Evaluating

Evaluating involves the investment criteria that investors assess when making a decision on where to invest.  According to the book, Winning Angels: The 7 Fundamentals of Early Stage Investing (2001), Investors are looking at you as the Entrepreneur, your team, and your idea. 

When looking at you, the investor is interested in your goals, knowledge, and capabilities. 

Your goals are important as it lets investors know what your long-term plans are.  Do you see yourself still as a part of the business?  Is this track in line with your interests and family plans?  Where do you see yourself living?  All of these questions are important as it gives the investor a gauge on how yourself as a part of the business both now and in the future. 

Your knowledge seems like an obvious concern, but these investors are interested in how invested you are in the idea and the industry.  If you show poor market analysis and lack a reliable assessment of the customer and competition, your ill-preparedness will be a large reason for concern.  Angels want someone that genuinely care about the business they are involved with. 

Angels want someone that can motivate and lead a business to future success.  Having a proven track record is the easiest way to achieve credibility.  These Investors need someone capable of fulfilling the plans in place.  If you do not have a background to rely on, you need to come up with a creative platform for displaying your capabilities.

In evaluating your team, investors are concerned with capability and commitment to the business.

Having an inexperienced management team is an immediate red flag to a potential investor.  They have to have confidence that your staff has the skills and capabilities to get the job done.  To do this, focus on finding like-minded individuals who are motivated to achieve the goals set forth.  Your negotiation skills will be tested when trying to find the right person for the job at startup costs.  Constructing favorable future terms and distributions may be a way to bring in valuable people early, but make sure you’re not creating a foundation of empty promises.  To earn their commitment, you must be as invested as you expect them to.

Striking a deal in the end directly relates to your idea and ability to sell it.  Having a well thought out business model and clear value proposition will assist you in making this happen.

When creating the business model, make sure it is clear and easily understood.  If the direction isn’t clear, the investor will not be able to make a connection.  The value proposition gives your investor an analysis of the costs, benefits, and value that your company will deliver to its customers.  Sales are the easiest way to convey the value spectrum, but ultimately your investor will put themselves in the client’s shoes to make a final determination. 

References:

Amis, A. & Stevenson, H. (2001). Winning Angels: The 7 Fundamentals of Early Stage Investing. Great Britain: Pearson Education.