HOW TO GET TO A FIRST MEETING WITH INVESTORS

Accelerate your business with these expert tips on "How to get to a first meeting with investors". Analyse and discover this TIP!

This tip contains an interesting analysis of the process that is usually followed to generate the contact between entrepreneur and Business Angels, as well as the first steps in the relationship between the two. As we can imagine, the Business Angel pays special attention to this phase in which he interposes filters of various kinds in order to reach a clear diagnosis of the real interest of the project, the risk to be assumed and the investability of the company itself.

Business Angels tend to invest in the early stages of projects, just when expectations of reward and risk are greatest, when the product does not exist or, if it does exist, is still in the market fit phase. So the gamble component is always present and the decision making process, although well thought out, is never free of intuition.

In our tip When is my company investable for an investment partner?In this section, we outline three key requirements for an investor to decide to provide capital to a start-up: Feasibility, feasibility and investability. Let's see how this relationship between both parties is articulated and what variables must be taken into account in the process to reach that "flying goal" that is to get to the first meeting with the entrepreneur.

This tip culminates with a series of recommendations from a Business Angel to aspiring Business Angels.

1.-First contact: The investor deck

We call first contact the moment in which the investor becomes aware of the existence of a specific entrepreneurial project and decides to analyse it. This first contact can take place in many different ways: sectorial fairs, or those supporting entrepreneurship, recommendations among fellow investors, LinkedIn, cold door, and sending and filling in the first deck.

In any case, it is time to capture the investor's attention and interest, so making a good first impression is essential to move forward. This is not an easy step because most investors are faced with a large number of projects to consider on a daily basis. This means that the time the investor spends analysing the project often does not exceed five minutes. 

The first filter consists of analysing the Investor Deck document, which provides the broad outlines of the project. On Wikitips you will find content entitled What is an Investor Deck in which we provide you with very complete information about this document, which is nothing more than a Power Point, so it is important to pay attention to both form and content. 

Filter 1: Analysis of the investor deck.

The investor analyses the deck and decides whether the project goes to the next stage. He usually discards those issues that the investor does not know completely or does not understand well. 

On very special occasions, some investors prefer to have a conversation with the entrepreneur before reading the deck. This is a measure to avoid discarding a priori proposals from entrepreneurs with potential but whose deck is a "chestnut". It is an interesting opportunity for the entrepreneur to defend his project and thus avoid "errors of omission" or misinterpretations of the project.

In view of the Investor Deck, what questions does the investor ask?

• Is it an investable business or just a viable business? There is a part to do with scalability and another part to do with ambition: is it a gym or a hardware store or are we talking about a chain of gyms or hardware stores?
• Do I understand reasonably well what they do and the business model? It's about understanding what you do and how you are going to make money.
• Does it fit with my sector strategy, maturity stage of the company, valuation and ticket, and my own willingness to invest?

In any case, the investor's requirements for the Investor deck are as follows:

1. Well written: Correct syntax and spelling. Well-structured and ordered.
2. Don't abuse business-related jargon. This alienates the uninitiated. 
3. Good graphics: Not overdone but relevant and visually clear.
4. Denoting professionalism.
5. Let this be understood.
6. The date of preparation of the document (as up to date as possible) and contact details.

If the outcome of the analysis phase is positive, it is time to go into more details of the project.

Filter 2: A decision is made whether or not to go ahead.

If the answer is positive, a series of additional documents are requested (balance sheet, profit and loss account, "captable", more detailed numbers, customer references, contracts, market research, competitor analysis, product demo, etc.). The type of information requested will be more financial if it is a more advanced company, or more marketing information if it is at a very early stage.

The investor then analyses the documentation and returns to talk to the entrepreneur to clarify doubts, provide further information, etc. This analysis can be carried out alone or by several people if the investor is part of an investor club, a fund or a croud.

Filter 3: Due diligence and the investment decision. 

When deciding whether to go ahead, the investor will want to be clear about whether he is a lead investor, principal investor or an accompanying investor. If it is a lead investor, it will set the conditions of the round (term sheet), will influence the partners' agreement, valuations and amounts to be invested. 

The so-called Due diligence, process  during which the fundamental legal aspects (legal, labour, patents) and finances are analysed. The terms of the shareholders' agreement are also discussed. This phase can be complicated by the fact that it often involves a variety of actors such as lawyers, co-investors, etc.

Investment: The investment is then agreed, the covenants are signed and the deed is notarised.

From that moment on, the investor will monitor the evolution of the company. When the time comes, and if the tax circumstances are right, the investor will be able to deduct his contribution from his personal income tax. 

2.-Opportunity assessment

The moment of truth arrives in the process of studying the project on the part of the investor. This is a twist on what we talked about in the tip dedicated to the concept and structure of the Investor Desk. It is a matter of going deeper into a series of fundamental aspects of the project inspired by the initial document and which may not have been sufficiently clear.

What you are about to read is a checklist that combines formal and informal issues of the project and although it is written from an investor's point of view, it is sure to add great value to your business strategy: 

Basic questions:

• Is the company incorporated and operating in Spain?
• Are they in my excluded areas? Gambling, drugs, medicines, fortune tellers, cryptocurrencies, a competitor of a company I am already in, non-tractive sector, etc.
• Is it a non-scalable or unambitious project? The entrepreneur has fire in his body and wants to do something big or he is looking for a livelihood.
• Does it exceed my maximum rating?
• Has it already burned too much cash and is its valuation too high? 
• Does the team have at least two full time staff? There has to be involvement.
• Do the promoters hold at least 70% of the shares?
• Do I have time to study the opportunity?
• Do I fit in the round as a Business Angel? Many projects have covered their financial needs with other formulas and I don't play a role.

In relation to the proposed business:

• What problem does it solve?
• How does the problem impact on individuals, businesses or society?
• What does the product or service that solves the problem look like?
• Is it a product need to have (medicine) or nice to have (vitamin)? Fad or trend?
• Who do you sell to? BtoB, BtoC, B2B2C
• Business type: SAAS, Market Place, e-Commerce, D2C, Deep Tech, Traditional service enhanced with technology, Media...
• Is the business model clear and reasonable? Monetisation: Charge whoever receives value, % margin achieved/expected vs. industry, upfront fees, subscriptions. If you don't understand the casuistry of monetisation don't invest.

Is the market and market potential large and interesting enough to be able to create a business in the medium term?

• Are they targeting a market that can be created, expanded or changed?
• What is the size of the market? TAM or potential market, SAM or available market we could serve, SOM or target market.
• Is it a global market, and is it growing?
• Is the project based on an ephemeral or passing phenomenon, or is it a solid long-term trend?
• Type of purchase: Frequent, sporadic, subscription.

Can this opportunity be turned into a feasible business in the hands of this team?

• No. of fulltime staff.
• Team competencies and complementarity between them.
• Previous experience of managers: Age, scope of their experience.
• previous experience in the specific industry (knowledge, channels, contacts, channels)
• Startups and past successes.
• Experience, international, languages.
• Commitment of management and key employees. Significant shares, options/phantom shares, market salaries, all interns (too much time without pay is a bad sign).
• Ambition of the founding team: Where they want to go in 3, 5, 10 years.

Sustainable competitive advantages:

• "You compete with everyone who wants to take the same euro out of the same wallet as you". 
• The money that your customers are giving you, who are you taking it from? 
• Barriers to entry (time and money invested in the project, patents,...) 
• Market competitiveness (regulated / monopoly / oligopoly / oligopoly / perfect competition) 
• Sources of their competitive advantage (network effect, economies of scale, high data collection, exit barriers, unique - and patented - technology, branding,...). 
• Are there any clear risks (regulatory, legal, patents, legal status...)? 
• Advantage provided by your product/service vs. status quo (new experience, cost reduction, usability, quality/robustness/durability, design, time savings).

Tensile/Metric/Escalability

• What have they managed to demonstrate so far and what is our confidence that they will continue to do so? "Say/do ratio (during the analysis process).
• Is the product well defined and have you launched several versions?
• Is it possible to iterate frequently and do you have a "multi-generation" plan? 
• Do you already have clients? If yes, are they paying or free users? Any outside the immediate circle of friends/family? 
• How many months have they been invoicing and how much (1000 €, 300K€, 2 M€ )?
• Do you have any key/prestigious customers that can serve as references? 
• Do they have access to appropriate distribution channels?
• If it is online sales: access to paying or organic customers: SEO, blogs,...? 
• Month-on-month growth (in key metrics) 
• Do they have an advantage that will allow them to grow faster and faster - while keeping costs low (network effect, virality, channels,...)?
• What is the LTV/CAC (do they have reasonable unit economics)? 
• Will they need to grow in staff, physical locations, working capital (cash in advance vs. cash in arrears), or significant hardware to scale? 
• Is it a service that can be sold globally now, or does it need to grow city by city, or country by country?

Timing: Can this opportunity become a feasible business now?

• Is the market in "pull" or "push" mode - do they buy it or do they have to "evangelise" the market? 
• Is there national and/or international competition in your target market? 
• Are the necessary pre-requisites in place for the business to function now (technological, cultural, infrastructural, legal?)? 
• Is the market supported by a clear macro trend (e.g. ageing population, environmental concerns, etc.)?

How can an investor make money in this business?

• Does the entrepreneur know how to create value and translate it into revenue (monetisation) - and subsequently profit? 
• Could it pay dividends (i.e. can it become profitable in 2-5 years without requiring incredible assumptions)? 
• Are there companies that might be genuinely interested in buying the startup ? - likelihood of sale 
• Do you have travelling companions who can accompany your growth and help you to sell ? Prestigious investors for example.

Any basic aspects of the deck that are not clear, and the idea as a whole seems attractive, the investor calls a new meeting to clarify them.

3.-First meeting with the entrepreneur

Preparation:

If the doubts are filtered out, the first meeting usually takes place in the entrepreneur's office, in order to see the entrepreneur on the ground. If the location of the entrepreneur is far away, the meeting is held by zoom. The interlocutor must be one of the entrepreneurs, preferably a founder and of high responsibility. Never with intermediaries (consultants, advisors, etc.). 

Before the meeting, study the entrepreneur's and the team's website and linkedin, buy the product or use the apps.

Objective 1: Confirm the attraction towards the entrepreneur and his project.

The aim of the first meeting is to check if the project is really attractive and if the entrepreneur(s) is (are) really convincing and if there is a feeling. After all, if the final decision is positive, the investor and entrepreneur will live together for a more or less long time. The aspects to observe in this phase by the investor are:

• Meet the Entrepreneur / team: 
• Check your communication skills 
• Observing your in-depth knowledge of your market and your business (products, numbers, customers,...) 
• Humility, realism, values: 

• • Acknowledging what you don't know, realism 
  • Feeling of honesty / honesty. 
  • Energy, ambition and leadership. 
  • Complementary equipment. 

Objective 2: Understand the round and check the fit in the round.

• Valuation, size, amount committed, minimum ticket, timing, co-investors (especially the lead investor), captable, do they have a shareholders' agreement? 
• Cash / current burnrate / runway (watch out for "choked" companies) 
• What do they need the money for and for how long will they have it ("runway")? 
• Do you want / need Business Angels ? 
• Can I give you something? 

The entrepreneur also evaluates the investor and it is normal for them to ask questions to find out what they can bring to the table. 

4.-Some final recommendations (best practices) for aspiring Business Angels

• Be clear about why you want to invest as BAs vs. doing other things, buying mutual funds. 
• Know yourself well: 

• • Independent or accompanied (Crowdfunding, clubs, ...).
  • Be analytical with a good emotional balance. 
  • Involved or passive, 
  • Tickets: it is very important to diversify investments and risks. 
  • Determine your preferred sectors and geographies.
  • Are you looking for SMEs or rockets (expected return)? 
  • Aggressive (pre-seed/seed) or "conservative" (growing/pre-IPO).
  • Are you willing to make convertible notes?
  • There are more projects than sausages (although there are not so many exceptional ones). Do not invest if there is no conviction.
  • If you don't love the entrepreneur, don't invest. 
  • Remember that what we want (usually) is to disinvest, not to invest.
  • We want to invest to help businesses grow, not survive.
  • Give the entrepreneur clear and, above all, timely feedback, especially if it is negative (they will appreciate it).
  • Nobody believes detailed projections (in seed), so don't get stuck "with decimals", but look at 3/5 year projections.  
  • Better to capture the entrepreneur's ambition and business drivers 
  • Get good advice (look for "sensible" and experienced lawyers), and/or co-invest with serious people.