Basic startup funding market statistics (to the best of my knowledge):-
Chances of VC funding: 1 in 1000
Chances of angel funding in London: 1 in 500
Chances of angel funding elsewhere in UK: 1 in 100
Chances of an angel expressing interest but being unwilling to lead a round or do due diligence: 1 in 15
Moreover, these are the approximate chances of a startup’s getting a single term sheet or offer, at which point it’s still in a hugely disadvantaged negotiating position, by which I mean that getting to the stage beyond that where you have multiple suitors (sufficient to gain competitive valuation) is yet more unlikely still.
All of which would seem to point to a number of basic reactions, all of them rational:-
- The deck is so badly stacked against startups there’s no real point trying, so give up
- The deck is so badly stacked against startups, bootstrap / look for JVs / customer funding etc instead.
- If we produce sweary big-font presentations and a metric-centric business plan, perhaps we can get Dave McClure interested?
- If UK angels don’t want to invest in anything short of a money tree in full bloom, how can I get onto AngelList? Should I jump on a plane headed West?
- The odds for all of these are way too long, how can we shorten them?
The way I see it, the central problem is that so many pitchers (if not in fact the overwhelming majority of them) are trying to game the funding system: specifically, too many of the pitches I’ve seen are constructed around a relatively modest idea that has been inflated and contrived to fit a perception of what angels/VCs are believed to want. That is, it’s an OK business idea reshaped around what pitchers think pitchees think pitchers should be pitching – and there is an entire business self-help industry of pitch templates & business plan books to help confuse the issue further.
Of course, once you start producing what you think investors think they ought to be seeing, they themselves start wondering if they’re being gamed; you then start being ironic and/or defensive to signal that you’re not actually gaming them (even though you are, really); at which point the whole attempted transaction gets tied up in a circular self-referential knot of analysis paralysis, and nobody gets anything. Welcome to 2010, baby.
What many pitchers also don’t seem to realise is that angels haven’t done very well out of startups over recent years: overinvesting in a single company, losing the lot when it crashes, and then completely dropping out of angel investing in disgust is an all too common pattern. So actually, current angels are not really interested in repeating their recent set of mistakes – but at the same time, they don’t have any great UK investee role models going forward to inspire or excite them. It’s tough out there… really tough. 😦
OK, unlike 90% of startup blogs, I don’t claim to have an Ultimate Deck, some secret set of Slides That Always Succeed: but I’ll happily tell you stuff that I think will dramatically shorten your odds when you’re presenting. I know it’s aiming fairly low, but if you’re OK with that, here they are…
- Keep It Stupidly Simple. That is, big font (i.e. 30-point) presentations, not too many slides, all designed to Get The Basic Point Across – i.e. how you think your company will turn their money into substantially more money. If the audience don’t know this utterly clearly within 60 seconds to the point that they could successfully explain it to a five-year-old playing a video game, you’re unlikely to get anything. Novice pitchers think their presentation needs to sell on its intellectual and financial persuasion: but in reality, at this relatively early stage in the investment funnel what you need is a “We-Buy-Any-Car.com” sledgehammer to get the message across.
- Be Excited & Enthusiastic. For heaven’s sake, why would an angel want to invest in an utterly dreary company? At least 25% in the mix for almost all angels is a bit of buzz – so if you don’t happen to exude breathless excitement about what your company does, find someone in your company who does and get them to pitch it instead.
- Angels Invest In Their Comfort Zones. I’m no paragon of perfection here, as this is essentially where my own pitch falls down – for how many UK angels are there out there who have made their money out of manufacturing (let alone security cameras)? You see, according to investment theory, a rational angel should aim to balance his/her investments by including many different types of startup (i.e. not all social media, not all geolocation, etc), to build up a portfolio not overexposed to any single sector. In practice, however, angels tend to invest in companies (a) in markets they already know, (b) that work similarly to how their own company worked to make themselves rich, and (c) not too far from their Home Counties mini-mansion. Few are genuinely contrarian, or obsessed by tech or business novelty for its own sake: so please don’t expect them to be comfortable with your ker-razy Opt-In Double-Decoupled Freemium Affiliate model.
- Tell A Great Story. Tell them your development milestones & epic struggles to date, your engagement with customers and what you have learned, who you have met and who supports you – and where it’s all going, and what’s in it for investors. And don’t forget that at the end of all your hard work, probably half of them have to then make an even bigger sale than you do – convincing their wife or husband that your pipsqueak company is just a brilliant opportunity. Stories are great tools for helping people pass on your powers of persuasion.
- Build Up A Real-World PR Buzz. There’s nothing more exciting to an angel than a company that is gaining traction and engagement. A real-world PR buzz can sometimes be the signal that a startup is just about to move out of reach of angels, for why would a profitable, happening, buzzy company need angels?
Don’t believe for a moment that following these ideas slavishly will automatically get you funded (and no, I don’t have a system for roulette or blackjack too), but I do honestly think these are all pretty good ways of shortening your odds. But… what do you think?