What is the difference between pitching to business angels and an equity crowdfunding pitch?
This is the question I was recently asked, so here are my 7 key points on how traditional business angel pitches differ from equity crowdfunding or crowd investing…
1. The Pitch
Pitching to business angels can consist of either one to one presentations or group presentation.
In essence, a group presentation – or front of the room pitch – requires the entrepreneur to be clear and concise about all the key criteria – the investment required, the stake offered, the opportunity, the product, the market and the team.
There will only be time for 2 or 3 questions – and often, this business angel group presentation precedes more detailed one to one conversations
A one to one presentation can vary. If pitched correctly – ie. ‘we want to run an idea past you’ – then the expectation will be that you have a conversation. Conversely, if you ask for £xx or $yy then you need to be ready to answer a series of tough questions and be resolute and effective in your answers.
In comparison, an equity crowdfunding pitch requires you to put all your evidence up front – including detailed financial information and then offers an opportunity to answer questions on a semi-public forum.
2. The negotiation
VCs and Business Angels – when engaged in one to one conversations – can negotiate terms. In equity crowdfunding this is more difficult (although not impossible).
Therefore, request for £xx or $yy in return for x%, tends to be a more flexible – open to negotiation – conversation with real people, than it can with equity crowdfunding.
Hence, a critical part of making your investment crowdfunding pitch successful will be to correctly value your business before you start your pitch.
Whereas, with business angels, you are more likely to start a little high to allow movement for negotiation.
However, there are examples where startups have reduced the amount of money they have asked for in an equity crowdfunding pitch – but this then requires acknowledgement of the change and that everyone gets offered or re-offered the same terms. It is best to avoid this if possible.
Hence, equity crowdfunding pitches need to avoid being too greedy or overvaluing their companies.
The highly public nature of equity crowdfunding means that the additional publicity has to be greater than the cost of exposing your business plan.
To some extend this is also true of Business Angel networks – but certainly is not true of one to one VC and business angel conversations.
In some cases, especially consumer products, the additional publicity outweighs the exposure of your business plan. In B2B startups this is less likely to be the case.
One way around this is to develop your business to a revenue stage and then use equity crowdfunding or alternatively, develop a product with a patent – in which case, there is no need to reveal the secret formula.
4. Hybrid approach
There is, of course, a hybrid path. That is, the start up builds its team, which includes a business angel as an active non-exec director, before pitching for crowdfunding investment.
The question here is whether the business angel is willing to accept the same terms as those offered to the equity crowdfunding investors? Probably not, but the difference can be explained if the business angel invests time – without pay – alongside his or her money.
If so, then the equity crowdfunders will naturally look to the non-exec business angel to look after their investment and this can make your crowdfunding pitch considerably more attractive.
5. Multiple investors
The big difference between equity crowdfunding and normal business angel funding is that you might have 50 investors instead of 5!
This matters and you should plan to deal with it. My preferred method is to invite your equity crowdfunding investors to an annual investors meeting. It doesn’t need to be glamorous – upstairs in a pub is great – but making a commitment to meet your investors every year – and answer their questions, Warren Buffett like, is a great way of encouraging investors to sign up in the first place.
Either way, you need a plan for how you will communicate with your investors – after all, they might provide you with your next round of funding and certainly, you’d want them to speak well of your company and your products.
I used to think that equity crowdfunding pitches required a higher level of transparency and openness to succeed. However, I increasingly think that transparency also works just as effectively with the business angel networks.
Don’t forget that you can check your equity crowdfunding pitch against our 21 tests.
7. One chance!
The big difference between one to one business angel meetings – or even, presenting at a few business angel networks, is that you have a few chances to get it right. Each time you pitch, you can refine your pitch a little.
However, with crowdfunding you can’t really change your pitch (especially your core documents – such as your video) once you’ve launched. (Okay, there is a facility to correct things, but each time you do adjust, you lose a little bit more investor confidence, so you really don’t want to be making major changes).
Hence, if you are going to succeed at crowdfunding, then you need to make sure you get it right first time around and that is why more startups are taking advice on how to do this.