Top 5 Tips to Sell Yourself to Investors

By Timothy Li
4A Computer

Not many people talk about VCs (Venture Capitalists) and Angels around campus. When it comes to what exactly they do and what differentiates them from each other, any ideas?

Angels and VCs invest in early stage startups. In simple terms, Angels are "smaller" - less organized and manage less money, at the same time they are more approachable for a student. To put things into numerical perspectives, VCs are generally not interested in investments fewer than 2 m (million dollars). It is very expensive for them to manage an investment, so they are interested in a venture that could potentially sell for 20 m in less than 5 years. Not our kind of game.

Angels, on the other hand, have a much lower cost for overhead, and do not manage a lot of capital to start with. So if your venture is looking for 20 g (thousand dollars) or 50 g to get started, try them first.

Infusion Angels, based in Waterloo, hosted a remarkable info session last month. The setup of the info session was brilliant - the host asked all participants to sit in the board of investment advisories and evaluated 5 real product presentations (including my own) together. Before the presentations took place, the host taught everyone 5 key figures an Angel firm would evaluate an idea on.

Ideas are ideas; investor won't buy it until you put it into their vocabulary. These following five points are the real take away from this article.

1. Exit plan

Investors want to hear how you plan to make them richer, so tell them. Tell them how much you will sell the venture for in 5 years. Of course you don't know for sure, then do some research and make it up. Say your plan is to be acquired by Google for 750 m (ha! What a plan), make sure you back up this price with what Google has acquired recently, or at least find out how much they bought Writely.com for.

2. Capital allocation

How much do you want from the Investor. You absolutely need to make this clear to them up front. What are you planning to do with this money? If you are not sure, estimate, for example: "I need 30 g so I and my buddy Joe can take our next coop term off to finish the product development".

3. Revenue model

There is no business unless you have a revenue model. In simple terms, who has money in their wallet and how do you plan to get that money into your wallet. Don't mistake an exit plan such as "Google will buy us" with a revenue model. "Google will pay us 1 cent for every click through" is a revenue model. But now you have to explain how you plan to generate billions of clicks.

4. Protection

How do you stop others from copying your idea and finish up before you do? Mentioning of a patent will sure impress them.

5. Competition

If you claim your product is one of a kind and has absolutely no competition anywhere in sight, an investor will probably "mis-interpret" this as - your product has no proven market value. Either you are looking too far ahead or they don't believe in your revenue model. Again, VCs and Angel are looking for an exit in under 5 years. If you have a vision for something that will make you billions in 2010, it sure is a good idea, but they might not be that interested. No harms in trying though, something like RFID or OLED will at least catch their attention.

So after you have changed your mind about having no competitions, think about your product's competitive advantage. Why would your customers pay for your product but not similar ones? What’s your magic sauce? Last time I came across a remarkable product from the food industry was "we ship in NY tap water to Waterloo and use it to make our pizza doe"

Infusion Angels is a brand new angel firm. They are very eager to take in 3 or 4 ventures to its portfolio to start with. The founder Gregory Brill expressed extremely high interests in student initiatives. This means all your brilliant FYDP (Fourth Year Design Project) by the way...

So if you've got a business idea, don't hesitate to contact Greg by email (Google "Gregory Brill" to reach his blog). On a second thought, do hesitate and practice your pitch against the five points above before sending that email.

Or if you don't feel very comfortable with your idea just yet and simply want some comments, pitch me. I can't help you to get rich, but I can lend an ear. Google "Timothy Li" to reach my blog.