I have been receiving your podcasts ever since I made contact with you. I have especially liked the podcast where the two entrepreneurs had to "lay their business down" and get jobs. As a single proprietor I can relate to their struggle.

Thanks again for these blogs. They have enormous educational value for me.

Why Angels Do Not Have A Higher Success Ratio

This may seem like a bit of a rant. But I think my opinions here are supported by past guests of the Frank Peters Show from Lux Capital.

I doubt Permjot Valia's elevator pitch contest received any serious entrants. I've searched his site for the winner which was supposed to be announced on the 11th, but found no mention.

I did not enter the contest. The contest presents itself as a joke because of the requirement that pitches have to be filmed in an elevator. Furthermore, entrants are judged on the ability to make it happen with the prize money of 5,000 pounds.

Seriously, the prize money won't even pay for one patent; even the inventor for something as simple as post-it-notes would not qualify to win this prize.

This contest is associated with EnterPrize. Past winners have included a nail salon and a sign maker. The types of past winners seem to emphasize the "Angel" part of "Business Angel".

On his blog Mr. Valia represents himself as someone who can help raise funds for a venture and represents the contest as a way for him to be presented with opportunities. I don't see that this contest is a venue that interests serious Angels. I don't see that a sign maker or a salon gives the required returns.

I am what some VCs and Angels would refer to as the creative genius at the heart of the opportunity. I don't have a problem with someone else being brought in to run the business. But like Tom Perkins instructs, I want to do what it takes to attract the best, and not just someone's brother or buddy.

I want to point out what I perceive to be unwillingness on the part of many VCs and Angels to meet creative people halfway when it comes to how to communicate properly.

From my (limited) experience, the specific type of creative person that investors are looking for has all the same concerns that investors have. In fact, all of these same concerns are addressed at the very beginning before a creative endeavor is undertaken.

Like Thomas Edison the father of broadband (and the inventor of the light bulb) said, "if it wont sell, I don't want to invent it". An inventor who has the intention of attracting investors knows that he must choose to work on something big that will appeal to investors.

In deciding what to invent, the inventor makes all the same analysis that an investor hopefully would.

Investors are inundated with a lot of pitches that are crazy schemes. To deal with this, they have developed systems that give them speed but not quality.

Some investors refuse to look at pitches that do not come from someone they know. This increases their speed because they have less to look at.

Some investors say you have to use this font, this layout, talk like this, act like that, and so on; and it is different for different investors. At face value it seems simple enough, but actually simple is far from the truth for at least two main reasons:
1. It has no appreciation for what it takes to deliver the type of creativity that is necessary. For example, I have identified a $100Billion market size that currently no one is pursuing. To invent the opportunity to go after it, I have personally read tens of thousands of patents. I've also studied the successes and failures of many other products in the market place. And studied very carefully what is needed and what is not needed.

The creative person is already consumed with two hugely time consuming endeavors. 1) Guiding the invention process according to what makes business sense, and 2) the invention process itself.

No man is an island. The person who invents the big opportunity is seldom the person who can sell it and run the business.

It is already accepted that although this creative personality is necessary for the creation of an opportunity with a large potential, a different personality is desired to run it. Yet, rather than the product or opportunity being judged, the creative person is judged by his presentation skills which he has had very little time to develop. Again, no man is an island.

2. As a creative person who did not go to business school, I can tell you it has been a very lengthy and schizophrenic experience trying to follow the advice of investors. There is no shortage of contradicting information on how to approach investors and what to approach investors with, including on the Frank Peters Show alone.

One investor will say being in a niche market with no competitors is what's important because that means you have a chance to grow big. Then another investor will say he wants to see that you have very big competitors, because having no competitors tells him that nobody cares about that market which means it is small and will never grow big.

I could present my opportunity either way. There is no competition now, but it is a big opportunity, it could attract some big competition. Which version do you want to hear?

Some investors say they look for a good team to invest in. While others say you can't get a good team until the risk is removed.

One can also find contradictions in investments. Some investors invest in things that are different from what they claim to be looking for. This can be very common on the websites of VCs. It seems their stated criteria for investments are written with the buzzwords to attract investors to their fund, but then they invest differently from what they claim to look for.

So for the inventor who has been and is working very long, hard, and diligently, to develop and bring the next big thing to investors, all the contradictions on how to communicate with investors can be a lot to deal with. There are only so many hours in a day.

It took a long time to evaluate the tens of thousands of other patents, and evaluate how best to write the new patents, but evaluating the contradictions put out by investors seems to take even longer.

I envision myself becoming an investor after the success of my current endeavor. But the success rate of the average Angel investor does not appeal to me. I would much rather follow the same process I followed when deciding what to invent. I think it will lead to a higher quality of investments. Here is the process:

1. I would first consider the market size. At this point I wouldn't care what their names were or about the fine details of the product. It would be an early stage investment and I would expect the team members to change anyway. I would study the market size to see if it really existed as represented. If I don't see the market, it would be a no go and I wouldn't have wasted my time looking at other details.
2. I prefer a necessity item. So I also want to know if the people buying the product use it to make money, and or save money, and or save time. Preferably all three.
3. Even if I agree with the size of the need/market, I would then evaluate the patents or patentability, and especially the prior art and how close and how soon the competition can follow. This can tell you if the business should try and stand alone, or try to be purchased from another company in that sector, or not be attempted.
4. I would then look at what the adoption rate is or likely to be. This can tell you how fast the team needs to do what. It would allow you to control the burn rate.
5. Knowing what the team should do, tells you who should be on the team. I would then look into the likelihood of the endeavor attracting the right people to run it.

All of this gets thought out in my invention process, not just in the business plan. Such an invention process can be a heavily taxing thing, and does not leave a lot of time to learn the different pitching etiquette of different investors.

I think if Angels and VCs were more understanding of what inventors have to go through to develop something worth investing in, they would achieve a higher quality of investments. Communication could begin on the common ground of why it matters, rather than someone's presentation flair or style. Different investors demanding a different correct font size takes time and energy away from the needed creative process.

Investors typically want the inventor to agree that he is not the right person to run the company, but then refuse to evaluate the opportunity because he is not the right person.

I understand that it is time consuming for investors to deal with inventors. The process above is designed to allow them to quickly verify the quality of the investment before committing more time.

The busy overworked inventor is already working for potential investors to bring them a great opportunity. If investors wait for him to also in addition to all that work, learn to tap dance precisely to their presentation tune; they are always going to question the quality of the deals they are attracting and their success ratio.

In addition to the many contradictions spouted by investors that inventors are trying to wrap their heads around, inventors are told to enter a lot of ridiculous contests that compare apples to oranges, and do not have a history of its winners receiving the type of help the opportunity needs.

If these contests seriously judged the merits of the opportunities they would have prizes for various categories such as:
1. The opportunity with the largest market.
2. The opportunity with the lease capital needed to achieve profitability.
3. The most scaleable opportunity.
4. The opportunity with the highest adoption rate.
And so on.

There seems to be no shortage of contests out there in which the past winners have never gotten funded.

Evidence that supports my points comes from past guests of the Frank Peters Show, Josh Wolfe and Shahin Farshchi of Lux Capital. They look for new inventions from universities and have an approach similar to mine. They claim to be able to make fewer investments while achieving success. They also claim that there method is harder.

So perhaps they have already summed it up. If investors want a higher success ratio, it is not going to be without some additional work or a change in the way they work. Waiting for inventors to adopt a required pitch criteria puts the investor further back in line. People like the folks at Lux Capital claim to be jumping to the front of the line.

Or, you can stick to telling people to film their pitches in an elevator and see how that works for you. As if I haven't worked hard enough to bring you a great multi billion dollar opportunity. Now you want me to sing and dance to. This is an example of Angels complaining about their time and then disrespecting the time of others.

There it is! That's what I've been doing wrong all this time! I haven't been filming my pitches in elevators. How could I have missed that?

I don't think Mr. Permjot Valia is really expecting people with big opportunities to look at him as a serious potential investor.

Mat

Dear Mat,

Thank you for your response. The Elevator pitch was aimed at a different type of business to the one that I guess you are working on.

The $5,000 may seem like a very small amount to you - but from my experience (and I accept it is limited) I have come across lots of great people who could make do with a little help for what might make a great lifestyle business.

I have found that these businesses struggle to get the key point about their business across quickly. The competition is designed to help them.

It is also designed to hopefully get others interested in running a business.

Finally, it is not a $5,000 investment that I am making but a $5,000 prize. And I do not choose the winner.

I appreciate your concern that people may not take me seriously for larger investments - but as I only do large investments via syndicates - the problem does not arise.

Best of luck with your plans and I wish you the best of luck for 2009.

Permjot