This is an archive of my monthly email newsletter covering everything interesting I’ve seen in investing and business learning.

As a an angel investor, I have had the opportunity to meet hundreds of founders and listen to them talk about their start-up companies. The best founders really understand the investment process and follow a simple format — they know what investors are looking for. On a deeper level, they’re able to provide answers to the questions the investors are thinking about but not necessarily asking. The best meetings I’ve had didn’t feel like a pitch at all; it was a conversation that began with them talking about their idea and ended with me writing them a cheque.

The two things you can do to improve your success are:

  1. Generate interest instead of pitching
  2. Build trust by really listening

Use these two rules to get into the mindset of the investor and try to understand how they see things.

The Rule 1: Generating Interest

When I sit down with a founder, the first question on my mind is “what does this product do and why should I care?'”

The simpler the opening pitch, the easier it is to understand. Once I wrap my head around the core proposition I can start to grasp the intricacies and complexities of what you’re doing.

The next thing I’m looking for is a quick product demo or, at the very least, a screenshot-based walkthrough. Make sure you have it on your phone and tablet at all times. If you’ve not built anything then you probably shouldn’t be talking to investors.

After that, the best founders always share usage data. If people are using the product regularly it means there’s market for it and you’ve created something of value. If you only have a few users, then focus on a metric like time spent per day. Don’t be embarrassed by low usage numbers — every young company starts somewhere. If a founder withholds the information it completely kills my interest in what they’re doing. I might see something in the data that you haven’t.

Finally, I’m really keen to hear about the team — I want to know who the founding team are and what personal success they’ve already had. As Derek Simms says, “success leaves clues.” I’m not expecting founders to have exited two companies already, but concise stories from the team’s past help me to identify signals of commitment, ethics, leadership and learning ability.

The Rule 2: Build trust by listening

Listen — and listen deeply — the more the angel talks, the more you can understand how they think and how they can help.

As you listen it allows you to highlight points of interest and the clarify the detail that is important to them. By demonstrating that you’ll listen and learn you giving the angel the signal that you going to upgrade yourself which you will naturally build your rapport and trust!

The Getting into the mind of an angel

It is helpful understand is why angels invest.

Angels was are interested in an attractive return; they want to give something back to support young businesses; they want something to do; they want the excitement of helping something to take off; they want to learn and network. However, they are all thinking something in common:

The”How am I going to get my money back?”

But few angels will communicate it so explicitly.

To continue to understand an angel’s motivation, why not just ask them? Built rapport by asking and listening but make sure to get them excited first!

The Good questions to build rapport with an angel

  • What sort of businesses make you excited?

  • Can you tell me your story?

  • Would you be willing to mentor me?

  • If you were CEO what would your strategy be?

  • Can you suggest how I can learn from your past experiences?

  • What weaknesses can you see in me and my plan?

  • What one decision made your success?

  • Roll back the clock ten years, what things would you have done differently?

  • I see the market size as being large number, how do you see the market size?

  • What are the qualities of your most successful investments and Founders?

You’ll also want to understand more about the angel to help you gauge their interest, but only ask these questions in once have broken the ice. Choose your questions wisely. Going straight in with “what size cheque do you write?” is probably best left until after they give you a buying signal like “what is the size of your next round?”.

Remember, the angel is also trying to find answers to questions that they won’t ask you directly such as:

  • How am I going to get my money back?

  • Do I want to be associated with this team and business model?

  • Are these guys world-class entrepreneurs in the making?

  • Have the Founders committed to lifelong learning?

  • Whats the scale of the opportunity?

  • Are the Founders in this for the longterm?

Be honest when you don’t know something. For example, when they ask you about the valuation, and you don’t know, explain your thought process and ask for feedback. Hopefully by now you’ll be having an in-depth discussion with your potential investor; you’ll be covering all the other details that are important to them such as market size, margins, competition, technology, and so on. Try to paint the picture of the future and how big it really could be. Once you have built the trust then the conversation will start to flow.

Summing up, remember that the angels are there because they want to help and they want you to succeed — they are certainly not interested in taking your business apart for fun. I’ve worked with lots of startup businesses and in my experience the ones that do well have founders that have embarked on a life of learning, self-awareness, and improvement. They constantly upgrade themselves and grow into amazing leaders attracting people that share their values and vision. The great thing is everyone can choose to take that journey from the start. Follow my two rules: generate interest, and listen. I hope they help you to get your round fully committed.

Many thanks to Richard Burton for his help with this post.

Tim O'Shea
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Tim O'Shea

Fund Manager with 15 years' experience as a successful business owner-manager. Passionate about helping people benefit from the power of long-term investing.
Tim O'Shea
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