As angel investors, we are constantly on the lookout for the hottest new deals. In an average 24 hour period, WOMENA’s dedicated ‘Deals’ Slack channel will be buzzing with names and descriptions of seed-stage tech companies and entrepreneurs discovered via Google alerts, news articles, social media posts, intro emails or snippets of conversations at a networking event. Although each one is registered and tracked via our CRM system, the reality is that only four companies will get shortlisted to pitch at our bi-monthly pitch meetings. Other VC firms such as BECO Capital has stated similar averages, investing in 0.5% of the annual deals they see.
The reason for this is not because venture investors are the pickiest people on the planet, but rather that the mathematics of early stage investing are such that investors have to create a funnel that receives a large number of deals, and then invest in a diverse portfolio that will hopefully include the one or two superstar companies that will catapult any equity-snagging shareholder into infinity and beyond.
Because of this dynamic, the average investor has seen thousands of startup decks and been pitched to hundreds of times. As head of WOMENA’s entrepreneur education arm, working with both investors and entrepreneurs, I’ve seen both sides of the fence. Investors develop techniques to look out for characteristics that signal whether or not a deal is worth pursuing further, while entrepreneurs focus their pitch on the components of their company that they think are the most important and impressive. This often results in the entrepreneur entirely missing the milestones that matter most to investors during the pitch.
In order to bridge this gap, I asked a few of WOMENA’s savvy angel investors to share their secrets on what they look out for in an entrepreneur pitch. Keeping these points in mind during your next pitch could mean the difference between a ‘pass’ or an invitation for an organic coffee and a follow up meeting.
1. Show us…. A Great Idea
Shaheeda Abdul Khader is an entrepreneur and a formidable angel with a number of healthtech investments under her belt. The first thing that gets her attention, she admits, is the idea. “This is the hardest thing to explain. It’s almost instinctive. If an entrepreneur can communicate a great idea, it just gets me excited. It doesn’t necessarily have to be novel or crazy; I consider an idea that solves a genuine problem to be exciting.”
2. Show us… Good Data
For Gaurav Dhar, who has invested in, founded and managed a number of businesses, it’s all about the data. Accurate and properly sourced data about market sizes and target customers not only demonstrate that the entrepreneur has done her research, but also that she has a deep understanding of their market. “However”, he says, “for MENA entrepreneurs in markets with scarcity of reliable data available, we understand that this can be a challenge. If you really can’t find public data, show us your own data based on your research.” If you really know your target market, you should have potential customers you can collect data from, and it shows investors that you have the hustle needed to overcome the challenges of doing business in MENA markets.
3. Show us… The Customer
A founder may think her product is wonderful, but what investors want to see are customers that think the product is wonderful. “The customer perspective is essential”, says Saad Umerani, co-founder of Enabling Future, a VC firm investing across MENA and Silicon Valley. “Entrepreneurs spend lots of time focusing on product features and not enough on their customers. Tell me about the journey from when customers first contact the firm till they actually become a customer.” Also, potential customers are nice, but, as Saad puts it, “When I hear ‘we are in talks with Emirates’ it means nothing to me. However, ‘we are already working with XYZ’ has much more value.”
4. Show us… Scalability
Because venture investing is risky and we expect many of our investments to fail. The only way angel investors make money is when their portfolio companies scale quickly and massively. This is why Saudi angel Yaser Zagzoog looks for scalability potential in all aspects of a pitch. “The first thing I need to understand, is that the company has a clear, viable and scalable business model. Your idea has to have a high mass market reach and be scalable across markets.”
5. Show us… That You’ve Tested
As an entrepreneur running a fintech solution provider across MENA and Africa, Gaurav is well aware that startups will make mistakes, “Startups have misaligned assumptions on the problems they will have. I’ve made these mistakes as an entrepreneur and so I’m only interested if the founders can show that they’ve gone to the market and tested a beta version of their product. When entrepreneurs test, I can guarantee you that they will almost never use the same product in the launch. When you test early, this allows you to pivot easily, before you’ve built up an expensive business infrastructure. It also alerts you to gaps or issues throughout the entire customer cycle.”
6. Show us… Commitment
Nearly all investors are unanimous that founder commitment is a game changer during a pitch. Shaheeda’s take: “The founders’ bootstrap investments and sweat equity are two factors that I always look out for in the pitch. If I can’t see that the founder has real skin in the game, I won’t invest.” Gaurav explains further: “My hard-earned money is going into a business with extremely high risk. The more time I spend as an angel investor, the more strict I’m becoming in the levels of dedication I expect to see before investing.”
7. Show us… That You’re Realistic
Investors are looking for companies building on realistic assumptions. Competition, financials and valuation are a few points in the pitch when this shows through. According to Saad “A lot of entrepreneurs use the competitive positioning graph carelessly – they plot Google and Microsoft at the bottom end and themselves at the top end. This signals they are out of touch with reality.” Yaser keeps an eye on the financials. “Every time I watch a pitch, I think deeply ‘Is the amount their raising reasonable? Do they need this much money now? Where is this money going? What is the justification for their valuation?’”