When angels can’t understand what your business is about

[spiggytopes]

I’ve got an issue which other people on HN are sure to have met, and would appreciate their views.

I’ve been putting together a business based around providing a particular type of risk analysis for banks and pension funds. Up till now there have been zero products that make this available at reasonable cost, and there is a gaping market opportunity. The software is written and in beta test, I have a stack of interested clients and meetings lined up for the next few months, and the numbers are pretty compelling.

Here’s the problem. Anyone in the business understands the concepts and the benefits. However, the reaction of almost all potential angels I’ve shown has been ‘we can’t understand what it is you’re doing - we don’t invest in ventures we don’t understand’. I’m beginning to see why TV shows like ‘Dragon’s Den’ only show inventions that can immediately be understood by the audience, rather than more abstract IP such as industrial processes. I’ve made the elevator pitch as simple as possible, but it’s still more complex than talking about an improved mousetrap.

While I don’t actually need angel capital at this stage, this does raise some questions for the future.

- The issue may be due to me, in that I haven’t expressed the idea simply enough. However ‘controlling risk/stopping your bank collapsing’ is just too vague. Are there better ways to get interest? Or should I just wait until I have sales, and let the numbers speak for themselves?

- Do all angels/VCs take this attitude? What proportion of potential investors will dismiss anything they can’t understand immediately? Is it just a question of finding the right investor? (I’m in Australia where the pool of angels is tiny compared to the US).

- How do other entrepreneurs manage this issue? I would imagine biotechnology has similar problems - the potential profits are considerable but the investor needs to be pretty knowledgeable even to understand the opportunity.

[dotBen]

If you're giving a reasonably clear + coherent pitch but the potential investor doesn't understand the problem or the business space you are in then it is probably not a good match for either party.

I disagree with some of the advice on this thread that you should be explaining it as clearly as it takes - it assumes that the universe of all investors and the potential investor audience for your idea is a 1:1 map, which it isn't.

I would never invest in a space I don't understand, even within the broad 'internet/technology space'. I know nothing about the finance space you are in, so even if trusted peers vouched for you I wouldn't get involved because I just don't know the space.

Smart money is always better than dumb money, and if the investor doesn't know your space then its theirs would only be dumb money.

You say you don't even need investment - if that is the case then don't waste a second of your time seeking validation from potential investors (which is what I feel you are doing)... seek customer validation instead by getting deposits, contracts for future business when the tool is available or at the very least, letters of intent. Good luck!

EDIT: another thought - a space like yours probably relies heavily on 'who you know' because I'm guessing the size of potential customers is relatively small and insular. You're either already tapped into those circles or you're not - and that might also might be having an affect on the quality/suitability of people you are liaising with. If you are not well tapped into those circles then also consider what impact that will have if you can't setup the deals/get your foot in the door with potential customers even if your technology/product works and solves the problem.

[ig1]

Find industry investors, look up other companies who sell to your market and see who invested in them (also for those which have exited, have a look at their founders).

Alternatively speak to your customers, one of them may be willing to invest. People who buy financial analysis software tend to be sophisticated buyers. Bloomberg was started with an angel investment from their first customer Merril Lynch.

Also if you can get letters of intent from your customers commit to buying your product you can use them as collateral to get a loan from your bank.

[keiferski]

Have you tried looking for angels through your potential customers? As in, ask your (future) customers if they can introduce you to a VC or angel.

[minalecs]

IMO you're focused on trying to convince the wrong people. You should be figuring out how to sign up clients, sell them the product make a lot of revenue, then you don't need angel investment. In the case you have growing revenue have hundreds of clients, and you just want to blow up at that point there should be no reason for any angel to turn you down. If you have something thats making a lot of money and have a huge market, then angels will take the effort to learn about your market and what you are doing.

[prayag]

As an entrepreneur, the onus does fall on you to make sure that your elevator pitch is such that any layman can understand it. Generally, the Angels are smart people and are generally quick to catch up. May be you can go with a metaphor that people understand, like you are the mint.com for really small hedge fund managers (it probably doesn't make sense but you get the idea). It's ok to be vague to get people interested and once they give you their full attention walk them through the process (but stay away from too much details, its ok to be slightly wrong than to be entirely incomprehensible).

Once the investors do their research (and they will) they will come to you with specific questions and that's the time to show the entire breadth of your knowledge and full set of features.

All from my personal experience. My $0.02.

[uahal]

Ask sales & marketing oriented types within your interested prospects how they'd explain the concept to a stranger.

Record and transcribe their comments.

Make a greatest hits compilation from those comments.

Try that with Angels.

Repeat.

[jayruy]

I'm in the ibanking risk technology space, and while I've never been in your position, I'd be happy to bounce some sales ideas back and forth

my first concern would be: what do you offer over riskmetrics, that couldn't be a feature in a larger offering? most of the work in utilizing third part software is data normalization over the inputs, so you've got to have a compelling use case

e-mail me web at foobox dot com if you're interested

[mv1]

dotBen has it about right. It sounds like your startup operates in a specialized domain, so most investors won't have the expertise to understand it - which means they likely won't invest as you've discovered (and as hard as it is to believe, it turns out you don't want them to).

The startup I co-founded struggled with exactly this issue for the same reason - the company operates in a specialized domain. Just like you, customers got it but investors didn't. After about a year of fund raising (and working with customers) we found someone with the ability, desire, and domain knowledge to invest and we got a funding commit after a 1 hour first meeting. With the help of the lead/early followers, the round filled out shortly thereafter.

If you have something valuable as measured by customer interest and, ideally, adoption, hang in there and keep looking. Try to figure our quickly who will lead a round and who won't. Unfortunately, it is hard to tell the difference until you experience the process with someone who decides to lead.

[jrussbowman]

You say you don't need money right now, so launch even if it's a beta and show it makes money. Investors will get interested if you can show your product makes money and you can explain how additional capital will be used to make even more money.

[sova]

Honestly it sounds like you have a sweet idea. You should watch http://www.ted.com/talks/simon_sinek_how_great_leaders_inspi...

[szany]

I would try taking as much time as necessary to explain the idea to a smart friend without an industry background and seeing how they explain it to someone else.

[jey]

Framing error: You should think of it as "I'm not motivating and explaining this simply and clearly enough" instead of "investors can't understand".

[thinkcomp]

I've noticed this problem too. I think a lot of investors in the Valley are simply ignorant. Granted, they're busy, but many of them overplay their busyness and take a fairly myopic approach of if-I-can't-get-it-in-thirty-seconds-it-must-not-work. That's not true. Some problems worth solving are actually complex and require time to understand, somewhere between 30 seconds and an hour.

My solution has been to do as much as possible without their money.

[mckoss]

Active angels will typically have seen many deals, in the hundreds for people who have been doing Angel investing for more than a couple of years. I think it much more likely that an entrepreneur who is not able to get his business opportunity across in the first meeting, is probably not being very clear, or has not really figured out their business model.

[Mz]

I have a similar issue and I am nowhere near the development stage you are at. I flippantly make remarks that "I have found the cure for CF and it is a video game!" and stuff like that. I continue to wrestle with how to simply and accurately convey what I've accomplished (in terms of getting myself well when doctors claim it can't be done), why I believe it generalizes and is replicable, and why I think an improved information delivery system is The Answer rather than some "charity". I think at some point charity to help pay for costs involved in getting well will have it's place but first some serious in-roads need to be made into "mind share" -- into convincing people that a completely different way of viewing the problem is essential, more essential than money, drugs, etc.

I've spent several years talking to people on online forums and working on getting my head wrapped around the issue. I think it's important to find the "skeleton"/framework of it to hook people but it's important to not over simplify. I'm not really planning on seeking investors, at least that is not part of my mental model at this stage. But I think you need to find a) a means give sufficient background info before the actual pitch and b) a really good analogy/metaphor to help bridge the communication gap. For unrelated reasons, I have some practice with stuff like that. I am still working on trying to apply it to the whole "I've found the cure for CF..." thing.

Good luck with this.

[shareme]

You may not want to hear this as its somewhat radical..what is wrong with your happy customers being your Angle VC?

Radical, huh?

Of course not all business models and cost structures can take that approach to using happy customers as Angels...

However, if you read back on early Apple INC history you will find that Mr Jobs was using credit from suppliers as seed capital/angle funds. so its not a new thing at all..

Its the same in biotechnology some of the angels turn out to be actual customers..