We attend as many pitch nights2 as we can often organized by local angel investor groups or other accelerators as we can. While we've never seeked investment, we do invest ourselves in local startups and also are working hard to help provide education to less experienced founders. I wrote another post about how our startup community here in South Florida, our strengths, weaknesses, and how we will win. One of the most ironic things we hear are startups complaining that there is no access to capital here and investors complaining about deal flow here.
Our message to startups in particular is that if you're complaining about lack of investment or access to capital here, you're not looking hard enough, you have to make sure you've built a viable company, or you don't know how to pitch the investors that you do talk to. Investors here are not the same as what you see in the valley - they're more traditional - but they are EAGER to invest in this area.
Both sides have education gaps. Investors have an education gap with technology and software. Startups have an education gap with how to communicate with more traditional investors and demonstrate the potential in their technology.
In this vein, we're going to begin releasing more educational posts on building a good product, building a viable company, and pitching investors in the area. We've already started by releasing a few posts on general business advice, designing a software product, and the foundations of a good UI among others. All of our educational posts for startups can be found here. This write up is the a collection of observations from pitch nights we've attended with other investors and the first of others to come about what to expect and prepare for local investors.
Premoney valuation was always asked during the pitch.
In fact, one company answered it poorly (from the investors' perspective) and albeit the strongest product of the night, their answer overshadowed their pitch and likely bombed any chance they had with investors. This is not to say that you need to undervalue your company, but know the fair market value of what you're truly worth today and know your audience of investors (i.e. if you're pitching angels, you probably won't get much attention if your premoney is tens of millions of dollars.)
This one surprised me because I consider projections to be BS. Everyone is projected to be a billion dollar company when they're pitching investors. I was surprised to see people ask this1. I'm not sure what to make of this, but you certainly can't walk into the room without showing revenue or at bare minimum proof that your customers are willing to pay for your product. I would focus on revenue more than projections. Projections likely won't hold up during due dilligence and you're likely over-promising and under-delivering which is the best way to ruin relationships.
No one asked for a demo of the products. Questions about product were normally how it worked and what the benefits were, but very different than the normal "Demo Days" that we see as classes come out of accelerators in other markets. A couple of very poorly designed products were presented and no one blinked an eye. One very well designed product was shown and again, not one comment on it. Be prepared to effectively demonstrate WHY your product is NEEDED though. What problem does it solve? How does it solve it?
Quite a few questions about the IP/Patents, but mostly in areas of physical products. This is definitely a more old school train of thought than what we're used to and I still wouldn't worry about patents on software.
No big surprises. You should be able to talk to this. You should also feel at ease that you don't need to be attacking a small piece of a big market. Many investors here are okay and have made their money attacking a big piece of a small market. Make sure you're sufficiently niche and have found your competitive advantage in this niche.
How much they were raising, who was investing already, burn rate, and use of funds
Natural question. No surprises here. You better be prepared to show how lean you are though. If you're the type of founder focusing on your executive team and not the damn product, well you're in the wrong place.
Who were their customers? Who would be their future customers?
Once invested in a product, these angels were very committed to helping it succeed
Whether that meant follow on investment, reaching out to their network for advice/resources, these guys were not about to let a company go without a fight. This is good news for the startups that they fund.
Only one startup talked about their team
As a CEO, our team is everything to our success. I was surprised that more time wasn't spent asking about the team behind the startup. This may have been because most startups mentioned it so there wasn't a need for questions, but speaking with investors on the sidelines and extracting information from DLA Piper's "flash survey of local investors, the founders and team are massively important. Investors need to believe you have the ability to get it done. I think while your pitch need not spend too much time on it, be prepared for this in the due diligence process and don't leave any doubt in your pitch that your team has what it takes.
HUGE burn rates
There was one product with a previous investor, a single customer and a 6 digit burn rate (likely the majority was going to the executives). This is one of the biggest red flags to me. Gary Vaynerchuck said in his article, Why You Shouldn't Take VC Money, "The first few years of a startup aren’t supposed to be cushy. Those are the years that you grind. If you’re getting into entrepreneurship because you want a lavish lifestyle, you’re in it for the wrong reasons." Investors know this. Show them you're scrappy.
Technology was not a strong suit
There were a couple promising products and the potential of the technology was lost on the audience. This is not a bad thing. All companies, individuals, and investors have their strong areas for which they add value so these companies would be better suited with some more tech savvy investors, but still a surprise to me.
For founders, know your audience. Be prepared to demonstrate why your technology is a big deal. Don't expect a generally more mature crowd to understand what problems your technology solves, the implications and potentials of it, or how it's better than the competitors. Hand hold here.
Deal flow (finding startups to fund)
Many startups forget, that just as hard as they're looking for investors to pitch, many investors are looking just as hard for quality startups to invest in. Something we heard over and over was that deal flow was investors' biggest challenge. I particularly think it's important to call this out because there are no excuses when building a startup. If you're using excuses, don't build a company. This is the real world and personal responsibility trumps everything.
No one demoed their product. A few slides were all that were devoted to it, but very different than a demo day feel.
In general, I don't give a damn about your patent pending.
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