Advanced Startup Pitch Techniques, or “How to Make an Investor Less Cranky”

The Web is scattered with hundreds (thousands?) of articles guiding you through creating the perfect investor pitch and pitch deck.  So rather than take you through “Pitching 101” again in this post, I thought I would hold the advanced class. Think upper division, past the entry level stuff.  Yes, we all know that you need fewer words on your slides, you need to dress for your audience, and you need to leave time for Q&A.  Google “How to pitch to investors” for more of those tips and tricks.

Now that you have the basics down, let’s start the advanced class.  Continue reading “Advanced Startup Pitch Techniques, or “How to Make an Investor Less Cranky””

How to Raise $1M in 26 Days

As an active angel investor, every week I speak with founder/CEOs who are seeking funding for their companies.  About 3-5% of these conversations lead to investment.  These numbers are comparable to the “hit rate” of founders who are seeking funds from venture capital firms as well.

If it is so hard to land seed-level funding, then why even try?  Because if you have a great vision, product, and maybe even a bit of market validation, then funding can be the fuel that accelerates your venture and allows you to achieve very big things. Continue reading “How to Raise $1M in 26 Days”

In the “Tank” with SandCloud

It was a Tuesday night when I got a call from my good friend and former co-founder Martin.  He said, “What are you doing at 6:30pm tonight?”  “Nothing,” I answered.  “Good.  I am picking you up and taking you to an apartment in Pacific Beach.  I want to see what you think.”

If you know Martin, this isn’t that unusual.  He and I are in a similar business.  I invest in startups.  He is an entrepreneur-in-residence for a major law firm.  We share deals.  And in a past life we raised $30 million for our own startup.  So there I was, getting into his car, headed to this mystery meeting.

Continue reading “In the “Tank” with SandCloud”

Do Angel Groups Really Write Checks?

In my travels talking to entrepreneurs, when the topic of angel groups comes up it is often met with a dismissive, “Those guys never write checks.”  Are these entrepreneurs right?  Sometimes.   But the reality is that great companies with great teams often get significant funding from angel groups, and it is that funding that sets the venture up for future success.

In my last post, I shared how my own company raised $2 million from Tech Coast Angels over 2 separate funding rounds ($1M each).  Was this an anomaly, or the norm?  Well the best way to answer that is to look at the data…

In 2015, Tech Coast Angels provided $13.5M in funding to approximately 50 companies.  In addition to the direct funding, TCA also supported its existing portfolio companies in raising an additional $82M from outside investors (mostly venture capital and other angel groups).  The 2015 TCA annual report can be found here

So, it sounds like angel groups do indeed write checks.  However, the above numbers don’t tell the complete story.  The reality is that well over 90% of founders who apply to TCA for funding are not successful.  This is on par with the success and failure rates of other funding sources such as venture capital.  So why the sentiment that “angel groups don’t write checks”, if the probability of success is similar to venture capital?  I think there are a few reasons…

While VC terms include a defined funding amount (typically $3-5M for a Series A), angel groups have to solicit their membership for individual investment from each member.  Thus, the entrepreneur who has a successful pitch is asked to enter into a due diligence process where the funding outcome is not clear.  Thus, an entrepreneur may enter the process seeking $500K, but may ultimately be funded at a level above or below that number.  And sometimes, a company that has a successful presentation and enters due diligence finds that they are turned down for funding early in the DD process when members learn more about the company.  Unfortunately, since angel groups are comprised of members of different experience levels and demeanors, sometimes the entrepreneur who falls out of the process becomes convinced that these investors are not serious and are wasting the entrepreneur’s time.

I will explore that topic in my next post, titled “Are angel investors a-holes?”

Are angel groups for real? They were for me.

Some of you know that in addition to may activities with Venture San Diego, I also serve on the Board and am active in the Tech Coast Angels.  TCA is an angel investment group that spans 5 chapters across Southern California.  When I mention my TCA affiliation with local entrepreneurs, they sometimes share that they have been advised to “not waste their time” with TCA or angel groups in general. I have spent a bit of time exploring this, and it appears that the bad reputation of angel groups seems to stem from the following:

  1. 1. Perception that members in angel groups rarely write checks
  2. 2. Fear of the process – time consuming, complex, etc.
  3. 3. Concern that the entrepreneur will not be treated well

I thought I would share some of my experiences with angel groups and hopefully provide some insight on how best to navigate angel groups if your venture is in search of seed level funding.

First, a bit about my background.  Before I joined TCA, I was the founder/CEO of a company that raised $2M led by TCA.  That’s right – TCA led two separate rounds of $1M each for my company, AIRSIS, Inc.  Overall, I thought the process was fair and ultimately we reached terms that were acceptable to all.  Several years after funding, TCA members also assisted with additional debt financing for the company.  Along the way, I found the TCA investors in my company (and their designated board director in my company) to be patient, entrepreneur-friendly, and fair. That is a big part of why I chose to join the group after the sale of my company.  

With that said, it is important to understand how raising money from angel investors differs from other forms of capital.  The following are some of my observations that I shared several years ago on a review that I posted at TheFunded.com

1. You have to go into the process realizing that you are not pitching to a VC fund – you are pitching to a group of angel investors who have been conveniently assembled to allow you to make a single pitch to 50+ accredited investors. Some of these investors can invest $500K+ in your deal. Most will likely invest $25K to $50K.

2. If you get the attention of a TCA member to lead your deal, he/she will do much of the heavy lifting to rally others into the deal. You will also have an opportunity to present in other regions and syndicate to other angel groups. While this takes more time, you have the advantage that you have already been vetted by existing members. In both of my investment rounds, we received funding by members in San Diego, Orange County, Los Angeles, and Santa Barbara.

3. The closing and funding process is typically handled by the angel group (and their hired attorney, who’s fees will come out of the transaction). In the case of my company funding, the TCA term sheet gave us a mechanism to bring our own non-TCA contacts into the deal, with these contacts knowing that terms were set in an arms-length manner (as opposed to friends-and-family deals).  This allowed us to leverage the angel group funding to raise additional funds outside of the group.

4. After our equity funding rounds TCA investors have loaned my Company additional funds when we needed it (over $400K), and have provided strategic counsel and even access to customers, partners, and related business development. I had 30 TCA investors, and without exception all were patient and entrepreneur-friendly. I did my part in this by keeping all investors informed on the Company’s progress through quarterly investor updates and annual audited financials.

The bottom line: It is extremely difficult to raise $500K to $2M from any source. It is usually too big for friends and family (or a single angel investor), and too small for VC. Thus, for my company (raising $2M), pursuing an angel group for funding was a very good fit.

It my next post I will dig further into the first objection raised above:  Do angel groups really write checks?