I have met with hundreds of entrepreneurs seeking funding and sat through an equal number of slide deck pitches in my more than two decades as an angel investor and early-stage company scout. It is safe to say I have seen it all. Here are five crucial things I look for when selecting my next investment, as an angel investor and former entrepreneur.
Make a game-changing offer that sticks out from the crowd. Make sure you provide a compelling technology or product offering that solves a critical client problem to attract a suitable angel investor. Make sure to highlight your distinct competitive edge – incremental improvements over the competition are not a winning recipe for securing funding. Include important market indicators like TAM, SAM, and SOM. TAM (total addressable market) refers to the total revenue that may generate if a product or service achieved 100% market share.
TAM provides a solution to the question of who would buy your product or service in theory. It refers to how much money a corporation could generate if it had an all-encompassing monopoly on the market for its product or service. The TAM for the non-alcoholic beverage category, which is one of many in which I invest, considers the complete global non-alcoholic beverage market, all revenue from beverage purchases, sales in all nations across the world, and no competition save tap water, The TAM sector within geographical reach that you target with your products or services as SAM (service addressable market). Finally, SOM refers to the market share that a firm can get overtime.
Financials are strong now. It is vital to demonstrate proof of concept, traction in terms of product/service development, and revenues when presenting to angel investors. Knowing your company’s financial situation and presenting your figures to investors is critical, as is ensuring that the numbers you give are correct in the past and present. The top line, gross margin, and net profit margin are all important to investors. Do not be tempted to exaggerate or conceal problems; it is a massive red signal that investors will notice, putting your investment prospects in jeopardy.
In a good economy, founders have a tendency to give their company a considerably greater valuation. Do not give in to the temptation! For example, two venture capital firms recently withdrew from a game-changing SaaS company investment after the entrepreneur overstated financials and misrepresented the product development stage. Have a five-year profit and loss prediction that is realistic — a mid-level projection that is not excessively optimistic or conservative is optimal. Investors may see into the future of your company’s sales, cost of goods, operating expenses, and bottom-line revenue using these financial projections. They become a collection of estimates and forecasts that provide a data-driven picture of your company’s financial prospects.