What Angel Investors Want: Pitch Decks and More from 2 Louisiana Angels
Early-stage startups looking to fund and grow their businesses are increasingly turning to angel investors for capital investment. But New Orleans angel investors Mike Eckert and Scott Whittaker say there are more entrepreneurs than ever before seeking those infusions of capital.
Eckert and Whittaker are members of the NO/LA Angel Network, a group of accredited investors from New Orleans and throughout Louisiana who work together to evaluate, fund and nurture early-stage companies. The group includes nearly 100 high-net-worth individuals who provide capital for startups in exchange for convertible debt or ownership equity.
“The competition for capital from angels is incredibly fierce,” says Eckert, who chairs the group. “The average angel group invests in 2 percent of companies that come to it on an annual basis.”
At a recent Tech Park Academy event, Eckert and Whittaker offered a host of tips on how they decide to make investments and how entrepreneurs can tailor their pitches to stand out.
Sitting above friends and family and below venture capital in the investment stack, angel investors play an important role in helping early-stage companies launch and grow. A 2017 study indicated about 288,000 angel investors were operating in the U.S., making about $25 billion in investments that year.
Eckert says the industry has a 50 to 80 percent failure rate with its investments, but angels accept such high risk in exchange for the opportunity of high returns. They also want to support entrepreneurship and make an impact on their local economies, he says. “We want to engender the next generation of entrepreneurs."
The NO/LA Angel Network, which started four years ago, has invested in 28 companies, either through seed rounds for pre-revenue startups or Series A investments for companies with a proven product and some measure of market validation.
Eckert says the group has made seven investments this year, with three more possible by the end of 2018. He says pre-money valuations for the overall angel industry are generally $1 million to $2 million, with the percentage of equity in exchange for the investment falling between 20 percent and 33 percent.
What They’re Looking for
The NO/LA Angel Network has four teams that review startup pitches, conducting research on the founders as well as their ideas, the market, the competition and their perceived competitive advantage. “We will put you through the paces on that,” Eckert says.
The group looks closely at the attractiveness and growth trends of a company’s market or the section of their market, as well as how innovative the product, service and technology is. “Is your product different, ground-breaking, bringing a new solution to a problem in the market?” Eckert says.
The first factor the group looks at is the management team and their market knowledge, followed by leadership experience, which Eckert says doesn’t necessarily mean business leadership. “Have you led people, organized people, motivated them?” he says. “That’s very important to us. We will learn that, either from you or from references.”
Coachability, honesty and maturity are also important factors, Eckert says, adding that serial entrepreneurs are generally more attractive to their investors. “I like to invest in people who fail the first time, not succeed,” he says. ‘Because quite often those who succeed too quickly and too easily know it all, and inevitably that will catch up.”
Eckert says they also closely examine the business’ product or service to determine whether it’s a defensible idea with a sustainable competitive advantage. He says market validation with paying customers is helpful. Ideas that are scalable, have a clear path to cash-flow break-even and have viable exit opportunities also have a leg up.
Whittaker says that when creating a financial model, founders should avoid making top-down calculations that begin by noting the total market for their product or service, carving out an arbitrary percentage of that market and claiming that is the opportunity. The actual opportunity, he says, may be much smaller based on customer demographics or other factors.
“The entrepreneur who has really looked at a market in order to determine with real precision who the consumer of this product or service is, that’s a leg up on the other ones,” Whittaker says. “They actually have a path toward building revenue from that market segment, from the bottom up, to get to the revenue top line, is really important.”
Power of the Pitch Deck
Whittaker says NO/LA Angel Network has received 111 decks in 2018, but it only vets a fraction that it finds attractive. “The deck is really important, because we’ll see your deck before we meet you — and we may never meet you if your deck is not good,” he says.
Eckert says the first slide of a pitch deck should indicate who you are and the second should indicate the pain point in the market you're solving. The third should illustrate how big the market opportunity is, and the following slide should introduce your product or solution that solves the problem.
That should be followed by your go-to-market strategy, Eckert says, which includes “how you’re going to sell it, how you’re going to price it and how you’ve determined that pricing. The deck should also note who your competition is and “why you’re going to beat them,” Eckert says.
Other vital slides include any intellectual property, who your team is, why the team is good and who is serving as your advisers or on your board. Finally, he says, you should indicate what your financials look like and how much capital you’re seeking.
Tech Park Academy is a monthly seminar hosted by the Louisiana Technology Park. We strive to bring you talented, knowledgeable professionals who have invaluable information to share. These events are accompanied by a catered lunch, which is included in the ticket price of $10.