March 11, 2011
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Company Culture
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Remember that brilliant idea you have? Well, it’s going to need some investment dollars. When looking for financing from an outside source, the concept of an angel – an investor doling out some of his or her own cash designated for startups and early-stage businesses – can be a godsend. But how do you find your angel and get him or her to actually transfer funds?
Here are tips from two angel investors to help make your quest less of a dream and more of a magical, lucrative reality.
Find your angel
Don't know any angels? Start with professional networking in and around your industry. Many cities have group Meetups like Hackers and Founders, 106 Miles and FounderDating, where like-minded entrepreneurs network. New York City and Silicon Valley are some of the networking hotspots.
“Ventures tend to be clustered by a 'boom generation' and co-invest once one has sourced a deal,” says Derek Dukes, the CEO and co-founder of Dipity, an interactive topic search platform. “The good [entrepreneurs] will give you feedback on what is great or not great about your idea and they'll help you find holes you didn't see. In a perfect world they will also be open to dropping introductions to people who might be interested in investing in your business.”
There are other ways to become part of the startup community if you aren’t in New York or Silicon Valley. SXSW, the music and film interactive conference in Austin, Texas and similar conferences targeted to your industry can ‘cold start’ your networking efforts. Those on a tighter budget can travel remotely through Twitter, Quora, LinkedIn and Namesake to start conversations.
Band of Angels and AngelList house a flock of angels who look to invest in solid, innovative ideas through an organized platform. Incubators and combinators like TechStars, YCombinator and i/oVentures can help raise capital and access seasoned investors and entrepreneurs in exchange for a small investment process.
“If you’re creating a high-tech or product company, and have a prototype or an interesting background, you can come to AngelList,” says Naval Ravikant, the man behind site. “We’ve got hundreds of companies funded in the last year, at no fee or cost, through an open community of venture capitalists and angels.”
Want more on angel investors? Check these out:
Services like Kickstarter and Profounder are part of an emergent class of crowdsourcing that can shop around your deal, or get people to fund your idea. The success of Kickstarter campaigns has shown companies are capable of raising up to $200K without giving up any rights or equity – just the 7 percent transaction charge from Kickstarter.
Get to know your angel
Make sure your idea is within a promising market and that you, the entrepreneur, are a bankable commodity. Business and consumer software, Web, desktop and mobile platforms are angel magnets. So are products that have a low or zero cost of replication as you add users. Content production, where products are built by the users themselves like YouTube and Groupon, are also attractive to angel investors. Remember, these angels likely once worked for Google, Facebook andYahoo!, or they’re entrepreneurs who made their millions thanks to their exit from previous endeavors.
“Large market, go-to market plans, and business models are helpful, but at an early stage you're really betting on the market and the entrepreneur,” says Dukes who recently invested inFoodspotting. “[Foodspotting] met both of those criteria for me. I knew one of the founding team members and I'm a foodie. So it was an area I am interested in and felt I could add some value in.”
“I like to see ideas that take a new twist on a proven market and something that's not just a 'me-to-' offering,” says Dukes. “The most important thing is passion for the space. Your passion will be tested and your ideas will be wrong, but it's your passion for the space that will keep you pushing through till you hit the right combination of ideas and market.”
AngelList details specifically who the individual angels are in each listed market and what they are interested in financing. The markets list is here and an investor list is here.
Once you’ve been touched by an angel, prepare that pitch
You should walk into a meeting with a high concept pitch, an elevator pitch and a 10-slide PowerPoint deck. Check out VentureHacks, Ravikant and his partner Babak Nivi’s site that provides advice to startups with articles detailing such information. Guy Kawasaki’s “Art of the Start” also has examples of pitch formats.
“You need to 'show your work', meaning you've got the product at least in decent mock-ups that you can walk an investor through,” says Dukes. “You get big bonus points if there is a product demo that is up and running.”
Understand your own business inside and out
“Have good answers for things you know, and say 'I don’t know' for things you don’t,” says Ravikant. Unless you’re famous, raising money without doing anything won’t work. Neither will requiring NDAs or being overly secretive. “Not only does no one want to steal your ideas, but they likely won’t even listen,” says Ravikant.
Research the angel you’re meeting
Talk to people who have worked with the angel. Check the angel out on Twitter, LinkedIn and any blogs to see what that person is currently interested in.
“If there is a shared interest, that can be a great way to start building a relationship,” says Dukes. “Once you've done your homework on who you're meeting with have your side of the story ready to go. From each meeting you'll learn what part of your story isn't resonating with the audience. Put that feedback back in to your presentation and make the next one better.”
When pitching, use language and vocabulary that teaches rather than lectures. Angels want to see that you are the expert of the space and that you have a plan for turning it into a great product or business.
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For angel investors execution and infectious enthusiasm are everything. Ravikant looks for “super smart people driven to the extreme,” who have done small market tests. Being passionate about your business is paramount. It only took a few minutes into an IM conversation for Ravikant to invest in Jude Gomila, the founder of HeyZap.
“He cares deeply about Web games, is brilliant, and talks faster than most people think,” says Ravikant. “[He] has an intelligent viewpoint on just about everything. He also works like a madman and has huge expectations of people.”
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