Venture Capital
ARC Angel Fund - Seed Fund in NYC
ARC Angel Fund, A NYC-Based Seed Fund, Announces Its First Close, now reviewing investment opportunities.
On July 1, 2010, ARC Angel Fund (http://www.ARCangelfund.com) successfully completed its first close of this new Angel-Led Seed fund. ARC is now reviewing early-stage and seed investment opportunities. ARC will focus primarily on technology, Internet, tech-enabled services, software, digital media, mobile, healthcare IT, among others.
ARC Angel Fund is a member-led Angel Fund. An Angel Fund is, in essence, a hybrid model between an Angel Group and a Venture Fund. This model gives our investors the flexibility to participate as much as they like in the management of the Fund. General Membership makes the Investment decisions. Committees are set up to handle the business of the Fund.
The ARC Angel Fund was started by David Freschman of Innovation Ventures, Michael Kelley of Red Clay Equity, Edward Reitler of Reitler Kailas & Rosenblatt, and Joe Rubin of FundingPost. ARC's goal is to support the entrepreneurial community by both leading on deals and co-investing with other early-stage venture funds and angel groups.
"Our region has a sustainable and growing tech entrepreneur community," said Steve Brotman, Managing Director, Greenhill SAVP, and Investor in the ARC Angel Fund, "but, in addition to a vibrant VC industry, a critical component to that growth trend is a vibrant angel investing community. ARC is a great addition to our community."
Edwin A. Goodman, Co-Founder, Milestone Venture Partners, and Investor in the ARC Angel Fund, added that "Participation in the ARC fund is a great way for Angels and VCs to gain additional access to the robust early-stage deal-flow characteristic of NYC."
ARC has garnered incredible support from the Northeast and Mid-Atlantic Venture and Angel communities so far with an impressive investor list consisting of Angel Investors, VC Fund Managers, Private Equity Fund Managers and Successful Entrepreneurs. In addition to the above, some of the other 30+ ARC investors so far include Ed Foy of eFashionSolutions, Jeff Finkle of Odeon Capital, Joe Zawadzki of MediaMath, Joseph R. Saviano of Baker Capital, and Don Franceschini, the retired Vice Chairman and a Director of the Sara Lee Corporation, who said, "ARC Angel Fund is an exciting and unique fund that brings together many angel investors into a single organization that, through their collective and varied experience, can maximize investment opportunities."
"We are very pleased with the response so far," said Ed Reitler, Founding Member of the ARC Angel Fund. "We're only a few days in and we are already reviewing some exciting opportunities and getting calls from other Funds to co-invest on deals. We are aiming to foster the growth of early-stage companies and provide significant networking and idea-sharing opportunities for our Investors."
With its first closing successfully completed, the ARC Angel Fund is now reviewing opportunities which can be submitted through the ARC website.
For more information on the ARC Angel Fund, visit the website at http://www.ARCangelfund.com
Got a Question, Ask it here
[Link]
Philadelphia VC and Angel Conference: July 29
Our Next Philadelphia VC and Angel Investor Conference will be on Thursday, July 29, 2010!
We have 8+ VCs and Angels participating in this conference! The event is sponsored by Ameritech Media, RMSC Law. Raising capital? Looking for dealflow? Register here: http://www.fundingpost.com/breakfast/reg1.asp?event=174
Elevator Pitches, Panel Discussion, Cocktail Party. Plenty of time for networking!
Got a Question, Ask it here
[Link]
personal credit history - raising capital
Will angel investors look into the personal credit history of the person trying to get the funding for their venture?
Most likely. If you filed for 3 bankruptcies and are having your house foreclosed on and owe $80,000 to the credit card companies, an investor would feel a more than little silly writing you a huge check without knowing this.
He will also probably sue you for not disclosing that information prior to doing the deal, as well.
Got a Question, Ask it here
[Link]
Valuations for Startups - Angel Investors
How is valuation determined for a startup?
This is the $64,000 question. The answer is that there is no definite answer! However there are a few things that investors consider to determine valuation. As a startup, you typically don't have much in your company - your product may be complete, it might not….you are probably not selling too many of them, if any at all. Typically, if you are selling any of your product or service - even if you have 1 or 2 customers it proves that someone out there will buy it. $1 in revenue is 100x better than pre-revenue. Who is your management team - typically investors invest in the management team more so than the actual product. A crappy management team can screw up a great idea. On the other hand, a great management team can take even a pretty good idea to the top.
In general, keep your valuations low. I see start-up valuations of like $25,000,000 raising $3,000,000 for their pre-product, pre-revenue amazing idea that will be the next Microsoft! Do you know what investors say to that? next…
I know, I know, you don't want to give up 40% of your company. Keep in mind, an investor isn't a faceless bank. What you are doing when accepting a check from an investor is really bringing on a partner. You got the idea, they got the money. Someone wise once told me its better to own 10% of $10,000,000 than %100 of nothing.
Got a Question, Ask it here
[Link]
By far the best company EVER
I love getting pitches that start with: You probably hear this all the time, but I REALLY have the best business ever! Here is one where the math really works! Just brilliant.
Why don't you call me and we can try to work something out in a split business.
I got this program. Mabe we can turn it up a knotch?
What if I told you that I have a way to get $1 from everery one In the USA and more? Population Clocks. U.S. 307493447. World 6785276531 02:56 GMT (EST+5) Sep 20, 2009
Want in 307493447 People Divided by 4 to a Family = $76,873,361 Possibal Dollars. and No more emails.for you ever to be sent out.
call me. I got most of it up and running.
Got a Question, Ask it here
[Link]
Perfect Venture Conference: 11/12/09
FundingPosts Perfect Venture Conference V will be in NYC on Nov 12, 2009. We will have 20 early-stage Tech companies and over 40 VCs and Angel Investors!
No other tickets will be sold for this event, just the 20 companies and the investors will be there for a day of pitching, investor panels, interactive workshops, and private meetings. We will be putting the Right companies in front of the Right VCs and Angel Investors to tell you exactly what it takes to get funded. Every company will pitch multiple times to the Investors. There will be 2-minute elevator pitches to every panel, and even more 1-on-1 private Investor meetings than the previous Perfect Venture Conferences!
Got a Question, Ask it here
[Link]
Most popular VC Term: Capital Efficient
Whats the most important thing that an Investor is looking for today?
The most popular words I'm hearing are: Capital Efficient.
We had our Perfect Venture Conference 2 weeks ago and hosted over 60 VCs and Angels. Almost all of them mentioned running a capital efficient business.
Investors are concerned about the economy just like everyone else. They want to know that their investment in your company will enable you to grow. That you can operate in a lean and efficient manor and stretch a buck. I got a call from an entrepreneur the other day. His idea wasn't bad, but at the end of his pitch to me he mentioned that he was raising $20M for his startup, and that was the only way he could execute on his idea. This is not the type of business that will get funded.
As a start-up, you need to show that you can run a tight ship, and that you can take the round of capital that you are asking for and grow a nice and money-making business…and hopefully you wont need to raise another round.
Got a Question, Ask it here
[Link]
Arizona Venture Capital Event
Our next Sedona, AZ Venture Capital and Angel Investor event will be on Thursday, December 4, 2009.
We expect to have 4-6 VCs and Angels participating in this conference, like the past 2 years! The event is sponsored by and hosted at the Sedona Rouge Hotel and Spa. VCs and Angels interested in speaking let me know! http://www.fundingpost.com/breakfast/reg1.asp?event=160
Got a Question, Ask it here
[Link]
Dallas VC and Angel Event - June 4 2009
Our next Dallas, TX Venture Capital and Angel Investor event will be on Thursday, June 4, 2009.
We will have 4 Angel Investor Groups and VC Funds participating:
John Filla, Angel Investor, Houston Angel Network
John C. Adler, General Partner, Silver Creek Ventures
Dan Klein, Director, Hunt Ventures
Ben Doherty, Angel Investor, The Fat Cat Club
Go to: http://www.fundingpost.com/breakfast/reg1.asp?event=154&refer=iq for more details and to register.
Got a Question, Ask it here
[Link]
NYC Venture and Angel event May 13
Our next early-stage VC and Angel event in NYC is on May 13, 2009 from 2-6pm!
Moderator:
John Hempill, Partner, Morrison & Foerster
Speakers:
Larry Chaityn, President, Keiretsu Forum NY
Owen Davis, Managing Director, NYC Seed
Matt Turck, Principal, Bloomberg Ventures
Charlie Federman, Angel Investor, Crossbar Capital
Kyle Harris, Managing Director, Liquidity Works, Inc.
Amish Jani, Managing Director, FirstMark Capital
The event is 50% filled already (as of 4/23).
Go to: http://www.fundingpost.com/breakfast/reg1.asp?event=155&refer=iq for more details and to register.
Got a Question, Ask it here
[Link]
California VC and Angel Event - March 5 2009
Our next California Venture Capital and Angel Investor event will be on Thursday, March 5, 2009.
We will have 4 Angel Investor Groups and 7 VC Funds participating:
Ed Esber, Co-Managing Partner, The Halo Fund
Matthew Denesuk, PH.D., Partner, IBM Venture Capital Group
Richard Yen, Director, SABAN Ventures
Raman Khanna, General Partner, ONSET Ventures
Sven Strohband, Partner, Mohr, Davidow Ventures
George Petracek, Partner, Atrium Capital
Lars Leckie, Principal, Hummer Winblad Venture Partners
Arati Prabhakar, General Partner, U.S. Venture Partners
Fred Aslan, M.D., Vice President, Venrock
Mohammed Alzubi, Angel Investor, Sand Hill Angels
Jan Jannink, Angel Investor, Band of Angels
Brad Peery, Angel Investor, Keiretsu Forum
The event is 75% filled already (as of 2/19).
Go to: http://www.fundingpost.com/breakfast/reg1.asp?event=152&refer=iq for more details and to register.
Got a Question, Ask it here [Link]
Interview with 4 Investors -Listen anytime!
We recently interviewed 4 early-stage VCs and Angel Investors, who will be speaking at our November 3 and 4 conference in NYC.
It was a Live call with over 1000 people listening in. Investors on the call: Ron Thompson, Corporate Angels; Ross Goldstein, DFJ Gotham Ventures; John Filla, Houston Angel Network; Warren Haber, Jr., Crossbar Capital
More information on the Perfect Venture Conference in November with 50+ VCs and Angels: www.FundingPost.com/pvc
Got a Question, Ask it here [Link]
Angel Capital
What is Angel Capital? How can I get a list of Angel Capital groups?
Angel capital is money given to a company by Angel Investors (wealthy individuals). This is not institutional money, rather money earned (usually) by former executives of companies or by other means. It's cash from their own bank account. Its often known as risk capital because of the high risk in giving it to start-up companies. In fact, from what Angel Investors tell me and the audience at my Venture and Angel Events, they typically expect 60%+ of the companies that they invest in to go out of business!! They only expect to actually Make a nice return from 10% of the companies they invest in! Hopefully this will be a nice enough return to balance out and make a profit on all of the money they invested.
Often Angel Investors group together and form Angel Groups. There are hundreds of these throughout the country. Here is a directory of Angel Groups:
Angel Group Directory
Got a Question, Ask it here [Link]
VCs setting your valuation
In response to the FundingPost email for the event on June 5, 2008: The event will focus on best practices in raising capital…. how they determine your valuation.
This one caught my attention… you never let a VC tell you how to determine your valuation. Lol. It's like letting you home buyer tell you how much you should sell the house for!!
I notice the tone of this e-mail focuses on Entrepreneur sucking up to VC. I am an entrepreneur and the way I see it is, it's a privilege for VCs to invest in my company that i bust my chops to make it happen (and not the other way around).
VC and company's are partners in a single mission. Funding post should position it such a way. It's very immature to have entrepreneur who are the having to suck up to VCs. It doesn't have to be that way. It should be a place of gathering for two people with common goal to meet.
I dont think its about sucking up, but you Do need to impress the VC with your company. Positioning your pitch to make it out to be a "privilege" for the VC to invest doesn't often work….Unless you are a serial entrepreneur with large exits under your belt. Yes, you are busting your chops and working hard to grow your business, but if you need capital to grow, you need to impress the guy with the check book.
As for Valuation, yes, its a negotiation. You think its higher, they think its lower. So, how do they determine your valuation? Do they just take your word for it? probably not. They look at several factors, including the team, the technology, the market, what you have put into it (cash and sweat), competitors, how far along the company is, etc…. That mixed with a bit of their gut feeling is the number they come up with that they would buy in at. This is what they determine your valuation should be. Now, You dont have to take their money if you think they are valuing it too low, just as they certainly dont have to write you a check if they think you are valuing it too high.
When you buy your next house, I strongly recommend that you dont write a check for the listing price. Look at the other houses in the area, look at the quality of the house, the market, the schools, etc. and then make an offer of what you think the value of the house should be if you were to write a check.
Valuation is often a deal-killer. If the entrepreneur and the VC spend so much time negotiating this, it can be seen as a reflection of things to come. I often hear that getting rid of a business partner is harder than getting a divorce. You guys are in this for the long haul with a common goal. Its always in your benefit to understand how the VCs think, and what their expectations are right up front. Thats the goal of our events.
Got a Question, Ask it here [Link]
California VC and Angel Event - March 5 2009
Our next California Venture Capital and Angel Investor event will be on Thursday, March 5, 2009.
We will have 4 Angel Investor Groups and 7 VC Funds participating:
Ed Esber, Co-Managing Partner, The Halo Fund
Matthew Denesuk, PH.D., Partner, IBM Venture Capital Group
Richard Yen, Director, SABAN Ventures
Raman Khanna, General Partner, ONSET Ventures
Sven Strohband, Partner, Mohr, Davidow Ventures
George Petracek, Partner, Atrium Capital
Lars Leckie, Principal, Hummer Winblad Venture Partners
Arati Prabhakar, General Partner, U.S. Venture Partners
Fred Aslan, M.D., Vice President, Venrock
Mohammed Alzubi, Angel Investor, Sand Hill Angels
Jan Jannink, Angel Investor, Band of Angels
Brad Peery, Angel Investor, Keiretsu Forum
The event is 75% filled already (as of 2/19).
Go to: http://www.fundingpost.com/breakfast/reg1.asp?event=152&refer=iq for more details and to register.
Got a Question, Ask it here
[Link]
California Angel Investors
I’m in California and I'm looking for Angel Investors for my business. I know that there are a lot of rich software execs out here, but I don't know much about angel investing, how it works, how to meet them and what to say. any advice?
The first thing you need to do is decide if your type of business needs Angel Investors. Lots of people think of the term Angel Investors, or Venture Capital, as just another term for 'money'. Many very small businesses out there, mom & pop type businesses should NOT go after Angel Investors as a first source of capital.
I met a girl who recently opened a dog grooming shop in my neighborhood. She was 26 and always wanted to be in that business. She found a location, went to the bank and took out a small business loan for $30,000 to get it started. Her first year in business should net her over $100k.
However, she has no plans on growing this to a $100M corporation, or going public. She pays back the loan over a few years at x% and thats it.
Most Angel Investors aren't giving out loans. They Invest and become part owners. ie: They take stock, which is a percentage of your company. They eventually want you to grown the business into something VERY big and eventually sell it, after 5-7 years, giving them 10 Times what they originally invested.
You need to come to terms with what percentage of the business you want to give this person for his/her money (valuation). How much involvement you want from this person, and their expectations.
If you decide that you need to Raise capital from Angel Investors, this is a good set of 2 books to read: How to Raise your First Million Dollars VOL 1 & 2
Its a step by step on the capital raising process, with 10 Interviews with Angel Investor Groups, including California Angel Investors, and a directory of 50 Angel Investor groups in the US.
Got a Question, Ask it here
[Link]
Interview with 4 Investors -Listen anytime!
We recently interviewed 4 early-stage VCs and Angel Investors, who will be speaking at our November 3 and 4 conference in NYC.
It was a Live call with over 1000 people listening in. Investors on the call: Ron Thompson, Corporate Angels; Ross Goldstein, DFJ Gotham Ventures; John Filla, Houston Angel Network; Warren Haber, Jr., Crossbar Capital
More information on the Perfect Venture Conference in November with 50+ VCs and Angels: www.FundingPost.com/pvc
Got a Question, Ask it here
[Link]
Angel Capital
What is Angel Capital? How can I get a list of Angel Capital groups?
Angel capital is money given to a company by Angel Investors (wealthy individuals). This is not institutional money, rather money earned (usually) by former executives of companies or by other means. It's cash from their own bank account. Its often known as risk capital because of the high risk in giving it to start-up companies. In fact, from what Angel Investors tell me and the audience at my Venture and Angel Events, they typically expect 60%+ of the companies that they invest in to go out of business!! They only expect to actually Make a nice return from 10% of the companies they invest in! Hopefully this will be a nice enough return to balance out and make a profit on all of the money they invested.
Often Angel Investors group together and form Angel Groups. There are hundreds of these throughout the country. Here is a directory of Angel Groups:
Angel Group Directory
Got a Question, Ask it here
[Link]
VCs setting your valuation
In response to the FundingPost email for the event on June 5, 2008: The event will focus on best practices in raising capital…. how they determine your valuation.
This one caught my attention… you never let a VC tell you how to determine your valuation. Lol. It's like letting you home buyer tell you how much you should sell the house for!!
I notice the tone of this e-mail focuses on Entrepreneur sucking up to VC. I am an entrepreneur and the way I see it is, it's a privilege for VCs to invest in my company that i bust my chops to make it happen (and not the other way around).
VC and company's are partners in a single mission. Funding post should position it such a way. It's very immature to have entrepreneur who are the having to suck up to VCs. It doesn't have to be that way. It should be a place of gathering for two people with common goal to meet.
I dont think its about sucking up, but you Do need to impress the VC with your company. Positioning your pitch to make it out to be a "privilege" for the VC to invest doesn't often work….Unless you are a serial entrepreneur with large exits under your belt. Yes, you are busting your chops and working hard to grow your business, but if you need capital to grow, you need to impress the guy with the check book.
As for Valuation, yes, its a negotiation. You think its higher, they think its lower. So, how do they determine your valuation? Do they just take your word for it? probably not. They look at several factors, including the team, the technology, the market, what you have put into it (cash and sweat), competitors, how far along the company is, etc…. That mixed with a bit of their gut feeling is the number they come up with that they would buy in at. This is what they determine your valuation should be. Now, You dont have to take their money if you think they are valuing it too low, just as they certainly dont have to write you a check if they think you are valuing it too high.
When you buy your next house, I strongly recommend that you dont write a check for the listing price. Look at the other houses in the area, look at the quality of the house, the market, the schools, etc. and then make an offer of what you think the value of the house should be if you were to write a check.
Valuation is often a deal-killer. If the entrepreneur and the VC spend so much time negotiating this, it can be seen as a reflection of things to come. I often hear that getting rid of a business partner is harder than getting a divorce. You guys are in this for the long haul with a common goal. Its always in your benefit to understand how the VCs think, and what their expectations are right up front. Thats the goal of our events.
Got a Question, Ask it here
[Link]
California VC and Angel Event - March 5 2009
Our next California Venture Capital and Angel Investor event will be on Thursday, March 5, 2009.
We will have 4 Angel Investor Groups and 7 VC Funds participating:
Ed Esber, Co-Managing Partner, The Halo Fund
Matthew Denesuk, PH.D., Partner, IBM Venture Capital Group
Richard Yen, Director, SABAN Ventures
Raman Khanna, General Partner, ONSET Ventures
Sven Strohband, Partner, Mohr, Davidow Ventures
George Petracek, Partner, Atrium Capital
Lars Leckie, Principal, Hummer Winblad Venture Partners
Arati Prabhakar, General Partner, U.S. Venture Partners
Fred Aslan, M.D., Vice President, Venrock
Mohammed Alzubi, Angel Investor, Sand Hill Angels
Jan Jannink, Angel Investor, Band of Angels
Brad Peery, Angel Investor, Keiretsu Forum
The event is 75% filled already (as of 2/19).
Go to: http://www.fundingpost.com/breakfast/reg1.asp?event=152&refer=iq for more details and to register.
Got a Question, Ask it here
[Link]
NY Venture Capital and Angel Event: Feb 11
Meet 26+ VC Funds and Angel Groups at the FundingPost VC Showcase. Its a Reverse Venture Fair Cocktail Party on Wednesday, Feb 11, 2009 from 6-9pm.
Participating Funds: Stonehenge Growth Capital, Tri-State Private Investors, Global Media Fund, Genacast Ventures, Chart Venture Partners, Innovation Ventures, ETF Venture Funds, Originate Ventures, Edison Venture Fund, Rudyard Partners, Connecticut Innovations, DFJ Gotham Ventures, The Verticom Group, NYC Investment Fund, WFD Ventures, Milestone Venture Partners, Intel Capital, New York Angels, Golden Seeds, OmniCapital Group, Argentum Group, iNovia Capital, First Round Capital, Jumpstart NJ Angel Network & Greenhill SAVP and Connecticut Angel Guild
We call it a - "Reverse Venture Fair" - Where you go up and meet the VCs versus waiting for them to come and meet you.
Take advantage of this unique opportunity to meet investors - make sure to bring lots of executive summaries and business cards to hand out!
Go to: http://www.fundingpost.com/breakfast/reg1.asp?event=151&refer=iq for more details and to register.
Got a Question, Ask it here
[Link]
Most popular VC Term: Capital Efficient
Whats the most important thing that an Investor is looking for today?
The most popular words I'm hearing are: Capital Efficient.
We had our Perfect Venture Conference 2 weeks ago and hosted over 60 VCs and Angels. Almost all of them mentioned running a capital efficient business.
Investors are concerned about the economy just like everyone else. They want to know that their investment in your company will enable you to grow. That you can operate in a lean and efficient manor and stretch a buck. I got a call from an entrepreneur the other day. His idea wasn't bad, but at the end of his pitch to me he mentioned that he was raising $20M for his startup, and that was the only way he could execute on his idea. This is not the type of business that will get funded.
As a start-up, you need to show that you can run a tight ship, and that you can take the round of capital that you are asking for and grow a nice and money-making business…and hopefully you wont need to raise another round.
Got a Question, Ask it here
[Link]
Wall Steets affect on VC and Angel Investing
The big question I am hearing every day is How is this Wall Street Fiasco affecting Early-Stage VC and Angel Investing? Has the money dried up? Will Venture Funds and Angel Investors still consider my deal? How has this changed their strategy?
It was the big question at the FundingPost Venture Event last week in NYC where we asked this question of the 7 VCs and Angel Investors on the panel:
Moderator:
John Hempill, Partner, Morrison & Foerster
Speakers:
Sita Vasan, Senior Manager, Strategic Investments, Intel Capital
Morgan Rodd, Jr., Co-Managing Partner, ArrowPath Venture Partners
Ryan Ziegler, Investment Manager, Edison Venture Fund
Habib Kairouz, Managing Partner, Rho Ventures
Don Sussis, Angel Investor
Robert A. Spira, Chariman, Chapman, Spira & Carson
John Ason, Angel Investor
Here is what they said:
part 1
part 2
Upcoming FundingPost events: Venture Capital and Angel Investor events
Got a Question, Ask it here
[Link]
Interview with 4 Investors -Listen anytime!
We recently interviewed 4 early-stage VCs and Angel Investors, who will be speaking at our November 3 and 4 conference in NYC.
It was a Live call with over 1000 people listening in. Investors on the call: Ron Thompson, Corporate Angels; Ross Goldstein, DFJ Gotham Ventures; John Filla, Houston Angel Network; Warren Haber, Jr., Crossbar Capital
More information on the Perfect Venture Conference in November with 50+ VCs and Angels: www.FundingPost.com/pvc
Got a Question, Ask it here
[Link]
up front fee of $100K for funding
This may sound as absurd to you as it does to me. While searching for angel investors, a company contacted me (several in fact, but one was a real company with real people) and offered to fund my start up to full production due to the type of mfg as long as it's all USA made. (My plan anyhow). Funds are incredible and the employees and business check out with my lawyer. They want the min fee of 100K up front that is refundable in 6 months with funding draw #1. These people check out and as I have been raising the 100K plus attny fees and living expenses for 6 mos. a few people questioned this. They too are running due dilligence and I hate to even think this is a scam. It checks out and the state they are from says they are legit.. my lawyer says they are legit… Research shows connections of these people to all the right groups, but I know scams can run deep. Gut instict said to listen to them, second instinct is in awe.. and finally I am double checking myself. A wealthy potential provider of these initial funds is also doing due dillidence. This is a big deal and a life altering invention that will change the USA and mankind. How often does this kind of thing take place on the up and up?
I would NEVER pay out $100K as an up front fee for them to write you a check. PERIOD. It does sound absurd and you will most likely never see a dime of their financing nor your $100K ever again. Look for an investor who wants to write YOU a check, not the other way around.
Now, I know of financiers and lenders, especially in equipment or purchase order where they change an application fee, but $100K is ridiculous.
Got a Question, Ask it here
[Link]
VCs setting your valuation
In response to the FundingPost email for the event on June 5, 2008: The event will focus on best practices in raising capital…. how they determine your valuation.
This one caught my attention… you never let a VC tell you how to determine your valuation. Lol. It's like letting you home buyer tell you how much you should sell the house for!!
I notice the tone of this e-mail focuses on Entrepreneur sucking up to VC. I am an entrepreneur and the way I see it is, it's a privilege for VCs to invest in my company that i bust my chops to make it happen (and not the other way around).
VC and company's are partners in a single mission. Funding post should position it such a way. It's very immature to have entrepreneur who are the having to suck up to VCs. It doesn't have to be that way. It should be a place of gathering for two people with common goal to meet.
I dont think its about sucking up, but you Do need to impress the VC with your company. Positioning your pitch to make it out to be a "privilege" for the VC to invest doesn't often work….Unless you are a serial entrepreneur with large exits under your belt. Yes, you are busting your chops and working hard to grow your business, but if you need capital to grow, you need to impress the guy with the check book.
As for Valuation, yes, its a negotiation. You think its higher, they think its lower. So, how do they determine your valuation? Do they just take your word for it? probably not. They look at several factors, including the team, the technology, the market, what you have put into it (cash and sweat), competitors, how far along the company is, etc…. That mixed with a bit of their gut feeling is the number they come up with that they would buy in at. This is what they determine your valuation should be. Now, You dont have to take their money if you think they are valuing it too low, just as they certainly dont have to write you a check if they think you are valuing it too high.
When you buy your next house, I strongly recommend that you dont write a check for the listing price. Look at the other houses in the area, look at the quality of the house, the market, the schools, etc. and then make an offer of what you think the value of the house should be if you were to write a check.
Valuation is often a deal-killer. If the entrepreneur and the VC spend so much time negotiating this, it can be seen as a reflection of things to come. I often hear that getting rid of a business partner is harder than getting a divorce. You guys are in this for the long haul with a common goal. Its always in your benefit to understand how the VCs think, and what their expectations are right up front. Thats the goal of our events.
Got a Question, Ask it here
[Link]
Raising Venture Capital for a store
I have a small pet shop that is presently a sole proprietorship. Would I have to incorporate to raise venture capital?
This is a great question - Company is a Sole Proprietorship, should you Incorporate to raise capital? Yes. Investors wont invest in a Sole Proprietorship for the simple reason that there is only one owner. The VC or Angel Investor cant buy any stock. However, you can still raise money by things like factoring, bank loans or venture leasing.
The main thing I wanted to explain is why would a small one store pet shop want to raise venture capital? You probably don't. First thing I want to explain - cause I hear this So often is: Venture Capital is not a synonym for Money. Most early stage entrepreneurs hear the words Venture Capital and are not sure what that really means, except that they can 'give' you money. Most of these people who say they need to raise Venture Capital don't need to, and wouldn't want to if they know what it actually means.
Now, this might not be the exact scenario of the question above, but Im going to generalize and say that people who own small pet stores, or other small businesses and want additional capital are looking for anywhere from $25,000 to $100,000 to buy more product, expand into the store next to them, or to pay off bank loans and other debt.
If you say I need to raise venture capital, it means a number from $1M up (typically) and the VC is buying stock (ownership) in your company. The VC is looking for a LARGE multiple on his investment - typically 10X +. That means if he invests $1M in your corporation, he will eventually want you to Sell the company (or go public) earning him $10 million + in a few years. This means you want your small pet store to go head to head with some of the larger chains and have them eventually buy your company for many millions of dollars.
Now, I don't want to dissuade people from raising money from VCs or Angel Investors. In fact, that's my business at FundingPost. FundingPost maks introductions from Investors to Entrepreneurs every single day raising $250,000 to $10,000,000+. Almost every large corporation out there has raised money from outside investors at one point.
You just have to consider what you are raising the money for.
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Investment capital to build a factory
I need about $1,000,000 to build a factory in Japan. Do I need to give away shares of my firm to get a business loan from angel investor? Can I just give away a percentage of the future profit?
If you can get someone to give you a million dollars for only a percentage in future profits, you are a better salesman than anyone I know!
That's sorta risky for an investor. He gives you $1 Million. Then he has to wait till you build a factory, then get your business going, then start selling your product, then get profitable before seeing a dime! This could take years and you may never get profitable.
What happens in 4 years when you are about to get profitable, then you go out of business? Or you Sell the business? What does the investor get? There is no way any investor would agree to that.
Even a bank loan holds something as collateral. Though to actually build a factory, they would hold a lot more than buying an existing factory.
Now if you gave the investor equity in the company (part ownership in stock) and secured his investment with the equipment you are buying with his money, and gave him a split of the profits you may have a better shot!
You might now be thinking: No Way! That's too much!
Well, I guess it goes back to the Golden rule: He who has the Gold, rules.
I hear all the time from investors speaking at my venture capital events that the money is out there, you just have to be reasonable in your negotiations in order to get it. Having a great product and an amazing management team helps too!
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Investors for a bar without giving up equity
I would like to find a few investors for my Bar/restaurant, but I don't want to offer a percentage of interest in the business. How should I proceed and How do I pay off these investors?
What you want is a Loan. Investors typically take an equity stake, and/or a profit share in the business.
Banks will invest a sum of money, usually secured by something like your house, or the restaurant, and you pay it back, with interest, in monthly increments. They take no equity in your business and once its paid back you don't owe them anything.
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Angel Capital
What is Angel Capital? How can I get a list of Angel Capital groups?
Angel capital is money given to a company by Angel Investors (wealthy individuals). This is not institutional money, rather money earned (usually) by former executives of companies or by other means. It's cash from their own bank account. Its often known as risk capital because of the high risk in giving it to start-up companies. In fact, from what Angel Investors tell me and the audience at my Venture and Angel Events, they typically expect 60%+ of the companies that they invest in to go out of business!! They only expect to actually Make a nice return from 10% of the companies they invest in! Hopefully this will be a nice enough return to balance out and make a profit on all of the money they invested.
Often Angel Investors group together and form Angel Groups. There are hundreds of these throughout the country. Here is a directory of Angel Groups:
Angel Group Directory
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[Link]
Interview Request! under-40 entrepreneur from 1999
I have a friend who is writing an article and needs an Entrepreneur who is under 40 yrs old, and whose companies date back to 1999 or so, who now has $5M in revenue or more, who did some creative things to slog through the downturn until things improved. Any industry, don't care about where they're at with fundraising.
Also looking for anyone who is still in business, any age, who's got a '91 recession survival story and grew into a big success, and they're still with the business
This is a short term request - - Its now 4/22/08. Please contact me in the next 3 weeks.
Got a Question, Ask it here
[Link]
San Francisco Software Angel Investors & VCs
I am beginning a software company in the San Francisco Bay area. Are there any special groups or investors that specialize in software industries?
Um, Yeah! You are right near Silicon Valley. This has the highest concentration of Software and Technology VCs on the planet. FundingPost does events there all the time. The last one we did had speakers from Venrock Associates, Rocket Ventures, Selby Venture Partners, Trinity Ventures, GKM Ventures, Pyramid Technology Ventures, Diamondhead Ventures, Altos Ventures, Horizon Ventures, CDIB Ventures, Red Rock Ventures, and Vision Capital. All of these firms look at software and technology.
Got a Question, Ask it here
[Link]
VC Term Sheets: What you should expect
What you should expect in a term sheet? What should be in your business plan & executive summary? What kinds of customer and revenue requirements investors require? What kinds of technology would work for me? Which kind of capital to raise, and, of course, should you be raising Venture or Angel Capital or using some other sort of financing options like factoring?
Wow. That's just about every questions concerning raising capital that you can ask. For most of these, there is no exact answer, but Ill give it a shot.
What you should expect in a term sheet?
Basically, these are the terms the investor has come up with when he gives you a check. It's sorta like the contract. For this amount of money, you will give me x% of your company, a board seat, this many warrants, and first right of refusal on future rounds. The exact terms vary with each investment. Depending on how far along you are and how much money you are raising determines the x% and everything else. Its how much you are valued at (your valuation).
What should be in your business plan & executive summary?
While people only write a biz plan when they are raising capital, the business plan is something that is really written for YOU. It's a plan on how to run your business. You need to include how the business operates and makes money, your financials (3 year is fine), some info on your market, and your management team. I usually hear investors say they read business plans from the back to the front, reading your management team first. Your exec summary is the same, only shorter. You need to explain your business in 1 page. This should be an easy to read document that entices an investor to want more. And if you can't explain your business in one page, don't bother talking to an investor until you can.
What kinds of customer and revenue requirements investors require?
Varies with each investor and each deal. However, investors usually want to see that someone out there will buy your product. So having one customer and $50 in revenue is 1000% better than no customers.
What kinds of technology would work for me?
Um, I have no idea what you do. But in most cases you need a website (97% of the time) You need to get the word out there and start getting customers, or people who will read your updates. You should collect email addresses and demographics and keep in touch with your customers. If you have a website and you are not doing this, Shame on you! Here is a great resource: www.GotForm.com. This site will let you put email and demographic collection on your existing website without knowing much about HTML programming… It also gives you tell-a-friend (for viral marketing) and a contact us form (to let your customers conveniently email you.) Its all easily customizable through the GotForm website. In fact, we use it on THIS website. See the "Join my mailing list" text on the left? That's gotform!
Which kind of capital to raise, and, of course, should you be raising Venture or Angel Capital or using some other sort of financing options like factoring?
Well it depends on what you do, how much you need and what you need the money for. If you need $200,000 you don't need venture capital you need an Angel Investor or 2. If you need $6,000,000 you need VCs. If you are operating your business but you are finding that your customers are paying in 45-60 days and it's putting you in a cash crunch, you should consider factoring. You'll get paid immediately (minus a small %) There are also other options such as PO financing, Venture Equipment Leasing, and of course, grants and bank loans.
Got a Question, Ask it here
[Link]
meeting with Angel Investors and VCs
How do I actually meet investors?
Good question - well, if you are on this site, you're on the right path. Many investors can be found on the internet. But if you type in the word INVESTOR you get 5 million sites….
There are other ways as well. Go to an investor related event. There are plenty of them around, and new investor event companies are popping up every day - It seems to be the new trend. Some events are better than others, some are a complete waste of money. You should search for an event thats right for you. Events are a great way to be in the same room as an investor and get a chance to give your elevator pitch. I know of several financings that have come as a result of venture events (including the ones hosted by FundingPost)
There are other ways as well - there are Online listing services. Some people say they dont work, some say they do. I know I see a lot of introductions made through mine. (an average of 1 every single day)
You can also go the Broker Route. But you gotta be careful. There are a lot of brokers who charge hefty retainers - upwards of 10k a month!) and do nothing. If a broker wants a large monthly, and a large success fee, I suggest getting another quote….
Heres something not to do. Dont blanket fedex your business plan to 300 VCs you found on google. It doesnt work. They will just go in the trash. Same goes for email.
VCs and Angel Groups get thousands of plans a year - Most of them are unsolicited. None of them get funded. You need to be introduced through a qualified source. Does your law firm know of any VCs? Your accounting firm? These people are usually good referral sources. Another great referral is one from another VC! Remember, investors are often friends with other investors.
Sometimes at our events an entrepreneur comes up to me and says that the investors in the room arent interested in his idea. I usually send that person back to ask each VC what other firm he should contact that may be interested. Usually that entrepreneur goes home with a few really good leads.
Got a Question, Ask it here
[Link]
Venture Capital: Risks in Raising Venture Capital
What risks do I run choosing venture capital to start up my business?
Now that's a great question! People say they need VC to start their business, but often the startups don't necessarily understand what that means! Most people think of Venture Capital as another word for Money. It's a lot more than that!
When you take in VC money you are taking in new co-owners of your business. Actually, the money you are taking in usually isn't even the VCs money - its their investors money! Yes, VCs raise money just like you. And since they are playing with someone else's money, they have to report on the activities to their LPs (limited partners). They want to report good news so they need good news to report, which is where that whole co-owner thing comes in. They need to make sure that you are doing the right thing, and are on the right track to make them a lot of money. You need to report good news to them!
So here's a risk - you now have someone to report to! Before, if you didn't meet your numbers, or if you didn't want to work for a few days, or if you use your corporate credit card to pay for your hotel for you and your wife, a nice dinner and show tickets in NYC and expense it, that was no big deal. It is now!
People don't like when you 'mess' with their money. The Investment you got wasn't a favor, it was an investment. The investors are going to do anything in their power to secure this investment. Even if that means…and here's another risk…replacing some of the management team.
Every entrepreneur loves their own business - whatever you are doing. But sometimes you are not the right CEO to take your business to the next level! Yup, take in enough Investment capital and one day you can wake up out of your CEO job. You won't be fired, you would probably remain on as president or COB or something… Of course, this wont make you poor, you'll still have your stock - and hopefully the new CEO will be able to take the company to an exit (IPO or acquisition) where you and the VCs make a lot of money.
Another thing I want to be clear on, is that when an investor gives you a check, he becomes a co-owner of your company. You used to own 100% of your company, now you own 68% (or something). If you raise another round, that number goes down even further. Usually by the time a company goes public, the original owners own just a small part of the company! That might scare you - but its not really a risk. One of my old investors once told me its better to own 10% of $10,000,000 than 100% of nothing.
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[Link]
Following up with Angel Investors
I met an investor at one of your events 2 months ago - he seemed really interested in my company and told me he would follow up but I never heard from him. Any advice on what I did wrong?
Sure - I got advice, persistence. VCs and Angel Investors get so busy from the outside it seems like they don't care about you or have a serious case of A.D.D.
It's not true. Investors work long hours and usually on multiple projects at once. That's in addition to the multiple biz plans they are reading about potential new projects, and the dozens of spammed biz plans that clog up their spam filter on their way to the trash bin.
Oh yeah, don't do that. Don't buy a VC list and email out your biz plan to everyone. It's a waste of bandwidth and usually puts you on a blacklist so even if you want to communicate legitimately with an investor, you cant.
Anyway, back to the question. Investors get busy so the best way to get their attention is with a gentle reminder. Persistence - you are asking for a lot of money! Maybe touch base from time to time? Now remember, Persistence borders on annoyance, so don't go crazy. Check in, say hi, or better yet, send periodic updates.
That works well: Bill,
I hope you are enjoying your summer. We've had a busy month here at my company. Those 2 potential contracts I mentioned last time were just signed! This is a huge step forward for our company, not to mention a big revenue boost.
Drop me a note when you get the chance, I look forward to catching up!
Thanks,
Joe Rubin
COMPANY NAME
COMPANY URL
EMAIL
PHONE
Here is another tip - and something that truly drives me crazy. When you send the above email to the investor, check to see if he sent you an email before. If he did, reply to that email - and be sure that his Original email is on the bottom.
You would not believe how many emails I get every day. Its a ridiculous amount. So many of the emails are replies to something I sent - many of them have no email trail on the bottom and no contact info.
So i get an email that says "I just did that thing we discussed". Well what does that mean?!?! If my original reply was on the bottom I would know what you are talking about.
Well now I'm just ranting. But take my advice seriously - if it annoys me, it annoys the investors and its just easier for them to hit DELETE than deal with it.
Got a Question, Ask it here
[Link]
VC Returns - How Much are VCs looking for?
What kind of returns are Venture Capitalists looking for?
Big returns. VCs are not banks - they do not charge an interest rate on an equity investment.
Note: There are such things as venture firms who also do convertible & bridge loans. This is explained in another question
VCs are looking for returns in excess of 10x. So if they give you a million dollars, in a few years, when you exit the company by either an acquisition or an IPO, they want at least $10M.
Now they don't expect every investment to be a home run like that. That's why they diversify and make multiple investments. They know that some of them will fail, some will do OK, fewer will do very well and 1 or 2 will be the home run.
But their investment process qualifies companies as if you are going to be the home run (not the strike out)
Another thing you have to remember is that eventually the investor wants to be paid back! This means that you need to 'exit' the company through an M&A (selling the company), or the less likely, IPO (going public). While they don't expect you to do this right away, once they write the check, they will be helping you grow your company specifically for this purpose.
Got a Question, Ask it here
[Link]
Venture Capital Term Sheets explained
What you should expect in a term sheet? What should you watch out for and be sure to include in a contract?
Terms sheets are pretty complex, but they all include the same basic stuff. They are always written by the VC giving you the money. They include everything from Pre-Money Valuation of the Company, Anti-Dilution Protection in later rounds through Liquidation Preference on exit.
FundingPost hosted an event with Nisha Atre of Mellon Ventures where she covered everything regarding term sheets. We keep this as a free resource at FundingPost - you can view it here: Term Sheets
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Following up with Angel Investors & VCs
Whats the best way to follow up with investors?
OK - I've answered this one before, but I'll add to it.
Most entrepreneurs fail on the follow-up!
I see it all the time. Entrepreneurs send one email or leave one message and dont get a return call - and thats it. No more contact. write that investor off.
Thats the wrong way to do it folks - you need to be persistant, but not annoying! Send interested investors regular updates on your progress. You just hit a new milestone, or revenue goal, you just signed a contract or hit 1M page views to your site. Anything of substance will do. DO NOT send a pissed-off email that asks why they aren't returning your calls.
Also, keep a tab on the investors happenings as well! Subscribe to their blog, read their press releases, check up on who they are investing in. Then send them a 'congrats on your recent investment or exit', in addition to your update. One of the companies they just invested in MAY be a compliment to your company! Let them know how!
In short, do your homework, be persistant, and as Bob Gailus from NY Angels said at our Perfect Venture Conference the other day, "Talk to an investor with the same respect that you would talk to your mother".
Also, on a side note. If an investor asks for something specific, Please send them exactly that. If they say: Send a 1 page summary, do NOT send a 3 page executive summary!
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IQ Makes the AllTop List
Not Really a Question, just a note from me that we InvestorQuestions made the Alltop.com list of valuable resources of Venture Capital RSS Feeds and websites. Its big news making the news!! So this entry is my way of standing behind the reporter and yelling "him mom!"
I did that last week on ABC news when they were at my California Venture Event.
But seriously, if you have learned anything useful from my site, there are a bunch of other useful sites relating to raising venture capital listed at Alltop.com. It's kind of a magazine rack, or an expanded blog roll managed by real humans! and if you are raising capital, you should Definitely be subscribing to one or more of these feeds.
(Oh yeah - be sure to check out the FP feed on that same Alltop page!)
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[Link]
angel investor exit strategies
What are some good strategic ways i can come up with exit strategies for my angel investors. The industry is advertising and the business is car wraps. The future of advertising. (Mobile Billboards.)
There are only a few possible exit strategies.
One, you sell the company. This gives you cash (or stock) that you give to you investors based on what they invested in the company.
Two, you go public. This is a very unlikely scenario for you, especially if you are dealing with Angel Investors only, and being a small company. Of course, there are other ways like Pink sheets and public shells, but you still have to be a little further along in your companies life-cycle.
Three, you can buy back their shares. Though, you will have to make them a nice offer, especially if your company is doing well. They aren't going to want the exact amount they put in. They are going to want a lot more…..if they even go for it.
Four, you can NOT exit, but pay them a dividend or a percentage of the profits.
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[Link]
personal credit history - raising capital
Will angel investors look into the personal credit history of the person trying to get the funding for their venture?
Most likely. If you filed for 3 bankruptcies and are having your house foreclosed on and owe $80,000 to the credit card companies, an investor would feel a more than little silly writing you a huge check without knowing this.
He will also probably sue you for not disclosing that information prior to doing the deal, as well.
Got a Question, Ask it here
[Link]
Valuation for a start-up
I am interested in knowing how to place a value or dollar amount for shares as it relates to a startup? For instance if a company needs $500k how do they utilize their shares to raise it?
This is called the company's Valuation. Basically if you need $500K, you (and the investor with the check) need to determine what percent of the company that money buys. You would then sell that many shares in your company.
Valuation is determined by many things, though it usually comes down to a gut feeling.
Here are a few good links explaining valuation:
http://www.investorquestions.com/venture-capital-answers.asp?id=26
http://www.investorquestions.com/venture-capital-answers.asp?id=38
Example Term Sheets:
http://www.fundingpost.com/investor-presentations/term-sheets-mellon-ventures.asp?refer=iq
Book on raising your first round of Capital:
http://www.fundingpost.com/products/Item.asp?refer=IQ&item_id=486
Got a Question, Ask it here
[Link]
VC and Angel Investor - stages of financing
What does it mean to finance different stages: Angel, Seed, 1st round, 2nd round, later stage?
This refers to the various stages of a company lifecycle.
The first would be founder, friends and family. This is you at the idea stage. You put in $10K, and you get some close family and friends to put in a few thousand dollars (or more, depending on how much money they have and how much they like you 
to get the business started.
Angel and Seed usually go together. They are the First outside investors that put money into your company - usually $50,000 to $1,000,000 (depending on the company) They are usually rich individuals who have some knowledge of the industry and like to take a gamble for the potential upside.
First Round is just after that. This is typically a company that has more structure, a product, a basic management team, you could have some revenue/sales, but you are not a $10M corporation. It's Early-Stage. Typical investments range from $1-$5M.
Second stage is after that. The company has a lot of traction, strong sales, a solid team, and they are looking to heavily expand nationwide or internationally, and are on track to pull in several million dollars in revenue. They an raise anywhere from $7-20M in VC capital.
Later Stage is after that (or at the same time) This is often grouped with the LBO (leveraged buy out) category. This would be for raising a large amount of money to Buy another corporation, position yourself to be purchased, or to go public.
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[Link]
California Angel Investors
I’m in California and I'm looking for Angel Investors for my business. I know that there are a lot of rich software execs out here, but I don't know much about angel investing, how it works, how to meet them and what to say. any advice?
The first thing you need to do is decide if your type of business needs Angel Investors. Lots of people think of the term Angel Investors, or Venture Capital, as just another term for 'money'. Many very small businesses out there, mom & pop type businesses should NOT go after Angel Investors as a first source of capital.
I met a girl who recently opened a dog grooming shop in my neighborhood. She was 26 and always wanted to be in that business. She found a location, went to the bank and took out a small business loan for $30,000 to get it started. Her first year in business should net her over $100k.
However, she has no plans on growing this to a $100M corporation, or going public. She pays back the loan over a few years at x% and thats it.
Most Angel Investors aren't giving out loans. They Invest and become part owners. ie: They take stock, which is a percentage of your company. They eventually want you to grown the business into something VERY big and eventually sell it, after 5-7 years, giving them 10 Times what they originally invested.
You need to come to terms with what percentage of the business you want to give this person for his/her money (valuation). How much involvement you want from this person, and their expectations.
If you decide that you need to Raise capital from Angel Investors, this is a good set of 2 books to read: How to Raise your First Million Dollars VOL 1 & 2
Its a step by step on the capital raising process, with 10 Interviews with Angel Investor Groups, including California Angel Investors, and a directory of 50 Angel Investor groups in the US.
Got a Question, Ask it here
[Link]
angel investor exit strategies
What are some good strategic ways i can come up with exit strategies for my angel investors. The industry is advertising and the business is car wraps. The future of advertising. (Mobile Billboards.)
There are only a few possible exit strategies.
One, you sell the company. This gives you cash (or stock) that you give to you investors based on what they invested in the company.
Two, you go public. This is a very unlikely scenario for you, especially if you are dealing with Angel Investors only, and being a small company. Of course, there are other ways like Pink sheets and public shells, but you still have to be a little further along in your companies life-cycle.
Three, you can buy back their shares. Though, you will have to make them a nice offer, especially if your company is doing well. They aren't going to want the exact amount they put in. They are going to want a lot more…..if they even go for it.
Four, you can NOT exit, but pay them a dividend or a percentage of the profits.
Got a Question, Ask it here
[Link]
personal credit history - raising capital
Will angel investors look into the personal credit history of the person trying to get the funding for their venture?
Most likely. If you filed for 3 bankruptcies and are having your house foreclosed on and owe $80,000 to the credit card companies, an investor would feel a more than little silly writing you a huge check without knowing this.
He will also probably sue you for not disclosing that information prior to doing the deal, as well.
Got a Question, Ask it here
[Link]
Valuation for a start-up
I am interested in knowing how to place a value or dollar amount for shares as it relates to a startup? For instance if a company needs $500k how do they utilize their shares to raise it?
This is called the company's Valuation. Basically if you need $500K, you (and the investor with the check) need to determine what percent of the company that money buys. You would then sell that many shares in your company.
Valuation is determined by many things, though it usually comes down to a gut feeling.
Here are a few good links explaining valuation:
http://www.investorquestions.com/venture-capital-answers.asp?id=26
http://www.investorquestions.com/venture-capital-answers.asp?id=38
Example Term Sheets:
http://www.fundingpost.com/investor-presentations/term-sheets-mellon-ventures.asp?refer=iq
Book on raising your first round of Capital:
http://www.fundingpost.com/products/Item.asp?refer=IQ&item_id=486
Got a Question, Ask it here
[Link]
Following up with Angel Investors & VCs
Whats the best way to follow up with investors?
OK - I've answered this one before, but I'll add to it.
Most entrepreneurs fail on the follow-up!
I see it all the time. Entrepreneurs send one email or leave one message and dont get a return call - and thats it. No more contact. write that investor off.
Thats the wrong way to do it folks - you need to be persistant, but not annoying! Send interested investors regular updates on your progress. You just hit a new milestone, or revenue goal, you just signed a contract or hit 1M page views to your site. Anything of substance will do. DO NOT send a pissed-off email that asks why they aren't returning your calls.
Also, keep a tab on the investors happenings as well! Subscribe to their blog, read their press releases, check up on who they are investing in. Then send them a 'congrats on your recent investment or exit', in addition to your update. One of the companies they just invested in MAY be a compliment to your company! Let them know how!
In short, do your homework, be persistant, and as Bob Gailus from NY Angels said at our Perfect Venture Conference the other day, "Talk to an investor with the same respect that you would talk to your mother".
Also, on a side note. If an investor asks for something specific, Please send them exactly that. If they say: Send a 1 page summary, do NOT send a 3 page executive summary!
Got a Question, Ask it here
[Link]
California Angel Investors
I’m in California and I'm looking for Angel Investors for my business. I know that there are a lot of rich software execs out here, but I don't know much about angel investing, how it works, how to meet them and what to say. any advice?
The first thing you need to do is decide if your type of business needs Angel Investors. Lots of people think of the term Angel Investors, or Venture Capital, as just another term for 'money'. Many very small businesses out there, mom & pop type businesses should NOT go after Angel Investors as a first source of capital.
I met a girl who recently opened a dog grooming shop in my neighborhood. She was 26 and always wanted to be in that business. She found a location, went to the bank and took out a small business loan for $30,000 to get it started. Her first year in business should net her over $100k.
However, she has no plans on growing this to a $100M corporation, or going public. She pays back the loan over a few years at x% and thats it.
Most Angel Investors aren't giving out loans. They Invest and become part owners. ie: They take stock, which is a percentage of your company. They eventually want you to grown the business into something VERY big and eventually sell it, after 5-7 years, giving them 10 Times what they originally invested.
You need to come to terms with what percentage of the business you want to give this person for his/her money (valuation). How much involvement you want from this person, and their expectations.
If you decide that you need to Raise capital from Angel Investors, this is a good set of 2 books to read: How to Raise your First Million Dollars VOL 1 & 2
Its a step by step on the capital raising process, with 10 Interviews with Angel Investor Groups, including California Angel Investors, and a directory of 50 Angel Investor groups in the US.
Got a Question, Ask it here [Link]
California Venture Capital
I have a california based software company and Im looking to raise my first round of Venture Capital - It seems like I am going to get a low valuation. How can I get investors to give me a better valuation so I give away less of the company?
Good question! There is no exact answer for this. Valuation is determined on several factors including how far along the product is, are there sales, the management team, etc….
We just did a VC Event in California. On this panel we had 4 venture capital firms speaking about raising capital in California. One point was made by John Hall of Horizon Ventures on how to get a better valuation based on timing and milestones. Watch this short video:
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Angel Investor for South African Company
I have established a high technology startup company in South Africa. Our first project is assembling, marketing and selling branded desktop PCs and notebooks. Our business require start-up amount of $ 3 million to design , develop and pilot out product. Is there an angel investor out there willing to invest in our project?
Congratulations of what sounds like an exciting venture. Keep in mind that the hardware industry is a highly competitive marketplace with some very deep pocketed players. In order to be successful in this market, you have to overcome two substantial obstacles. First and foremost, you have to overcome the brand image of companies like Dell, HP, Compaq, IBM and Sony. Their brand alone signifies tremendous quality and great loyalty by consumers. These are household name companies. Regardless of whether or not your systems can outperform and are less money, these larger companies have the infrastructure to support sales, low cost buying, overseas partners with cost-effective parts and add-ons, intense, multi-million dollar ad campaigns as well as service departments and customer service groups located across the globe. This is daunting set of competitors to go up against and you're playing in a very crowded, thin-margined, marketplace. Second, you have to show why your product(s) are superior in quality, performance, durability, or perhaps some technological edge. You have to ask yourself, why would someone buy by brand X computer over an established company's brand like Dell? What can I offer to a customer in addition to a computer that may be better? i.e. service, customer support, etc. To answer your question in short, yes. There are angel investors and venture capitalists that may consider your opportunity a valued one, but your business plan has to convey exactly how you differentiate yourselves from the giants mentioned above, how you will be able to produce computers at a cost effective rate, show solid profit margins on sales, define a clear marketing plan that will hold up, and a growth plan to effectively increase sales year after year despite intense competition. You'll also have to show how you plan to support service issues, customer service, distribution, etc. Finally, you have to show that the management of this company has the experience and skill sets to execute your plan effectively. Not impossible, but enormous hills to climb. I understand that your question was to learn about an angel investor willing to help develop a prototype and work through design issues. Keep in mind that no investor will put up money without a long-term plan in place. What you're looking for is typically referred to as "seed" capital - capital used to build your first product, get some feedback, iron out the kinks and come up with the final product. Once that is established and completed, you would then seek an 'A' round of financing to get the business rolling. My advice, work on your business plan and "make it bulletproof" - meaning, make sure that when you present your plan to professional investors, it will survive the intense scrutiny that it will receive. I would be happy to answer another question or expand on what I've already discussed.
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Real Estate Angel Investors for Rehab
I would like to raise capital to buy houses to rehab. Who do you recommend?
You should ask people you know. Friends and Family as Investors. OR, you should try a bank loan.
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What are Broker fees for VC funding
What is the normal fee to use a broker to obtain VC funding?
The basic concept is that you pay a broker to sell your securities - raise you money.
There is no normal fee - Broker fees range significantly. However, a higher monthly retainer doesn't always mean better service.
We always advice entrepreneurs to watch out for brokers who charge a monthly retainer and ask for very little on the back-end (a percentage of the deal) as there is very little incentive to actually raise you any money when they are getting a check from you every month.
On the other hand, it is very tough to find a broker that will work solely on a success fee basis. I have yet to meet one, unless the deal was simply a no-brainer and he knew exactly who would fund it.
If the broker is willing to negotiate on the monthly and take more of a success fee its usually a good sign. Also, you have to do some Due Diligence on your broker - check out his track record. If you are going to hire someone to do this, you have to be comfortable.
Lastly, and most importantly, make sure this broker is licensed! Securities are governed by the SEC - if you broker is not licensed with the SEC you may run into some serious issues down the road. While it might be overlooked, when you have someone introduce you to THIS round of early-stage capital, when you go after your NEXT round of institutional capital, the VCs will not look favorably upon this - and it will most likely ruin your chances of getting capital.
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Following up with Angel Investors
I met an investor at one of your events 2 months ago - he seemed really interested in my company and told me he would follow up but I never heard from him. Any advice on what I did wrong?
Sure - I got advice, persistence. VCs and Angel Investors get so busy from the outside it seems like they don't care about you or have a serious case of A.D.D.
It's not true. Investors work long hours and usually on multiple projects at once. That's in addition to the multiple biz plans they are reading about potential new projects, and the dozens of spammed biz plans that clog up their spam filter on their way to the trash bin.
Oh yeah, don't do that. Don't buy a VC list and email out your biz plan to everyone. It's a waste of bandwidth and usually puts you on a blacklist so even if you want to communicate legitimately with an investor, you cant.
Anyway, back to the question. Investors get busy so the best way to get their attention is with a gentle reminder. Persistence - you are asking for a lot of money! Maybe touch base from time to time? Now remember, Persistence borders on annoyance, so don't go crazy. Check in, say hi, or better yet, send periodic updates.
That works well: Bill,
I hope you are enjoying your summer. We've had a busy month here at my company. Those 2 potential contracts I mentioned last time were just signed! This is a huge step forward for our company, not to mention a big revenue boost.
Drop me a note when you get the chance, I look forward to catching up!
Thanks,
Joe Rubin
COMPANY NAME
COMPANY URL
EMAIL
PHONE
Here is another tip - and something that truly drives me crazy. When you send the above email to the investor, check to see if he sent you an email before. If he did, reply to that email - and be sure that his Original email is on the bottom.
You would not believe how many emails I get every day. Its a ridiculous amount. So many of the emails are replies to something I sent - many of them have no email trail on the bottom and no contact info.
So i get an email that says "I just did that thing we discussed". Well what does that mean?!?! If my original reply was on the bottom I would know what you are talking about.
Well now I'm just ranting. But take my advice seriously - if it annoys me, it annoys the investors and its just easier for them to hit DELETE than deal with it.
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VC Term Sheets: What you should expect
What you should expect in a term sheet? What should be in your business plan & executive summary? What kinds of customer and revenue requirements investors require? What kinds of technology would work for me? Which kind of capital to raise, and, of course, should you be raising Venture or Angel Capital or using some other sort of financing options like factoring?
Wow. That's just about every questions concerning raising capital that you can ask. For most of these, there is no exact answer, but Ill give it a shot.
What you should expect in a term sheet?
Basically, these are the terms the investor has come up with when he gives you a check. It's sorta like the contract. For this amount of money, you will give me x% of your company, a board seat, this many warrants, and first right of refusal on future rounds. The exact terms vary with each investment. Depending on how far along you are and how much money you are raising determines the x% and everything else. Its how much you are valued at (your valuation).
What should be in your business plan & executive summary?
While people only write a biz plan when they are raising capital, the business plan is something that is really written for YOU. It's a plan on how to run your business. You need to include how the business operates and makes money, your financials (3 year is fine), some info on your market, and your management team. I usually hear investors say they read business plans from the back to the front, reading your management team first. Your exec summary is the same, only shorter. You need to explain your business in 1 page. This should be an easy to read document that entices an investor to want more. And if you can't explain your business in one page, don't bother talking to an investor until you can.
What kinds of customer and revenue requirements investors require?
Varies with each investor and each deal. However, investors usually want to see that someone out there will buy your product. So having one customer and $50 in revenue is 1000% better than no customers.
What kinds of technology would work for me?
Um, I have no idea what you do. But in most cases you need a website (97% of the time) You need to get the word out there and start getting customers, or people who will read your updates. You should collect email addresses and demographics and keep in touch with your customers. If you have a website and you are not doing this, Shame on you! Here is a great resource: www.GotForm.com. This site will let you put email and demographic collection on your existing website without knowing much about HTML programming… It also gives you tell-a-friend (for viral marketing) and a contact us form (to let your customers conveniently email you.) Its all easily customizable through the GotForm website. In fact, we use it on THIS website. See the "Join my mailing list" text on the left? That's gotform!
Which kind of capital to raise, and, of course, should you be raising Venture or Angel Capital or using some other sort of financing options like factoring?
Well it depends on what you do, how much you need and what you need the money for. If you need $200,000 you don't need venture capital you need an Angel Investor or 2. If you need $6,000,000 you need VCs. If you are operating your business but you are finding that your customers are paying in 45-60 days and it's putting you in a cash crunch, you should consider factoring. You'll get paid immediately (minus a small %) There are also other options such as PO financing, Venture Equipment Leasing, and of course, grants and bank loans.
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Venture Capital: Risks in Raising Venture Capital
What risks do I run choosing venture capital to start up my business?
Now that's a great question! People say they need VC to start their business, but often the startups don't necessarily understand what that means! Most people think of Venture Capital as another word for Money. It's a lot more than that!
When you take in VC money you are taking in new co-owners of your business. Actually, the money you are taking in usually isn't even the VCs money - its their investors money! Yes, VCs raise money just like you. And since they are playing with someone else's money, they have to report on the activities to their LPs (limited partners). They want to report good news so they need good news to report, which is where that whole co-owner thing comes in. They need to make sure that you are doing the right thing, and are on the right track to make them a lot of money. You need to report good news to them!
So here's a risk - you now have someone to report to! Before, if you didn't meet your numbers, or if you didn't want to work for a few days, or if you use your corporate credit card to pay for your hotel for you and your wife, a nice dinner and show tickets in NYC and expense it, that was no big deal. It is now!
People don't like when you 'mess' with their money. The Investment you got wasn't a favor, it was an investment. The investors are going to do anything in their power to secure this investment. Even if that means…and here's another risk…replacing some of the management team.
Every entrepreneur loves their own business - whatever you are doing. But sometimes you are not the right CEO to take your business to the next level! Yup, take in enough Investment capital and one day you can wake up out of your CEO job. You won't be fired, you would probably remain on as president or COB or something… Of course, this wont make you poor, you'll still have your stock - and hopefully the new CEO will be able to take the company to an exit (IPO or acquisition) where you and the VCs make a lot of money.
Another thing I want to be clear on, is that when an investor gives you a check, he becomes a co-owner of your company. You used to own 100% of your company, now you own 68% (or something). If you raise another round, that number goes down even further. Usually by the time a company goes public, the original owners own just a small part of the company! That might scare you - but its not really a risk. One of my old investors once told me its better to own 10% of $10,000,000 than 100% of nothing.
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Angel Investor Capital for a Prototype
I am starting a company with a partner and we need to raise capital for a prototype, as well as later capital for production and marketing. We are at the final draft phase of our patent for a brand new product that is necessary for the new technology world. I have attended Angels Investor meetings and have noticed that most people will not invest in companies that have had no sales and have not made profits, however we still need money to create a first prototype.
That's the trick! It's the chicken and egg scenario. Investors wont invest until you have money, but you cant make money until you have an Investor!
Well, almost true. Not all investors require sales or profits - though it REALLY REALLY helps. There are a lot of investors who will invest in pre-revenue companies. But you have to work harder and you have to give up more of the company to the investor. Why? It's a higher risk! Much higher! The less you have, the more you need - and it goes back to the Golden Rule: He who has the Gold, makes the rules.
The prototype is a very tough thing to get an investor to fund. At FundingPost we see a lot of great, pre-prototype ideas. There are investors who will take that risk, but they are few and far between. You have to figure out a way to get the prototype built - get the ball towards your side of the court.
One thing I hear a lot at our Angel Investor Events is to raise money from friends and family before going out for an Angel Investor round of financing They say, "If you cant get your friends and family you believe in you, why should we?"
Most prototypes are not that expensive to build - except if you are building military aircraft - but if you are designing those, you probably have (or can get) the money.
You can always build a scaled down version of whatever you are doing, less bells and whistles, smaller size, etc. for a few grand. Just get something done yourself before asking for complete help from an outside investor. Show that you have the ability to get the job done and you will get it done with or without an investors help! Now we all know that large scale projects take money, so more often than not, it's WITH their help. But remember, investors invest in the Management teams ability to successfully execute an idea more than the idea itself.
An investor at our Texas Venture Event once said: "You can see some of the best ideas by looking at the list of failed companies."
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VCs and Angel Investors - Sporting Goods Store
I am opening a sporting goods store and need $40K to proceed. I am meeting with a venture capitalist in appx two weeks to present my business plan. I have an existing business that is profitable but I have never dealt with a venture capitalist before. Can you give me a general idea of how venture capitalists expect to be repaid, what kind of interest and term they expect, and what kind collateral considering the amount of funds I am seeking?
First off, VCs dont invest $40,000. Its WAY too small of a check for their time. The smallest Ive seen a VC (in the past few years) invest is $100,000 - but very few funds do that.
The person you are meeting with in 2 weeks is either an Angel Investor, or a i-bank/broker who is gonna hook you up with "venture capitalists". If its an Angel Investor (a rich individual) he will write the check directly. If its a broker, he wont write a check, rather you will pay him.
Also, note that most i-banks and brokers wont work on that small of an amount as their commission is so low its not even worth it! The third choice is that you are meeting with a bank loan officer. This is also your best option for $40k. Take out a small business loan and pay it back over 5 years at 7% (or something).
If its an Angel Investor, that's good too! An Angel will usually want stock in your company, as opposed to a loan. This is a great source on Angel Investing:
How To Raise Your First Million Dollars
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Pre-Revenue Angel Investors
Will I be able to find funding even if my business plan shows zero all thru its financial statement since I don't have any existing revenue? How do I write with such statement?
All businesses are pre-revenue when they start up. You are not expected to show money on the books day 1.
In your business plan, you should show revenue projections for 3-5 years out (and no further.) It's just impossible to see what you will do in 7 years, and investors don't want to see it.
Also remember investors want to be in a high growth business - not a small 5% growth per year lifestyle business. So if you are raising capital, keep that in mind. HOWEVER, try to be realistic - dont give the perfect 'hockey stick' projections —you know, $3M loss in year 1, $2M profit in year 2, $80M profit in year 3. It just looks like a joke
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Raising startup Capital
How do you go about raising capital?
How to raise capital 101.
OK folks - this is more than a 1 paragraph answer. In fact, so many people come to us with this question that we actually wrote a book called: How To Raise Your First Million Dollars. This is a comprehensive introduction to raising capital. It goes over terms you may have heard like: Valuation & Due Diligence. It also very clearly lists what an investor wants and expects when making an investment. The book interviews 10 Angel Investor groups across the nation. They explain exactly what they look for, how much money they invest, and the best way to reach them. It also contains a directory of 50 of the most active Angel Groups in America.
The book is $25 and the best money you can spend if you are thinking about raising your first round of capital for your company. Sorry for the shameless plug, but the book is really good!
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Raising Capital - c-corp, scorp, llc
I have a lawn and garden product with trademarks and many patents pending which I filled out last August. I have completed all the testing and I'm ready to manufacture. Before I start selling on TV, which is my background, and a few years later go to retail–should I look for Angel Investors after creating a LLC or before? Also what percent is the average ownership with this type of investor, and is it forever?
First of all, lets talk about creating an LLC - Most Angel Investors and VCs wont invest in an LLC, or and S-Corp. They typically put their money in C-Corps. So if you are about to set up your company and are looking for investments, set it up that way.
As for what percentage an Angel Investor looks for - it varies. But, remember this Angel Investor is taking the biggest risk: Its your idea, but its his money! Angels often take around 30-40%. Now you may thing that's a lot, but remember, he's not the bank - you guys are now partners! He is your new best friend and he is paying your bills. Without him, you have no money to build your business. Now, it also depends on how far along your idea is. If it's notes on a napkin the investor wants more. If you are already in production and have sole a few, the investor takes less.
You last question - Is it Forever. YES - well, not forever, but until you sell the business. Again, this isn't a bank loan that you will pay back at 5.25% APR. This is a marriage. You are partners until the end.
Now to the product. I'm not sure that you need to raise capital from an Angel Investor for this project. You might be looking at the wrong sales approach. You know more about selling on TV than I do, but I believe you should also approach the big box stores like Lowes or Home Depot. They might order crates of these and pay for them up front. Then you can go after some sort of alternative financing option such as PO Financing and Factoring. Basically, you get a purchase order and these guys finance the manufacturing. You deliver the product, they take their cut, and you make money! Then for Home Depots 60 day invoice payment, you get that Factored. You get the cash in a few days, minus a cut.
These were ultra simple explanations of PO financing and Factoring, for more info read here:
Purchase Order Financing
Factoring
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meeting Venture and Angel Investors
What does a typical VC arrangement look like? I know that is a vague question, but for example, if a VC company invests say $1,000,000 in a tech company, how does the VC company get a return? Is it a percentage, payments, or a combination of both? Is there an industry standard percentage or does it vary wildly? I am trying to understand if this is the best way for a company like mine to go. Thank you for your advice.
Typically, VCs buy stock in the company. If they give you $1,000,000 they become part owners. How much of the company they own is based on the valuation of your company, which is suggested by you, but inevitably determined by the VCs.
There is both a pre-money and post-money valuation. Lets say that you are valuing your company at $2 Million. This is your pre-money valuation. If you then raise $1 Million dollars you have a post-money valuation of $3 Million. The VCs now own 1/3 of your company.
Now depending on how far along you are determines the valuation - If its a start-up with no customers its a lot lower than a running company that is already generating revenue.
Remember, the VCs are in this to make money. They want big returns at the end of the day. If you are looking to take $1 million and pay them back $1.4 million in 2 years, then you should not be raising money from VCs.
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Startup and seed Angel Investors and VCs
With the high potential that my newly developed seed company has to grow into a multi-billion dollar corporation, starting from the ground up already possessing an outlook worth $20M how can we attract and obtain a substantial capital enough to ensure the support of our company's growth and exposure? We are not looking for ventures more like investors willing to take on a directorial position. How can we show investors that we are sitting on a gold mine idea that will create substantial returns within 6 months of operation? We are willing to work with partners as we have room for two board members willing to invest. We have pitched and have marketed our business plan, but to no avail. It seems as if private investors are becoming more likely than searching for partners or ventures. Please explain how we can attract investors to at least hear what we are pursuing and how it would be in an investors best interest to invest in our company because of our high probability rate of success. We have no competition and no one has ever attempted what we are offering.
I don't mean to make fun, but Im going to use this as an example. (Don't worry, I left your name out — I hear this every day. We are sitting on a goldmine! We will be the next Google! A Multi-Billion dollar idea! Our company will be worth $20M by the end of the year! We have no competition! Why aren't investors jumping all over my big idea?
Now, its great for entrepreneurs to be excited about their company, but lets be realistic.
1 - multi-billion dollar corporation
I appreciate you aiming high, but aim a little lower. Multi-billion dollar ideas are a dime a dozen (pun intended!) Everyone is a multi-billion dollar hopeful, but when you say that to an investor, he thinks you are full of crap. I can think of very few companies (and I see a lot of em) that will ever be a multi-billion dollar corp. A couple of hundred million dollar corps, but very few multi-billion dollar ones.
2 - already possessing an outlook worth $20MM
Again - crap. What the hell does that mean? If you have revenues of $20M that's a different story, and you should state it very clearly: "2004 revenues were $20M. Q1 2005 we are already at $9M and at the current rate will exceed $40 by the end of the year." But please don't throw a big number in there with absolutely nothing backing it up and expect an investor to be impressed.
3 - We have no competition
At our Seattle event last week one of the Investors put it very well. He said: "I don't care if you invented a Cold Fusion reactor - your competition is the Sun". If you say "We have no competition", it only means that you haven't done your homework.
4 - high probability rate of success
Thats optimistic - even if it is a great idea. Another Investor at our Texas conference put it very well. "If you want to see some of the best ideas, look at the path of failed companies". Do you know why Investors invest in more than one company? One will be a home run - making them a lot of money, a few will be pretty good - making them a few bucks, and the rest will fail.
Investors appreciate you being excited, but realistic. Remember, they are not just investing in your company, but YOU and your ability to pull off your big idea. So I guess my one piece of advice to you (and others like this) is move your decimal point a few spaces to the left. Sorry to be a @*%&! but better to hear it from me now than in your meeting with a potential investor.
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Investors for start-up capital
I have a pressure washing company for 16+ years (I go to trucking companies and washed there fleets of trucks). I want to build an automated truck wash (it's a proven method of washing trucks) and have my business plan and site ready to go but lack the start up capital of $1.8 Million. I am looking for an investor to help me get off the ground. My traffic study show that I should have them paid back in 3 years or less. What should I expect from an investor? I am 36 years young and need some advice on this issue…
This is not what you would call a 'venture deal'. While it might make a lot of money, No VC firms that I know of would consider this investment. There are a few other options - Angel Investors (Rich individuals) But you would have to find someone interested in This space - A software exec probably wouldn't be interested - But, an exec from a trucking company might….Plus the real estate you will own helps. Its a good cashflow business for an Angel Investor.
Or you can go the friends/family route. This is a company that will never go public, or need to raise several million from large i-Banks, so you don't really have to worry about accreditation and securities laws…start a grass routes campaign. Get friends and family to give a small amount each, letting them all share in the profits. Or, if you have good credit, you may want to try a bank….
I do want to clear up a common misconception about Angel Investors and Venture Capitalists - Investors don't want to be 'paid back'. They are not loaning the money to you. They dont want their original cash + 10% percent a year… That's a bank. Investors are buying a piece of your company. They are in it for the long haul (no trucking pun intended). They become your partner. They want their 1.8 million to turn into Several million over 3-7 years….
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Factoring for Small Businesses
What is Factoring?
Factoring is the purchase of account's receivable at a discount. Account's receivable factoring is often the fastest way for a business to collect on generated invoices other than "cash and carry" or C-O-D.
Usually a business or company must wait 30-90 days to collect on invoices generated for products delivered or services rendered. This can put you in a bit of a cash-crunch making it difficult to run your business, or begin fulfilling your next order because you haven't yet been paid for the last one!
The process is simple, fast and does not create debt. Accounts are usually funded within 4 to 48 hrs by wire to the client company's bank. The factor will notify the client's customer(s) that the invoice(s) have been purchased. The factor collects on the invoices and pays the company, less his percentage.
There are a lot of different factoring companies out there, some better than others - If you are interested in speaking with one with no upfront fees and low rates, let me know. I'll introduce you.
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What Investors look for
Does an Angle Investor look for existing businesses only, or do they look for start-up businesses that have not been created?
The term Start-up doesn't quite mean what it meant a few years ago. In the height of the dot-com boom, money was being raised on ideas. You could have no experience and pay a college artist to draw your idea, put an e- in front of a common word and raise a few million dollars to start you new e-venture.
Not anymore. There are very few Angels, if any, who will give their money to such a high-risk entrepreneur. You need to have something for an investor to look your way. This doesn't mean $4 million in sales and a full staff of 30 developers. It means, at a minimum, a working version of your product and someone out there who says he will buy it.
There are several things that investors look for, but 2 of them are paramount: Management and Customers. Investors are not investing in your idea as much as they are investing in Your ability to manage and sell your idea. Additionally, they want to see that some customer will pay you even a dollar to use what you make.
Now you may be thinking, If I don't have money, how can I start the company? There are a few low cost things you can do by yourself - Incorporate. Its only a few hundred dollars. Set up a small website. Buy a domain name and pay for hosting. Get a real email address. No investor is going to take you seriously with your smoochybear1445@yahoo.com address.
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Pitching Investors: What to say to VCs & Angels
I have a great company- it's going to be huge once I get some capital. Whenever I pitch to investors, they are never interested? What am I doing wrong?
I hear this very often - no entrepreneur ever pitches his company as 'its going to go out of business!' Everyone's company is going to be huge, right? Well, the ones with good management anyway.
Without hearing your pitch, I can guarantee that you are not giving a good one. We recently did a series of events that taught entrepreneurs how to give a good pitch - This was an excellent series we did in 5 states with like 60 something VCs and Angels.
Here is some insight on what NOT to say:
We are going to be the next Microsoft or Google.
Maybe you will, but you have a better chance of winning the lotto. Aim high, but not that high.
We have no competition.
Translation - I don't know my market very well at all. Can you still give me a check? Everyone has competition - Maybe there isn't a similar product out there, but there's someone doing (or trying to do) something close. Even not using anything is competition!
I need you to sign an NDA before I tell you my idea.
No investor I know will sign an NDA before you pitch them. Maybe down the road before you tell them the secret formula and they give you a check - but never on an initial meeting.
We are pre-revenue this year, and in 2 years we will do $100M in sales
Maybe if you recruit Bill Gates as your CEO, but otherwise, its pretty unlikely.
Ill do $XX in sales next year and grow by 40% next year - but those numbers are conservative.
Any time an investor hears that your numbers are conservative its spells bullshit. Every single entrepreneur says that. I know you want to say it too, but Don't - if anything it will set you apart.
That's all for now -
There are a lot of things to learn about pitching an Investor. You should never expect to get a check after pitching someone over a cup of coffee. You should aim for getting a meeting. Every entrepreneur who attended our pitching event completely changed their pitch before they gave it.
If you want to hear how to give a great pitch directly from Investors, check out this video:
http://www.fundingpost.com/products/Item.asp?refer=iq&item_id=488
I know, I promote my products often, but I work really hard on them! If they sucked, I wouldn't sell them.
If anyone has any war stories (or tips!) on pitching Investors, let me know - I love to hear em.
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Angel Investors: How much capital should I raise?
I’m raising money for my company - we are telling investors that we are raising anywhere from $100,000 - $10,000,000 to give them a choice. We can do a lot with $100k and a lot more with $10M. Its a great business - we will make a lot of money, but I'm not getting the investors interested.
Right off the bat, a range of $100k - $10M is WAY too big. It's a completely different league of investor. It's like putting a T-ball stand in front of Jose Canseco.
If you can make money with $100,000 then you don't need $10M!!
I hear investors say that all the time, If you can do it with half, then ask for half.
Basically when you are raising capital, you are selling part of your company to Investors. You have to make that an appealing offer. Imaging putting a $30,000 for sale sticker on a classic car BEFORE its been restored. Well it has a lot of potential, but its been sitting in your driveway for 12 years. It has no front seats, the engine needs work, the interior is incomplete.
Well that's how an investor sees your company: There is no revenue, the management team needs work, and the product is incomplete. So what price tag are you putting on this? What valuation are you setting it at?
Now you don't want to sell yourself short, but be realistic. Position your company where it should be, take the money you can get and grow your business. Most importantly, learn who you are pitching to - If the Investor looks at $10,000,000 software deals, dont waste his or your time pitching him your $100,000 retail deal!
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Raising Venture Capital for a store
I have a small pet shop that is presently a sole proprietorship. Would I have to incorporate to raise venture capital?
This is a great question - Company is a Sole Proprietorship, should you Incorporate to raise capital? Yes. Investors wont invest in a Sole Proprietorship for the simple reason that there is only one owner. The VC or Angel Investor cant buy any stock. However, you can still raise money by things like factoring, bank loans or venture leasing.
The main thing I wanted to explain is why would a small one store pet shop want to raise venture capital? You probably don't. First thing I want to explain - cause I hear this So often is: Venture Capital is not a synonym for Money. Most early stage entrepreneurs hear the words Venture Capital and are not sure what that really means, except that they can 'give' you money. Most of these people who say they need to raise Venture Capital don't need to, and wouldn't want to if they know what it actually means.
Now, this might not be the exact scenario of the question above, but Im going to generalize and say that people who own small pet stores, or other small businesses and want additional capital are looking for anywhere from $25,000 to $100,000 to buy more product, expand into the store next to them, or to pay off bank loans and other debt.
If you say I need to raise venture capital, it means a number from $1M up (typically) and the VC is buying stock (ownership) in your company. The VC is looking for a LARGE multiple on his investment - typically 10X +. That means if he invests $1M in your corporation, he will eventually want you to Sell the company (or go public) earning him $10 million + in a few years. This means you want your small pet store to go head to head with some of the larger chains and have them eventually buy your company for many millions of dollars.
Now, I don't want to dissuade people from raising money from VCs or Angel Investors. In fact, that's my business at FundingPost. FundingPost maks introductions from Investors to Entrepreneurs every single day raising $250,000 to $10,000,000+. Almost every large corporation out there has raised money from outside investors at one point.
You just have to consider what you are raising the money for.
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meeting with Angel Investors and VCs
How do I actually meet investors?
Good question - well, if you are on this site, you're on the right path. Many investors can be found on the internet. But if you type in the word INVESTOR you get 5 million sites….
There are other ways as well. Go to an investor related event. There are plenty of them around, and new investor event companies are popping up every day - It seems to be the new trend. Some events are better than others, some are a complete waste of money. You should search for an event thats right for you. Events are a great way to be in the same room as an investor and get a chance to give your elevator pitch. I know of several financings that have come as a result of venture events (including the ones hosted by FundingPost)
There are other ways as well - there are Online listing services. Some people say they dont work, some say they do. I know I see a lot of introductions made through mine. (an average of 1 every single day)
You can also go the Broker Route. But you gotta be careful. There are a lot of brokers who charge hefty retainers - upwards of 10k a month!) and do nothing. If a broker wants a large monthly, and a large success fee, I suggest getting another quote….
Heres something not to do. Dont blanket fedex your business plan to 300 VCs you found on google. It doesnt work. They will just go in the trash. Same goes for email.
VCs and Angel Groups get thousands of plans a year - Most of them are unsolicited. None of them get funded. You need to be introduced through a qualified source. Does your law firm know of any VCs? Your accounting firm? These people are usually good referral sources. Another great referral is one from another VC! Remember, investors are often friends with other investors.
Sometimes at our events an entrepreneur comes up to me and says that the investors in the room arent interested in his idea. I usually send that person back to ask each VC what other firm he should contact that may be interested. Usually that entrepreneur goes home with a few really good leads.
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Angel Investors for small businesses
I don't run a large corporation - its a small business, but Im looking to grow. Are the Investors going to expect me to act like a fortune 500 executive?
No. But they will expect you to act professionally - No matter what industry you are in. Remember, when you get an investment you are playing with someone else's money. If you don't treat that with respect, the investor wont be too happy. And that respect and professionalism has to start at the first impression, long before you get the check.
For instance, I get emails all the time from businesses asking me to introduce them to investors. You would not believe how many of them come from emails like: smoochybear49857@yahoo.com. Seriously - would you give a million dollars to someone who emailed you from that? While I'm ranting, everyone has spellcheck. tpyos aer jsut unacceptible. SO IS TYPING IN ALL CAPS. Everyone learned how to write a proper letter in Grammar School.
Remember, an investor is not investing in your company - they are investing in you and your ability to build a successful company.
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Venture Capital Term Sheets explained
What you should expect in a term sheet? What should you watch out for and be sure to include in a contract?
Terms sheets are pretty complex, but they all include the same basic stuff. They are always written by the VC giving you the money. They include everything from Pre-Money Valuation of the Company, Anti-Dilution Protection in later rounds through Liquidation Preference on exit.
FundingPost hosted an event with Nisha Atre of Mellon Ventures where she covered everything regarding term sheets. We keep this as a free resource at FundingPost - you can view it here: Term Sheets
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Advice on Raising Seed / Angel Capital
I need to raise $600,000 in seed capital to build my web based prototype, but even though its technology, Im finding it hard to find an investor. Any advice on this?
A guy presented his company at one of the FundingPost conferences a few months ago. He told the investors that he was raising his seed round of capital of $600,000. $500,000 was going to be used to develop the prototype of his web-based tool. He had the development team already lined up. Well, maybe in 1998 he would have gotten a check, but I can't think of one investor who would put a half a million into this today.
He had a great idea, but there is really no need to spend that much money on a web-based tool. Especially a prototype! Remember, the prototype has to work, but it doesn't need all the bells and whistles of the completed product. As for websites, yeah, they gotta work. But that doesn't mean mortgaging your house to pay for it.
There are a lot great development shops that do great work. But, it's like most businesses - Some charge $500,000 while others charge $50,000 for the same exact thing. Bottom line, get a couple of quotes.
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Purchase Order Financing
I need to get about $500,000 for my business to manufacture my product - I dont have that much money. How would I go about raising it?
You have a few options. While $500,000 seems like a lot of money, it's really not (in the business world)
First you need to figure out exactly what you need the money for. Is it to build your prototype? Is it to hire someone? Is it to buy inventory? etc… Knowing this will put you in the right direction. Should you raise Angel Capital? Should you go to an early-stage Venture Fund? Should you go to a Bank and borrow it? Or, if it's for manufacturing your inventory, should you consider Purchase Order Financing.
Purchase Order Financing is an option most people dont think about. Basically, if you have a product that a large company (or companies) want to stock in their store but you don't have enough money to buy the inventory to send to them, you may be able to get a PO Finance company to buy this inventory for you by showing them a purchase order.
So lets say Home Depot wants 10,000 of your new multi-screwdriver for their various stores. They give you a purchase order. You then give this purchase order to a PO Finance company. They give you the money to manufacture the screwdrivers. Home depot gets the screwdrivers and pays the PO Finance company, and they pay you minus their cut. Their cut is usually around 4-5% per month that you are borrowing the money. So if you need $100,000 to manufacture your screwdrivers for Home Depot, and it takes exactly one month to make and deliver them, you pay $5,000 to the PO Finance company.
Hopefully your margins are higher than that! So if Home Depot buys them for $150,000. You make $45,000. Now, of course, if Home depot has a 60 day turn around for their invoices you'll want them Factored so you don't pay an additional 10% to the PO finance company….
Not all PO finance companies are the same (or good/fair), if you would like an intro to a great PO finance company, let me know - Click here: Purchase Order Finance Request
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Raising Angel Capital for a Minority Business
How does a small minority business access and utilize venture capital?
A small minority business would utilize venture capital just like any other business: They would take on the VC as a partner, and use the capital to grow the business, eventually exiting the business, creating a substantial return for the investors.
Accessing the capital is no different than any other business. Investors are interested in making a return on their investment, not the demographic profile of the owner. There are however, VC funds set up that solely invest in minority-owned businesses. Now, being a minority doesn't necessarily get you a check, it just gets you in the door. You still have to have a good business that will make money for the investors.
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capital raising scams
I would like to raise capital to activate account in London, I have about $59 million to work with once accounts activated. Once I deposit the fee the account will be active and I will be able to use the $59M to grown my business. How can I raise the $100K needed to activate the account?
Folks, this is a good time to issue a warning. I see emails like this all the time. Usually they are from the person who has $59M that he would like to invest in an American business, but occasionally they are from the eager unknowing American Entrepreneur.
This looks like a scam. Do NOT believe anyone who says that they want to give you $59M (or any other outrageous amount) because you are a trusted source. I don't care if it's the former prince of some country whose father was the former finance minister who was killed and the son is it jail and needs your $5000 to get $50 million out of the country. Believe me - it's a scam.
These scams have been floating around the internet for years and people get suckered into them all the time. You put in $5000, then there is some issue you have do take care of and it requires another $3000. Then you have to bribe some official and its another $4000 - you gotta spend it, cause you will lose your first $8000 if you don't! By the time they are done with you, you're broke - and they are gone. There is no way to track them down.
The story always changes - pleas for help, trusted source for investment, some former official dead or in jail - but the end result is always the same. Don't believe it and certainly don't give out your bank account info to anyone!
Since we're on the subject, here's another unrelated annoying scam. Pass this email to all your friends and Bill Gates will give you a dollar for each email so he can test his new email tracking program. That's been around for years! I couldn't believe anyone even paid attention to this (until I got one from my sister the other day…) You will not get a dollar - all it does is create a giant spam list of all your friends!
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Valuations for Startups - Angel Investors
How is valuation determined for a startup?
This is the $64,000 question. The answer is that there is no definite answer! However there are a few things that investors consider to determine valuation. As a startup, you typically don't have much in your company - your product may be complete, it might not….you are probably not selling too many of them, if any at all. Typically, if you are selling any of your product or service - even if you have 1 or 2 customers it proves that someone out there will buy it. $1 in revenue is 100x better than pre-revenue. Who is your management team - typically investors invest in the management team more so than the actual product. A crappy management team can screw up a great idea. On the other hand, a great management team can take even a pretty good idea to the top.
In general, keep your valuations low. I see start-up valuations of like $25,000,000 raising $3,000,000 for their pre-product, pre-revenue amazing idea that will be the next Microsoft! Do you know what investors say to that? next…
I know, I know, you don't want to give up 40% of your company. Keep in mind, an investor isn't a faceless bank. What you are doing when accepting a check from an investor is really bringing on a partner. You got the idea, they got the money. Someone wise once told me its better to own 10% of $10,000,000 than %100 of nothing.
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Investors for a bar without giving up equity
I would like to find a few investors for my Bar/restaurant, but I don't want to offer a percentage of interest in the business. How should I proceed and How do I pay off these investors?
What you want is a Loan. Investors typically take an equity stake, and/or a profit share in the business.
Banks will invest a sum of money, usually secured by something like your house, or the restaurant, and you pay it back, with interest, in monthly increments. They take no equity in your business and once its paid back you don't owe them anything.
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Your Executive Summary
How long should my executive summary be?
A 1-page executive summary would be perfect. It should not go beyond 2 pages. You want something that an investor can read quickly. This doesnt have to have every singly detail about your company. Just a 'preview' of the full movie.
You want to give a description of what your company does, how you make money, the size of your market, a little about your management team, how much you are raising, if you have any revenues/customers to date, and maybe a few other key points like your contact info. You wouldnt believe how many summaries I get without a phone number or email address….
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VC Returns - How Much are VCs looking for?
What kind of returns are Venture Capitalists looking for?
Big returns. VCs are not banks - they do not charge an interest rate on an equity investment.
Note: There are such things as venture firms who also do convertible & bridge loans. This is explained in another question
VCs are looking for returns in excess of 10x. So if they give you a million dollars, in a few years, when you exit the company by either an acquisition or an IPO, they want at least $10M.
Now they don't expect every investment to be a home run like that. That's why they diversify and make multiple investments. They know that some of them will fail, some will do OK, fewer will do very well and 1 or 2 will be the home run.
But their investment process qualifies companies as if you are going to be the home run (not the strike out)
Another thing you have to remember is that eventually the investor wants to be paid back! This means that you need to 'exit' the company through an M&A (selling the company), or the less likely, IPO (going public). While they don't expect you to do this right away, once they write the check, they will be helping you grow your company specifically for this purpose.
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San Francisco Software Angel Investors & VCs
I am beginning a software company in the San Francisco Bay area. Are there any special groups or investors that specialize in software industries?
Um, Yeah! You are right near Silicon Valley. This has the highest concentration of Software and Technology VCs on the planet. FundingPost does events there all the time. The last one we did had speakers from Venrock Associates, Rocket Ventures, Selby Venture Partners, Trinity Ventures, GKM Ventures, Pyramid Technology Ventures, Diamondhead Ventures, Altos Ventures, Horizon Ventures, CDIB Ventures, Red Rock Ventures, and Vision Capital. All of these firms look at software and technology.
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Investment capital to build a factory
I need about $1,000,000 to build a factory in Japan. Do I need to give away shares of my firm to get a business loan from angel investor? Can I just give away a percentage of the future profit?
If you can get someone to give you a million dollars for only a percentage in future profits, you are a better salesman than anyone I know!
That's sorta risky for an investor. He gives you $1 Million. Then he has to wait till you build a factory, then get your business going, then start selling your product, then get profitable before seeing a dime! This could take years and you may never get profitable.
What happens in 4 years when you are about to get profitable, then you go out of business? Or you Sell the business? What does the investor get? There is no way any investor would agree to that.
Even a bank loan holds something as collateral. Though to actually build a factory, they would hold a lot more than buying an existing factory.
Now if you gave the investor equity in the company (part ownership in stock) and secured his investment with the equipment you are buying with his money, and gave him a split of the profits you may have a better shot!
You might now be thinking: No Way! That's too much!
Well, I guess it goes back to the Golden rule: He who has the Gold, rules.
I hear all the time from investors speaking at my venture capital events that the money is out there, you just have to be reasonable in your negotiations in order to get it. Having a great product and an amazing management team helps too!
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Startup Venture Capital
I have an idea that I want to develop it into a product. At this stage, I am not sure if I can receive financial support from VC or not. My idea will have a great future, but how can a convince a VC and get capital? Thank you in advance.
It is going to be very tough to convince a VC to give you money with just an idea. This ain't 1999 where you can draw your idea on a napkin and get a check for $5M to run with it.
What you need to do is develop the idea a little further on your own or with a friend using your own money - or money from a bank.
Once you've taken it to a decent point and need to pursue additional capital, you should go after someone smaller first such as an Angel Investor. Of course, I dont know what the idea is so it would be tough to give you advice much beyond that.
Not to push our Angel Investor book, but if you are contemplating raising money and don't know much about it, this is a great resource.
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VC and Angel Investor - stages of financing
What does it mean to finance different stages: Angel, Seed, 1st round, 2nd round, later stage?
This refers to the various stages of a company lifecycle.
The first would be founder, friends and family. This is you at the idea stage. You put in $10K, and you get some close family and friends to put in a few thousand dollars (or more, depending on how much money they have and how much they like you to get the business started.
Angel and Seed usually go together. They are the First outside investors that put money into your company - usually $50,000 to $1,000,000 (depending on the company) They are usually rich individuals who have some knowledge of the industry and like to take a gamble for the potential upside.
First Round is just after that. This is typically a company that has more structure, a product, a basic management team, you could have some revenue/sales, but you are not a $10M corporation. It's Early-Stage. Typical investments range from $1-$5M.
Second stage is after that. The company has a lot of traction, strong sales, a solid team, and they are looking to heavily expand nationwide or internationally, and are on track to pull in several million dollars in revenue. They an raise anywhere from $7-20M in VC capital.
Later Stage is after that (or at the same time) This is often grouped with the LBO (leveraged buy out) category. This would be for raising a large amount of money to Buy another corporation, position yourself to be purchased, or to go public.
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Angel Investors: Showing a PPM to Investors
I have a properly structured PPM. How do I locate investors or find broker dealers to market my offering?
First, for those of you who don't know, a PPM is a Private Placement Memorandum. This is the stock offering that you give to Angel Investors to buy stock in your company. Also, a PPM is really just for Angel Investors. Though its good to have, VCs don't use these - they typically supply a Term Sheet.
For more on Term sheets, click here: Term Sheets This is a great presentation by Nisha Atre of Mellon Ventures
Once you have your paper work in place, you then want to show it to some investors. Blanket emailing of investors is not recommended. The email just goes right in the trash. And that goes for regular mailing too - Investors you don't know are not impressed by you Fedexing them a business plan. That too goes in the trash. It's also a Huge waste of money.
I've been to enough of my investor events to know that the best way to reach an investor is by a qualified introduction. This means that someone who knows the investor calls or emails them on your behalf or introduces them to you. Additionally, being at the same place at the same time works very well. For instance, I've seen a ton of follow-up meetings come out of our events. There are a lot of good events out there that we don't run. I guess I'm just partial to mine Lastly, there are online services like FundingPost. There are others out there, but theres no need for me to mention them At FundingPost, I see an introduction from an Investor to an Entrepreneur on an average of one every single business day. That's approximately 260 Investor introductions every year!
As for brokers, there are a lot of mixed feelings in the early-stage Investment community about brokers. While they are well received in most industries and even later stage venture and LBOs, early-stage VCs and Angel Investors are not too partial towards them. Unless they are doing a lot of work for you - setting up your paperwork, polishing your pitch, shining your shoes and really putting some organization to your young company—Then introducing you to investors for a percentage, for the most part, the investors just feel like they are a waste of money for the simple introduction. However, if you decide to go the broker route, beware of the high monthly retainer. You are almost better off going to the casino and putting it on 21.
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