Hey guys! Welcome back to Products Worth Talking About — the show about disruptive physical products and the people who built them.
If you’re an entrepreneur or getting started with a small business, you’re more than likely seeking investment funding. Finding the right investors and convincing them to support your business can be daunting, but today, we’ve got a great episode that will help you get started.
In today’s episode, we’re talking to expert investor Dave Harris, a critical member of the angel investor group Rockies Venture Club. We’re discussing angel investor groups, how you can convince investors to fund your business, and the different kinds of investors. You’re going to learn a ton of edifying material that will help your business, so let’s get started.
Dave Harris is the Director of Operations and a managing partner at the Rockies Venture Club (RVC), Colorado’s largest angel investor group. In addition to being the largest in the state, it’s also the longest-running angel investor group in the country!
So what is an angel investor group?
“What angel [investor] groups do in general is they collaborate in looking at investment opportunities [and] get to know entrepreneurs in the community. … And the whole idea of being an angel investor is not just to write a bunch of checks. … These are folks that are part of our group that are experienced CEOs and entrepreneurs themselves or just experienced business people or even physicians or real estate folks. … And they all want to contribute capital but also their experience and networks and expertise, et cetera.” – Dave Harris
Dave’s angel investor group comprises 215 people currently, which is much larger than the average angel investor group. The RVC has the advantage of having many experts from various fields that can help individuals get their businesses up and running through both funding and professional guidance.
Dave gained much of his financial expertise from working in the corporate world. He worked as an analyst and project manager for the Thomson Reuters Corporation, a multinational media company based in Toronto, Canada. He became progressively disillusioned with corporate life after the 2008 economic crisis:
“[I was getting to] do some exciting work with some great people, and then 2008 hit. … We went through massive layoffs, like three massive layoff waves, … [then a] massive merger. We acquired a bunch of companies. … A bunch of stuff that happened … soured the corporate experience for me.” – Dave Harris
Dave left Thomson Reuters and became a finance and business consultant. He began looking for fundraising resources for one of his clients when he met Peter Adams, the executive director of the Rockies Venture Club.
“[Peter] was looking for basically a COO to come in and join. And I came from an operations background, and I was very interested in doing that. And so it was a little bit [of] luck that I came in at the time I did, but that was about five and a half years ago now. And so we’ve since grown the group significantly [and] increased the amount of capital that’s being deployed.” – Dave Harris
The Rockies Venture Club continues expanding and supplying entrepreneurs and small business owners funds for developing their companies and sharing their products with the world.
If you’re an aspiring entrepreneur or a small business owner searching for investment funds, it’s important that you’re aware of the process of receiving ample funding, and it’s also crucial that you learn how to pitch your ideas and business.
Dave explained that when small businesses seek funding, they go through different seed stages:
“Typically, what you see happen across all industries is … the first … $200,000 might come from what’s commonly referred to as ‘friends and family.’ … $200 [thousand] to about $2 million is … the typical range where an angel group or a small angel fund might come in and back you. So that’s called a ‘first seed round.’ So friends and family might be called ‘pre-seed,’ and then you’ve got your angel investors that come in.” – Dave Harris
Your initial funding for your start-up company will come from friends, family, and casual investors. Once you have pre-seed funding, you seek out professional investors like the angel investors at Rockies Venture Club. The RVC raises an average of $750,000 for start-ups and also gets other investors across the country involved in funding new businesses.
The RVC receives around 1,500 applications for funding per year, but they only invest in 25-30 start-ups per year. Because investors receive so many applications, you need to be clear and concise with your business and develop a relationship with them:
“Just today, I got a 200-page business plan emailed to me. … That’s going to be way too much to digest. … We often talk about it as you need … a venture capital business plan that you use and break down, and then you send those off in pieces. And so that would incorporate things like … your pitch deck or an executive summary. That’s two pages. … [Or you can send investors] the business model canvas, which is one page. … Investors need to see things in a really concise fashion at first. And then as you develop the relationship, you get more time with them.” – Dave Harris
If investors don’t know you, they’re not going to read your lengthy business plan. You need to send something concise so that people can read it quickly. Once you develop a relationship with investors, you can start giving more detailed plans.
Dave described that this also applies to your initial pitch meeting. Your first pitch should only be between five and ten minutes. The goal of the first pitch meeting is not to cram your entire plan into five to ten minutes — it’s to pique investors’ interests so that you can have subsequent meetings in which you give more detail.
So how do you get investors interested during your first pitch meeting?
“I pretty much always like to see the problem lead a pitch. … What is this problem that you are passionate about that you’ve identified? Make me feel that in even the first 30 seconds and then identify, ‘Well, here’s the solution. So this is … the product.’ But again, that’s only maybe like 30 to 45 seconds. So right there, that’s where a lot of founders get hung up because they want to talk about the product or the solution for 10 minutes.” – Dave Harris
You start your pitch by drawing in your listener with the problem and the solution, but that only makes up a small increment of your presentation. Next, you describe the market and your plan with brevity:
“We need to know about, … ‘What’s the market look like? Who’s the target customer? And then how are you going to reach them? What’s the go-to-market strategy?’ And that’s probably the biggest thing that I look at, especially for consumer-product companies. ‘How are you going to build that brand?’ Because that’s where a lot of the value is going to get created. … If they’ve done some initial testing already, [and] they’ve gone out and determined [that] there is a market need for this, [then] that’s where you can introduce your traction.” – Dave Harris
You need to research your market and your target customer so that you can explain to investors how you will build your brand.
Ultimately, investors are interested in knowing how they’re going to profit from investing in your business, so you need to be able to describe your long-term plan and how it will result in investors profiting:
“So how are you going to return investors’ capital?… You’re out trying to sell equity in your business. That’s what you’re doing when you’re pitching to an investor in exchange. You’re getting capital, and that equity becomes valuable down the line. … We’re looking for people that are thinking strategically and not just thinking about the next six or 12 months, but they’re thinking about that five-year path.” – Dave Harris
Developing the perfect pitch is challenging because you need to be both concise and convey how your investors will financially benefit from funding your business. We highly recommend applying for the Rockies Venture Club’s non-profit educational resource Pitch Academy. It’s an invaluable resource that teaches you how to communicate the value of your business and helps you design the perfect pitch.
After individuals invest in your company, they might participate in your day-to-day operations in varying degrees. Some investors will play incredibly active roles in your company, while others will merely write you a check:
“On the top, you’ve got … smart, active money. … And those are the people that you want to have on your advisory committee [or] your board of directors. … They’ve got networks, they’ve got connections, and certainly, they’ve got capital. … You [also have] smart, passive [investors]. So those are people that … can be helpful, but they’re going to be a little more hands-off. … You might tap them down the road, but … they just don’t have time for you. And they’re still writing a check.” – Dave Harris
In addition to “smart, active” and “smart, passive” investors, you may also face “dumb, passive” and “dumb, active.” “Dumb, passive” just means that the investor isn’t going to contribute beyond providing funds. Dave cautioned against accepting money from “dumb, active” investors:
“[Dumb, active investors] are the people that think they’re going to be helpful. And they’re actually much more detrimental to the company. And I’ve seen companies crumble because they’ve been attracted to just the first money that comes their way. It’s hard to turn that down when you’re an entrepreneur raising money and somebody’s offering you that first major check. … But if you get a feeling like this person might not be a good fit, or they may … [have] different intentions than what you’d like to have, you have to really consider saying ‘no.'” – Dave Harris
Although it may be challenging to turn down money, it’s critical that you avoid getting the wrong people involved in your company. If someone overseeing your business is incompetent or unethical, they can easily destroy your start-up.
Regardless of what type of investor you’re working with, you need to create trust in order to develop a positive relationship with them:
“Just be truthful, … especially when you’re talking to investors. … If you’re going to raise capital, this is a long-term relationship here. They own part of your business, so be honest from the get-go. … I was talking to an investor [recently], who said to me, ‘I’d rather invest in somebody that is a truthful person and doesn’t return anything than somebody that lied to me the whole time. It gives me a great return.'” – Dave Harris
Trust is the most critical part of developing a good relationship with investors.
We’re so thrilled that we had expert investor Dave Harris on today’s episode! His advice for presenting the perfect pitch is an absolute game-changer, and we highly recommend that you follow his guidance. You can learn even more about drawing in investors for your start-up by watching the full episode here.
Another invaluable resource that you can use when developing your start-up is our Business Plan Course! Our course will give you additional guidance in designing the perfect pitch to draw in investors, and we’ll help you create an actionable business plan.
We hope that you enjoyed this interview as much as we did! If you learned something new about investing or pitch meetings, we’d love to hear from you. Take a screenshot of the episode and share your greatest takeaways with us on Instagram, @productsworthtalkingabout. If you’re a fan of our show, make sure to subscribe on YouTube so that we can notify you whenever we have new content and episodes! Let us know if you have any ideas on what products and brands we should feature on the show.
Thanks for reading! Until next time—
RT and Tyler