So, I was attending a non-politically correct themed party for Independence Day weekend and met someone who was taking his broker’s exam next week in hopes to begin “flipping” houses *cringe*. He seemed very excited about his new venture and asked me some questions about my business model. For the investment side of my business, I have partnered with an angel investor. An angel investor is different from a venture capitalist – while this is not critical knowledge, it’s worth knowing so you don’t look like an idiot in front of, say, an angel investor. An angel investor will typically invest their personal money into a business start-up whereas a venture capitalist will invest a larger sum of money from a venture fund for an established business model that needs additional funding or assets to grow. After speaking with this person, I realized that he had a serious misunderstanding of “how it works”. This isn’t surprising in the new era of technology start-up American Dream stories where a person with an idea/algorithm is approached my millionaires with seemingly little effort. In my experience, this is not a realistic expectation. First, you have to find someone with expendable money – and then you have to sell them your deal. So, if you have a great deal and you need someone else’s money to make it happen, here are a few tips for a successful pitch:
1. Know your investor. Do some research – and more than Linkedin. Know his/her past work experience, family life, network with their connections. Please do not confuse this with being obnoxious or creepy – don’t be overbearing and ask direct questions about someone, just ask a few people if they know the person and see if they say anything. Typically, if an investor is a difficult person, someone will say something. If you’re lucky, someone will tell you about past experiences in general which will help you with your approach – does the investor like a hard pitch? are they direct? are they more stoic? do they want a hard negotiation or a thoughtful conversation? on a scale of 1-10, where does their ego land?
2. Pick mutual territory. If you can possibly help it, meet for drinks. Do not meet in your potential investor’s office – it’s formal and they may get distracted. You’re trying to make them feel comfortable, not authoritative.
3. Present specifics. Do NOT come to angel investors with an idea. If you walk in, take a sip of beer, sigh, scratch the back of your neck, and say “Yeah, so I got this idea for residential rehab…” and don’t back it up with specific properties, specific numbers, specific profit margins, and specific “how to’s”, the response will be “Yeah, you and every broker in this town.”
4. Put yourself in your investor’s shoes. When thinking about what you’re going to present, pretend you have the money and someone is pitching it to you. What would you want to know? What would make you nervous? Would you have to sell your spouse on any aspect of it?
5. Don’t be a know-it-all. Yes, you need to know your deal inside and out. You do not need to be the seller-doer on everything that is involved with the deal. If your investor asks you a question and you do not know the answer, say so. If your investor asks you how much experience you have an it’s not much, say so. Not everyone likes a bullshitter, everyone does like a straight shooter.
6. Know your worth. Just because you may not personally have all the pieces necessary to execute the deal doesn’t make you less valuable. When I pitched my investor, he knew I had tons of sales experience, tons of real estate knowledge, strong project management skills, a successful business that I run day-to day – and he also knew I had no construction background. I knew this wasn’t ideal – I told him that if I had construction background, I’d be asking for a bigger cut. I also told him that the other intangibles listed above are more valuable than direct construction knowledge. I got the other intangibles by asking for help when I needed it and I’ll do the same on our investments. He agreed and here we are. I’ve made mistakes on the construction side and he has never been hard on me about it because 1) I asked for help right away and 2) he knew up front that I had a learning curve to overcome.
7. Be the best version of yourself. I’d love to just say “be yourself”. That may not be enough if you are shy, anxious, defensive, or loud by nature. Don’t misrepresent your personality because you will be working with this investor and they need to have a good idea of who you are and cannot have any doubts about facades. You will need to keep your negative traits to a bare minimum – be calm, do not interrupt, answer questions, be confident in the deal, believe in your profit margins, and let the facts sell for you.
8. Believe in your deal. You need to be 150% sure that your investor will profit. Worst case scenario, your investor should feel confident that they will get their money BACK. If there is serious risk, you should probably reconsider. 50% of 0% profit is not worth 50% of 200% profit when there’s a 25% chance it could go south. Even if you can obtain an investor for your first deal, if it goes south, it’ll be much harder to do a second.
When I originally pitched my deal, it was to two angel investors who were going to partner on the financial aspect of it. Due to my lack of construction background and the ultimate amount of the investment, one backed out. The other stayed with me and it’s worked out great. Now, the other one tells me that if I need some cash in the future, I can give him a call.