Fundraising · Angel investing

When consistent traction and key industry agreements not enough to convince angels...what's left?

Greg Lipinski Patent Examiner at USPTO

July 27th, 2016

My venture has been in limited beta mode for several months and the results are as strong as could be. It's caught the attention of Fortune 500 companies that are interested in working with us and provided contracts, but we're still struggling with funding. There used to be a point where angels would say 'do x and y and z and then I'm on board.' Now that we've done everything that's been asked, we don't hear any more objections, but we also don't see any investments. That puts us in a weird spot as we can't figure out how to move forward. 

I'm not looking to hear any platitudes about keeping at it. I also hope you'll take me at my word that our current progress (outside of investor outreach) is as good as it can be. I'm wondering if anyone here can recommend any real, no-bullshit mentors/advisors/investors to talk with who won't waste time in deciding if they can help someone in my position. I'm more than willing to talk privately if you'd like to hear details. Thanks.
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Leena MBA Content & Publication Manager at NetApp

July 27th, 2016

Are the results that are as strong as could be translating into dollars and cents? Does it show promise 5-6 years from now in terms of fairly rapid growth? I've found that angels no longer want to take a ride on things that grow at a moderate or sustainable pace. They want everything to be at mach speed, and they want to get out, fast.

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

July 27th, 2016

Also let me talk as an angel investor what I think is happening.  Being an angel is a bit like working as an air traffic control.  You have money going in at certain times, and then you plan for money going out at certain times. 

When someone says I can give you $X if you do A, B, and C, the calculation that they are making in their head is likely that there is a Z% chance that you will in fact do A, B, and C.  It's sort of like overbooking an airplane.

The trouble comes in when you expect say 1 in 5 companies to be able to do A, B, and C, when in fact everyone is able to do it, and then you don't have the cash to cover your soft commitment.  Alternatively, the angel can run into a situation where he thinks that he will have X cash available in six months when in fact they have only Y cash available.

As a mea culpa, I ran into this situation myself when one of my investments took up more of my funds than I expected, and then I had to go back to other projects that I had made soft commitments to, and work something out so that they were able to get something.

One way I try to avoid this situation is that I try to be extremely transparent to the companies I work with about how much cash that I have on hand, and to also be careful with soft commitments.


Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

July 27th, 2016

Is the opportunity big and easy to understand?

I've found with angels that personal passion for a particular problem and personal relationships often trump early POC for something that sounds complicated or small.

Getting a social proof point (ie ex-CEO of company in this space) to sign on may get the rest of the herd to move.

But nobody (unless they are personally passionate about the problem you're solving or they know and like you) is going to be there to "help someone in <your> position".

They're trying to find rockets to ride that they can talk about with their friends, they're trying to pay it back where they have emotional connections, or they see a potential arbitrage opportunity and want to roll the dice.

Jim Falvey General Counsel & Advisory Board Member at Green Key Technologies

July 27th, 2016

Sorry to hear of your story, but it's a familiar one to me.  I've been doing work with a couple of so-called "FinTech" start-ups.  One is further along the development path than the other.  It has built a great network of customers that seem reliable.  But, until very recently, the business hasn't been charging for its service(s).

The other company has a great plan (i.e., there is a real need for the product), but is several months from having any revenue, let alone profit.

Both companies have reached out to numerous potential funding sources, including VCs.  The consistent message that we've heard is: we don't fund companies that are pre-revenue.  Sorry.  Come back when you reach that point.

I know that's probably cold comfort, but at least you're not alone.  In my humble opinion, I think that 2008 changed "the game" in terms of the type of business/risk that investors will consider (i.e., pre-revenue is off the table in most cases).  Also, I think that several "parts" of the economy are still in a recession that may be affecting our efforts to raise funds.  Lastly, the regulatory environment has negatively affected the investment climate too -- especially with banks (Basel III, etc.).

Good luck.

Jim

Peter Weiss President at American Outlook, Inc.

July 29th, 2016

When it seems we have everything set so the next pieces should start to fall in line and yet nothing does, once in a while it's environmental (virtually no one could raise money late in 2008), occasionally it's bad luck, more often we're shooting at the wrong targets (cutting edge software investors rarely invest in woodworking shops) but most often we're missing something about ourselves, our story or our offer.  

If you have know who is an active investor who is unlikely to back your company (could be because of style, stage, sector, etc.) but would be willing to give you an hour and be brutally honest, show them the pitch and ask:  does this make sense, can you see some thing(s) that are keeping investors from saying yes.  It could something as simple as terms (I suspect you've already checked); it could be a subtle as you using vocabulary which makes perfect sense from your perspective but communicate different ideas to investors who do not live in your world every day.  

Put another way, sometimes we don't realize we have spinach stuck in our teeth and if no one is willing to tell us, we have no way of fixing the problem.

Ephraim Ben Dor

July 27th, 2016

how many investors have you met with and what is their lifecycle stage? that matters to any introductions you are looking for.  

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

July 27th, 2016

If you have confirmed purchase orders then you might consider talking to a bank or factoring agent to see if you can use those purchase orders as collateral for a loan.

Matt Jones CEO at Destination:Software

July 27th, 2016

If your Fortune 500 customers are really eager to get your product, have one of them stake at least a hard commit in your seed round. Problem solved. If you have a good number of contracts and a customer (or two, or three ...) ready to fund your seed round, it makes the decision much easier for angels who don't know you.

Also, see if you can alter your payment terms for your contracts to ensure you get enough cash to get going. Annual contracts can be pre-paid, and offer a discount/MFN for those who opt for it.

Nofyah Shem Tov

July 27th, 2016

Move on. Whoever says no just say next and move on.

Gabor Nagy Founder / Chief architect at Skyline Robotics

July 27th, 2016

You did not mention if your traction involved paying customers. If not, can you start charging for you product / service?
If so, I would seriously consider just growing organically from this point, even if I have to "tough it out".
If you have a product and paying customers, why would you want to deal with the strings that come with other people's money?
As far as I'm concerned, investors have missed their window and it's their loss.
Hey, more equity for you and no board can kick you out of your own company!

I'm in the early R&D phase with my robotics startup and I'm still very hesitant about accepting outside funding (I've actually turned down offers). Once I have paying customers, I probably wouldn't even consider it.