SCOTTSDALE, Ariz. — For some early-stage startups, landing investment is crucial for growth and scale. But before you meet with a potential investor, there are several things to keep in mind that can improve your chances of receiving a check.
Martin Zwilling, an Arizona-based angel and founder of Startup Professionals, and David Rice, a managing partner at Paperclip Ventures, both spoke at Phoenix Startup Week at separate sessions and offered some tips on how entrepreneurs can improve their chances at landing investment.
Zwilling focused specifically on angel investments, while Rice gave more general advice. Here are a few nuggets from each talk that are worth repeating:
It’s about your team
Zwilling admitted that he doesn’t know the “magic formula” for investing. But he always thinks about strong solutions, and perhaps more importantly, a strong team. Zwilling said he’ll often read through the executive biographies before looking at any other part of a business plan.
“People are a big part of this,” he said. “I’m looking for sincerity, conviction, and the right attributes of integrity.”
Zwilling said he likes teams with two founders that can compliment each other, versus just one. When he worked with the IBM PC development group more than two decades ago, Zwilling met Bill Gates and noticed how well he worked with Steve Ballmer at Microsoft.
“They kept each other in balance,” he said. “They trusted each other and each had complimentary skills to bring to the table.”
Rice added that he prefers teams with at least one technology-focused employee.
“You have to have someone that can actually develop your software,” he said. “If you don’t have a technologist sitting on your team, that’s a big red flag.”
Find investors familiar with your industry
Be strategic about which investors you target, Zwilling said.
“Every angel group has a focus,” he explained. “If a group that focuses on Arizona tech startups gets an application for a great jewelry startup, it could be the best application ever, but they might decline because they’re not interested in that type of thing.”
Rice agreed, noting that there are lots of VCs and angels dealing with specific verticals.
“Find those that are interested and have invested in your type of market and industry,” he said.
Have a solution that fixes a problem
This has been a theme at Phoenix Startup Week — InfusionSoft Director of Product Lindsay Bayuk told entrepreneurs on Wednesday to not “build a product no one needs.” Zwilling had a similar message.
“The first thing we look for is a problem,” Zwilling said of angel investors. “Are you solving a real problem with a real pain? I want a real pain, and then I want a real, focused solution.”
More often than not, Zwilling noted that angel investors will invest in startups that are further along with customers and revenue than those who may lack sufficient numbers.
“You will find that every professional investor likes to hear the word ‘scale,'” he said. “They don’t like to hear, ‘I need money to start or for development and R&D.'” Those are dirty words. I want to hear scale, revenue, and customers.”
Have you failed?
Rice said he likes entrepreneurs that have a history of success with a few failures.
“I want to know that maybe you’ve messed up and learned from those mistakes,” he said.
Zwilling said that any entrepreneur who says they haven’t failed is either lying or hasn’t done anything hard.
“You should wear failure as a badge of courage or a badge of success,” Zwilling said. “In a sense, you’re a step ahead of everyone else because you know the things that don’t work. As long as it’s couched that way — that you learned some things from previous startups — it’s always a positive.”