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.
When it’s time to approach business angels there’s a few things to consider and a few other things to keep in mind, and a few even other things that for the most part are common sense yet entrepreneurs tend to forget about all the time.
But before you’re ready to look for someone that will assist you not only in the next round of financing for your company, but also extend a hand in helping to get the company off the ground, you should consider a few things.
For those who read this regularly, we may be repeating ourselves, but bear with us until we get to the meaty stuff.
Am I a functioning company, and do I have a product or service that I can offer for sale, or am I already selling? If the answer is yes, you can consider starting to contact business angels. If you are prior to this stage in your business development, then we highly recommend you save yourself and the business angels the time and not send anything out.
Now, since you’re ready to seek funding, you’re selling a product, and need a financial boost, here’s some very good, yet very simple best practices on….
Raising Angel Capital….
One: This may seem obvious, but apparently it’s not. Do not send your proposals to angels / angel networks that are not in your industry. If you’re a high tech company, a business angel network that deals with energy is not a good idea to send your summary to. Please stick to soliciting people to the industry that you’re in.
Two: Don’t bother sending proposals to “managed” angel funds. These fund managers are often that, just managers, they invest in companies but offer no outside help, and neither do the business angels. These types of funds tend to result in the following. 1. Companies going bust 2. Funds going bust due to poor investment decisions. 3. Angry investors.
Three: Two goes into three nicely, you want an Angel that can lend a helping hand, an industry expert on who you can count on and someone who will want to actively help in getting the company to the next level. That someone should mesh well with the current management, and aside from playing financier, should also want to mentor. This is VERY important.
Four: When sending out your proposal, executive summary, business plan – wait … actually don’t do the third one, never ever do the third one. “But why F3FundIt?” Because no one who is busy wants to read through 25-40 pages of your analysis, and I mean no one.
Send out proposals/exec summaries that are 2 pages maximum. Any more and it will probably wind up in the bin. It’s not that your sweat isn’t worth anything, your b-plan is in fact a guideline for you and your company, not for your investors. They’ll know if they like your concept in the first 3 minutes, and if something catches their eye, they’ll get in touch with you. At the same time, when you contact them, they can’t honestly say “No I haven’t had a chance to read your two page summary”, can they now?
Five: Something that we constantly hear form Angels are complaints about how poorly the company presents itself, how, after 15 minutes of speaking on the phone with an entrepreneur the Business Angels are lost as to what the hell the entrepreneur is doing. Know business terms, get accustomed to knowing your value proposition and pitching your company – practice in front of the mirror if public speaking isn’t your thing. Be clear, and be concise. Your startup will thank you for it, after all your selling it, and yourself.
Live by it, learn it, and do it. Chances are if you follow these tips and you have a good idea – you’ll wind up getting meetings, or at least phone calls.
And if any BA’s are out there, any other pet peeves you’d like to tell us about?
