What are Angel Investors and Why do You Want Them?

Angels are high net-worth individuals that are seeking to make a return on an investment (not donations). But they do usually have additional motivations such as “do a little good, make a little money, and have a little fun.”

To invest in startups they must meet the Accredited Investor requirement set out by the SEC which you can see at this link:

http://www.sec.gov/answers/accred.htm

Typically they are not professional investors but have substantial business experience having started and run their own business successfully. Often times they are ex-CEO and VPs of large companies, and there are many different kinds (such as the fund raiser, the networker, the Jack of all Trades, the strategist and the industry specialist).

Each angel has their own criteria for what makes a good investment. Some of the questions they may ask about your start-up include:
1. Does the company have a strong management team?
2. How large is the market? Is it growing fast?
3. Does the company have strong intellectual property protection?
4. Does the company have a platform product that can produce many products?
5. Is there a clear exit path for the company?

Angels bring expertise through industry experience as many have run successful businesses in the past. They potentially bring their network of experienced and successful people, and they often have a standing in the community - so if they lend their support to your start-up, it should help you in raising more funding and attracting support.

Assess the needs of your startup and look for angel investors who can bring more than just funding to your start-up. Even if they don’t invest, you may find some angel investors are good candidates to join your board of advisors. Angel investors typically know other angels that can be referred to your deal.


Best regards,
Hall T.

What’s your timeline for raising funding?

If you answered, “right away!” as many entrepreneurs do, you’re probably not being realistic.

In fact, the benchmark is that for every million dollars you are raising, it will take you one year.

But even if you’re fund raise isn’t that large, it can still take many months of planning and executing to raise funding from Angel Investors.

Here’s a rough outline of what you should be ready for when developing your plan:

Month 1—Check readiness. Assess your readiness for raising funding, and be honest. Ideally, you have a product and have sold some units. You should also have built core team. Communicate with your current team and investors you already have about raising funding. And don’t forget to check with your attorney about the legal aspect. You may have to consider modifying your legal entity to allow for outside investment.

Month 2—Prepare the company. Planning your fund raising strategy includes assembling your key documents including, the Executive Summary, Slide Deck, Financials, and Due Diligence documentation. Take steps to fill out your board of advisors and build a set of email updates for monthly transmission to the potential investors.

Month 3 to 5—Prepare the investors. Identify potential investors to put on your investor prospect list. Start with ten investors you already know and have made contact with and add ten new investors per month to your list. Setup meetings to introduce investors to your deal and tell them that you will start raising money in a few months. Ask permission to keep the investor on the list for updates you will be sending out.

Start sending monthly updates on your company’s progress using personalized emails – not ‘broadcast’ emails. Customize the mailings to build a personal relationship. And don’t send them your press releases. Demonstrate how you are actually achieving milestones.

Month 6 to 9—Pitch the investors. Follow up each potential investor and pitch the deal. Identify the lead Investor and close the first round with investor friendly terms. Offer an incentive to the lead investor for the additional risk he is taking by going first.

Month 10 to 11—Close the investors. Invite other investors to follow on. Keep the relationship with all investor prospects--some may join in a future round.

Month 12—Finish the round. Oh, but you’re not done at this point. Continue sending updates to investors AND the investors on your prospect list on a quarterly basis to prepare for the next round of funding.

Pitching to Angel Investors: Have a solid go-to-market strategy

In your pitch presentation and business plan, it’s important to describe your sales and marketing strategy--or in other words, your go-to-market strategy.

In particular, what is your channel to the customer? Are you selling direct, indirect, through Original Equipment Manufacturers (OEMs) or channel partners? Are you franchising or granting licenses?

Entrepreneurs should also explain why that model was chosen over others and demonstrate how leads are generated and converted into buying customers.

Best regards,
Hall T.

Pitching to Angel Investors: Your Business Model and Financials

The business model describes how much revenue you make from each customer, along with how much it cost to acquire, sell, and support that customer and the profit left over. The investor wants to see the business model to understand the level of profitability and the scalability of the business.

Financials
The financials reflect in numbers what the previous sections described in words. They must be consistent. If you are showing a revenue growth rate of 100% per year and your business model indicates you need a sales person per $1M of revenue, then these numbers should come up in the income statement.'

For companies already in operation, it’s useful to show the past year and the coming four years. In other words a five year window is used. In addition to the income statement, there also needs to be a cash flow statement and a sales forecast that breaks out ASP (Average Selling Price) and unit growth. Investors want to see gross margins and net income to understand the profitability of the business.

Funds Sought and Use of Funds
It’s important to state how much funding you are seeking in this round. If you’ve received a previous round of funding it’s helpful to show what you accomplished with that funding. Achieving milestones demonstrates your ability to execute which is one of the key questions the investor will be asking. Also, for the funds sought in this round show how those funds will be used.

Finally, discuss the exit strategy. How will the investor get their money back? Will it be a merger and acquisition (the most common form today), an IPO, or some other method. This is how the investor can calculate an expected rate of return.

Investors often look for market validation. List the customers you have closed to demonstrate that customers will buy your product/service. If you don’t have any customers, it’s advisable to get a few of them signed up before you go out for fund raising. It’s also important to list customers in the pipeline with forecasted sales expected from each. Showing your customer’s results from using your product/service in the form of an ROI or even hours or dollars saved goes a long way to proving the value of your product/service.

Best regards,
Hall T.

Pitching to Angel Investors: Competition & Competitive Advantage

If you want an investor to stop listening to your pitch presentation or to stop
reading business plan, state how you don’t have any competition. You might be
surprised at how many entrepreneurs make this rookie mistake in their pitch
presentations--we hear it constantly, and it’s almost certain that you’ll lose
credibility instantly with investors.

I believe that entrepreneurs that say they have no competition are trying to convey a broad opportunity to exploit a market--the problem is that it has the opposite effect. The main reason is that the customer is solving the problem somehow now,even if indirectly in comparison to your solution. There’s always another company competing for the same dollar, and even worse, If the investor finds out about a competitor from someone other than the entrepreneur then it makes them look even more unprepared.

When researched thoroughly, the competitive analysis in your business plan
demonstrates to potential investors that you understand the strengths and weaknesses of your business. It also gives them a better picture into the market opportunity.

When doing research on the competition for you plan or pitch presentation, you should focus on answering the following questions:

1. Who is out there competing for the same dollars that you’re going after?
2. Are they directly or indirectly selling products, services, or substitutes that
compete?
3. What are their strengths and weaknesses in the market?
4. How are they currently positioned in the market.
5. What segments of the market do they operating in?
6. What is their go-to-market strategy and how does that differ from yours?
7. What threats do they pose that may impact your business?

In other words, perform a SWOT Analysis (Strengths, Weaknesses, Opportunities,
Threats) on each one of your competitors and compare them to your company.

When you go to present your findings in the business plan make sure you:

1. List the key competitors with their strengths/weaknesses in comparison with your
own.
2, Show specific competitive advantages of your solution.
3. Use numbers to make the comparison. The more numbers, the more solid your company
looks. Use numbers to show market share, your economic benefit, etc.

Pitching to Angel Investors: building a solid management team

The key to the management team is experience in the area of the new business. First time CEOs need to have substantial operating experience. In addition to the CEO most startups have two other executives on board. Depending on the business, they could be financial, operational, manufacturing, scientific, technical, or other. Again, industry-specific expertise needs to be highlighted. Startups without a full management team could create an “Advisory Board” staffed with non-paid volunteers who provide advice. Typically, they have substantial industry experience and can augment the management team.

Pitching to Angel Investors: Defining the Target Market
In an earlier post, we talked about framing a compelling customer problem for a potential investor--but to truly get their attention, your target market must be sizable. In other words, there needs to be a lot of customers with that problem that are ready to pay for your solution!

I usually break the “target market” category into three pieces: Available, Serviceable and Beachhead.

The Available Market is typically anyone who could potentially purchase the company’s product or service. Look for numbers in the billions to truly be compelling.

The Serviceable Market is the sub-segment that would most likely be a strong candidate to purchase the company’s product or service. This number is usually in the millions of dollars.

And finally, there’s the Beachhead market, which is the first set of customers the company will pursue. The company should list beachhead customers that are in the pipeline which shows market validation.

Conveying these three items in your business plan and pitch presentation will show an investor that the market cap is sizable, that there are may companies willing to buy your product, and you have a solid go-to-market strategy.

Best Regards,
Hall T.

Pitching To Angel Investors: Focus on the core product or service

Entrepreneurs are always excited about their marketplace solutions and want to talk about it to anyone that will listen. That enthusiasm is critical to start a business because that passion is the only thing that will truly carry them through the process (It’s certainly not the money--trust me!)

Sometimes, however, that enthusiasm causes entrepreneurs to lose focus about what they are conveying as part of their product offerings.

For example, you might have ancillary services or spinoff products that are part of the plan. But cluttering the business plan with numerous potential options for the company will appear diffuse and fragmented to an investor.

It’s better to focus on the core product or service. An investor looks for purpose and clarity of focus in start ups and even early stage companies

This also solves the problem for entrepreneurs who are concerned about protecting their intellectual property. You don’t have to describe the “secret sauce” behind their product--simply focus on the benefits the product or service offers.

At this early stage, there’s no need for a non-disclosure agreement, so put that away. Most investors won’t sign one at this stage anyway, and it will only turn them off. Only in later stages will the investor need to learn more about the IP, and they will be glad to sign it at the due diligence stage.

Best regards,
Hall T.

Pitching to Angel Investors: What problem do you solve?

Pitching to Angel Investors: What problem do you solve?

When seeking funding from an angel investor or other sources of venture capital, the first element they’re going to look for in the executive summary of your business plan or your pitch presentation is the solution to a customer problem. In other words, what problem does your product or service solve for the customer that is unique?

To ensure that you’re going to get the attention of an investor, make sure you address the following in your plan and pitch presentation:

1. Be Specific and comprehensive at the same time. It’s important to give enough detail so the investor understands what you’re doing without giving too much information about the inner workings of the application or service offering. In some cases, it is helpful to express the company’s product/service in a few words such as “We make radiation-hardened memories.” This helps the investor in on understand the company’s offering.

2. Develop an actual elevator pitch. You’ve got one minute to convey how compelling your offering is to an investor. Go! Can you do it?

3. Your problem should be large and compelling - the problem you’re solving should be large and compelling enough that people not only want a solution, but need one and are willing to pay for it.

4. Use numbers to describe the problem. The numbers you present can the problem more compelling to an investor. For example, how many people suffer from a disease or condition that you potentially solve? How much money is wasted on inefficient solutions or methods?

5. Talk about the business solution and not the technology. This is one of the biggest mistakes that entrepreneurs make over and over in their pitch presentations and in their business plans. In short, investors care less about your technology and more about how you’re going to make money. Focusing on that is paramount to getting follow up meetings--you can focus on the technology at the due diligence stage.

6. Tell a story. Talking about the problem you solve in a story format that’s easy to understand can help you present your case in the most understandable fashion.

Best Regards,
Hall T.

Irene Mwathi Talks about Minority Startup

Irene Mwathi Talks about Minority Startup

Where are you from originally?

I was born in Kenya. I came to the US, Washington DC for college and later moved to Austin in 2007.

What university did you go to?

University of Maryland for undergrad and Georgetown University for my MBA


What brought you to Austin?

I moved to Austin to expand my business in IT Consulting.


What is your group's mission?

Minority Start-Up mission is to develop minority entrepreneurs into successful enterprises by providing programs, advise, counseling and access to capital. Austin continues to be one of the most entrepreneurial cities in the country and M Start-Up seeks to help minority entrepreneurs tap into the various resources and opportunities with a focus on investment funding.


What need does it fulfill?

Minority Start-Up will bring both minority innovators/entrepreneurs and investors together. While minority owned businesses have grown at the a rate that surpasses the growth rate of all businesses combined by a rate of 6 to 1, and with revenues twice as high as the rest of the market place, minority entrepreneurs need to seek out investors and vice versa to sustain this level of growth. Today even with higher numbers of African American, Hispanic and Asian innovators, we don't see the level of investment funding as seen in the mainstream market place. M Start-Up aims to bridge this gap providing minority innovators access to investment capital and the Central Texas investment community new opportunities.


What exactly does it bring to startups?

Most start-ups are usually started with a passion to meet a specific need based on a vision/idea coupled with an ideal to make lots of money. However, innovators and especially minority innovators are not prepared to manage a business, build strategies for growth while avoiding risks and setting the path for investment funding. Most usually start looking for investment capital when all existing resources have been exhausted and with a limited or non-existent leadership team.

Minority Start-Up brings expertise, counseling and advice for every startup right from the start, to prepare them for sustainable success. We know where the resources are in our community, therefore we can create a critical path of success for minority entrepreneurs through coaching, helping them navigate the various service delivery organizations while holding them accountable and then presenting them to the financing mechanisms. The key element we seek to address is "What do entrepreneurs need during development to prepare for funding and what do they need to do post financing to reach milestones?"


What type of startup would benefit from your group?

African American, Hispanic, Native American, Asian American and Women Owned Businesses. We welcome any startup to reach out to us.

What was the most challenging aspect of starting up the initiative?

While there is a critical need for an organization that works with minority businesses and one that understands the challenges they face right here in Texas, the challenging aspect for us is convincing the startups that they need to start laying long term strategies right from the start consulting with people with the right expertise. The other challenge we face lies in getting funding and sponsorship to build the necessary programs that go beyond the basics of starting a business. Hiring senior management or qualified people is usually expensive for a startup, while consulting on an as needed basis cuts costs dramatically while providing much needed value. As an organization we hope to provide ongoing services at a lower rate and get ongoing support through various funding sources.


What advice do you have for entrepreneurs?

The current financial market makes it harder to get funding, but those who prepare and prove themselves will be better positioned to thrive and receive investment funding.


What Austin-based resource have you found to be the most helpful and why?

While we have worked with alternative funding sources throughout Austin to help entrepreneurs get funding, we find the Austin Entrepreneur Network a great resource for investment funding. They hold continuous funding forums and provide access to the Austin investment community where minority entrepreneurs can pitch ideas.

What about your upcoming conference?

Go Big or Stay Home - GO BOSH conference 2011, is an innovators, entrepreneurs and investors conference brought to you by Minority Start-Up Association of Texas, designed to facilitate knowledge sharing, relationship building and deal making amongst Central Texas Minority Businesses. The conference will be held on October 21st, 2011 at the Longhorn Stadium Event Center, Belmont Hall from 12.00pm - 9.00pm.

The conference is for anyone in need of inspiration, looking for tips for success or anyone who is wondering how to get an idea off the ground, develop it and commercialize it. Come network with other entrepreneurs and innovators and share your journey.

Thanks

Terry Hazell Talks about Entrepreneurs & Self Promotion

Entrepreneurs & Self promotion: don’t oversell, but don’t undermine either--by Terry Chase Hazell

Self-promotion is an important part of entrepreneurship. The fact is, many early employees, partners, and funders join a company based on an assessment of the entrepreneur. And yet many entrepreneurs—especially women – hate to talk about their own accomplishments. This can be a big mistake. As you develop your company summary or pitch, you should also develop a personal pitch that balances between overselling yourself and undermining your accomplishments.

In Texas State’s RampCorp program, one of the 16 “ramps” participants study to grow their business includes Self-Promotion. Women develop a professional biographical sketch, or “bio.” For entrepreneurs, the bio may be more important than the resume, because it’s used in many contexts—business plan, website, speaking engagements, LinkedIn profile – and for those seeking funding, your bio is summarized in your pitch.

Where to start? At RampCorp we’ve developed a tip sheet for women entrepreneurs (men need this too) that walks you through how to prepare your biographical sketch. You can download it at this link. RampCorp Biographical Sketch Tips

The Ramps Biographical Sketch Tip Sheet is organized into 5 sections:

1. Tips list for developing your sketch
2. Lists of words to use and words to avoid
3. Example sentences from and links to leading women’s bios & fill in the blank sentences
4. Biographical sketch checklist
5. Form to complete your own sketch

In addition to preparing your bio using the tip sheet, I also recommend the following resources:

• Book: How to Say it for Women, by Phyllis Mindell
• Slideshare: Caroline Cummings: Authentic Self Promotion for Women
• Blog: Carol Goman

If you complete your bio and would like us to review it, send it to us at www.txstate.edu/rampcorp/contactus . We’ll comment on the first 5 bios posted!

About the Author: Terry Chase Hazell is Director of Texas State RampCorp, a program to help women entrepreneurs start their first scalable venture. She is a member of the national advisory board for Springboard Enterprises, which has helped women raise $5 Billion in capital. She serves as part of the 17 member state committee that makes funding recommendations on regional applicants to the Texas Emerging Technology Fund. She is a charter member of the White House initiative StartUp America Partnership’s women’s high-growth entrepreneurship committee. Her specific expertise is biologics manufacturing, and she has founded two biotechnology-related spin-out companies from the University of Maryland.

About RampCorp: Texas State RampCorp is an incubation and training program for women entrepreneurs launching their first scalable business. Women who are or who want to be entrepreneurs receive coaching from experienced investors, executives, inventors, and other women entrepreneurs who have built scalable