Lawyers You Can Love

Angel Financing--Getting Connected (Part III)

Rule 3: Forget the Herd Theory

We all know the same groups where everyone trots out their plans to the crowd of mostly service providers and few, if any investors. While there are a few viable places to do the business beauty pageant (in Colorado there’s the Venture Capital of the Rockies and other annual business plan competitions/investment forums), these events are about pitching your business plans. Don’t over shop your business deal. Forget hawking your business plan at every opportunity.

Networking is different.

Focus on finding the right connections to the right potential investors. You have to be brutally focused on what events, meetings, and people will guide you to angel investors. 

Ask:

w Are these just fellow entrepreneurs commiserating over their impoverished states, lack of sales, etc?

w Is the ratio of service providers to actual money folks greater than 10 to 1?

w Are there any folks in your industry/ niche market there? Potential customers? And are they decision makers or low level functionaries?

w Use your new status (as a newly formed business or as a company new to raising funds) to ask people if this meeting, event, etc. has any merit, e.g. people who have bucks and matter or who can lead you to those folks?  Remember that folks are often willing to share valuable information with a newcomer—take advantage of that opportunity.

Find Right Angel Financing--Part II

Second Rule: Know what kind of Angel You need Based on Money, Stage and Industry.

Angels come in all sizes and shapes, i.e. the amounts they will fund, industries they cover, stage of company.  In the last few years, VCs have moved away from early stage startup companies asking for anything below $5,000,000. Moreover, successful startups may be able to raise up to $500,000 in private placements. According to the Kauffman Foundation, angel groups (as opposed to individual angels) have stepped into that funding gap between $500,000 and $5,000,000. Angel groups are now funding not only early stage companies but also second-stage companies, leveraged buyouts and spin-offs.You need to determine how much money you need, the stage you are at and the industry you fall within to find the right angel(s).

Individual angels may be more receptive to funding earlier stage companies, especially if lesser amounts are involved. You may likely need to find angel groups if you are looking in the range between $500,000 and $5,000,000. Few individual angels are going to pony up that amount. Be aware that some angel groups are asking companies to pay for the privilege of presenting their plans. Not only is that requirement appalling, but such requirement dictates you know before hand if the group is even worth the effort and their funding history.

Dig around and find out who has presented to the angel groups and send them an e-mail. Make sure you know funding levels, industry preferences and other stated and unstated funding preferences. Ask them if they got any actual investors or good leads or if it was just a colossal waste of time.  Like any good survey, ask a good number of folks who have appeared before such groups. Do the same for individual angels.

Also, focus on the fact that angels tend to make regional investments, invest their own money in the game, have more realistic expectations of returns, favor more advisory (non-board) roles and invest at earlier stages. Get realistic and look for money in the right places.

Grateful Dead, one page contracts and saving the planet

On Valentine's Day 2008, we prefer to think in black and white (not the traditional Red Valentine nor the au courant Green Valentine).  If Greenpeace UK is right that Loving the Planet is the Best Valentine (see their Green Valentine's Guide), we think the Grateful Dead and an actress in LA have the right approach.

The Grateful Dead apparently insisted on one page contracts with their promoters. Not only did they live life on the edge, but so did their contracts.

And Tamara Krinsky, the once starving actress, printed out pages and pages of scripts, until it struck her to widen the margins. She now has a campaign petition  to Microsoft, at Change the Margins, to set Word's default margins to 0.75.

Like the battle hardened VC we met last year at a clean energy investment conference, we think it's the simple, black and white things that cut costs that will reduce energy consumption.  We believe Less is More when it comes to contracts and saving the planet.

Manna from Heaven--Finding Angel Funding

Technology companies trying to commercialize intellectual property struggle mightily with the funding question.  As Colorado attorneys for businesses from Boulder to Denver to Steamboat Springs, we feel duty bound to cut to the chase. Forget VC money unless you have (1) a Nobel laureate on board (2) a management team plucked from the upper echelons of successful large corporations or companies that sold for over $200 million in the last 3 years,  and (3) paying, recurring, profitable customers with no customer controlling more than 5% of your revenue. (Maybe we exaggerate on #1 but then again...).

So where do you find money? The natural progression is to use your own funds, then tap into friends and family through convertible promissory notes, then cast about for angel financing. How the devil do you find angels? If you know lots of rich folks, particularly rich business folks, you shouldn't need our help. For the rest of you, we are embarking on a series to help you find that angel financing.

First Rule:  Start Looking Long Before You Need Money

You can find a husband, wife or significant other faster online than you can find an angel investor. The mistake most startups make is not projecting how long the money they start with (or think they will have) will last.You will need money long before you think you do. And you will likely need more than you think you do.

The preferred amount of time is at least a year (which factors in procrastination, reality, and human nature). If you can perform miracles and spend every possible moment on fundraising, you might have three to six months. Note that this amount of time bears an inverse relationship to how fast your market is moving. Also, bad deals are made in haste, when a company is desperate.

If you are reading this and saying you need the money now, keep reading these periodic posts. You may be able to keep yourself afloat until you can find that manna from heaven, i.e. money from angels. And use our free checklist on What You Need to Get Angel Financing.

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