Mark Suster wrote a great article on raising angel money. Mark is a VC and 2-time entrepreneur, and his blog Both Sides of the Table is a great resource for investors and entrepreneurs alike.
We highly recommend reading Mark’s post on strategies for raising money from angel investors. Here is an excerpt.
One side of the argument – angels should price:
18 months ago I sat on a panel with Ron Conway, the legendary angel investor from Silicon Valley who invested in Google, Twitter, Digg and many other early-stage Silicon Valley success stories. The topic of angel pricing came up. Ron said he never likes to do convertible debt deals and always insists on pricing his investments. His rationale was clear, “If I invest in a company I open my Rolodex for them. I help them with business development introductions. I introduce employees. I give them credibility in the fund raising process. Let’s say the company was worth $1 million when I met them and I’ve helped them with both my Rolodex and my cash and they can now raise a round of venture capital at a valuation of $6 million. I would be hurting my own interests. A $500,000 investment at a 30% discount to a $6 million round is still priced and more than $4 million and is certainly worth much less than my investing at a $1 million pre-money where I could own 33% of the company.”
Whether you’re an entrepreneur, angel investor or VC, Mark provides valuable context and insight for you in his blog.
A great write-up of the sage (and virtually unanimous) advice from the participants has been posted on VentureBlog by August Capital’s David Hornik (host of the annual Lobby conference.) Here’s the distilled summary of his summary:
It’s a small community — if you screw one entrepreneur, you’ll be out of the angel business because entrepreneurs talk (Conway)
Angel investing is about learning on the job, which means that you can plan on screwing up your first 10 deals at least (McClure)
If you assume that the money is gone once you’ve invested it — that it is like a lottery ticket — then you will have a better time angel investing (Buchheit)
Work with other angel investors so that you can get the advantage of their expertise (Zurich)
There is no rational way to arrive at valuation, so don’t be overly concerned about getting it right (Graham)
Don’t worry if the idea seems crazy — if it didn’t seem crazy, it would be too late to invest as an angel (Graham)
The lifeblood of angel investors is deal flow — you need huge deal flow to find enough stuff that is worth investing in (Ravikant)
The best deals come from other angels(Ravikant)
Don’t be afraid to throw a little dynamite into the status quo and see what comes out of it — often times interesting stuff emerges (and sometimes nothing does) (Dearing)
The Rule of 12 — you need to invest in 12 companies to have statistical diversity — invest in fewer than 12 deals and you run the risk of them all failing (Maples)
Like in the movie “Oceans 11,” you want to pull together the best team of angel specialists there are out there — it increases the likelihood that the company will succeed (Maples)
Help bring your entrepreneurs together so that they can learn from one another (Poler)
By being a connector, you will see the most interesting stuff and work with the most interesting people (Senkut)
Angel investing is all about the syndicate — you can lead if you want to but it can be lonely until others join in the syndicate (Clavier)
Angel investors need to distinguish themselves from others with money – what do you bring to the table? Contacts. Experience. Advice. (Young)
Only invest in stuff you actually know something about — otherwise you’re just buying a lottery ticket (Young)
In this release we are welcoming VCs into the Angelsoft network, with a few new features that will make life a lot easier for them. But angels too have a lot to be excited about: We’ve improved some key areas of the program, including adding new deals, customizing industries, and inviting entrepreneurs to collaborate.
All in all we’ve had 317 updates, among them 194 were general bug fixes, 4 were new features, and 29 were smaller improvements. You can see all of them here. The highlights are below:
NEW VC FEATURES
For our venture capital users, these power features could help streamline the process:
Submit Directly to a Partner - You can now require the entrepreneur to select one of your fund’s partners, who will automatically be notified and become deal lead.
Track Deal Status - Deal Status notes, always at the top of the deal dashboard, are a new way to track the status of each deal. Only deal leads and admins may create them.
Printed Progress Report - From the Deal List, select any number of deals and click Actions -> Print Weekly Report. You will get a printed version of a report containing all the deals, their last Status Note, 3 last activity feed items, and general information about the deal, its stage, the deal lead, etc.
NEW ANGEL FEATURES
Quickly Adding Deals - Investors and Administrators can now quickly create a deal without going through the full application form. Create New Deal will open a dialog where you can add a deal by merely its name, or add the entrepreneur information and invite them to collaborate!
Smart Email Drop-box - Emailing-in deals just got smarter. You or your members may add a Deal Lead directly from the email by adding ::lead@email.com to the subject line - which will give that user admin privilege and Deal Lead status.
Better Industries - We’ve added some default industries to our list, including Clean Technology, Education, Gaming, Internet/Web Services, Mobile, and Nanotechnology.
Administrator Unsubscribe - Administrators can now unsubscribe from deal messages if they have no interest in them. Simply go to your Profile, and click Edit Preferences, then uncheck All Deal Emails.
Invite Entrepreneur Template - When inviting an entrepreneur to fill out the application, you can now use a saved template that you can change under Group Preferences.
Whether VC or Angel Investor, your feedback is very important to us. So please let us know what you think! Requests, suggestions, or questions are all welcome. Simply comment below.
Based off an internal e-mail about search engine optimization strategy:
When you start determining the SEO strategy for your site, the first instinct might be to try and figure out how search engine bots think and act and go from there, but that’s only half the battle. It doesn’t really matter if you know how a bot interacts with the web if you also don’t think about how it sees the web. So, what follows is a little thing I like to call “SEO and Your Grandma”.
Something that you need to understand about bots is… they’re dumb. Okay, maybe that’s a bit harsh. It’s more that bots don’t comprehend as much as a regular web browser. Since what they’re really concerned about is text and links, that’s how most of them see the world. They can’t parse what’s in images (only what they link to) and they don’t really care about new-fangled things like CSS (first working draft published in 1996) and JavaScript (first implemented in 1995). They’re sort of like your grandmother in that sense, and not the cool one who listens to Coldplay and tells dirty jokes. They’re more like the traditional granny that sees the world simply, doesn’t really keep up with the latest trends, and if they encounter something they’re not familiar with, they just ignore it, or even forget about it altogether and head back home. Therefore, if we want granny to pay attention to something, we have to try and see how granny sees.
So, how do we do that? Easy–turn off CSS, JavaScript, and images. Yes, it can be done. There are prefs to disable all three in every major browser, but if you want to do it much more easily in Firefox, check out Chris Pedrick’s Web Developer extension. You’ll have a nifty new toolbar that will let you turn off images, JavaScript, and CSS in a couple clicks each, and you’ll also have a bunch of new tools that let you handle cookies, window sizing, validation, and some other stuff you’ll find fun (if you’re a front-end web developer). If you’re really hardcore, though, you can try looking at pages in just a text-based browser. There’s Lynxlet for OS X, some Lynx ports for Win32, and I’m sure most of you *nix people already know what to do. After trying to browse for a few minutes with those, you’ll have a new understanding of the word “tedium,” but on the plus side, you’ll have one app that instantly puts you in bot mode.
And that’s all there is to it: just a small install and you’re ready to go. If you start making sure to give your public pages a quick look with your granny goggles before letting them loose, you’ll be able to eliminate a lot of potential SEO problems. Looking at pages this way can also help you figure out where you can make improvements, since you’ll be seeing things more from a bot’s perspective. At the very least, it’ll help put you in the correct mindset for SEO, and you can start building from there.
TechCrunch posted an article yesterday about Kleiner Perkins accidentally publishing 588 entrepreneur applications to the open web. Kleiner Perkins has a home brewed online submission form for entrepreneurs to submit through. According to the TechCrunch post:
That data was accidentally published on the web by Kleiner Perkins’ former hosting provider, Meteora Technologies Group, in a SQL file, which is easily readable in a text editor or other application. The file was then indexed by Google and found in a query on one of the companies (the guys from Fruux found it). Applications from 588 companies are in the file (Google has cached an incomplete version of the file here). A quick perusal shows very detailed information from each of these companies.
This “oops moment” at Kleiner Perkins’ is exactly why funds trust Angelsoft to manage all of their deal-flow. VC funds are in the business of finding and funding the best new companies - not in managing a software database or application.
When entrepreneurs apply through Angelsoft the data is encrypted and secure. Our database itself exceeds the most stringent security standards. We have a dedicated staff of engineers that works every day to ensure the integrity and the security of the data held within Angelsoft. These are full-time employees, not interns or associates who spend a portion of their time maintaining an in-house system.
The blame is really not on Kleiner Perkins. Until Angelsoft, there was no choice for proper deal-flow management software. Many firms just need to find a moment in their hectic schedules to move their data over to Angelsoft. Over 50 VC funds have entrusted us with their deal-flow management, and we are signing up more each day. The funds that have moved over tell us that they feel better knowing that their most valuable asset, their deal flow, is in a safe place with a team of professionals watching over it. Even better, they spend more time looking at DEALS - which is where they want to focus their time anyway.
In a pithy but perceptive post on O’Reilly ONLamp.com several years ago (which has, in some quarters, achieved almost iconic status), Derek Sivers wrote the following, which I think is an excellent way of clarifying why angels and VCs put much, MUCH less stock in “good ideas” than do the entrepreneurs who submit them:
“It’s so funny when I hear people being so protective of ideas. (People who want me to sign an NDA to tell me the simplest idea.) To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.
Explanation:
AWFUL IDEA = -1
WEAK IDEA = 1
SO-SO IDEA = 5
GOOD IDEA = 10
GREAT IDEA = 15
BRILLIANT IDEA = 20
NO EXECUTION = $1
WEAK EXECUTION = $1000
SO-SO- EXECUTION = $10,000
GOOD EXECUTION = $100,000
GREAT EXECUTION = $1,000,000
BRILLIANT EXECUTION = $10,000,000
To make a business, you need to multiply the two.
The most brilliant idea, with no execution, is worth $20.
The most brilliant idea takes great execution to be worth $20,000,000.
That’s why I don’t want to hear people’s ideas.
I’m not interested until I see their execution.”
Alan Patricof is one of the country’s most important venture capitalists and angel investors. He founded the VC fund Patricof & Co. in 1969, which has gone on to become 300-person Apax Partners, one of the world’s largest private equity investors. Three years ago, returning to his roots, he founded Greycroft Partners, an early stage $75 million fund focusing on technology startups (and an Angelsoft user). Throughout this time he has also been an angel investor with his own funds, and continues as an active member of New York Angels. In light of the gyrations in the world’s capital markets, and particularly a Doomsday meeting that Sequoia Capital was reported to have had recently with their portfolio companies, Alan felt it important to put things into perspective.
Here is the full text of a statement that he issued this week, addressed to early stage companies and the investors who fund them:
“The comments made by the partners of Sequoia Capital at their recently held ‘CEO Summit’ have been widely covered by leaks to numerous bloggers. These bloggers have disseminated the details and spread the contagion of the sentiments to the public at large, unfortunately running the risk that the words become a self-fulfilling prophesy. Without challenging the comments, which expressed a heightened degree of doom and gloom for the economic prospects of young start-up companies particularly, I do think it calls for a somewhat more restrained response on the outlook and required action before throwing the baby out with the bath water. Certainly, we are going through a period of enormous economic and political uncertainty. The loss of confidence, primarily in our financial system, as a result of the excess of the past five to ten years (if not longer - we may never know how long some of the flawed practices have been going on) is one of the leading contributors. We are also at the moment looking for leadership on the political front, and both because of very low public support for the President and because we are in the midst of a heated election for his successor, we have no real voice of authority to provide some guidance, reassurance, and inspirational confidence that the bus has a driver who knows where he is going.
Nevertheless, aside from an over-inflated housing boom that had to collapse sooner or later and a complicated financial system that arose in part to fuel this engine, the basic economy was in reasonable shape, with GNP growth and productivity gains supporting a solid, if not vibrant outlook (I know the automotive industry is also going through bad times but it no longer pervades the economy as once conveyed in the expression, “As GM goes, so goes the nation.”)
Advances in technology are allowing companies to make goods and provide services faster and cheaper. The wireless revolution and the Internet have made the dissemination of information easier and more pervasive for the entire world and brought significant benefits to every phase of our economy. That is not going to stop, although it may temporarily slow down. In these difficult times, there will be winners as well as losers (and the former may be fewer in number for a while).
The point is, the financial problems are being addressed, if not a bit belatedly, and some international mechanism will be found in short order for some coordinated policy that will restore order and confidence to the system.
Most young companies, with which we are specifically concerned, are financed with equity capital. That has its positives and negatives; on the one hand, debt is a very small factor in the capital structure of most small companies so loan foreclosures and the interest rate burden are not of prime concern. On the other hand, equity capital, which is provided by private investors, requires confidence in future prospects for reaching profitability and creating a strong market value. Certainly under current conditions it is hard to engender such confidence although history has demonstrated that it is in times like these that great opportunities are created. I have always said, “The best time to invest is when the drums are beating, not when the trumpets are blaring!”
This is surely a time for companies to pay meticulous attention to detail, particularly their cost structure. It is a time to be realistic in their near-term assumptions for revenue growth and take nothing for granted. Raising additional capital to support operations is of course critical, as it is at any time, but this is particularly a time for young companies to be extra cautious in developing pragmatic assumptions of their needs and in focusing on the amount and not necessarily the cost of that capital.
This is not a time to panic, cut off all investment in the future, and burrow into a dark hole. Take a page from the packaged goods industry that the time to gain market share is during tough times when your competitors are weaker in responding. And while this may feel more directly related to portfolio companies, we as a venture industry should not retreat either. It is our strong belief that we can and will continue to make sound investments in excellent opportunities. It is as good a time as ever to start a company with sound fundamentals.
So my point is to heed the caution of the Sequoia comments but to use them only as a strong message to reexamine all cost elements and growth plans and use this opportunity to assure that you are a survivor. Find a way to use this moment to gain your greater share of the market by providing a solution that is needed by others to improve their prospects in the difficult environment ahead. Tighten your belt and live within your means. Although the timing makes this message seem more prescient, it is a philosophy that works for successful companies at all times and at all stages; it is simply put, good business. This is not a time for heroes!”
———–
Here is a Red Herring interview with Alan from last year, explaining why he has such faith in the early stage technology community.
Angelsoft is NOT a matching site. The main difference between Angelsoft and the myriad of “matching sites” on the internet is thatAngelsoft is at its core a deal-flow management tool used by investment organizations every day to do deals - their private deal flow. When you apply to the Investment Community, you are placing your plan directly into a directory in the software that is accessible to all 12,000+ investors. The investment organizations can then click a single button and pull your deal directly into the fold of all of the other deals that they are working on in their pipeline.
But all of these on-line funding exchanges and matching sites claim to bring me to investors, too!
Because 600,000 companies are year are founded in the United States alone and many of them seek outside funding, there are many, many web sites that take aim at this lucrative market and purport to introduce entrepreneurs to investors. The sad fact, however, is that while it’s very easy for a site to sign up thousands of entrepreneurs (who want the money), it’s virtually impossible for them to sign up investors (who have the money.) That’s why none of these sites can legitimately point to their track record for getting entrepreneurs funded (despite any claims to the contrary). Instead, they make their money in one of three ways: selling you as a lead to service providers, selling advertising against your page views as you chat with other entrepreneurs, or charging you listing fees and then up-selling and re-selling you when you don’t get funded.
In contrast, Angelsoft started at the other end. Because it is the unbiased, internal platform used by investment groups, Angelsoft started with the investors. We have formed personal relationships with the general managers of each angel group and venture fund that uses our platform. We know them by name, and speak to them regularly. Their feedback has allowed us to build a system that manages over 2,700 new submissions a month from entrepreneurs and receives many thousands of logins each week from accredited investors (you can see the live statistics for yourself, at http://www.angelsoft.net/industry).
Now, with the Angelsoft Investor Community, you can post your business information in one place, and let investors find you, because they are interested in your company. This is better for you, and better for them. Angelsoft’s corporate mission statement is “more smart money into more good deals”.
Is Angelsoft’s Investor Community appropriate for any kind of investment opportunity?
No. It really isn’t. All those myriad other sites will tell you whatever you want to hear, and hope that you’ll sign up with them, because they are based simply on quantity. In our case, since our primary constituency is the investors, it doesn’t do us—or them—any good to have them wade through hundreds of deals that no one would ever fund. Therefore, this is not the right place for multi-level marketing deals, work-at-home businesses, real estate investment opportunities, film financing deals, local service businesses, franchise opportunities, or other similar lifestyle or financial investment ventures. There is nothing wrong with any of these, it is simply that they are not the types of businesses that have traditionally received funding from angel investors or venture capital firms.
Instead, the kind of businesses that serious angels and VCs seek to invest in tend to have the following characteristics: relatively low capital needs; high scalability; strong management; a unique selling point; a clear potential exit for cash within 5-7 years; and above all, a complete, well-thought-out business plan.
After watching the video of my “How to Pitch a VC” presentation at the TED conference, Garr Reynolds, who writes PresentationZen (the name of both the most influential presentation blog on the web, and also the best book ever written on presentation design) asked if I would mind if he created a summary slide show of my top tips that he could use with his students. Mind? I was delighted! So here’s the really, really short crib note version of my pitch training sessions. The first list are the personal qualities in YOU that an investor looks for; the next set are the inside tips that will make your presentation come across as uber-professional. Good luck with your pitch!
In the early days of New York Angels, we noticed what appeared to be an anomaly in our operations. We had quickly established a good incoming flow of deals, and had followed that up with an effective screening process, but we found that we were actually funding a much smaller percentage of the presenting companies than we had expected. What was particularly puzzling was that we KNEW these were likely fundable companies, because we had spent over half an hour with them around a table during the screening session, and only picked the very best ones (typically the top 10%) to present to our whole group. But after hearing the fifteen minute pitches during our monthly meeting, our full membership just didn’t get excited enough to put their money to work. A puzzlement. We eventually figured out the problem: the companies were great, but the pitches were awful!
That was when we instituted mandatory pitch coaching for every single company that was selected to present to our membership. The result? Our investment rate more than DOUBLED, and we have funded over $35 million into more than 50 companies during the past six years. In that time, I have handled most of the coaching duties on behalf of the group, and have gotten pretty good at helping entrepreneurs refine their Powerpoint presentations to meet the need of their target audience: early stage investors. Word began to spread about these sessions, and soon BusinessWeek came by to do a story about them, giving me the moniker of The Pitch Coach. The next thing I knew, there seemed to be even more demand for presentation training than there was for my investment dollars!
These days, I spend quite a bit of my time teaching entrepreneurs how to clearly and persuasively get their message across. Most of this happens for New York Angels, at business schools like Yale, Columbia or NYU, or for institutions like the National Science Foundation. However a couple of years ago Chris Anderson, the Curator of the renowned TED conference (and a fellow New York Angel member) asked if I would do a session during the “TED University” event before the main conference. I agreed, but wondered how I would be able to compress what is usually an hour long presentation into the allotted 12 minutes. The answer? Talk faster! [grin] So, with the compliments of TED.com, here is The Pitch Coach, in the super-express-version of “How to Pitch an Angel (or VC)”. I hope you find it useful! (The ‘expand’ button in the corner will bring up a full-screen version.)
After trying to browse for a few minutes with those, you’ll have a new understanding of the word “tedium,” but on the plus side, you’ll have one app that instantly puts you in bot mode.
