I
often have the chance to interact with entrepreneurs, gulping down some of
Seattle’s finest coffees. Its great talking to entrepreneurs, to see the
passion, the energy, the great ideas, and the desire to change the world. Like
most entrepreneurs, they also have the need to raise money from Angel
investors. As I am both an entrepreneur and an Angel investor, I am often
asked, what do Angel investors look for? What do I need to explain to a
potential Angel investor?
I
have a very simple and short way that I explain this to an entrepreneur. If I
am investing my money into a start-up, I would like to see a return. For me to
see a return, means that the start-up needs to be able to make money. To make
money means that the start has a value prop that resonates with a customer. A
value prop that resonates with a customer, means that the start-up is solving a
problem or meeting a need that the customer has. If the start-up is solving a
problem or meeting a need, it means they have researched the space and designed
a solution.
This
may be an over simplification, but it tells the entrepreneur what to focus on.
It does not mean that if you have all those things that an Angel will invest.
There are other things to think about as well – some things that raise flags
for me.
Over
focus on the technology is a flag. Don’t go deep on the technology, unless
asked. Entrepreneurs with an engineering background, sometimes fall into the
trap of wanting to over explain the technology (I know I have). However, in most
cases, technology does not sell itself. I will often ask an entrepreneur to
think back to a recent purchase they had and whether they bought that just
because of the technology or because they had a need or problem to be solved? I
recently put a cold-air intake system into my truck. Did I buy this because its
cool and different way to do an air-filer? No, I bought it for better
efficiency. That is the need that I have. It was way more expensive than a
normal air filter, so it better be more than just cool. Sure, some of us will
buy gadgets because we think its cool technology, but in general, when you
think about why you buy things, it usually comes down to meeting a need or
solving a problem that you have.
Inability
to take feedback is another flag. While I may just be investing, and suggesting
ideas or asking specific questions, this tells me how the entrepreneur will
listen to customer, mentors, employees, and potentially VC’s. This doesn't mean
that what I suggest to them is right, its how they deal with it that is the
important piece.
To
all your entrepreneurs out there, building great technology, make sure its
solving real problems or meeting real needs. If its not, it will be hard to
sell the product, and hard to get a return back to Angel investors.
