Dealing with Angel Investors
“I want to invest in your company.” These are words that almost any start-up owner would love to hear. However, asking someone to hand over their hard-earned cash to you and your company is like asking them to take a major leap of faith – actually, more like an Olympic-level , chasm-crossing, mega-jump. Last week, MIT Enterprise Forum held an event that was geared towards those looking for some cash support for their businesses. “Meet the Angels” was held as an opportunity for CEO’s and small business leaders to bring all their burning questions to some of the top Angel organizations in the Seattle area. Representatives from Alliance of Angels, Keiretsu Forum, NW Energy Angels, Puget Sound Venture Club, Seraph Capital Forum and Zino Society were there and ready for battle.
Angel organizations and Venture firms are a common topic among the entrepreneurs at thinkspace, so I thought that I would brush up on what our local Angels are looking for – and I definitely got an earful! Representatives from each of the organizations presented a little bit of background information on their organization and the services they provide. This was interesting enough, but it really got good once they allowed entrepreneurs in the room to start asking their questions.
The answered we received from the panel were definitely interesting and though all of them seemed to have a bit (if you were there, you probably think that “bit” is a poor choice of word) different opinions, there were most certainly a few themes that seemed to stand out as being agreed upon by (almost) all. These general rules could probably be applied to Venture funding as well (but, I won’t be an expert until I attend an event about it – wink, wink).
1. Keep Up Communication with Interested Investors:
Just like potential leads for business, relationships with potential investors need to be nurtured. Even if they’ve only showed a slight awareness in the company, don’t lose hope. Create a “go-to list” of folks that showed some level of interest and do not forget to send updates at least once a month. This way, when they are serious about becoming a lead investor, they are already warm.
2. Create Real Business Results:
Measure, Record, Rinse and Repeat. Keeping track of your data (especially the stuff that makes you look good) is extremely important. Even if you are only a small company, spend the time recording your website traffic, leads and revenue, or you will certainly regret it. If you claim that you “feel” your company has made progress in the past year, no one will believe you unless you have the hard numbers to prove it. The progress that you make before your funded could be the catalyst for an investor.
3. Remove the Investment Risk:
There are three main risks that are involved with a startup investment: financing risk (will the company make enough money to avoid bankruptcy?), model risk (does the business model show enough profit?), and execution risk (can the current team pull it off?). Do everything you can to remove as much of this risk as possible.
4. Raising Money Can Be Ridiculously Hard:
Rebecca Lovell (Executive Director of NWEN) stated that only 5% of all U.S. companies receive funding from Angels and only .1% from VC’s. So, set your expectations accordingly and don’t necessarily expect to skate through the fundraising process without a hitch. Most companies have to get through hundreds of “No’s” before they get even one “Yes.”
Also, be Aware. After attending this informative event, I started to ask around to some of our thinkspace members and hear what they had to say about Angels. Many of them made it sound like looking for an Angel could be a great option, but there are things that you should be wary of if you are looking to take that route. Always keep in mind that you do stand a chance of accidentally presenting the “secret sauce” of your business to a direct competitor. Angel groups typically do not do the research to find out whether someone that’s listening to the presentation might be directly involved in a similar industry. Also, always be aware that when you apply to these networks, most of the time, docs that you submit to the angel networks or upload to AngelSoft can be viewed by hundreds of people that you can’t screen.
Long story short, MIT’s “Meet the Angels” event was a great way to hit a couple of points home; nothing necessarily earth-shattering, but some good information none-the-less that some of our start-ups might like to review. It also raised some great things to be aware of as a start-up looking for investors. Any comments on what you’ve seen work in your experiences or what hasn’t, I would greatly appreciate.