in more than Two decades as an angel investor and scout for an early-stage company, I’ve met hundreds of entrepreneurs looking for money and sat through an equal number of slide shows.
You can say I’ve seen it all. From my perspective as an angel investor and former entrepreneur, here are five key factors I look for when considering my next investment.
Introduce a game changer that stands out
To attract the right angel investor, be sure to present a compelling technology or product offering that solves a critical customer problem. Make sure to display your unique competitive advantage – the incremental improvement of competition is not a winning formula for attracting investment.
Include key market metrics such as TAM, SAM, and SOM. TAM (Total Addressable Market) is the total possible revenue if the product or service were to achieve 100% of the market share. TAM answers the question of who would theoretically buy your product or service. It describes the total revenue a firm could generate if it had an overall monopoly with total market share for its product or service.
TAM for the non-alcoholic beverages category, among the many categories I invest in, takes the total worldwide non-alcoholic beverages market, looks at all revenue from beverage purchases, visualizes sales in all countries in the world, and assumes no competition except for tap water . SAM (Service Addressable Market) is the TAM segment within the geographic range that you can target with your products or services. Finally, SOM will be market share which the company can pick up over time.
Presenting strong financial statements
When applying to Angels, it is critical to demonstrate proof of concept, traction in terms of product/service development, and revenue. Knowing your company’s financial health and presenting your numbers to investors is crucial, as well as making sure that the past and current numbers you provide are accurate.
Investors want to see the top line, gross margin and net profit. Don’t be tempted to overestimate or hide trouble spots; It’s a huge red flag that investors will see, dumping your prospects in realizing the investment.
Founders tend to associate a much higher valuation of their company in a good economy. Resist temptation! Marjorie Radlow Zande
Case in point: Two venture capital groups recently pulled out of a game-changing SaaS investment because the founder radically inflated financial statements and skewed the product development stage.
Get a realistic five-year forecast that includes profit and loss – the best mid-level forecast not too optimistic or too conservative. These financial forecasts give investors an insight into the future of your business’s sales, cost of goods, operating expenses, and basic income. It becomes a set of estimates and forecasts that give a data-backed view of your company’s financial future.