As well as being the CEO of ThirdLove, I’m an active angel investor – mostly in consumer-centric, women-led startups. As an angel investor, I always receive in-depth pitches from founders who want to increase their pre-seed, seed and Series A rounds.
Despite the impact of the pandemic on businesses, the economy, and society at large, deal flow has not slowed for early-stage investors. If anything, the general consensus in the entrepreneurship community is that now is a great time to start a business – because there are plenty of problems to be solved in the world.
Just because many entrepreneurs want to start a business does not mean that they all receive financial support.
As an angel investor and someone who has built and still runs a company that is scaling, I look for a few things in every founder and startup I invest in. So if you are starting a business and are thinking of starting a business, or already well on the way and looking for a raise your next round. Here are some things I want to encourage you to do in order to build tension and raise money successfully.
1. Make your company easy to understand. Do one thing and do it extremely well.
Rome wasn’t built in a day.
One of the main reasons entrepreneurs struggle to raise money is because they can’t decide which of their ideas is their “core strength” and so they try to build them all.
However, this makes it very difficult for customers, investors, and even employees to get a solid picture of what the company is actually doing. What is the goal? What will the company be known for? What is the problem, what is the unmet need, and (in a single sentence) what is the solution? Bam Bam bam.
If you can’t explain in a sentence or two what problem your company solves, how and why, you are probably not entirely sure either. And if you are not one hundred percent sure what problem your company solves in the world, investors will not know what they are investing in.
2. Get close to profitable before attempting to raise money.
Almost all of the investments I’ve made over the past several years have been made in companies that have been profitable or near profitable.
This does not apply to every angel investor (there are many investors in Silicon Valley who rely on companies knowing they will not be profitable for many, many years). However, since my main focus is on consumer businesses, I expect the founding team to have made some money before looking for additional investments. This is because 2021 has never been easier to test consumer products, get feedback from customers, and generate income online.
Once that milestone is reached and the team has gathered some data on the unit economy, customer acquisition costs, etc., the business becomes much more investable – because now, as an investor, I know my money is used to speeding up something that is already working.
3. Show that you have the energy and commitment to build a meaningful company.
Ultimately, angel investors rely on founders and founding teams.
I have certainly made a few investments where I put a lot more emphasis on the person than on the business. I call these types of founders “hustlers” because there is something about their energy that tells you that they are ready to do anything to build a business. They may have to go through a few different iterations to get there, but the founder or founders are determined to get there.
A couple of signals I’m looking for:
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The founders have great energy and a real passion for what they build and how they help consumers.
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The founders have an unfair advantage, be it access to other influential people, a large amount of social media, a unique combination of skills, etc.
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The founders are good listeners, curious and show grit.
Ultimately, however, your company needs to make sense for investors to get on board. Very few angels will “forge” a chance on someone just because the person is passionate about entrepreneurship (and these angels are almost always family members or friends of the family). The real way to tell if your business is investable or not is to let someone know what you’re working on and they’ll immediately say, “I love it. How can I help?”
This is a sign that you are up for something and that your company is ready to take the next level.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
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