As a co-founder, an adviser and an angel investor in clean tech start-ups, I’ve sat on both sides of the investment pitch many times. With start-up teams that are unfamiliar with raising capital I recommend starting out by thinking like an investor.
Does your business fit their mandate?
Angel groups, VCs and family offices (the teams that look after the investments of the very wealthy) generally have specific mandates. Mandates mean different things to different people, but commonly include deal size, stage of business and business type. For example, angel groups in Australia typically make investments of $100k-$250k (rarely above $500k) in early stage businesses with valuations below $2m. At the other end, private equity and some large family offices only focus on very large investments, eg above $10m in businesses already generating >$10m in revenue pa.
Your business type is important. Most VCs (and angels) have specific focus areas like SaaS, fintech, medtech etc. I keep a spreadsheet with a few hundred VCs and family offices listed on it, but as I focus exclusively on clean tech firms, I tend to only update the 30-50 firms that I know are interested in investing in the sector.
How do they assess you?
Having qualified that a start-up fits my own mandate, the way I assess and select my own angel investments is similar to how VCs typically assess businesses. Consider this carefully as you need to align your pitch deck well. You’ll rarely have good answers to everything, so expect questions on the gaps or weaknesses.
The management team is always the most important criteria to me and to most VCs (even though it tends to be towards the end of a pitch deck). Why? Because with any start-up, stuff will happen. Very commonly with early-stage businesses, the product, service or go-to-market strategy will need to ‘pivot’ – meaning the team has hit a roadblock, or gained new learning, and realised they need to change the model. A team that can’t learn this quickly, and react fast, will struggle. Then you need a mix of skills and experiences, diversity, great tenacity, problem-solving skills, and team chemistry to succeed as a start-up. Personally I like to see a CEO with deep domain and commercial experience and a tech start-up needs a very strong CTO with proven experience in the relevant tech.
Traction is important but relative to the stage of the business. Good incubator programs teach start-up founders to talk with 100 potential customers and business partners in the first 100 days. Why? Because the insights gained from these conversations will often have a big impact on your offering or strategy. Later stage start-ups will be gauged on revenue, number and type of customers, cost to acquire customers etc.
TAM (size of the Target Addressable Market) is a common measure of the theoretical size of your market in $, but for impact investors, this may well take second place to other criteria like (for me) how much impact your offering may have on mitigating climate change, or the UN’s Sustainable Development Goals.
Differentiation and competitive landscape are always important, but it’s not critical to have a unique offering. I’m always wary of founders that claim to have no competition. Either they’re not thinking like a customer, or the reason there’s no competition is because nobody wants their product!
A final measure is straight from Warren Buffett’s playbook. If I can’t understand the product and business model quickly and easily, it’s not for me. If your value proposition isn’t clear and compelling, why would anyone buy your product?
To find out more join me, Tuan Lam, Clean Energy & CleanTech Program Director at Brinc Australia and Mick Liubinskas, Investment Director at Investible at the following Future Industries Australia’s online events:
Thursday 24th June, 2021
Tuesday 6th July, 2021
About Paul Howdle
Paul works as a mentor, advisory board member and angel investor with clever clean energy companies that accelerate the world’s transition to renewable energy and help combat climate change. He takes an active role with teams that he works with, focused on business strategy, raising capital, sales strategy and execution, and alliance strategy and execution. He has mentored teams on CSIRO’s ON Program, EnergyLab and other accelerators since 2016.
Previously Paul has been a co-founder and on the management team of three start-up / early stage tech businesses which have successfully scaled and/or exited.