This article is proposed to you by Marie Marks, Investment Manager at CENTEC VENTURES. We’re an angel investment firm based in Barcelona.
CENTEC VENTURES invests in ideas that disrupt the old, large and conventional markets. We empower entrepreneurs with international scalable ideas. We believe in the power of thinking outside the box to contribute to visionary entrepreneurs.
In the past couple of months, I started to find myself more and more obsessed with the full startup investment processes. Working as investment manager in an early-stage angel fund truly made me see the positives and negatives of the entrepreneurship world.
Every week, I meet many fantastic people, founders that want to change the world, I find out about the new trends in innovations and the new startup that will potentially become a unicorn. Receiving projects and deal flow is not what’s missing the mail box of an investor; what’s truly missing however is that golden beauty, that quality project in which every checks.
If you’re a founder looking for capital for your early-stage company you can drop me a mail at email@example.com and we will be in touch!
Everyone we meet believes to have the new unicorn, an incredible market potential and that impeccable idea that will solve all the issues of the world and grow to become the next Uber. However, what most founders do not know is what makes them attractive to investors, what will get them the capital and how they will attract all those angels to drop a nice little check after a meeting or two.
This might a secret for many, but I believe that angel investing or Venture Capital as an all should be much more transparent. Too many people don’t have a clue how to raise capital, how to pitch, how to contact the right people, or anything much actually. Investing is still seen as the ‘Billionaire Boys Club’ by many when it’s truly about potential, the right leaders and great innovation.
What are the ‘invest-ability’ factors angels are looking for?
First, don’t come crashing at me because you have heard about different criteria in terms of investment. I’m not saying I’m right or I am wrong, I am just sharing my opinion on what can make your company ‘invest-able’ or not.
As silly as this might sound, what are your funding goals? Why are you raising capital and what are you planning to do with that finance? When you land a meeting with an investor, you can be sure that 99% of the time this question will come up. We’re always going to be interested about your plans considering the money we give you. A founder that is clear about where the money will be spent, why and how will truly win a point upon the ones that don’t. It’s very simple, someone that raises capital to raise capital will not be a great founder. You should know exactly what’s going on in your company in order to scale it the right way and show investors that you’re the person to trust with the money.
- How did you calculate your funding goals?
- How much equity do you currently hold?
- Who are your previous investors?
- Why do you need X€?
Nice to Have/Must Have:
Okay, so this is the factor which founders hate VCs for.
Is your project a must have or a nice to have? Believe me, we see many many project, we see a lot of time stuff that don’t disrupt too much their market, and without real innovation there is no crazy investment.
If you are not tackling a real problem and that your solution is a nice to have, I am not sure investors will directly jump on the occasion. This is the same as market focused solution or product focused solution, one doesn’t guarantee the failure or the success of the company.
But, when you have the investor in front of you make sure that they understand why your solution is a must-have and not a nice to have; the outcome will probably be drastically different.
- Why is your product/service needed?
- What’s makes your product different from what’s already on the market?
- What problem are your solving?
- Are you making your customer save time or money with this solution?
- What makes you better than what’s on the market?
Where are you currently with your company? Have you achieved goals that are relevant enough for you to be raising capital? Companies wanting to raise capital too early are taking the risk to loose too much equity for a very low amount of money or the risk of burning their wings off in the process of getting too close to the sun. Think about where you are and how working with the investors will benefit your startup and their portfolio, do not forget this has to go both ways.
- What makes you think you’re investment ready?
- What are the biggest milestones you have achieved?
- At what stage are you at with your business?
- What’s your process of scaling?
- What’s your overall business operation and structure?
Threats around the company
This is a very simple one to understand: is there any threat around the company in terms of market, legal issues or anything personal within the founding team that could threaten your growth or your ability to scale?
If so, you might see many VCs and angels pass for this same reason.
Market Opportunity, Scalability and Competition
This is the part where page number 3 or 4 of your pitch deck makes us think ‘Damn’ or ‘No freaking way’.
Think about your company and where it positions itself in the market, if the opportunity to scale is truly big and interesting you’ll have eyes on you but if you’re entering a market in which you find yourself overwhelmed with potential competitors and bigger players, it would be very complex for you to raise capital.
- What’s the size of the global market?
- How much of the market are you focused on?
- How of much share of the market do you think you can reach?
- How are you different than what’s already on the market?
- Do you believe your solution will disrupt your market?
On another note: How scalable is your idea?
Finally, speaking about the market we cannot forget to speak about the: where, when, who, what? Is your solution/product is proposed in the right place? for the right person? at the right time?
Timing and the target you have is absolutely key and will change the results of your business so think about it before dropping out your next idea on the table.
C.A.C: What’s your cost of acquisition?
Speaking about business, the ideal is to make strong revenue from your client without having to spend a lot to obtain that same client. I personally believe that business with lowering cost of acquisition are going for the right path.
Knowing your cost of acquisition is not a plus, it should be must. You must be able to explain to the investor in front of you why you are spending that specific amount of money on marketing/sales/’customer happiness whatever you wanna call it’ strategy and how this influences your business’s results.
- What’s your CAC?
- How did you calculate such a number?
- How are you going to lower this number?
- What is the CAC of the markets competitors?
- What is that CAC spent on?
What’s your retention?
You can have the best idea in the world, if your business model, or the structure of your operations are not efficient it’s likely that they will not satisfy the customer. Why want to know what’s your retention; if your churn rate is bigger than your revenue numbers, we have a problem!
As a founder of a startup you must know what makes your retention work or not, and if something is going wrong you need to investigate on what makes your clients leave you? We want to know that!
- What can you tell me about your retention?
- What do you have in place to ensure the satisfaction of your client?
- What is your churn rate?
- What validates your churn rate?
- Do you ask for feedback from your customers to better your operation?
Lifetime Value: SHOW ME THE MONEY!
This one is much tougher but don’t be surprised if we are asking you about the lifetime value of your customers. Be ready to answer this question to your investors, this will give us an insight on your vision and your ability to see how things will be eventually scaling for your company.
- What’s the LTV of your customers?
- How did you calculate such a number?
Revenue.. what did you expect? (and profit)
How much money do you make? This is one of the question we, investors will want to know! Because with no revenue: no sales, no business and no multiples or exit for our precious ticket.
And pleaaase don’t be the founder that says he is not willing to share his revenue numbers or that wants to sign an NDA before sharing information: investors don’t have so much time to waste running after metrics. You want the capital, you need to share your numbers. That’s how it works.
On another hand, from that same revenue, how much profit do you make? That’s probably the most interesting part, the bigger the metrics, the wider the eyes you’ll have on your project. (probably)
- What’s your revenue?
- What profit did you make the last three month? This year?
- How are you planning to increase it?
- What’s your goal with revenue?
- What are your revenue streams?
Activation of Leads
I won’t be going over the one too long, but we will often be asking questions about your activation. Between the potential leads you have, how much become paying customers? This gives us an insight on the market fit of the business, on the real need of the customers to use your product/service.
- What is your activation rate?
- How is that calculated?
- How do you activate your leads?
So now that you’ve shared your amazing idea with us, it’s time for us to understand how you’ll achieve your objective and go-to-market. Think about it, investors bet on solution builders, not on solution dreamers. How are you building, how are you reaching your market and how do you envision to scale?
- How are you going to reach the market?
- How are you going to scale faster and better than competitors?
- Whats your strategy with the market in the future?
How do you calculate your funding needs?
You might think that this seems obvious but knowing how you calculated your funding needs gives us an investors the opportunity to see what time of business person you are, whether you’re strategic or whether you’re the capital burning entrepreneur?
- How much funding do you need?
- How did you calculate such needs?
How many people are in your team, who and what experience do they have?
Logic question. We want to have an idea of your Human Capital, how much money do you burn for that talent and whether this is justified or not. Hiring the right people is the job of the CEO; a ship without the right captain will never go to port on time!
- Who is in your team?
- How do you choose someone?
- What’s your hiring process?
Whats your burning rate? Whats your cash flow?
We will want an insight of your burning rate, to know how you spend the finances of your company. The cash is king in business and the ability to manage that cash is what will provide more months of life to your company. Investors will often ask questions about how much time you have in terms of cash flow, very important factor to any serious investor you will talk to.
- What your current cash flow?
- What’s your burning rate?
- How can you save cash and cut costs?
Quarterly Projection, Future Results
Investors will often ask you about your quarterly projection and where you see the business going in the future. This document gives us an insight on how strategically you’ve been considering the future approach of your business and how your plan to scale, some don’t consider it key but I think that the ability to present a realistic and promising projection shows the ability of the same founder to understand his market and the potential of his company. On our side as investors, it allows us to determine the potential inflation of our shares.
The precious P&L
Be sure 200% to be asked for a P&L when working with investors. It’s probably one of the most important statements of your business, it allows to see your health and the way you’re growing. Very important!
What’s your exit strategy?
Don’t be surprised if an investor is asking you about your exit strategy! We want to know where you want to lead the company and how many years mas o menos it will take us to potentially exit from our investment.
Founders that show a healthy, logical and ambitious exit strategy tend to have more eyes from investors, think about it it’s critical.
Many more factors come into action when speaking to investors, I simply covered the main ones but we’re going to ask you many questions, we want to test you, see who you are and how you better than anyone else is going to scale the business with our capital. Other questions could be:
What’s your current valuation?
How did you calculate it?
Who is in your captable?
Did previous investors follow on? If no why?
Can we meet your team?
Can we see patents?
Can we see share holders agreement?
I mean, I could be going on for hours about the different factors that investors cover when meeting with a founder. At the end of the day, we’re not always right and everything comes from our opinion and ability to see your future success or not.
Don’t be scared of investors, most are just normals peeps who made it in business or have some money aside. I just believe sharing those factors with you might be of help when approach an investors for his capital!