8 ms·

How to get automatically rejected by an angel investor

214 points by transburgh 17y ago

vaksel 17y ago
I'm not sure about this one: People rarely buy on the basis of “most features.” Not most features, but they do compare feature lists and prices to see what the best deal for them is.
- lhuang 17y ago
  True, but not all features have the same value. Not to mention "whats the best deal" is highly variable across user profiles and needs. Veblen Goods are good examples of how twisted definitions of value can be.
- jacquesm 17y ago
  It very much depends on the market. If people buy an 'object' then sure, they'll compare lists and figure out 'value for money'. Cars are a good example where that goes. If they buy in to a service it changes. For instance, when shopping for web hosting you take for granted that the 'basics' are all there (bandwidth, power, AC, a working server with X ram, HD and CPU) the differentiation then sits in things like support quality and other intangibles. The 'feature' list is exactly the same, but the quality of some of the features will be what will swing a customer one way or the other. For instance, I pay a significant premium on some of my hosting simply to get peace of mind, 24x7 instant help. And other parts are not that critical so those go to cheaper providers. On paper the 'features' are exactly the same, but in practice you find out that 24x7 support can be two very different things. And if it is a web service that is essentially free the whole thing changes once again. You are no longer 'selling' anything, you can't compete on price (unless you start giving money for signups ? (it's been done)), so you have to compete in a different arena, such as ease of use. It's hard to make sweeping statements like that and not have a whole pile of exceptions, it probably would have been better to say these things with some context. But the essence is valid for the target audience, which I interpret to be for-pay services either b2b or b2c.
lhuang 17y ago
Thanks for posting this. I disagree slightly with the point on 5 year projections. With any economic model, garbage in means garbage out. I think everyone knows this. In addition to re-packaging your model to answer more relevant questions as Jason suggests why not also have a conversation on your assumptions/inputs, defending them with the logic used and comparable examples. I don't have vast experience pitching to angels, but I've helped large enterprises size markets for new products and offerings. I've found that having a good conversation on your inputs helps tremendously in getting past that initial "smell test." Most of the time, people just need to hear the reasoning behind using such and such multiplier, growth rate, etc. Yes its all crap. But thats the nature with any model. Showing that your crap smells less than others may be a good starting point to consider.
- jacquesm 17y ago
  During the time that I was pitching I flat out refused to do 5 year predictions, and my 1 year predictions came with a fair amount of bandwidth. Initially my partners thought I was crazy but in time we came to the conclusion that it is better to be honest and say that you can't predict further out than that rather than to make stuff up that can be shot down in no time at all. And it did work, we did find 2 investors, one for 100K and another for 200K.
  - lhuang 17y ago
    I'm not defending 5 year projections. Simply arguing for a different pitch method. Projections are fine so long as the inputs are reasonable. If people don't buy your assumptions they won't buy your conclusions. 1 year, 5 year, or 10 year.
    - jacquesm 17y ago
      The problem here is that when you're pre-launch or just launched you do not know your product life-cycle yet, so it is absolutely impossible to get this right. You can make a stab at it but until the first year is out there is going to be so much change to that projection that even if your input data was valid at the time you made the projection it will look like advanced science fiction by the time those 12 months roll by.
jacquesm 17y ago
That really is a must read. Thanks for posting this. The nice thing about it is that the author really has seen both sides of the table and is in an excellent position to make these points.
rmason 17y ago
Having tried to raise money years back with a previous venture this advice really rings true to me. It's rare that an angel levels with everybody, this is an important article.
edw519 17y ago
Internalize that your route to getting customers is critical to your success. Admit that to me and yourself - this is one of those things that makes or breaks the entire venture! Spend real time in your pitch on this subject. This sounds eerily similar to Mark Andreessen's biggest concern at TC50: distribution. He said "how to get customers" is usually the most glaring missing piece in so many pitches he hears. Listen to these guys.
vegashacker 17y ago
On 5-year projections, Oh wait, you say it’s a “conservative estimate?” No, the conservative estimate is that you burn through all your cash in nine months and start taking on consulting gigs to delay a return to a “real job” in corporate America.
ig1 17y ago
I think with a five year projection, he's missing the point. It's purpose isn't to show where you'll be in five years, but rather to allow you to show your assumptions and understanding of the market. Are you plucking number out of the air, or have you derived your figures in a logical and well-thought out manner with the assumptions clearly identified ?
- the_real_r2d2 17y ago
  But as a entrepreneur, Do you really know that data? What are your sources? What are your tools to make the forecast? Yes, generally you do not have any of them and they know that. Your forecast is just a very empirical calculation with a large margin of error.
imraj 17y ago
unknowns are just the nature of the business, if everything was known, then there won't be any risk and everyone will pounce on it. I completely agree with the author that best thing entrepreneurs can do to help their cause is to be honest.
joshu 17y ago
some things that have been significant turnoffs for me: - unable to explain what the product is/does with any sort of clarity - founder or founders currently a student (esp an MBA student) - no technical founder - no working prototype - might have a working prototype, but won't let me actually touch it

214 points by transburgh 17y ago

I'm not sure about this one: People rarely buy on the basis of “most features.” Not most features, but they do compare feature lists and prices to see what the best deal for them is.

lhuang 17y ago
True, but not all features have the same value. Not to mention "whats the best deal" is highly variable across user profiles and needs. Veblen Goods are good examples of how twisted definitions of value can be.
jacquesm 17y ago
It very much depends on the market. If people buy an 'object' then sure, they'll compare lists and figure out 'value for money'. Cars are a good example where that goes. If they buy in to a service it changes. For instance, when shopping for web hosting you take for granted that the 'basics' are all there (bandwidth, power, AC, a working server with X ram, HD and CPU) the differentiation then sits in things like support quality and other intangibles. The 'feature' list is exactly the same, but the quality of some of the features will be what will swing a customer one way or the other. For instance, I pay a significant premium on some of my hosting simply to get peace of mind, 24x7 instant help. And other parts are not that critical so those go to cheaper providers. On paper the 'features' are exactly the same, but in practice you find out that 24x7 support can be two very different things. And if it is a web service that is essentially free the whole thing changes once again. You are no longer 'selling' anything, you can't compete on price (unless you start giving money for signups ? (it's been done)), so you have to compete in a different arena, such as ease of use. It's hard to make sweeping statements like that and not have a whole pile of exceptions, it probably would have been better to say these things with some context. But the essence is valid for the target audience, which I interpret to be for-pay services either b2b or b2c.

lhuang 17y ago

Thanks for posting this. I disagree slightly with the point on 5 year projections. With any economic model, garbage in means garbage out. I think everyone knows this. In addition to re-packaging your model to answer more relevant questions as Jason suggests why not also have a conversation on your assumptions/inputs, defending them with the logic used and comparable examples. I don't have vast experience pitching to angels, but I've helped large enterprises size markets for new products and offerings. I've found that having a good conversation on your inputs helps tremendously in getting past that initial "smell test." Most of the time, people just need to hear the reasoning behind using such and such multiplier, growth rate, etc. Yes its all crap. But thats the nature with any model. Showing that your crap smells less than others may be a good starting point to consider.

jacquesm 17y ago
During the time that I was pitching I flat out refused to do 5 year predictions, and my 1 year predictions came with a fair amount of bandwidth. Initially my partners thought I was crazy but in time we came to the conclusion that it is better to be honest and say that you can't predict further out than that rather than to make stuff up that can be shot down in no time at all. And it did work, we did find 2 investors, one for 100K and another for 200K.
- lhuang 17y ago
  I'm not defending 5 year projections. Simply arguing for a different pitch method. Projections are fine so long as the inputs are reasonable. If people don't buy your assumptions they won't buy your conclusions. 1 year, 5 year, or 10 year.
  - jacquesm 17y ago
    The problem here is that when you're pre-launch or just launched you do not know your product life-cycle yet, so it is absolutely impossible to get this right. You can make a stab at it but until the first year is out there is going to be so much change to that projection that even if your input data was valid at the time you made the projection it will look like advanced science fiction by the time those 12 months roll by.

jacquesm 17y ago

That really is a must read. Thanks for posting this. The nice thing about it is that the author really has seen both sides of the table and is in an excellent position to make these points.

rmason 17y ago

Having tried to raise money years back with a previous venture this advice really rings true to me. It's rare that an angel levels with everybody, this is an important article.

edw519 17y ago

Internalize that your route to getting customers is critical to your success. Admit that to me and yourself - this is one of those things that makes or breaks the entire venture! Spend real time in your pitch on this subject. This sounds eerily similar to Mark Andreessen's biggest concern at TC50: distribution. He said "how to get customers" is usually the most glaring missing piece in so many pitches he hears. Listen to these guys.

vegashacker 17y ago

On 5-year projections, Oh wait, you say it’s a “conservative estimate?” No, the conservative estimate is that you burn through all your cash in nine months and start taking on consulting gigs to delay a return to a “real job” in corporate America.

ig1 17y ago

I think with a five year projection, he's missing the point. It's purpose isn't to show where you'll be in five years, but rather to allow you to show your assumptions and understanding of the market. Are you plucking number out of the air, or have you derived your figures in a logical and well-thought out manner with the assumptions clearly identified ?

the_real_r2d2 17y ago
But as a entrepreneur, Do you really know that data? What are your sources? What are your tools to make the forecast? Yes, generally you do not have any of them and they know that. Your forecast is just a very empirical calculation with a large margin of error.

imraj 17y ago

unknowns are just the nature of the business, if everything was known, then there won't be any risk and everyone will pounce on it. I completely agree with the author that best thing entrepreneurs can do to help their cause is to be honest.

joshu 17y ago

some things that have been significant turnoffs for me: - unable to explain what the product is/does with any sort of clarity - founder or founders currently a student (esp an MBA student) - no technical founder - no working prototype - might have a working prototype, but won't let me actually touch it