What makes a good Business Angel investment?

Something to the effect of 80{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} of Angel invested businesses go under, and when looking at angel investor activity from those individuals who have been actively investing in the industry the rate drops to approximately 60{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686}. meaning, 2/3 investments will fail even under the guidance of experienced investors, and 4/5 as a whole. Quite the number.

Every single investment requires the following three things to be in place, if any of these are missing chances are that the investment will fail. These three things are.

1. A great business idea
2. A great management team
3. A great mentor

If any of these three factors is lacking, chances are that the business is unlikely to succeed, and an established angel investor would be wise to keep their money in their pocket until the sartuppers manage to make any one of the weakened factors rock solid.

Mind you this type of feedback will only come from good angels, as they will have the ample experience necessary to critique and analyze the idea. A new Business Angel may become influenced by the energy of a new entrepreneur who wholeheartedly believes in his / her idea, and like others in the general vicinity of the BA too becomes enamored with the idea.

As an entrepreneur yourself, you have to look at the BA’s you’re pitching too and working with, and seeing if they see you and your business objectively or if they’re just another member of the crowd jumping on the bandwagon. Mind you as an entrepreneur this is a very difficult task, as you’re probably thinking your primary goal is securing capital to help in delivering your business to the next level, and while in part that’s true, the greater picture is that as an entrepreneur, you should be more concerned with ensuring the success of your enterprise – rather than running after the first buck.

Oftentimes, BA’s will also say that that they would rather back a good team rather than a good idea, this is preposterous – any good team will only go so far with a mediocre idea and never provide the 30x returns that any BA should be looking for, these are not the risk takes that will back the next big thing, and if you’re idea is truly cutting edge, you’re chances with these folks are slim.

The good and successful BA, will remain cool, and over a period of weeks maybe a month to three decide if the proposal is right, it’s the right business idea, the right management team, and has the right mentors to see it grow, the business angel, will also know the market and understand the current business environment.

Ensuring your BA holds all these characteristics chances are you’ll wind up in the 44{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} of well thought out investments that actually make it, and when dealing with BA’s, it’s like anyone else, a give and take relationship.

Video: Investment Trends from Silicon Valley

This video comes from KMVT, which is the public access channel for the Mountain View, Cupertino and Los Altos, California area.

This specific video comes from what has recently become a favorite of ours here in terms of video series – the Silicon Valley Entrepreneur. This specific video we believe is interesting as it’s an interview with Jeff Clavier of Softech and John Cornwell of Sandhill Angels from mid October 2009, so fairly recent regarding the current Investment in Silicon Valley.

Overall it’s an excellent video and if you like it we highly advise watching the others in the “Silicon Valley Entrepreneur” series from KMTV

Reflections from Business in Clean Tech & Environment Summit – Barcelona

We attended the BiCE summit this week at ESADE and overall we would say the event was a successful one, some interesting talks, some interesting companies, one that we’ll be covering sooner than later in our Startup Saturday series even.

However what we believe was the most interesting part of the whole thing was the panel of Angel, VC (venture capital), and PE (private equity) investors into the clean tech space, as well as a discussion on the development of clean tech in the CEE region. The low point – a long winded forum of government officials talking about sustainability and efficiency and elaborating on the need to create overly complex programmes to work together with the private sector and banks. So let’s start there –

Government and Clean Tech

Clearly one of the more important roles if any of government is to set policy, and provide incentives for enterprise in it’s own market. This is all good and well, and in our most humble of opinions this is simply something that needs to be done via tax abatement. After all, the stakeholder mentality is undoubtedly focused on the bottom line.

So what’s the problem? There should be none, government should have instituted tax abatement programmes for clean-tech initiatives a long time ago, the same for energy efficiency etc… etc… not only to offset the cost of installation, but also to create incentives for non eco-knowledgeable business to implement eco-friendly methodologies and practices into its day-to-day operations.

But @ BiCE, these governmental entities failed at promoting just that, instead they discusses large bogged down in bureaucracy initiatives, that lacked any sort of clear vision. Notwithstanding what really stood out – in terms of the negative – were comments made by various government individuals that “each case is different” and that a “different programme needs to be established for different companies”. Socialist, sure, but worse that that it screams of 1. Inefficiency, and 2. Higher Taxes. After all someone’s got to pay for all these new programmes.

What’s the solution, simple, Ockham’s Razor – entities should not be multiplied unnecessarily. Create an initiative that fosters the implementation of Clean Tech and Enviro-Friendly practices, give tax breaks to those who participate in the programme, and that’s pretty much all you need.

Clean Tech & Energy in the CEE

Elena Yordanova an investor in the clean tech area with Astra Capital spoke on this topic and although it was brief, it was also very informative. The region as a whole has huge potential for clean tech implementation, specifically in the area of en energy generation.

The SEE is rich in sunshine, there are various opportunities for hydroelectric as well as the north, i.e. Poland, and the Baltics can capitalize on coastal wind farms. Barriers to entry are still fairly low, and the region has massive growth potential across the board, however certain markets such as Romania already have met 2020 targets and over 30{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} of their energy production coming from renewable sources.

Investment Outlook for Clean Tech

This is a tricky one, as we all well know – investors want a high margin quick return. Clean tech companies however are not suited for this model, time to market may often be ten years or more, and investments are typically very capital intensive.

At the same time, the industry or sector is as a whole very new, and there is very little if any PE activity within the clean-tech space.The good news however is that you’re starting to see VC’s grouping their funds together for truly large scale capital investments into new technologies that otherwise without this money could not be realized. This is a good thing, the bad thing is the lack to BA’s in the field and their reluctance to throw money at clean tech startups – after all, there needs to be a call to a social cause when investing 500k-2m and expecting generally lower returns over a longer period of time.

Business Angels charging startups to pitch? Zero sum game.

Turns out there are groups of Business Angels (BA’s) out there that charge entrepreneurs and startups to pitch. What? Yes you heard that right, Angels charge startups to pitch. These fees range anywhere from €1000 to €18.000 + 3{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} of the capital raised to pitch your company to a forum of Angels.

What do you get in return? A fifteen minute slot in front of people that may, or may not invest in your company. Nothing more. Is the price tag worth it? Absolutely not, no angel should require the entrepreneur to pay a fee that will go into their own pocket. These people are after all supposed to be financiers, they are the ones that have the money, not the other way around. Notwithstanding 15 minutes of someone’s time, and especially if they were to have a vested interest in a company is not worth the money.

They will tell you, it’s for screening purposes, they will tell you it’s for x, y, z, but at the end they’re looking to take an equity stake in your enterprise – which according to normal investment criteria should bring them 30x return. Given not all will, but a well differentiated portfolio ought to at least bring in 10-15x return on investment.

Greed, Greed and More Greed?

So why are they charging? Long story short, it’s greed. But it’s not only the angel, there are groups out there that say they will put you in touch with BA’s for a few grand of your “lifeline support system” – basically those few grand that could mean life or death while your company traverses the valley of death. Nonsense. If a filter group wants to earn money through deal flow facilitation there are better ways of doing it than charging the entrepreneur for a fifteen minute slot.

A filter should be paid by all means, no work should go unrewarded, but how? Via percentage of the deal they set up, and a fee – paid for by the BA, and if the startup gets financed from the investment amount.

For example, Joe Filter, finds SuperSatrtup and introduces SuperStartup to BA – BA agrees to pay X for the introduction to Joe Filter, and then after some deliberation BA invests 300k in SuperStartup, due to the positive outcome Joe Filter takes 3{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} investment fee, or 9k. What do you have as an outcome, Super Startup is happy, as they now have 291k in cash for operational and growth activities, the BA is happy as the BA has a new high growth company in his/her portfolio, and Joe Filter is happy as he’s made some cash. BA = Expected 30x, Joe Filter = 9k+Intro Fee, SuperStartup = Investment, or Win, Win, Win.

If the startup has to pay Joe Filter, and no deal happens, It’s BA = 0, Joe Filter = 1, Startup = -1; or Null, Win, Loss, zero sum game. Or in layman’s terms – just bad economics.

So what’s this all boil down to? Greed. Once again, BA’s are more concerned about themselves than the nature of their business, and filtration systems target the wrong market segment. A “good” BA should have a vested interest in seeing the startups they want to see, as they will be investing in them, they should also then have a vested interest in helping these startups grow. So what does this all mean? Those BA networks that charge the entrepreneur a grand aren’t worth speaking to, especially since the “best possible outcome” is an equity stake in a company.

Any Value Added?

Is there any value added to the Entrepreneur? Nope. Typically, you pay, you pitch, you get rejected, or if you build interest, you’ll wind up covering additional fees. Then you have new funding initiatives such as Revolutionary Angels – that charge 5k to participate in what is effectively a business plan competition that results in two companies receiving 10{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} and 2{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} equity investments from the group.  But here’s the rub, that equity investment comes from the coffers of other entrepreneurs. An excerpt form their website reads “There is no obligation to submit a plan for review. Companies that are a selected to participate must pay a fee of of $4,995.” – Why do I have the feeling that if you’re willing to dish out 5k, you’ll get selected any way?

Dodgy business practices. By all means?

Value Added Service Fees?

This is different, if as a startup I can get some form of value added service – be it training, non equity mentoring, press, access to a new network, feedback on my business model, where it needs adjustment, how to extend my scalability, how to enter new markets, advice on joint ventures, learning and or education about the process. Then a fee is worthwhile, after all people putting these things together need to eat as well, and as we all know money does not grow on trees, but that value added has to be worth the fee in question. Is that fee worth €18.000 +3{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686}, absolutely not, is it worth €1000, probably not. Is it worth €100, depends what the service is, and how it will help me as an entrepreneur, but then at the end of the day, it’s a service and not an intro fee, or a 15 minute slot in front of me and my network for a grand.

In summation any BA network charging you for 15 minutes of their time is not worth it. If your company has mettle, BA’s in their nature should be more than willing to speak to you about your enterprise.

To read more about the topic of BA networks charging, click here, here, and here.

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We want to know what you think?

This topic is of very special interest to us at F3FUNDIT, why? Well we’re in the process of putting together a new concept event that will truly be focused on the entrepreneur, yet we plan on charging a nominal application fee along with it. Why? Well we need to pay our staff, we need to pay for parts of the event, speakers, training materials, and our time, as well as put together a winner take all cash prize.

We’re not ready quite yet to let the cat out of the bag, but every startup that applies will get something in return, we’re on the side of the entrepreneur and don’t believe that something for nothing should exist, but nonetheless, we’d like to hear your thoughts.

Technology Startup Incubator Deadlines

Fist there was Y Combinator, then there were copies and similar style initiatives that popped up all over the world, were they micro investments, business and tech incubators, business accelerators, hand holding initiatives for the business non-savvy, what have you. And with the multitude of them out there, it’s hard to keep a track of when and where all the deadlines are.

Jüri Kaljundi an Estonian blogger, technology and internet entrepreneur recently put together a list of the upcoming deadlines for these initiatives, and seeing as we’re here to help the entrepreneurship community at large as well, we figured we’d spread the love, you can find the original post here.

Technology Startup Incubator Deadlines Spring(ish) 2010

NYC Seedstart (New York City, USA): February 28

The Openfund (Athens, Greece): February 28

i/o ventures (San Francisco, CA, USA): March 1

SproutBox (Bloomington, IN, USA), March 1

Y Combinator Summer 2010 program (Mountain View, CA, USA): March 3

Morpheus (India): March 10

Startl (Philadelphia, PA, USA): March 15

Techstars Boulder (Boulder, CO, USA): March 22

DreamIt Ventures (Philadelphia, PA, USA): March 22

Betaspring (Providence, RI, USA): March 22

Tetuan Valley (Madrid & Barcelona, Spain): March 23

The Founder Institute (San Diego, CA, USA): March 26

Capital Factory (Austin, TX, USA): April 2

NextStart (Greenville, SC, USA): April 5

Seed Rocket (Barcelona, Spain): April 5

AlphaLab (Pittsburgh, PA, USA): April 8

Shotput Ventures (Atlanta, GA, USA): April 10

Startup Bootcamp (Copenhagen, Denmark): April 30

Bootup Labs (Vancouver, BC, Canada) May 1st Intake (Deadline Not Announced)

LaunchBox (Washington, DC, USA): May 31

Techstars Seattle (Seattle, WA, USA): June 1st

And if you know of any others please add them in the comments section and we’ll update this list accordingly. Thanks.


Understanding the Startup Financing Process

The 3F‘s, Seed Capital, Angel Capital, Venture Capital, Series A, IPO‘s sounds familiar or does it?

Many budding entreprenerus, and especially those without a background in finance, and even those with a background in finance won’t really understand how the startup financing process functions.

Or more adequately how you go from cracking open your piggy bank to issuing shares on the DAX, or any stock exchange for that matter.

But first thing’s first, your 3F’s are your Friends, Family and Fools, and they’re the only ones willing to donate some money to your cause, friends and family, cause they care, and fools, cause well only a fool would give someone they don’t know cash.

Next up you’ll get seed money, these are typically people who want to flip their equity within 6 months, quick in grow the company rapidly, and quick out strategy.

Next up, are the BA’s (Business Angels) – who invest on the basis of 30x expected ROI.

These three groups comprise the “Valley of Death” in your startups life, basically meaning, these are the moments when your company either 1. Does, or 2. Dies.

Once your company’s out the red, and has broken even, this is where early stage VC comes in, typically Series A, then Series B for early stage, C for early late stage, etc… etc… and if you’re lucky enough, you get the company to issue an IPO, or Initial Public Offering meaning that the shares of your company can be traded on stock markets such as NASDAQ, DAX, etc… but when you get here, you’ll have a Morgan Stanley underwriting your deal, you may be going through a M or A, and all sorts of crazy things can happen to you so for the basis of this site, our database, and resource we’ll stick to the early stuff. For a visual representation of this entire process check out the really amazing graph, thanks of Wikimedia, and a bit edited by us.

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