by Andrew J. Scott
Over the last year fives years for two startups Ive raised a little under $1 million dollars from 30 angel investors. Ive probably spoken or pitched ten times that many. Its a dark art and here is my two penneth which may help you along your way to do the same or better
This is intentionally quick fire and inexhaustible, so if there are any questions Im happy to field them in the comments.
Deck or Presentation
This is an excellent outline of a deck, from one of the kings of Silicon Valley VC, Sequoia.
Most angels will want to see an exec summary if not a deck as above; make sure this exec summary is STRICTLY one page. Work at it until it is. There is lots of content out there on this. Here was mine from 2009 for Rummble; Imperfect, but not too bad either.
You could also use a strip down deck if its hard (as Rummble was) to explain the product because its completely new or a different concept. So, maybe 5-7 slides as accompaniment. Id advise sending as a PDF and youll need a presentation deck (few words for when you pitch with it) and one WITH words to explain, for when you send it.
So you need two decks one to pitch with in person and one to email for reading with out your explanation, which includes notes for each slide explaining.
Great book on writing powerpoints / presentations is Lifes a Pitch; you can read it in 1-2 hrs, but well worth the money. .. in fact I was so impressed by the book I wrote a blog post about Life’s a Pitch here.
Bonus Video: “Creating the Perfect Pitch Deck” (from DocStoc)
Amount of Money
Angel investors are less sensitive (on the whole) to being flexible on amount of money invested. By this I mean that if you go to a VC and say 1.5m then it suddenly drops to 1.1m, many will have pause in their confidence of your projections. An angel may be more understanding often because it is an earlier stage of the companys development that the burn rate (the amount you spend each month) is a movable target. This said, be sure about your numbers and dont get bullied in to saying the investment is too much or too little. Be confident.
Ask an Angel up front some basic questions. Dont be shy. You need to know:
- Do they have the money?
- What is the typical size of the investment they do
- What was the size of the last 3 investments and in to which companies
You are investing in them as they in you this is a two-way street and not a one-way interview process.
How To Find Angel Investors
There are lots of brokers out there. People who will help you find money. Avoid most if not all of them. Definitely avoid anyone asking for an up-front fee or retainer, except in the most exceptional of circumstances if there is a small fee to pitch or something at a really excellent event however Id argue if it IS a really excellent event then it wont be charging.
Rates for commission on investments vary of course depending on size and whatever the person thinks they can get away with(!) but something from 2.5 to 12.5% isnt unreasonable, 12.5% being on the smaller amounts of money. Ive taken one or two investments from personal introductions via a business contact which included a 5% commission paid in stock, which was for around £60,000 ($100,000) if I remember correctly.
There are many people who can do an intro, just plug yourself into your local entrepreneur community. Dont know where it is or who they are? That is what Google is for my dear reader!
You will need to press the flesh and attend all manner of events to find Angel Investors and to meet those who can introduce you. Using a filtering process when talking to someone at an event will help you work out if they are worthwhile investing time in. Questions like:
- What sort of space do you invest in? (angel investors tend to invest in things which excite them or which they understand)
- Are you actively investing at the moment? (then you can move on to the questions above politely of course!)
- Do you know any other angel investors who might be interested?
There are angel networks out there. Some are better than others. The Cambridge Angels in my experience are not hugely active but I do know people who have had money from them. Equally, the re-energised London www.keiretsuforum.com has some great people associated with it and is also now being run from the West Coast I believe, rather than as a completely independent satellite here in the UK as it was before.
The Super Angels are those higher-profile more prolific angels who either:
- invest a small amount in many companies
- invest larger amounts (in total investment size e.g. $100 to $1m+ )
- or have just created a very good PR vehicle for themselves!
Genuine Super Angels who are both prolific, have great PR and genuinely know what theyre talking about include Dave McClure and Ron Conway are two big names; but these are just two of very many, most West Coast hailing.
Venture Capital as an Angel Round
This can be good provided you get huge added value i.e. a real top-tier investor such as Fred Wilson & co OR the person leading the round can add vast industry experience. Otherwise, you may be simply dancing with the devils sooner than youd need.
To talk about the way VCs operate is another post entirely and not to be covered here. Have a browse of www.TheFunded.com if youre not aware of the ups and downs of taking Venture Capital; its a mine field and more often than not ends in tears for one if not both parties.
Get your paperwork in order. I have been far more succesful in this with Angel Investors than I was with VCs, largely because at the earlier stage of businesses I was the one doing the accounts & paperwork and so I wasnt relying on anyone else who might get things wrong. On that basis, it is worth paying for a qualified good accountant, or book-keeper, if you cant do it yourself and ensure it is right, to make sure your DD is in order. At one point I had a shareholder doing it but he turned out not to be competent in this field.
There is nothing more worrying for an investor, large or small if your accounts are a mess or share paperwork is not in good order. Its a pain, its annoying but make sure it is done. Otherwise at worse you may lose the investment, at best they will haggle for a better pricing of the round (in their favour) on account of there being a higher risk because your admin is in a mess.
- Shares paperwork (and Companies House or your country equivalent)
- IP / ownership
- Contracts (employment and suppliers)
- Tech documentation
- NDAs & legals
all need doing. I put copies as PDFs in a DropBox and share them that way.
Keep In Contact
I used to send out quarterly emails to shareholders. That meant that when then I had a problem, or wanted help, they knew what was going on and could respond. Yes it is tiresome to take 3 hours out to write a long-winded update of what is going on and plans, problems, failings, successes and wins; but it really keeps them in the loop and those who take an interest (if you dont have a monthly board meeting with all your angels on one board) will then be well versed when you run out of cash or have a problem.
I used www.streamsend.com so I could monitor not only how many and who read the emails (I had over 30 shareholders!) but also ensure that the emails go to them and didnt end in spam.
Make sure you understand pre-money, post-money and the terms around what your company is worth and what you want to give away. Plenty on Google about this too
I am sure there are many more things, but as a beginners guide, that should suffice!
Source: Andrew J. Scott/Urban Horizon