Fundraising · Angel investing

Setting expectations with angels so no one wastes their time?

Greg Lipinski Patent Examiner at USPTO

April 15th, 2016

I'm acting as an advisor/lawyer to some first-time entrepreneurs, and this is my first time working with a startup as well. They're a third of the way through their target raise and have made great progress in a short amount of time, so angels are willingly taking meetings with them, but they're having trouble figuring out how to say 'are you serious about investing? yes or no.' These angels, especially the older ones, take meeting after meeting and gladly provide 'advice' that isn't practical and introductions that may or may not be useful. Are these angels just sticking around so they can top off the round? How can my advisees be more direct without alienating the folks they're continuing to meet with? And how can they set expectations at first meetings so the process doesn't drag out?
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Dwayne Johnson Social Alchemist - I build equitable, prosperous, sustainable smart cities and regions.

April 15th, 2016

Having been on both sides of the angel equation, I have a basic inquiry I prefer use: 
1) Find out why the person invests and what type of deal they like
2) If the deal fits, do they have money to spend in the time needed
3) If they do, is this someone I'd like to work with
4) If yes let's talk more about the deal and discover whether there is a there there

Experience has taught that there are basically 4 types of investors:
1) Someone that likes the person or the team - You can sell IoT or pet rocks and have them go with it
2) Someone that likes the concept/space/market/approach - They like scratching a particular itch and as long as you're schatching they're is potential
3) Someone that likes to maximize ROI - The best can make you rich, the worst would sell both you and their mother into slavery
4) The last have no idea what they're doing and "heard they should invest" (Which unless you know well them and they're married to your brother/sister is usually not worth the effort)

No-one is just one but folks have preference. Discovering that isn't that hard if you ask the right questions and recognize which questions are most important to them. Do we know any of the same people? Do the same things? Can we go deep on how the gadget or product works/who it serves? Are we looking at market size, margins and increasing value of the organization? 

And don't be shy about asking if they're planning on investing in the next six months. People that are in angel networks often have investing groups with an investment cadence.  If they him and haw and wax non-committal it is again time to step. Smart angels have already assessed the amount they're going to put in play within reason and have a strong ability to say yes to something they like. 

On the other hand, if you just love chatting it up with folks who might have money... you'll have an endless supply of GANDs (Great Advice, No Dinero).



Bruce Carpenter Co-founder and Principal, Harbour Bridge Ventures

April 15th, 2016

Just as qualified and experienced angel investors will undertake due diligence on prospective investment candidates, your client should do due diligence on prospective angel investors. How many times have they previously invested in startups? What is a typical investment amount they will consider? What has their experience been in their prior investments? Do they bring any potential synergy or experience as well as financial support to the opportunity? Do they have experience in this vertical or industry sector? Do they have any contacts in their network that can be helpful? Should they make an investment are their expectations in terms of their level of participation in the opportunity and eventual returns realistic and consistent with what is expected?

Qualified and experienced angel investors will be able to answer these kind of questions and appreciate informed entrepreneurs. If the prospective investor has difficulty answering these questions, they may not be properly qualified as potential investors.

I find many entrepreneurs have difficulty distinguishing between participants in a friends and family early stage round and a true angel round.

Jonathon OBryan

April 15th, 2016

To begin with, I absolutely agree!  Most Angels never invest just waist your time and energy, I would go with a site that they clearly show who's doing what, and where...  invstr.com   I am not affiliated with this company as of yet, meaning I don't require there services right now, however, they let you browse for free, and get real information on the investors... I didn't misspell their .com address it is how it is...  hope this helps you, I found 3 serious investors on here, Founder Dating... It's got it's advantages, too!  Jonathon -

EPF

April 15th, 2016

I can not speak about most angels but being one myself, I can only say this: Focus on Angels who invests in your space, this is #1 Will they fund a seed round? Are in later stage? Very late stage? What is their requirement? Ask them what is their typical investment size? Ask them how they can contribute, time, expertise, introductions etc... If these filter questions are helpful, you like what you are hearing; then proceed. I usually hear a two minute pitch, have them send me the deck. I also ask them to follow up in a week or so.... Hope this helps. Too hard to type on vacation on an iPhone. This message (including attachments) may contain information that is privileged, confidential or protected from disclosure. If you are not the intended recipient, you are hereby notified that dissemination, disclosure, copying, distribution or use of this message or any information contained in it is strictly prohibited. If you have received this message in error, please immediately notify the sender by reply e-mail and delete this message from your computer.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

April 15th, 2016

Someone should write a book called "Dancing with Angels".  Most start-ups need their money more than the Angels need the start-ups. Your advisees can be more direct by being very confident in what they need and want.  That is your job.  I have been on both sides of the table, representing companies and VC funds.  The best presentation is "we need X dollars to accomplish Y". They also need to be aware of their weaknesses.  I tell founders pitching to a group of professional investors that the pitch is like defending your dissertation.  You need to know your company, your product and your market  inside/out. If they ask a  question that you don't have a good answer to, they will not fund. Don't second guess investors, its their question and its their money that you want.  I also advise a company serious about funding to pitch several groups each week until funded. Its a numbers game. Not what other people have told you?  I am not surprised. It takes hard word and some money to get funded ( I flew with 2 founders to NY, Chicago, Atlanta and Austin on 3 separate trips and pitched multiple investors each trip.)  It takes time and money to raise money.

LanVy Nguyen Founder & Managing Director at Fashion4Freedom

April 15th, 2016

A very savvy investor once said to me:  "If you want money, ask for advice.  If you ask for money, you'll ONLY get advice"

Anonymous

April 16th, 2016

Unfortunately, you haven't really given enough information to get the direct type of advice your people need. You should turn this advisory work over to someone experienced and follow the process so you can learn too and eventually get involved in advisory work. It is very likely that, despite all good intentions, you do more harm than good.

Peter Weiss President at American Outlook, Inc.

April 15th, 2016

I hope you don't plan to approach customers like this.

Except for our mothers who carried us for nine months while we kicked her and made it impossible to lie down, sit, stand or sleep comfortably and our fathers who, knowing what we were going to cost, didn't strangle us in our cradles, it is unlikely we will ever find anyone who will be more generous to us than our angel investors.  Think about it:  they are putting money into an inherently risky proposition in a class where no one believes more than a third of the deals will return capital; the investment is illiquid; there is little or no reporting or accountability; the investment is likely to go on for a very long time and and the investors will have little or no influence.  The angel is hoping we are capable, honest, smart and lucky and that neither internal or external factors overwhelm our dreams.  

It's our job to identify and reach out to angels who are more likely to invest in our companies, just like it's a salesperson's job to identify customers who are more likely to buy our product or service.  When we do find them, remember angels have no need to invest in any start-up (unlike a customer who may need a comparable service).  Angels have dozens or hundreds of alternative start-up investments available and certainly hundreds of non-start-ups.  If we are pitching people without a reason to believe there could be success shame on us.

VCs look at hundreds of deals for each investment and go into serious due diligence on at least a dozen companies for each one they back.  Some probably go into DD on three to five times that many.  

Raising money is hard.  It takes time and energy.  We need persistence and patience.  The angel who does not invest today may come back next month or later in your round.  That same angel may introduce us to an investor two months down the line.  They may come into our next round.  They may want to invest but are cash or time constrained and if things change they may come back.  

We need investors far more than they need us.  We forget that at our peril.

Stefan Pagacik Innovation Catalyst | Impact Platform Development, Finance and Human Capital Advancement

April 16th, 2016

Not much to add to Bruce's excellent post other than to ask the angel(s) about their specific investments, size of their investment and sector. Ask them for the names of the companies they invested in and then go talk to those companies to find out what their experience has been with the angel. Having co-founded an angel investment group and done sidecar deals, I can tell you that it is one of the more challenging aspects of building a company. The more questions you ask up front, the better off you will be in targeting those angels who are good 'fits' for your client.

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

April 18th, 2016

Before even the first meeting, you should go to in with a pitch deck that says "we need X" and that sets expectations, and one of the first questions you should ask are to have the angel talk about what companies they've invested in, and what types of funding they can provide.

Part of the problem may be that the angels are trying to be helpful, but because they don't know what you need they are guessing and guessing wrong.

Something else that helps a lot is to have introduce the various angels that funding your company to each other.  If you already have funding from some angels, you can have one of them agree to be a lead angel, and they can handle some of the discussions with new investors.