Working Hard for Their Money

I recently read an article that explored the decision making process of Excelerate Labs, an incubator company that funnels money from angel investors and venture capital firms, into start-ups of their choosing. They run these initially promising companies through a boot camp to “groom them for expansion”, and give them $25,000, in exchange for 6% ownership.

The inescapable message of the piece is that first impressions really do matter. With so many pitches to read there is only time for five to 10 minutes per application. If yours doesn’t immediately stand out then you better believe it will wind up in the “obvious no” pile. The key question here: what makes a company’s pitch stand out?

On a very basic level, the start-up company shouldn’t be offering something that already exists in abundance in its market (think travel booking websites). It also should not be targeting too small a market, as investment companies can almost never reap a benefit off of these concepts, even in the most successful cases. If your company passes this initial test, the criteria become a little more rigorous. This can be summed up in two words- prove it. As hopeful and pleasant as being idealistic can feel, demanding money from someone based on nothing more than a theory is a little pretentious. Just as your company needs the money to get rolling; any investor needs to have a tangible company in front of it when deciding whether to pay out. There are three essential things that these board members expect from their prospects:

1) Give ‘em something to hold. If your company will rely on a software platform, have that application ready! Even if it is in the works, or in a beta version, being able to show that the conceptual idea is translatable into a working product is crucial.

2) Get customers. Or at least have a clear-cut plan to do so. If you can’t say with confidence that you will have a consumer base for your product or service, why would anyone want to risk investing in you? Know your target market, and experiment with the best ways to reach out to these potential customers.

3) Generate answers. In other words, have the skills and the knowledge base within your team to tackle the entirety of the project. Don’t expect that someone else will come along and answer your unknowns, approach your concept from as many angles as possible, and work out the solutions. Not having an answer to a what-if or how-to question in an investment interview just signals that your company may not have enough experience to get it to stand on its own two feet.

Of course, these rules aren’t hard and fast. Different investment companies seek different things from their opportunities, and some like risk a lot more than others. Persistence can often overcome a weak link here or there, but it never looks bad to be on top of your game (or website, product, platform, etc).

In case you are curious, here is the list of Excelerate’s protégés (notice that all but one have websites up and running):

A Space Apart; BabbaCo; Beyond Credentials; BuzzReferals; Cookitfor.us; Exchangery; FoodGenius; MapDing; Power2Switch; and Joystickers.