You’re the Boss: Angel Investors Learning to Assess Business Plans

Erica TorresNancy Y. Taylor (standing) pitches her company, Gifts That Give.

She Owns It

Portraits of women entrepreneurs.

In April, I wrote about the Pipeline Fund Fellowship, which is training its inaugural group of 10 female fellows to become angel investors. Since then, the fellows have moved several steps closer to choosing the business that will receive their pooled resources of $50,000. During a daylong event held last month at Eileen Fisher headquarters in Irvington, N.Y., they heard pitches from 10 start-ups seeking financing and narrowed the field to three. Of those, one will be chosen to receive the $50,000.

A total of 52 companies applied to pitch. Pursuant to Pipeline Fund Fellowship rules, each had to be a for-profit, social venture led by a woman. “In about a third of the applications, it was clear people hadn’t listened,” said Conor Barnes, a fellow and a bookkeeper with Good Cents Bookkeeping, a provider of financial management services for small businesses.

Ms. Barnes said that in the weeks before the event the fellows quickly eliminated applicants who failed to satisfy basic requirements and invited 13 companies to pitch (three declined for various reasons). Each fellow was then assigned one of the companies to research in preparation for leading the questioning after the pitch.

Ms. Barnes said that during the pitches, she hoped to hear that the founders had more than “just another new product or service.” In addition to articulating the venture’s social impact and detailing how it would use the $50,000, she expected the founders to demonstrate that their companies were game-changers. She also wanted founders to explain why they had approached Pipeline — and not, for example, a bank or venture capital firm. (Kelly Hoey, a fellow, said scarce financing options probably drove some of the entrepreneurs to grasp at any opportunity without regard to fit.)

Companies that had already built communities and connected with their target markets through, for example, a Web site, were appealing to Ms. Barnes. To further impress her, founders had to demonstrate that they were coachable. The best way to do that, she said, was to answer the fellows’ questions. “If we ask, ‘What’s your revenue?’ just give us the number,” she said. She estimated that founders answered only about 25 percent of the questions asked.

Elizabeth Crowell, another fellow, said she was amazed that “nearly every pitch failed to outline how much the product or service cost and its price to customers.” She said that although the founders sat in on all the pitches and heard the fellows repeatedly ask these questions, later presenters didn’t work cost and price data into their seven-minute pitches. Over all, though, Ms. Crowell said the pitches impressed her, particularly given that the founders were “as green as we the investors.”

In the days following the pitches, the investors conferred and chose to move forward with due diligence on three ventures: Just Shea, an organic cosmetics company ; LuminAID Lab, a provider of portable lighting for victims of natural disasters (formerly the Solar Light Pillow Project); and PhilanTech, which develops and sells an online grant-management tool for nonprofit organizations and foundations. Throughout the selection process, Ms. Crowell said, she was struck by the degree of alignment among the “10 fairly opinionated” fellows.

Both Ms. Crowell and Ms. Barnes said they are hooked on investing. Ms. Crowell said that she sees herself continuing to work as part of an angel network or group going forward. Although Ms. Barnes said she loved investing as part of a group, she had decided she could also go solo. “This experience has gotten me really excited to think of myself as an investor,” she said.

The fellows will spend the summer applying the lessons they learn at a coming due diligence workshop, and the company chosen to receive their investment will be announced in October. I’ll report back on how the process unfolds.

You can follow Adriana Gardella on Twitter.

Article source: http://feeds.nytimes.com/click.phdo?i=69b1292fae4b3f05ad3f30d2394831b7