Archive for category business funding
If you’re in your start-up phase, chances are you’ve heard a lot aboutangel investors. And if you’re serious about growing your business to its next growth phase, you’re probably going to be meeting several of them in the near future. Before you dive into the pool headfirst, it’s good to know what you’re getting yourself into.
Angel investors are people, just like you and me. The only difference is the numbers comprising their bank accounts. These individuals are notably wealthy and notably interested in an investment in a new, exciting company. Here’s the thing to remember when you make your pitch to an angel: he or she is looking for an emotional investment as much as a monetary one.
Most angels have been self-employed and found success with it. They usually have 30 or more years’ worth of experience in their field and are eager to share the lessons they’ve learned with other entrepreneurs. They tend to invest locally, then, because they like to have face-to-face interactions with the start-up’s founder. In addition to the money they invest (usually between $25,000 and $1.5 million), the emotional investment they make in your company can be invaluable; wouldn’t it be great if you could learn from a veteran’s past mistakes than have to absorb the costs from your own future ones?
That being said, however, angels are also looking for a high return on their monetary investments — usually between 20 and 30 percent during 5 years. To ensure that kind of success, many will expect a board position in return for the investment or sometimes a consulting role. Don’t be discouraged: because angel investments usually bridge a company from its start-up, self-funded phase to its break-even and positive-cash-flow phases, the added expertise will become a symbiotic relationship. Just make sure the terms and conditions of such roles are hammered out at the beginning of the relationship. Since most angels will expect a preplanned exit strategy regarding their monetary investment, it’s reasonable as a business founder to expect the same regarding ownership rights.
OK, now I know who they are… where can I find them?
While angels prefer anonymity in their investing roles, investors are increasingly joining angel networks. There are legions of Web sites dedicated to connecting entrepreneurs with angels. As the entrepreneur, look for angels with a background in your industry. Here are a few sites to get you started:
Pitching investors is like anything else — practice makes perfect. Remember, raising capital via angels is a far less formal process than raising capital with venture capitalists. You want to come off as completely polished yet semi-casual. Perfect your “elevator pitch,” and come up with an entertaining story regarding your company’s beginnings. Make eye contact. So many angels later say the reason they did not invest is because they didn’t feel any chemistry with the entrepreneur.
Another piece of advice for your actual pitch: save your financial data for the end. Most investors are going to assume your numbers are wrong anyway, but have a detailed logic that you can explain as to how you arrived at the numbers you did. And remember to tell your potential investor exactly how far his or her money is going to take you. If you have a slide presentation to go along with your pitch, your last few slides should be minimalistic in style. You want your investor to be focusing on you — not on a slide — by the end of your pitch.
In summary, angels are individuals, so each encounter is going to be different with different expectations. But most angels prefer a more informal tone to a meeting and are looking to “click” with an entrepreneur. In order to stand out, be creative.
Watching the movie Aspen Extreme is a rite of passage to living in Aspen. On a movie poster I once saw, an eye-catching description ran across the poster: “Top Gun on the ski slopes!” Immediately, without having seen the movie, I had a concrete image in my head that shaped my expectations. Try to create a similar descriptor for your company. If you only have two minutes to steal an investor’s attention, that’s a sure way to do it.
Looking forward to your success story,
Have an issue that you want addressed? Leave me a comment with your suggestion, and I’ll tackle it on my next blog entry!
Think about your social networks. Do you have a Facebook account? Are you on Twitter? What about other networking sites, such as LinkedIn?
Now let me throw a few other networking sites at your attention:
If not, and if you’re looking to fund your small project in a big way, these are the Web sites you need to be adding to your Bookmarks.
It’s called crowd funding. It mixes the power of social networking with good old fashioned philanthropy. You create a project — funding your start up, for instance — and post it to cyberspace. The benefits are twofold: not only do you appeal to small-time investors en masse, but you also acquire free market research. If your idea doesn’t take — nobody invests in it — you get a pretty reliable hint that you should rethink your idea.
But if the idea does take, you could be the benefactor of big gains. Unlike traditional capital investments, where aspiring entrepreneurs appeal to investors with the promise of ROI beyond market expectations, crowd funding does not require any reimbursement. In fact, by its nature, it can’t.
In order to keep the transaction “pure,” recipients of crowd funding often reimburse investors with very nice thank-you cards, presale products not yet on the market, credits in their independent movies or scripts, etc. Money can be received, but not returned. Otherwise, entrepreneurs and well-intentioned investors alike risk violating the Howey Test, which clearly defines a transaction as an investment contract (i.e.: security) as a situation “whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter of third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”
Moral of the story: while crowd funding offers a new avenue of accessibility regarding funding, make sure you are playing by the SEC’s rule book.
If you have a great idea that you think your peer group would support, go for it. Crowd funding has changed the game for many small business people. Just don’t kid yourself: the goals of this game are not long term.
In addition to opening yourself and your idea to better funded competition (the only way to be the benefactor of crowd funding is to, well, open yourself to the crowd), it’s also often a one-time deal. Invest your earnings wisely, because if you have to go to the races a second time, you’re not likely to get much in the way of investments. It’s called start-up funding for a reason: after you’ve started, your original benefactors will be on to “the next big thing.”
But that’s not intended to be a note of discouragement. Imagine what you would do if a group of online investors — friends, friends of friends and complete strangers — got you up and running with that $10,000 you’ve been fantasizing about in your dreams. Surely you have enough savvy to invest in a more long-term marketing strategy, right? Well, then, what are you waiting for?
Looking forward to your success story,
Have an issue that you want addressed? Leave me a comment with your suggestion, and I’ll tackle it on my blog entry!