Angel Hacks - Inside the Pitch: Part 3

Welcome back to my ongoing series! Each startup pitch is like a puzzle, with every slide holding a key piece. As investors, understanding these slides is crucial for making smart choices. In this episode, we'll dive into three important slides: Team, Roadmap, and Deal. These slides give us a peek into the startup's foundation, plans, and financial setup, helping us make informed decisions.

Team Slide

Founder Expertise:

The expertise of the founding team is a critical factor in a startup’s success. Founders with relevant experience and domain knowledge bring a deep understanding of the industry, its challenges, and opportunities. They are likely to have a network of contacts that can be leveraged for validation, partnerships, and sales. Their skills should align with the needs of the startup. Startups need people who understand the problem they are solving, or trying to solve. This means understanding who has the problem, and how it is solved today. In the case of B2B, it can be more complex, as the ones paying for the solution might not be the ones who are experiencing the problem.

Team Dynamics:

The dynamics within the team can significantly impact the startup’s success. A team that works well together complements each other’s skills, and has a history of successful collaborations can navigate the challenges of a startup more effectively. Look for evidence of previous collaborations or successful ventures. A team that has worked together before may have a proven track record of success and a strong working relationship. Another important topic is to identify the level of risk tolerance of the main founders. A founder living with parents or retired has much more tolerance and can support many more months with no revenue than someone with a newborn and a partner at home. This can significantly impact their position in some key decisions of the startup.

Key Hires:

Key hires or advisors can significantly strengthen the team. Individuals with industry experience, connections, or specialized knowledge can provide valuable insights and open doors for the startup. They can also fill gaps in the founding team’s skills or experience. For example, a startup in a highly regulated industry might benefit from an advisor with experience in government relations. Here it is important to understand the relationship with advisors. Some startups pay advisors in shares and the captable may become too crowded. 

Commitment:

The commitment of the team to the startup is another important factor. Evidence of full-time dedication, personal investment, or sacrifices made to pursue the venture can demonstrate their commitment and belief in the startup’s potential. A team that is fully committed is more likely to overcome obstacles and persevere through the ups and downs of startup life.

Roadmap Slide

Milestones:

Clear and specific milestones provide a roadmap for the startup’s progress. Here, it is important to check what they have done so far. It is impressive to see how many founders focus only on future milestones and don’t know what they have achieved. These should include specific deliverables and dates, providing a timeline for the startup’s growth. Milestones also provide a way to measure the startup’s progress and hold the team accountable.

Product Development:

The stages of product development and rollout are crucial. Look for evidence of iterative improvements, user feedback loops, and scalability. This shows that the startup is responsive to user needs and has a plan for growth. A startup that has a clear plan for product development is more likely to successfully bring a product to market.

Market Expansion or New Products:

This slide can indicate their ambition and foresight. Plans to target new customer segments, geographic regions, or verticals show that the startup is thinking ahead and planning for growth. A startup that has a clear plan for market expansion is more likely to succeed in the long term. In terms of new products, they may not have a clear plan but identify upfront the opportunity of developing a new family of products. It shows the potential for diversifying customers and revenue sources in the future or a plan B if the main product does succeed as expected. 

Deal Slide

Investment Ask:

The startup’s current funding needs should be clearly stated. Look for specifics on the amount of funding sought and the proposed terms of the investment. If the slide does not show committed investment, you can ask the founders about it. From this amount, is there anything already committed? If yes, you can ask who it is and maybe even discuss the opportunity with this angel or fund. 

Valuation:

The valuation will be implicit when they say how much equity they are giving in exchange for the money. The valuation theme is a whole universe,  but you can calculate a multiple of the projected revenues, cut by half, and compare it to an industry or market average.  Far from precise, I know, but just as a reference for a deeper dive later. The startup’s valuation is influenced by several factors like traction, market potential, and competitive landscape. The earlier the stage of the startup, the higher the valuation is just guessing. 

Use of Funds:

Look at how they will use the money. Once I watched a pitch whose financial data room showed that founders would make a big salary and hire 3 people. When we asked about it the answer was “This is how much we would make if working for another company”—end of story. The guys didn’t get it, no way. Also, B2C startups usually need much money for marketing and sales. If this is not in the spreadsheet, question. Money used to build value is always better than Opex, like building software, registering patents, and building equipment. but only if this is interactive and based on the feedback of users. Ultimately, these assets can be sold if the business does not work. also, sales expenses are usually undervalued. because they are built by tech people who believe developers are the most precious resources. but good salespeople are hard to find and expensive once you find them. 

By understanding these elements in depth, you can make more informed decisions when evaluating startup pitches.

Stay tuned for the final part of our series where we will discuss actions for you to take before and after the pitch.

Happy Investing!