Category Archives: Business Financing

Business Pitch: Don’t Confuse Optimism with Business Potential

Chart_shutterstock_42227020_by_ArchMan (2)I listen to a lot of business pitches and way too many of them try to make something out of the entrepreneur’s attitude. Commitment is great, but who isn’t committed? Passion is great but who isn’t passionate about their business. Saying that adds nothing. It’s assumed. So too, with optimism. Business pitch optimism is vastly overrated.

Business pitch optimism

This comes up because I heard this the other day:

I love your optimism. What I don’t like is the complete lack of experience that’s causing it.

Ideally, a business pitch is exciting because the business potential is exciting. Optimism ought to be a combination of potential market, product-market fit, scalability, defensibility, and management experience. Better yet, early sales, initial growth rates, proof of concept in buyers or users or subscribers or signups or something equally concrete.

Don’t talk about it. It’s assumed.

Frankly, in a business pitch, I mistrust shows of undue optimism, passion, commitment and resolve. I worry that early-stage entrepreneurs are working towards some mythological promise that they have the will to succeed, as if will alone can make a business successful. I don’t want to invest in passion unless it’s tempered by experience and based on a solid business plan.

You’ll find people talking about showmanship in business pitches. Absolutely. Tell your story well. Tell the story of the market, the need, the solution, the steps along the way, and the team that’s driving it. But it’s about your business, and you fit in as the manager who will drive it. Angel investors will frequently talk about betting on the jockey, not the horse. In that case, it’s betting on the jockey’s skill and experience, not just optimism or passion.

It’s a fine line. Sell your angel investors your business, not your optimism. Not your passion. Not your commitment.

 

10 Myths vs. Reality on Business Plans and Startup Investment

I gather from a stream of emails I’ve received that there are a lot of misconceptions on the relationship between a business plan and getting seed money and/or angel investment. So here’s a list of reality checks to apply to all those lists.

  1. business managementBusiness plans are necessary but not sufficient. Even a great business plan won’t get any investment for any startup. Investors invest in the team, the market, the product-market fit, the differentiators, and so forth. And they evaluate the risk-return relationship based on progress made, traction achieved, and market validations. The plan gets information the investors need; it doesn’t sell anything. One of the most serious misconceptions is the idea that the quality of the writing and presentation of a business plan is going to influence its ability to land investment. Sure, if you consider the extremes, a poorly written plan is evidence of sloppy work. If it’s hard to find the important information, that’s a problem. But barring extremely bad plans, what ends up being good or bad is the content – the market, product, team, differentiators, technology, progress made, milestones met, and so forth – not the document.
  2. All businesses should be using business planning regularly. They should have a plan to set strategy and tactics, milestones, metrics, and responsibilities, and to project and manage essential numbers including sales, spending, and cash; and they should keep that plan alive with regular (at least monthly) review and revisions. Business plans are for business planning, and management; not just for investors.
  3. Nobody has ever invested in a business plan, unless you count what they pay business plan writers and consultants. People invest in the business, not the plan. Just like people buy the airplane or car, not the specifications sheet. The plan is a collection of messages about past, present, and future of the business. It’s past facts and future commitments. People invest in milestones met.
  4. The normal process goes from idea, to gathering a team, doing a plan, and executing on the early steps to develop prototype, wireframes, designs, and ideally traction and market validation. And the plan is constantly rewritten as progress is made.
  5. Investors come in only after a lot of initial work is already done. 
  6. The startup process does not – repeat, NOT – go from idea to plan to funding and only then, execution. You don’t go for funding with just a plan. That’s way too early.
  7. Investors do read business plans. Regarding the myth that investors don’t read business plans, I’m in a regional group of angel investors, we’ve had maybe 80 people as members during the eight years since it started, and the vast majority of us would never even consider investing in a company without seeing the business plan.
  8. But investors don’t read all the business plans they get; and they often reject deals without reading the plan. To reconcile this point with the previous, note that investors read the plans during due diligence, as a way to dive into the details of a startup they are interested in. They don’t read them as a screening mechanism. So a lot of startup founders who don’t get investment are telling the truth when they say investors didn’t read their plan. Investors rejected them based on summary information or pitch.
  9. On that same point, the process with angel investment today starts with an introduction or submission through proper channels (gust.com, angellist.co, incubators, 500 startups, and so forth). Investors screen deals based on summary information in the profile or a summary memo. The deals that get through that filter will be invited to do a pitch in person. Those that still look interesting, after the pitch, will go into due diligence, with is a lot of further study of the business, customers, market, legal documentation, and the business plan.
  10. Business plans are never good for more than a few weeks. They need constant revision. Things are always changing. People don’t expect the big full formal plan document anymore, not even investors. Keep a plan lean, review it often, revise it as necessary, and use it to run your business. Use it to steer the business and keep making course corrections. That’s what a plan is supposed to be these days.

5 Things Entrepreneurs Need to Know About Valuation

Valuation is one of those four-syllable business buzzwords you’re going to have to deal with, eventually, if you either want to start a business or own a business. If it doesn’t come up when you start, it will come up later. Here is what I think you need to know, in five short points.

  1. The word has vastly Different meanings: don’t you hate it when the same words mean different things? Valuation means at least three different things:
    1. What a business is worth to accountants for legal purposes, such as divorce settlements, inheritance taxes, and gift taxes. A certified valuation professional, usually a CPA, makes a guess. Most of them use financial statements and analyze financial details.
    2. What a business is worth to a buyer. Small businesses go up for sale with  business  brokers. Hardware stores, for example,  get about 40-50% of annual sales plus inventory, as a starting point. Plus a bonus for growth and special strengths, or a discount for lack of growth and special problems.
    3. The pivot point in an investment proposal: it’s simple math, but tough negotiations. If you say you want to get $1 million for 50% of your company, you just proposed a valuation of $2 million.
  2. What’s anything worth? Like your car, your house, and a share of IBM stock, something’s worth what somebody will pay for it. The valuation in A is theoretical, hypothetical, but legal. With B and C, though, valuation is as real as agreeing to buy a house. It’s not what the seller says it is; it’s what the buyer is willing to pay. And this cold hard fact drives many entrepreneurs crazy.
  3. For Small businesses, there are guidelines and rules of thumb. If you do a good search, or work with a business broker, you can find general rules of thumb for what your long-standing small business is worth. For example, a hardware story is worth roughly half a year’s sales plus inventory, with bonuses for positive factors like  recent growth,  and discounts for negatives like lack of growth. You could read up on it in bizbuysell.com, bizequity.com, or business brokerage press. Or do a web search and check the ads for valuation experts.
  4. For Startups, it’s what founders and investors negotiate. Startups and investors and culture clash over valuation.  Investors care about valuation. Founders often misunderstand valuation. And never the twain shall meet. I’ve seen these kinds of problems many times:  Founders walk into the valuation discussion full of folklore and fantasy like stories of Facebook and Twitter. They want lots of money for very little ownership. Investors see two or three people with no sales history thinking their dream startup is already worth $2 or $3 million.
  5. Irony: sometimes traction, and revenues, make things worse. It’s easier to buy the dream than the reality. The same investors who’ll seriously consider a $2 million valuation for a good idea, business plan, and a credible 3-person management team – but with no sales ever — might just as easily balk at a valuation of $600,000 for a company with three years history, 20% growth, and annual sales of $300,000.  Despite the irony, it makes sense: few existing businesses are worth more than a multiple of revenues, but, still, before the battle, it’s easier to dream big. Or so it seems. I’ve been on both sides of this table, and I don’t have any easy solutions to offer.

If it hasn’t come up yet, it will. Every business deals with valuation eventually. The place any business sees it is during the early investment phases; but most businesses don’t get investment, so they can ignore it at that point. But then if it survives, or grows, valuation comes up again, because even if the business is immortal, the people aren’t: so eventually you either sell it or pass it on to a new team, an acquiring company, or your own family. And there’s the divorce and estate planning elements that require valuation. So every entrepreneur and business owner should have some idea what it is.

(Image: courtesy of wordle.net)

Elevator Speech Part 4: Delivery

So in my last three posts, I’ve written about a simple one-minute business description that every business owner should know, which I’m calling “the elevator speech” because that’s what they call it in a formal way for grad-level business plan competitions. I say every business owner should be able to do a simple elevator speech. Can you describe your business in 60 seconds? I suggested in previous posts that you start with your essential market story, then add why you are right for doing what you do, and then, what the customers get as benefits. Marketing

In the real world, you know your so-called elevator speech and you use it when appropriate. Every time you do it, you and it get better. I’d recommend taking time out and working on it, but you probably won’t; you’re too busy. Think about it in the shower. Think about it when you’re stuck in traffic, or waiting in line. Rehearse it in your head.

After you’ve gotten through those first three parts, then you close. If it’s as simple as describing your business to somebody sitting next to you in an airplane, or somebody in line at a conference, you’re done. If there is a specific business purpose, like generating a lead to follow up, then you close by asking for the sale. The sale might be a business card, a phone number, or maybe just “so please, drop by when you can.” Maybe it’s you offering your business card. If it’s an investment situation, like the classic elevator speech idea from the business plan contests, then what you want is a follow-up meeting. Ask for it.

That said, I’d like to focus in this post on elevator speeches as delivered by MBA students in venture competitions. I’ve seen a bunch of these, probably more than 100, but who’s counting. They’re fun to watch, and I’d think fun to compete in. But some students take them as torture.

The last one I watched had 20 competitors and a large clock, about six feet high, ticking off 60 seconds. Each 60 second speech ended with a very loud buzzer. No going overtime with that buzzer there.

Of the 20 competitors, three failed to get all the way through. They choked up, got caught on some phrase, panicked, and crashed. They stepped off the small podium with half the clock’s minute, and most of their memorized speech, left.

The moral: please don’t memorize your elevator speech. Not ever. It just doesn’t work. It’s at least 10 and maybe 100 times harder than knowing it thoroughly and rehearsing it well without ever trying to get the exact same words twice. You need to make points, not memorize a speech. Know your points, and their order.

You’re supposed to know your business and enjoy a minute to talk about it. Real businesses do.

Interesting moment: after the embarrassing failures in that last contest I watched, the moderator got up and asked if anybody else would like to try. His point was empathy, wow, it’s hard to make an elevator speech. But he didn’t make his point very well: there wasn’t a non-contestant entrepreneur in the room who wouldn’t have loved to have 60 seconds at the microphone with that audience. If you don’t like to talk about your business, find another business.

But you’re in a contest, you know this is coming, so practice. Use your computer and record, over and over, and listen.

Don’t rush.  Believe it or not, 60 seconds is plenty of time to describe that person with a situation, your unique abilities to come to the rescue, what your solution is, and what you want from your listener. Pause in between each of the four main points, breathe, and emphasize. Look at your listener.

You do have to make eye contact, but you don’t necessarily smile. Describing somebody with a problem isn’t always the right time to smile. If you start with some humor, then smile with that. Sincerity and conviction is a lot more important in an elevator speech than good looks and a smile and a twinkle in the eye. Trust your judgment.

If you dread it, relax, you’re young, it’s not just you; but take a deep breath, slow down, and enjoy it.

Elevator Speech Part 3: What You Offer

So you’re rounding the corner now on the elevator speech, which I say is something all business owners should be able to do. You’ve done the market story, which was part 1, and the why you, part 2. You’re about 30 seconds or so into your one minute talk. And I hope you agree that this isn’t just a formal one-minute talk as part of a grad-level business plan competition. This is something you want to do as part of your business ownership. This is about what you say whenever somebody asks you about your business.

What do you offer

Elevator Speech What You Offer

So now, as the third of four parts, explain what that person you’re selling to gets. Or the organization. You’ve personalized the need or want, identified your unique qualities to solve the problem, and now you have to put the need or want in concrete terms that anybody can see. This is where you highlight the benefits to your customer. For example:

  • So our clients have the peace of mind of knowing that their social media persona are well management, strategic, and professional, without having to hire a full-time employee. They know they will look good when somebody searches for them.
  • Our customers get help with the part of the task that can be automated, without having to pretend that it doesn’t take human thought, and some effort to think it through an organize. They get a unique plan without having to do all the drudge work.
  • The customers get the benefit of a professional email system that allows sharing the email task among several people, managing common responses, assigning responsibilities, and tracking responses and response time.
  • So people love the whole dining experience. It’s great food, in a great environment, served well, and at the same time healthy, organic, and local.

Focus on benefits

In each example here, following on the ones in my previous two posts, we should be able to see clearly how this meets the need or solves the problem. Forget features as much as possible, and illustrate benefits. You’ve already described the person with the situation, and built up your being able to solve it, so now it’s just about the solution. Stay focused and concentrated. People will get one or at the most two unique attributes of your business offering. Don’t confuse them with more.

Elevator Speech Part 2: Why You?

In my post yesterday Elevator Speech Part 1: the Market Story I suggested that all business owners should be able to describe their businesses well in a single measured minute. The formal elevator speech is a reference to grad-level business plan contests, but I say it’s a good exercise for all business owners. What do you say when the person sitting next to you asks about your business? What do you say at a conference, or a local event, when your business comes up? Elevator Speech

So the first part of it tells the market story. I recommended personalizing your target by giving it a name, a personality, and a readily identifiable want or need. In the next part of your elevator speech, you address the ‘why you’ question. Why your business? What’s special about you that makes your offering or solution interesting to your target market?

This is where you bring in your background, your core competence, your track record, your management team, or whatever. For example:

  • We live and breath small business and social media. We know what it takes to get noticed in social media. And we know how it feels to run a small business.
  • We’ve been the leader in our space for more than 10 years. We have a team of dedicated developers who believe in what we do.
  • We’ve been dealing with this problem ourselves for years. We developed our own in-house solution because we couldn’t find any vendor who did it right.
  • Our founder, Chef Soandso, has dedicated herself to this kind of cooking for her whole career.

What we focus on here, in this second segment of the elevator speech, is core competence and differentiation. And, in the classic elevator speech, you have to say it fast. You make your point quickly and go on.

Make sure your point is the right point: benefits to the target customer. It’s not what’s great about you, but rather, what about you lends credibility to your ability to meet the need and solve the problem.

You might also think of this as the classic “what do you bring to the party?” question. It’s not just your brilliance or good looks or great track record, it’s fostering credibility for solving the problem.

  Its members grab the phone and call. “I need more casual stuff for the golf course, or cargo pants for hiking, or two more slack and sports coat combinations.”

 

Elevator Speech Part 1: The Market Story

(Part 1 of a series)

Can you describe your business in 60 seconds? In grad-level venture contests, and in startup groups and the startup eco-system, they call it “the elevator speech.” It’s a formal event in many business plan competitions, but aside from that specialty use, do you agree with me that every business owner should be able to do it? What do you say when the person sitting next to you asks about your business? What do you say at a conference, or a local event, when your business comes up. Microphone

I was at a grad-level business plan competition, not long ago, watching the elevator speeches. Each startup got one minute – measured by a big ticking clock – to describe the business. The moderator challenged the crowd, trying to point out how hard it is to give that speech, “would you like to do it?” And I thought, silently, “I’d love to.” Give me a crowd and a microphone and I’m delighted to speak, even if limited to just one minute. I’ve been ready to do that elevator speech every day for the last 20 years.

If you’re a business owner, and you can’t describe your business in 60 seconds, you have a problem. Your strategy isn’t clear enough. I don’t think its academic. I think it’s important. I think it’s a great exercise that everybody in business should be able to do. Let’s get simple, let’s get focused, let’s get powerful.

I’ve been writing lately about simple business strategy. What better way to condense it than in a quick elevator speech. If you can’t do it, worry.

Start your elevator speech with a person (or business, or organization) in a situation. Personalize. Identify clearly. For example:

  • John Jones doesn’t particularly care about clothes but he knows he has to look good. He sees clients every day in the office, and he lives in a ritzy suburb, where he often sees clients by accident on weekends. But he hates to shop for clothes.
  • Jane Smith wants to do her own business plan. She knows her business and what she wants to do, but wants help organizing the plan and getting the right pieces together. The plan needs to look professional because she’s promised to show it to her bank as part of the merchant account process.
  • Paul and Milena live in a beautiful apartment in Manhattan, with their two kids. Paul has a great job in Soho, Milena works from home, and neither has time for food shopping.
  • Acme Consulting has five people managing several shared email addresses: info@acme.com, sales@acme.com, and admin@acme.com. The five of them have trouble not stepping on each other. Sometimes a single email gets answered three or four times, with different answers. Sometimes an email goes unanswered for days, because everybody thinks somebody else answered it.

Notice that in each of these examples I could be much more general. The first targets mainly men who don’t like to shop but need to dress well, and have enough money to pay for the service. The second is for the do-it-yourselfer who wants good business planning. The third is simply fresh food delivery in the city. The fourth is for companies managing shared email addresses like sales@ or info@. But instead of generally describing a market, I’ve made it personal.

Sometimes you can get away with generalizing. “Farmers in the Willamette Valley,” for example, or “parents of gifted children.” It’s an easy way to slide into describing a market. However, I suspect that you’re almost always better off starting with a more readily imaginable single person, and let that person stand for your target market.

What you do, in this part, is establish a defining market story. It’s also called the problem in the set of problem and solution. And it’s a core element of strategy. And it’s a good place to start your elevator speech.

(To be continued) 

Which Comes First: Plan or Pitch?

It’s not exactly the same as the chicken or the egg, but it has some similarities.

I get this question a lot lately, so I decided to take it here to my blog.

Don’t pitch a business without planning it first. That’s a lot like trying to film a movie without having a screenplay. You have to know what’s going to happen before you start.

And I do see people, websites, even some smart people and good websites, confusing the issue by presenting a pitch as if it were something you could do without having a plan. Sorry, bad idea.

Yes, you can summarize a business idea without detail. You can summarize a strategy. Maybe you can put up a picture of a business model, and focus on a target market, and narrow the business offering. And that’s certainly a useful exercise. But it’s just a concept piece, a rough sketch.

Before you have a pitch you simply must have a rough idea of estimated startup costs, sales, expenses, and cash flow. Without that you can’t possibly talk about scale, financial vital statistics, and feasibility. It’ s not that you accurately predict the future. It’s that without those basic numbers you really don’t know what the business is. They’re wrong, but they’re vital. They pull apart the relationship between sales, spending, profits, investment, and strategy. How many employees are needed? How much space? What kind of space? Does the marketing strategy match the target market and the focused business offering?

You should never, ever put a pitch in front of investors or bankers or bosses without having a plan behind it. Just ask yourself the questions your target audience will ask. Do you want to say “I don’t know” or “we haven’t figured that out yet?” Or would you rather say what your plan says.

And of course your plan will be a living, constantly changing plan. But don’t confuse flexibility with not having a plan. Flexibility is having a plan so you know how changing one assumption or variable effects all the others.

Special reminder: maybe a lot of the confusion is caused by people who think you don’t have a plan unless you have a full formal business plan document, coil bound, edited, printed, and mounted on a pedestal. Not so. Having a plan means milestones, basic numbers, task responsibilities, review schedules, and listed assumptions.

Final thought: my favorite process is having the plan — the real plan, not the formal output document plan — and working it interactively with the pitch. It has to do with the way we humans think. Summarizing something (the pitch) often sharpens the focus, and generates new ideas. Plan and pitch, interactively, working them both. And expect them to change almost daily. That’s life in the real world.

Which, by the way, is dead center in line with the idea of lean business planning.

(Image credits: Veranis, Archman/Shutterstock)

Looking for Investment? Understand Startup Valuation

How much equity do I have to give to angel investors? If you’re a startup founder looking for angel investment, you need to understand valuation. It’s a buzzword that people use in other contexts, too, which adds to the confusion. But it’s ultimately what determines how much of your company your investors will get, and how much you keep, if you manage to land an angel investment deal. So it’s a critical question that comes up a lot.

Equity means ownership. So 25% equity is 25% of the ownership of the business. Usually that’s a matter of shares. The math is fairly simple, but important: Logically, if an investor gives you $250,000, on a valuation of $500,000, that means half your company. The investor owns half, you own half. If the investor gives you the same $250,000 on a valuation of $1 million, then that means the investor gets 25%, you keep 75%. (Technically that’s what they call pre-money valuation, and there is also post-money valuation, but I’m not going to deal with that here. You get the point.)

Startup valuation in practice

What I’ve seen in practice, in nine years of membership in an angel investment group, is that valuation is an agreed-upon guess. There are no formulas commonly accepted formulas (although there are some formulas, such as you’ll see in this post from the angel capital association; it’s just that I rarely see them used in practice). In my experience, what really happens is all about saying no. Investors say no to valuations that are too high, startup founders say no to startup valuations that are too low. When the startup needs $250,000, the founders are rarely going to accept valuations of less than $1 million, because they need to maintain substantial ownership. When investors aren’t comfortable with valuations that high, they most often simply pass on the investment. I don’t see discussions in detail of components of valuation, like one sees in home buying transactions when buyer and seller go into details of square footage and comparable deals in the neighborhood.

Angel investment deals often postpone valuation by using convertible notes. The note is debt, supposedly to be paid off; but convertible means both sides intend to convert that debt to equity shares later, so that it should never be paid off, just converted to shares. In that case, angels are saying essentially, “we believe in you enough to give you this money, but we’re not sure of your valuation, so we’ll postpone that for later.” What both sides want is a follow-on investment, they hope for more money, from venture capitalists, to set the valuation later.

 

Five things you need to know about valuations

  1. The word has vastly Different meanings: don’t you hate it when the same words mean different things? Valuation means at least three different things:
    1. What a business is worth to accountants for legal purposes, such as divorce settlements, inheritance taxes, and gift taxes. A certified valuation professional, usually a CPA, makes a guess. Most of them use financial statements and analyze financial details.
    2. What a business is worth to a buyer. Small businesses go up for sale with  business  brokers. Hardware stores, for example,  get about 40-50% of annual sales plus inventory, as a starting point. Plus a bonus for growth and special strengths, or a discount for lack of growth and special problems.
    3. The pivot point in an investment proposal: it’s simple math, but tough negotiations. If you say you want to get $1 million for 50% of your company, you just proposed a valuation of $2 million.
  2. What’s anything worth? Like your car, your house, and a share of IBM stock, something’s worth what somebody will pay for it. The valuation in A is theoretical, hypothetical, but legal. With B and C, though, valuation is as real as agreeing to buy a house. It’s not what the seller says it is; it’s what the buyer is willing to pay. And this cold hard fact drives many entrepreneurs crazy.
  3. For Small businesses, there are guidelines and rules of thumb. If you do a good search, or work with a business broker, you can find general rules of thumb for what your long-standing small business is worth. For example, a hardware story is worth roughly half a year’s sales plus inventory, with bonuses for positive factors like  recent growth,  and discounts for negatives like lack of growth.
  4. For Startups, it’s what founders and investors negotiate. Startups and investors and culture clash over valuation.  Investors care about valuation. Founders often misunderstand valuation. And never the twain shall meet. I’ve seen these kinds of problems many times:  Founders walk into the valuation discussion full of folklore and fantasy like stories of Facebook and Twitter. They want lots of money for very little ownership. Investors see two or three people with no sales history thinking their dream startup is already worth $2 or $3 million.
  5. Irony: sometimes traction, and revenues, make things worse. It’s easier to buy the dream than the reality. The same investors who’ll seriously consider a $2 million valuation for a good idea, business plan, and a credible 3-person management team – but with no sales ever — might just as easily balk at a valuation of $600,000 for a company with three years history, 20% growth, and annual sales of $300,000.  Despite the irony, it makes sense: few existing businesses are worth more than a multiple of revenues, but, still, before the battle, it’s easier to dream big. Or so it seems. I’ve been on both sides of this table, and I don’t have any easy solutions to offer.

If it hasn’t come up yet, it will. Every business deals with valuation eventually. The place any business sees it is during the early investment phases; but most businesses don’t get investment, so they can ignore it at that point. But then if it survives, or grows, valuation comes up again, because even if the business is immortal, the people aren’t: so eventually you either sell it or pass it on to a new team, an acquiring company, or your own family. And there’s the divorce and estate planning elements that require valuation. So every entrepreneur and business owner should have some idea what it is.

(Image: courtesy of wordle.net)

10 Things Angel Investors Ask About Startups

Today the angel investment group I’m a member of (Willamette Angel Conference) finished our eighth year of choosing a startup to invest in. Our investment runs $100K to $500K, roughly. It’s announced every year on the second Thursday in May. The announcement comes later in the day, not here.

Our annual angel investors process

Every year we review 40 or so submissions from startups. We look at summaries, videos, financial projections, and pitches posted online at gust.com. We invite our favorites to pitch to us live in a series of meetings. We assign due diligence teams to read their business plans thoroughly, check documents, talk to customers, test products, look at their legal situations, and so on. And eventually we choose a winner (or two or three).

My personal list of 10 things I want to know

Push PinDuring the process, we’ve had to review again what we want to know from startups as we review them. What information is essential? With that in mind, I wrote up my own list of what I look for in startups, from the outset. This is what I want a startup to tell me from the beginning.

  1. The startup team’s background, experience, and credibility. Specifically, what experience do you have with startups. Have you run a startup? Have you been an employee or team member of a startup? And of course your education, degrees, schools, etc. And your work experience. That goes for founder or founders, and main team members. If you don’t have a complete team, have you identified the key skills you need and candidates to hire? Are they likely to come on board? What are their backgrounds, skills, and experience? Who will do the administration, production, marketing, and sales?
  2. What problem do you solve, and how? I want to understand the needs and wants so I can decide for myself on product-market fit. What kinds of people or organizations have that problem, and how badly do they need or want what you are going to sell? For that you have to give me the whys and the background, the stories, not just the numbers; but numbers are good.
  3. And why you? Why are you more qualified than anybody else. How can you keep others from jumping in on your business if it’s successful?
  4. And who else? Who else is doing what you are, or solving what you solve? How do they do it?
  5. Key Metrics. What traction do you have so far? How long have you been up and running, and how many customers or subscribers or sales or visits or downloads or conversions or leads and inquiries? What are your metrics so far? Where do you see them going.
  6. Milestones met and milestones to come. I want to see both what you’ve done and what you plan to do. Your valuation today is about what you’ve accomplished already. What you plan to accomplish gives me an idea of possible future valuations.
  7. How much money are you raising and what are you spending it on. Investment should be used to finance deficit spending that’s going to generate a lot of growth and increased valuations. If you can relate your financial ask to milestones you plan to meet, then that’s great.
  8. Strategy. Strategy is focus. What markets, what products, what specific attributes of your business make this focus realistic? What markets and solutions are you ruling out, or leaving for later?
  9. Tactics. Tactics are essentials like pricing, channels, online, social, marketing, sales, financial plans.
  10. Essential projections. Sales forecast built from bottoms-up assumptions, spending budget, projected P&L, balance, and cash flow. I’m annoyed if you don’t provide these, but I should add that I’m also not going to eliminate a startup for bad financials. Bad financials are the easiest problem to fix.

I should note that I do care a lot about exit strategies, and even more so about the intention to exit. But I assume the intention is there when you seek angel investment. And I want to go from your product and solution to your market, your competition, and my guess about future exits. Exits happen 3-5 years from now. I want you to focus on your business, and I’ll decide whether I believe you’ll eventually become an attractive acquisition so we can get an exit.

Also, on financials, I look for understanding the relationship between spending and growth, how much you need spend in the main spending categories, in broad brush, to be able to grow. I expect growth to cost a lot of money and almost always rule out profits. If you were going to be profitable, you wouldn’t need investment, and you wouldn’t offer a great ROI. I don’t hold you accountable for accurately projecting your essential  numbers, but I do expect you to understand the assumptions and the drivers that you use to develop the forecasts.

And, a third point: We usually get this information several ways, starting with the summaries our startups post on gust.com. There are summaries, slides, videos, and financials. I do always want to see a business plan, but I don’t care about all the text summaries and descriptions. I do want the business plan to include strategy, tactics, metrics, milestones, and essential business numbers.