As a passionate and committed Angel Investor I spend a sizable portion of my time evaluating businesses and their prospects for success. I greatly enjoy the process of learning about businesses, technology, innovation, business operations and frankly, meeting entrepreneurs who in many cases have put everything on the line in hopes of success. I also very much admire, and am often in awe, of the deep commitment and sacrifice undertaken by some of the smartest people I encounter on a regular basis. It is truly inspiring.
The process of evaluating a potential investment can be long and time consuming. From hearing an initial pitch to closing an investment, the process can take several weeks or even months. While the initial pitch can spur excitement, the nitty gritty of evaluating a company and its prospects of success takes place after the initial pitch. Due diligence, including and not limited to a thorough evaluation of factors such as a company’s business plan, its team, its financial documents and projections, is time consuming and detail heavy analysis. This year alone, I’ve had the opportunity to hear pitches from dozens of companies, and as much as I’d like to, it would be overly time consuming and unfeasible to undertake due diligence on every single one of these companies.
Given the heavy time commitment of analyzing potential investments, there are four factors or qualities that I look for to help me screen out potential investments and aid me in determining whether I’d like to proceed with further evaluation of a company or idea. While none of these factors are dispositive and certainly not the only factors I, or anyone, should consider when evaluating a business or idea, I believe they are helpful for developing a framework with which to begin to evaluate companies and ideas. On the flip side, from an entrepreneur’s perspective, the following four factors should, at a minimum, begin to guide your approach to interacting with potential investors, advisors, and strategic partners.
Have a Clear and Concise Focus
For me, this is the most important factor to consider when evaluating a company or idea. Does the entrepreneur or founder have a clear, concise, and direct vision for building and growing a company? More specifically, I like to hear an entrepreneur or founder describe as briefly and clearly as possible, a) what the company does b) why it is doing it, and c) how they are currently, or will in the future, acquire clients/customers/market share. Your company may have an innovative idea or product offering, but if you lack an executable strategy that is easy to understand, I will doubt your ability to scale.
Be Tenacious and Passionate
While personalities vary among entrepreneurs, tenacity and passion are two personality attributes that every entrepreneur should have. Building a business or new company is hard work and rife with constant challenges and roadblocks. Whether it’s building successful strategic partnerships, raising investment rounds, acquiring new clients or securing distribution networks for your product, odds are you will not succeed on your first try. As an entrepreneur you will experience rejection somewhere along the way to building a successful enterprise, and it will happen more than once. Yet, not every entrepreneur possesses a) the tenacity to continue despite rejection b) the ability to convey such tenacity to others. Both are important. As a potential investor in your company, I need to feel absolutely 100 percent positive that you are wholeheartedly committed to your business/company/idea and that you will do everything in your power (ethically and legally) to improve your likelihood of success. As an entrepreneur, you must be tenacious and from my perspective as an investor, I need to see it.
Be Realistic
From the time we are young we are told to dream big. As an investor, I like to interact with entrepreneurs who have big dreams of success for their companies and ideas. At the same time, I also like to interact with founders and entrepreneurs whose assertions and assumptions are backed up by solid and reliable facts and figures. Excessively high valuations, poorly defined and overbroad target markets, financial projections that are overly ambitious, and unrealistic client acquisition estimates indicate that an entrepreneur a) may not be serious b) lacks the requisite analytical skills needed to make business decisions. Neither a) nor b) reflect well on the future viability of an enterprise.
Have Credibility
One cannot expect a founder or CEO to possess all of the necessary attributes needed to build a successful company. That’s what a team is for. In spite of that, I am loath to hear from entrepreneurs who lack experience or working knowledge of the particular market/industry they are trying to compete in. Founders our entrepreneurs who a) possess working experience of a particular industry/market, b) have identified a need or opportunity within that market/industry, c) possess relationships within that industry/market are, in my experience, better able to make powerful arguments on behalf of their company and better positioned to execute a strategy. As mentioned, not all founders or entrepreneurs will meet the aforementioned criteria. Nevertheless, in such cases, they should make sure someone on their team does.