There are plenty of “to do” lists for attracting angel investors. Let’s examine a few of the “to don’ts”—the situations that lead angels to remove a company for investment consideration.
The first investor turnoff is not respecting their capital. Nothing will sink a deal faster than company founders who think investors can afford to lose money if things don’t work out. Angel investors want to know that company management is committed to succeed. A company is certain to chase away investor interest when its founders have nothing invested in the company and haven’t made any lifestyle changes. When the management team can just return to former jobs after a startup venture doesn’t do well, investors are leery about how committed managers are to addressing setbacks.
The second red flag to angel investors is hearing simplified analysis about market penetration. Investors are cautious about sweeping statements showing how capturing just one percent of the market results in an enormous income. A startup company must have a marketing plan for getting above a zero market share. Angel investors want to hear that plan and how management experience can execute it.
A corollary to this is phenomenon is the use of top-down market size. A top-down assessment mentions figures in market research reports. These are broad numbers that are not necessarily the market addressed by the startup enterprise. A bottom-up market assessment provides a realistic estimate of the segment targeted by the company. If investors hear numbers that are too large, they will tune out.
Our next matter to avoid with angel investors is appearing uninterested in entrepreneurial coaching. When investors ask questions, it is an opportunity for founders of a startup to learn as well as answer. Defensive posturing is a huge negative to investors. This is a signal that there’s no flexibility by management to the original business plan. Instead, angel investors want managers who are responsive to ideas of others—and to their questions.
The final danger for companies with angel investors is emphasizing that estimates are conservative. For some reason, entrepreneurs think that investors want figures that are conservatively derived. But providing capital to startups is very risky and angel investors know this. The best advice to a company seeking angel investment is to avoid entirely the word “conservative” during a presentation. Trying to make risky business sound conservative just sounds absurd.