Part time Astronaut wanted; no experience necessary. Ridiculous. No one would entrust a complex, multi-million dollar program to a novice on an hourly schedule. So, why do so many part time entrepreneurs (PTEs) approach investors with a similar pitch?
PTEs are everywhere. They are engineers working at night on new product ideas; university students perfecting business plans instead of homework; or, busy doctors tinkering with medical device concepts on weekends. Most cannot afford to quit their “day jobs.”
Believe me, I understand.
The challenge is how to convince (post family-and-friends) investors that a business is worth their risking, say, $1 million when the founder is unwilling to risk his/her paycheck. “If you really believe in your idea, quit your job!” Reasonable or not, this is a statement that PTEs should be prepared to address.
How does one prepare? By making a compelling pitch, of course. Investors are less likely to resort to dismissive questions of this nature when they are satisfied by what they hear. I won’t bore you with a list of Top 10 questions that investors want answered; such lists can be found across the internet, as investment criteria on angel group websites, or as fill-in-the-blank forms on sites like Gust.com, Angelist or LivePlan. These latter templates offer good presentation outlines, but consider the following critical points also, before approaching investors:
Proof of Concept
It is an increasingly rare angel investor who risks hundreds of thousands of dollars on an unproven, pre-revenue startup. Most require companies to demonstrate repeat sales over, at least, a 6 month period. Test your concept and your assumptions . . . first.
I referenced doctors, engineers and students in my earlier PTE comments. Those occupations do not necessarily translate as startup manager, salesperson or financial executive. Why would an investor assume that, just because you had a great idea, you are the appropriate choice to run a company? A business plan is more compelling when it has already attracted such experienced startup managers to come aboard.
Stand Alone Business?
Not every new product or service can become a successful, stand-alone business. One must sell a boatload of $0.99/ea. apps simply to cover basic, fixed expenses. Now, imagine how many apps must be sold in order to satisfy investors looking to achieve a 10x return on investment. My point is this: Many startups are better served looking for strategic partners and/or licensees rather than seed round, angel investors.
Greatest Thing Since Sliced Bread
Our society may not value it, but a little humility can go a long way. No investor wants to hear than your idea is disruptive, game changing or revolutionary. Nor, will he/she believe that your category defining product has no competition. Avoid these pitfalls at all costs . . . and remember: If it is so good, why didn’t you quit your day job?
Mr. Dragone has spent the past fifteen years as an acting/consulting CFO for a number of start-ups in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He was a co-founder of Keurig, Inc.
Previously, Mr. Dragone was a senior financial/operational manager for Chiquita Brands International. He moved to Chiquita after working in international banking at BankBoston.
He has an MBA from Harvard Business School, an MA (in Spanish) from Middlebury College and a BA from Colby College.