more shares the longer I own it. If I own it all the way to IPO (which is looking very likely) I will still have less than 1% . . . of a very large company. Investing as early as possible brings the greatest return but with very high risk of losing it all.
Here is some common sense for business owners. Entrepreneurs should know their target investor's portfolio so they don't waste time with someone who won't be interested in their particular segment. In other words, a mobile payments startup won't get attention from a VC who only invests in biotech. Entrepreneurs should condense their fundraising pitch into a tight structure, like Guy Kawasaki's 10-20-30 rule. Investors don't have the patience to wade through dozens of PowerPoint slides. The pitch must get them sufficiently interested to perform more detailed due diligence and then commit to making an investment. Entrepreneurs should NOT lie, ever. Last year I attended a pitchfest where one solar energy startup lied about their appearance at a very prominent trade show, and they couldn't even answer my basic question about whether their technology was flat panel or thin film. That's a pretty basic distinction in solar energy.
Keep watching Alfidi Capital for more signs of such pure genius.
