One of the most fundamental parts of the startup funding process is the pre-screening round. Here a group of investors or their representatives will do a short (~1 hour) interview with you to understand if your investment is a viable opportunity. Also gives the founder/CEO the opportunity to meet with the investor(s) and see if there would be a good fit.
2. Agenda
Purpose of this presentation:
Steps to qualify or disqualify an investment opportunity
Deal Sources
Next Steps
Benefits
Low time commitment approach for initial investigation
Mitigate some of the risks inherent to angel investing
Useful for giving advice to fledgling entrepreneurs
4. The Key Questions
Question 1: Is this a good deal for our Angel group?
Question 2: Is this the right team to execute this business?
Question 3: Does this business have superior proprietary products?
Question 4: Do the products address a clear need in a large
market?
Question 5: Is the requested investment sufficient for the company
to achieve key milestones?
Question 6: Has this company made a compelling case for the
overall attractiveness of the business opportunity?
Question 7: Is this an attractive investment opportunity?
5. Question 1: Is this a good deal for
our Angel group?
Industry Sector:
High-growth industry
Expertise within Angel Group
Proceed with caution:
partnerships, proprietorships, franchisees, investment funds, retail stores,
publishing, professional or consulting services, real estate,
entertainment, natural resources
However there are always exceptions
6. Question 1: Is this a good deal for
our Angel group?
Which one of these would you invest in?
Publishing company
Electronic Health Records
Chain of dry cleaning services
Social Gaming (e.g. Words with friends)
7. Question 2: Is this the right team to
execute this business?
Management team can make or break any deal
track record of key team members
balance of operational expertise (including financial), domain
knowledge, and business acumen:
Though at early stage, not ALL of the items above need to be present. Most
should be
Angel Investors will help round out management gaps or find individuals
who can.
Proceed with caution:
“one-person-show”
Family-based business
8. Question 3: Does this business have
superior proprietary products?
Mostly product or technology
Although services possible
Scalability
Competitive Analysis:
Clear differentiation
better/faster/smaller/cheaper?
New markets/paradigm shift: AVOID.
Sustainable Competitive Advantage
Freedom to Operate
Product Line
9. Question 3: Does this business have
superior proprietary products?
Which of the following would you invest in?
Augmedix
A service for medical doctors that's powered by Google Glass.
Twilio
Build apps that communicate
Fits.me Virtual Fitting Room
Fits.me’s solutions help boost the profitability of online clothing retailers.
Swifto
Uber for Dog Walking- GPS tracked dog walking service
10. Question 4: Do the products address
a clear need in a large market?
Clear economic value proposition:
Need-to-have VS Nice-to-have
Market Size:
For Angels: >$100M. For VCs: >$1B
Market Segment:
niche market(s)?
reasonable chance of market acceptance
Identification of key decision makers
Sales:
Paying or Beta Customers? Proof needed (LOI e.g.)
11. Question 4: Do the products address
a clear need in a large market?
Neverware
automatically boosts performance of old computers for a low monthly
fee. Targeted to the education sector.
AirBnB
rent unoccupied living space and other short-term lodging
OrderWithMe
Group Buying from Factories in China
12. Question 5: Is the requested investment
sufficient for the company to achieve key
milestones?
Attractive for follow-on venture investment
Cash flow break-even
Not a fit for Angel investing:
Capital intensive industries (e.g. alternative energy) require constant
capital injections
13. Question 6: Has this company made a compelling case for the
overall attractiveness of the business
opportunity?
Clear identification of strengths and weaknesses vs competitors
Does the company have or can gain access to required resources?
14. Question 7: Is this an attractive investment
opportunity?
Valuation Expectations:
Pre-revenue valuation >$3M.
Strongly advice against pre-revenue unless strong compelling argument (e.g. IP).
Any company >$10M is not a good fit for Angels
Equity too low to justify due diligence effort
Potential for Lucrative Exit:
For angels, exit of 10X within 3 – 7 years is the norm. Exit strategy must be
articulated.
Prior deals:
Previous unreasonably high valuations
Untenable deal structure terms from individual investors/angels
15. Key Takeaways
This is the first step in the process, should you spend time even
evaluating the deal.
Short . < 2hours
Main points to look for
High growth industry, synergies with angel network
GREAT and complementary management team
Clearly differentiated product/technology. Scalable and sustainable
Addresses pain points in large markets. Not too large >$100M but <$1B.
Have Sales!!!
Clear need for capital, but do not require constant infusion
Companies valued between $3M and $10M. Exit at 3 – 7 years.