[This post is part of an on-going series of video interviews with members of the start-up community - see a list of links to the full series here.] A chemist turned turned IT security and clean tech expert, Ralph Sheridan has been buying and investing in companies for over 30 years. For the last five or so, [...]
Read more →[This post is part of an on-going series of video interviews with members of the start-up community - see a list of links to the full series here.] Jean Hammond is an institution in the Boston start-up community. She’s a Sloan MBA with a ton of entrepreneurial experience in the digital signal processing and networking space who [...]
Read more →Angel investors can be a Godsend… and not just because they can help fund your business. When we founded Mosaic, I spent a lot of time meeting with Angel investors and telling then about how my company helps photographer’s better access and store their photos. I did too much telling and not enough listening.
I was in full sales mode. I believed it was my job to convince them that Mosaic was a great investment and that together we were going to make boatloads of money. That was part of my job. But an even bigger part of my job was actually building Mosaic into a successful company.
Angel investors are really smart. A lot of them got their wings by building businesses themselves. They also get thrown more pitches than Kevin Youkilis.
I believe you should ask them for advice first and money second. If you start to hear the same types of questions from the investors, you have two options. 1) Go out and do research on the question and come back with answers. Ask them if this new data satisfies their question and if not what data would. 2) If the answer to their question isn’t good, then it is time to think about a pivot.
A pivot isn’t a bad thing. If you listened to your advisors early at the very least it will save you from a lot of wasted energy and resources. As a startup by definition you are trying to do a lot with few resources - so waste is evil. It might even save your business.
Balance your gut with what investors say. Be a harsh critic of your answers before you give them to potential investors. If you aren’t satisfied with your own answers to questions, neither will potential investors.
It is easy to get lazy with answers as being good enough. Quickly identify your startups fundamental business assumptions and figure out how you can test these assumptions as quickly (and cheaply) as possible. Angels bullshit meters are remarkably well tuned.
There is no right way to do any of this stuff. If you ask 20 Angel investors the same question, you will get 20 answers. The trick is to listen to all of them and figure out the right path for your business.
In this way, Angels are very similar to customers. Remarkably, investors and customers were giving us similar advice; it took us too long to realize this. Once we did, Mosaic started gaining customers more quickly and we had better luck with investors.
We were blessed with great mentors (many from The Capital Network) like Ben Littauer who saw our potential and worked with us to build a stronger business. (And yes, he ultimately invested.)
Ultimately if you listened to the investors needs and answered their questions, they will invest. I would rather err on the side of treating potential investors too much as advisors than too little. This might even slow down your fundraising efforts.
But even if those Angels don’t invest, you will have gained a lot.
About Gerard Murphy: Gerard is the CEO/Co-Founder of Mosaic Storage Systems. You can connect with him on Twitter or Google Plus.
Posted by Dave McLaughlin
The hardest investor money to get is the first check. That starts the wheels turning. With Vsnap, the video messaging startup where I’m CEO and Co-Founder, I built a little wrinkle into the financing that put real money in the bank within two weeks of my going out to investors.
Speed matters a ton, especially for consumer internet startups. And with a small team, there’s a high opportunity cost to seeking investor money. Please don’t misunderstand me – finding aligned investors takes time, and this is the last thing in the world that you want to rush. But there is a point of diminishing returns and the more you get beyond that point, the greater the price you will pay.
Personally, I’m not confident that I have enough investors in my network who are comfortable with convertible notes, so I chose to price Vsnap’s seed round. I see this as me optimizing the process for speed and quality of partner, rather than for some illusory perfect price.
How did we set a price? We looked around at what other teams were getting and picked something in the middle. We gut-checked that with a few investors and a few entrepreneurs. We figured in the option pool from the founders’ share. We worked through the current dilution and sketched a range of scenarios for future dilution. We measured the total raise against our P&L then grilled ourselves on whether it would give us enough runway to generate the proof points to raise an A round. We tweaked the numbers a bit. And that was our price.
What matters most to me is that we get great investors with a minimum of bullshitting each other, and that the founders and the team retain enough equity to land key players in the future and to be deeply, viscerally engaged and incentivized through the dilution of future financings. Whether that’s precisely a pre of x.x or x.y…I don’t sweat that so much.
Now here’s the little trick, which I used to buy me the time to focus intensely on product and team – rather than on financing – through our alpha pilots and now approaching our beta launch.
We simply discounted the first half of the round.
I don’t often hear of people doing this, but it is not at all complex legally. It wasn’t a huge discount where the second half investors feel they’re getting screwed. Just enough to create a carrot and introduce a bit of urgency.
The result: three investors wrote meaningful checks within two weeks.
And we just kept right on running hard. We launched our alpha and ran pilots in the US and Europe. We’re about to launch vthankyou.com with some awesome celebrity partners, providing our alpha product to help people say thank you to America’s veterans. And our beta will launch in November, web and iPhone – with an amazing integration that is going to create tons of value for our users.
And now I need to get back to raising the rest of the seed round!
Dave McLaughlin is CEO and Co-Founder of Vsnap, a simple video messaging tool that helps consumers and businesses drive action from the people they communicate with. Formerly, he was Co-Founder of Fig Card (acquired by PayPal) and Boston World Partnerships.
This post was originally posted at OnStartups.com on August 10, 2011 and has been reposted with permission of Dharmesh Shah and Ty Danco. You can view the original post here.
The following is the result of a collaboration between Ty Danco and Dharmesh Shah. Ty is an angel investor and startup mentor (you should be reading his blog). Dharmesh is founder and CTO of HubSpot, runs OnStartups.com and is an advisor to AngelList. [Note: All the smart useful stuff in the article is Ty, all the feeble attempts at humor are Dharmesh]
AngelList (AL) connects promising startups to a sterling network of early stage investors. AL has been getting a blizzard of well-deserved press of late after Venture Hacks released the networks 18 month statistics. But not a lot has been written for startups on how to best use the service. Here’s our take in small, bite-sized pieces.
1. The Fundamentals Still Apply As Time Goes By
AngelList may be a game-changer, but most of the same rules are still in place. Angels still look for the same elements in a startup as always: a strong team; meaningful milestones; a differentiated product in a big potential market; capital efficiency and so on. Therefore, the excellent advice listed in OnStartups, Venture Hacks, AVC, Ask the VC, Both Sides of the Table, and the like still applies. What for now is unique to AngelList is the speed and efficiency with which they can harness an all-star network of active investors in front of a breathtakingly large, qualified stream of startups. Whereas B.A.L. (Before AngelList) you could mess up a presentation in front of an investor group and not worry too much (there’s always another potential investor around the corner if you look,) putting in a half-baked effort on AngelList is a cardinal sin. First impressions count, so make sure you crush it!
2. There’s a great primer already
“How to Hustle with AngelList“, by Brendan Baker is the definitive how-to guide discussing how to make it onto AngelList, how to set up profiles, etc. It covers all the basic mechanics and throws in a few proven tactics. If you have time to read only one article on AngeList, that’s the one.
3. Talk to People Who Have Had Success
With over 400 companies having raised money on AngelList in its first 18 months, this is easy. As Alex Cook of Rentabilities mentioned in this Boston Globe article, there’s a learning curve involved, so make a point of talking to entrepreneurs who have previously used the site before you list. Who has been successful? Here are a few notable companies.
Quora has many dozens of questions on AngelList, as does OnStartups Answers and of course Venture Hacks, whose founders run AL. By the way, there is a high overlap between people who are active on Quora and the community of investors you want to attract.
4. Get a champion first
The first anchor investor is the hardest. Always has been, always will be. And for Angel List, it is important enough to be ranked #1 in Nathan Beckfords excellent post entitled Hacking Angel List. For instance, Rentabilities already was a winner of the 2010 MassChallenge, but they waited until they had won over Dharmesh as an investor/endorser before tackling Angel List. Nivi of AngelList will argue that it is not necessary to have a champion if one has a great team and traction, and he has several examples of this. But we respectfully disagree: just as your odds of success drop dramatically if you pitch to an angel group without already having a champion in the room, the same applies here. So don’t launch prematurely. And, even if Nivi is right that you don’t absolutely need a champion if you have enough traction and an awesome team, it can’t hurt.
5. Don’t wait too late in your rounds fund raise before you apply
Localmind is a company I invested in which had no trouble raising money, but they wanted to attract a few more angels with domain expertise and geographical diversity. Within days of listing on AngelList, they had identified 8 strong, deep-pocketed angels, all of whom could have strengthened the company. With only limited $dollars left in the round space left, they could only squeeze in 2. When I asked Lenny Rachitsky, the CEO about what he learned from the experience, he said he had wished he had started working with AngelList earlier.
Whens the best time? Others may disagree, but Id suggest getting your application in when your round is anywhere from 20% to 40% subscribed. With that head start, it should attract interest pretty quickly. If you get oversubscribed, thats a good problem to have.
6. Before launching on AL, mentally assemble your dream team of investors
If you cant dream it, you cant build it. Your ideal team may be 100% angels, you may wish to have some local micro-VC or it might be as simple as a pair of massive VCs and an industry insider. But rRegardless, the majority of investors should already have complementary holdings in your sector.
More importantly, assess what elements you need besides money, because the AL membership has their tentacles everywhere. Knowing what you need but dont yet have not only helps you get it, but it also sends a strong positive signal to angels that you understand your needs. Approaching investors who clearly dont invest in your sector is the telltale sign of a rookie.
7. Research the network, and target your angels
You can use filters to look for angels who have invested in your sector or in complementary companies. I invested in HealthRally because its CEO did just that and found me. While I don’t always monitor the AngelList feed (just as you might not stay current with Facebook traffic or a Twitter stream), I got a very targeted letter from Zach Lynch, the CEO of HealthRally. He noted my investment in GreenGoose and other health tech firms, and then made the connection that one of the other GreenGoose co-investors, Esther Dyson, also had committed to HealthRally. Besides showing excellent progress to date on a shoestring budget, Zach demonstrated to me the type of targeted, “rifle not shotgun” marketing discipline that his company will need to land a few strategic partners and megaclients.
8. Get Personalized Intros
Ask all of the angels who are backing you to endorse you to their own followers. If they are not already on AngelList, ask them to sign on and do so. Helping syndicate a round is what angels do, and AL has found that personalized intros from an AL investor get opened far more than a generic profile. This is the original angel skill, (after all, Howard Lindzon calls his fund “Social Leverage” for a reason,) but now it’s so simple it can be done to all of an investors AL followers with one mouse click. Using the Rentabilities example, Dharmesh has many people watching his recommendations, and when he gave the company a thumbs up, more than 100 people followed the company, and over 30 asked for introductions. Clout (and Klout) matters.
9. Spend a few calories (and maybe dollars) a good name.
For many of you, AngelList might be one of the biggest initial exposures your startup will have. And, theyre some very powerful people. Its worth spending a little bit of time and energy getting it right (it gets harder to change it later). This is particularly true if you have a consumer (B2C) startup. I guarantee you that folks like Jason Calacanis care a lot about your brand and domain name. I do too. Here are some quick tips on naming a startup. Dont obsess over the name, but its worth investing a little time on this.
10. A video is worth 1,000 slides
No one can tell your story better than you. Make a short killer, video and include it in your profile. I made my first AngelList investment in UpNext after I saw the link to the companys interview on Untethered.tv. If you can, include one. Especially if it can showcase a quick demo.
11. Get your website right first
This should be obvious. Even if you just have a well-done landing page with a good design and a good URL name, it’s a plus. Every angel is going to click through, and most won’t go further if your website sucks.
12. Remember Inbound Marketing, baby!
Yeah, I know that going through AngelList qualifies as traditional outbound marketing, but sophisticated angels will check on their own to assess your knowledge of the basics. Do you show up in Google search results at all? Do you have mentions in social media? Do you own the company name on twitter and have you tweeted recently? Do you have followers? Do you have an engaging blog that tells your story and has a point of view? Have you checked out your traffic graph on Compete.com and made sure its pointing in the right direction? Face it: AngelList exists because of the Net. You may be able to get away with a sloppy web presence and strategy at a traditional angel group presentation, but that won’t fly with the AngelList crowd.
13. Advisors are huge.
Social proof is hugely important in Angel List. I invested through AngelList in Saygent. Why? Not only did I like the schtick, I really liked that they had sought out and won Sid Viswanathan (co-founder ofCardMunch and a master at using Mechanical Turk) as an advisor. Currently Im doing due diligence on a company which landed Jason Calacanis as an advisor. Having an advisor like Jason, who is an indefatigable promoter of his portfolio companies (via his interests in the Launch Conference, Open Angel Forum, and This Week in Startups, he sees a TON of companies), shows instant credibility and is a harbinger of future success.
14. Clearly list your price
If you haven’t figured out what you want to raise at what valuation, do so now. If you’re going to raise convertible debt (although I’m personally not a fan,) say what your cap is going to be. There’s no upside in wasting both your time and that of the investor if you’re asking a price where the investor is unwilling to go. If you’re unsure and you haven’t already figured this out with the anchor investor, the AL team can help point to some comparables. Speaking of comparables, if this is your first startup and you’re a rookie, try not to over-reach with respect to terms. Just because everyone you talked to so far thinks you are brilliant and your idea is spectacular, don’t push for a really high cap on your convertible note. Going from a $4 million cap to a $8 million cap might seem like a 100% increase in valuation, but the math doesn’t work that way. Such a move might decrease the number of investors interested in your deal.
15. Use a standard termsheet
Resist the temptation to introduce clever, non-standard terms into the termsheet — even if you think you can get away with them. Two reasons for this: 1) You’ll come off as naive or greedy. 2) Even if you somehow manage to sneak these in now, you’ll have issues when you need to do your next round. Save your creativity for your product and keep your termsheet clean. If you need an example, you could do worse than the standard financing docs that Y Combinator provides. But, there are others. Ask around.
16. Be ready to pitch on short notice via videoconferencing
This could be via Skype, Gmail video chat, Go2meeting, etc. But you should have perfected all of the logistics and have accounts and slide share materials ready on quick notice. With investors no longer being local, you need to find ways to let them see you and your pitch. Insider secret: Some investors have found a strong pattern that suggests entrepreneurs that respond to late night emails quickly have an edge over those that don’t. Lets save the “but work-life balance is important” debate for another article. Meanwhile, you better be working your butt off.
16. Think one round ahead.
Listing on AL now will give you a giant head-start on your next round, as investors who aren’t ready for this round may step up for next round. As Mark Suster says, VCs invest in lines, not in dots. Establish the connection for the next round now, and rethink if there are others you may wish to add to your initial target list.
17. Use the AngelList team
Who is more wired in than Nivi and Naval? Who’s seen more pitches and knows what works? Once they accept you, get their advice and give it great weight.
18. Know how investors will use AngelList
Here’s a similar list of techniques investors use that work especially well via AngelList.
19. Get your backers to register on AL
You want them to comment on you and endorse you. Any angel should volunteer to do this for the good of the company, and they get to build their brand too.
20. Don’t game the system
You’re smart and love to hustle. We get that. You should do all manner of hustling to make sure your startup gets the visibility it needs. But, don’t abuse the community or take advantage of it. It’s ashared resource. Just like you, there are many other entrepreneurs looking to connect with great investors on AngelList. Many of them are just as deserving. It’s fine to stand-out, but make sure you are adding value to the group, not taking away from it.
21. The best thing you can do is get traction
You should invest time in your fundraising process — it’s important. The basics don’t take that long. But, don’t get too obsessed. Your primary goal is to build a business not build this phenomenal profile and network on Angel List. The most helpful thing you can do to get the right angels on board is to make measurable, meaningful progress with your business.
I’m sure a few of you that are already in the Angel List process are likely reading this. What other tips would you like to share with the community? What questions do you have that haven’t quite been answered yet?
By Marielle Segarra of CFO.com, reprinted with permission from this May 13th post.
A young company looking for outside funding won’t get very far without a well-crafted pitch. And pitching to investors doesn’t just mean showing them a raft of numbers; it also requires skillful storytelling. “The biggest challenge is distilling [the pitch] down to something that’s irresistibly compelling,” said Greg Erman, a serial entrepreneur who has founded six medical-technology companies, at a recent conference held by Boston-based The Capital Network, focusing on fundraising for life science startups.
A compelling pitch is especially important for seed-stage companies these days, given current trends in the venture capital market. Although first-time financings by venture firms in 2010 were up about 30% from 2009 — with more than $4 billion going to about 1,000 companies — the flow of funds going to seed-stage firms declined by 2%, according to the Moneytree Report by PricewaterhouseCoopers and the National Venture Capital Association.
Similarly, angel investors poured $20.1 billion into growing companies in 2010, an increase of 14% over 2009, but reduced seed-stage investments by 4%, according to the Center on Venture Research at the University of New Hampshire’s Whittemore School of Business.
Erman was one of several experts who talked about creating and delivering a successful pitch at The Capital Network’s Life Science Venture Fast Track. Here, distilled from their discussion, are five tips for talking to investors:
1. Don’t cold-call potential investors. Use your network instead to connect with angels or venture capitalists. “The first priority in approaching any investor is to have a credible referral,” Erman said. This person should know “enough about the entrepreneur and the business to be able to offer recommendations that are authentic.” If an investor allows electronic submissions, entrepreneurs should submit a plan and try to reach out through a referral.
Angel investors were in Boston/Cambridge Massachusetts during the week of April 4th for the National Angel Capital Association National Conference. For many angel investors, the conference provided a venue where they could get insight into 3 or 4 issues that have challenged early stage investors for a long time. The 2011 version of these issues viewed through the lens of angels who like investing in angel groups bring interesting complexity to the problems investors face. I found that a lot of the angels were discussing reaching scale and, interestingly, matching that with “right sizing” what we do.
Read more →Call it fate, but on January 18th my bookkeeper, Smartbooks, introduced me to Michelle Hipwood, Executive Director of The Capital Network. I had just launched a new brand, GoodTwo, and we were raising money to capitalize its success and spin it out into its own company. GoodTwo is a free fundraising platform for fundraisers of any size and structure. We offer deals and rewards to donors who support your mission: the donor buys a deal and money goes directly to your cause. Think of it as your own Groupon fundraiser. In particular we’re helping a lot of run-walk-ride-athons achieve their goals, so if you’re doing this year’s Jimmy Fund Walk or Pan Mass Challenge we’ll be there. GoodTwo - Good Deal. Good Cause.
Read more →For GreenGoose, the journey from Oregon to Providence to Cambridge, and finally to last week’s Launch Conference in San Francisco, has been intense and rewarding. This is the classic entrepreneurial story of how hard work, frugality, determination to see your vision realized and confronting your fears combine to produce a successful outcome. For GreenGoose’s founder, having the support of a group of mentors and advisors along the way gave him the courage and confidence to keep moving forward despite moments of self-doubt.
Read more →James Herriman, COO of SmartCells Inc., will speak at TCN’s upcoming Negotiation & Valuation Financing Roundtable on February 9th. SmartCells is a private company based in Beverly, MA that develops a glucose responsive insulin formulation for the treatment of diabetes mellitus. They have received funding from Boston-based angel groups including Boston Harbor Angels, Angel Healthcare Investors, Beacon Street Angels, and Common Angels.
In December 2010, SmartCells was acquired by Merck & Co., Inc.. Nancy Thornberry, Senior Vice President and Head of Merck Research Laboratories’s Diabetes and Obesity Franchise, said that “maintaining control of blood glucose levels represents a daily challenge for people living with diabetes. Through the acquisition of SmartCells we have obtained innovative technology that may enable us to develop glucose-responsive insulins.” Merck acquired all outstanding stock of SmartCells, Inc., and in return SmartCells shareholders received an upfront cash payment and will be eligible to receive clinical development and regulatory milestones for products resulting from the transaction for potential aggregate payments in excess of $500 million. Sales-based payments for products resulting from the transaction will also be payable. SmartCells’ board of directors unanimously approved the transaction. [Taken from the SmartCells website.]
Learn more about SmartCells’ successful financings and exit and enjoy the opportunity to test your valuation abilities and acumen in real time at TCN’s Evening Roundtable on February 9th. Seats are still available. For more information and to register, visit the TCN website.
The Capital Network (TCN) is Boston’s leading non-profit organization providing extensive educational programs and a community to help early-stage entrepreneurs master the entire funding process and successfully raise seed capital for financing their high-growth startup.
