Bill Payne is one of America’s leading angel investors, with more than two decades of experience under his belt. When he speaks, entrepreneurs listen.
What are some misconceptions entrepreneurs have about investors and the investment process?
One thing might be that entrepreneurs are perhaps confused about when is the right time to approach which type of investor. If they have an idea that's probably not the right time to approach an angel investor but if they have a product that's had some market validation through beta testing or a few sales that's prob the right time to approach angel investors.
Another might be how much money they can typically raise from angels or VCs – and we're not necessarily competing. VCs tend to invest a lot more more money, let's say routinely ... more than a million dollars, while angels usually invest less than a million.
Perhaps the third thing is that entrepreneurs tend to sense that investors invest in products so when they're pitching us they spend all the time talking about products. Investors actually invest in businesses so we want to know about the management team, size of opportunity, product and technology, competitive advantage, target markets – how big could the company be? – sales and marketing channels. We want to know about the business, not just the product.
Are the people more important than the product?
It's about a lot of things but probably the top one of the list for us is the people – so, can this team execute against a business plan? I say almost every day that we investors invest in the jockey, not nececessarily the horse ... If you've got an A team and a C product they'll probably make an A-plus product out of it. If you've got an A product and B or C team they probably won't be successful and may turn that product into a C product. We're definitely betting on the management team to pivot at the appropriate time and come up with a product that is a must-have.
Are there any companies you think have pivoted particularly well?
Almost every successful company has done some sort of a pivot in the process of getting to a high revenue growth and good earnings and exit. It's not unusual – it's what we expect companies to do ... A pivot can take several forms. You can have a perfectly good product for which the entrepreneur has assumed the wrong sales or marketing channel. The pivot could be in how do we take the product to market. Much of the pivoting that we see going on is during market validation stage so we're trying to determine if the customers really believe that this product is a must-have product and sometimes we find out, well, it was a must-have product but it's for a different customer and how we reach those customers is different.
Any companies you haven't invested in that you wish you had?
Absolutely. In some cases I never had the opportunity. I never saw Facebook or Google when they were tiny.
I have missed a few opportunities. Some of the time it was because we angel investors are part-time investors, we're playing golf and playing with our grandchildren and investing in early stage companies. Sometimes we just aren't paying attention at the right time. Maybe we miss a meeting because of a vacation.
As an investor I seldom look back and scold myself. I'm much more interested in looking forward.