10 ways to make an angel investor take flight
Seasoned investor Hugh Chappell tells us his turn-offs
The average angel hears dozens of pitches every year, but rarely chooses to invest in more than a handful. With so many business ventures to choose from, they’re going to be looking for reasons to rule your business out.
Startups asked Hugh Chappell, serial investor behind companies such as Lovestruck.com, TrustedReviews.com and bit-tech.net, to give us his top 10 pet hates when listening to a pitch. Here’s what he said…
1. Unrealistic growth projections
Don’t give me a business plan where the sales figures are just a straight line up the graph. I see so many business plans where the sales figures are based on maths rather than reality.
I don’t believe in these kind of plans, I don’t see them as feasible and it shows me that the people pitching haven’t got viable plans in place.
2. Missing the small details
I like to see a business plan which has been thought through – it shows me that those behind the venture have really done their homework.
Detail is important, even something as trivial as the number of days in each month. For example there are 9.7% less days in a typical February than in January and March so a revenue adjustment to compensate should be made.
Overlooking small detail can often put me off.
3. Failing to understand how small firms work
It frustrates me when I hear a pitch from someone who’s worked in large companies and fails to appreciate that small ones have to work differently. Some people simply don’t want to put in the work required of a small company – it’s amazing how many potential entrepreneurs want to work from 9 to 5.
When I started TrustedReviews.com I worked seven days a week and even had to clean the office at weekends with the help of my wife. It’s important that start-up firms show this type of commitment.
4. Expecting a high salary
This links in with my point above – it’s very annoying when people want my investment to fund a big salary, because they expect to earn the same amount of money as they did in their previous job. People need realistic expectations. If you want a big salary, you should get a job, not start out on your own.
5. Expecting marketing to solve all the problems
If people want my funding for a huge marketing campaign, that can often raise alarm bells.
Marketing isn’t a panacea for all the problems of a small business. Some of the ventures I have invested in, such as Lovestruck.com, demand an intensive marketing campaign; others, like TrustedReviews.com, required none.
If the person pitching expects marketing to resolve everything, they’re likely to come unstuck.
6. Missing key skills
It’s important for new ventures to consider whether essential skills are required in-house.
For example, if someone builds their business around a website, but relies on an external party to code it, they may run into difficulties when further development or 24/7 support is required.
If you’ve got any crucial skills missing, an investor is very likely to reject you.
Brilliant ideas, innovative or remarkable products, great websites, the best systems and watertight procedures have little meaning if there is no revenue to pay for them.
Everything inside any company depends upon one thing, an ability to attract and retain customers.
With this in mind I always want to be certain that, when it comes to generating revenues, the organisation has the necessary skills and experience to deliver.
8. Unrealistic valuation
Time and time again I see valuations that are simply unrealistic. Is an idea worth £500,000? Is a beta-website worth £750,000, and a business which has yet to find a single customer, worth £1m?
There may be exceptions, but in general the answer is no! Unrealistic valuations put off angel investors.
Do your research. Determine whether your idea is original or not, the competitive landscape and by visiting potential customers, whether there is a need for your product or service.
Angel investors will do their research too, so be prepared not only to answer their questions but to clearly demonstrate that you can do your homework.
10. Return on investment
I invest for one simple reason, to make a return. I see an angel investment as a partnership between myself and the founders.
I often find that the founders have thought about themselves, in the form of high salaries, as quickly as possible but not reward for their investors. Make sure your pitch covers the upside for both founders and investors.
Show me the money!