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MenuInterested Angel investors want to fund my innovative idea, whats next?
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Simple: The right investor is someone who wants to invest on standard terms at a good valuation relative to your current stage. Extra bonus points for someone who has relevant industry connections that could accelerate your business and is willing - at the right time - to make introductions for you.
But you should have really quite low expectations of most angel investors. Certainly they should have NO operational control of the business. Although I want to be as helpful as possible to companies I invest in, it's entirely for the entrepreneur to drive me, not the other way around. There are very few exceptions to this rule, for example when angels who actually do have very recent and relevant experience want to back someone who is inexperienced and need oversight in order to feel comfortable investing early. But this is a real rarity.
Finally, to answer your question about what entrepreneurs do when they receive funding, they should spend it in the best possible way to accelerate the success of the business.
I'd be happy to talk to you in a call to provide more clarity on the matter and also discuss when is the right time to accept investment. If you have people willing to back you, that's great. You want to make sure you have a clear plan and set expectations accordingly.
If you have to ask what you should do once you have funding you may want to stick to your corporate job. Real talk
1. Investors do NOT invest in ideas. It does not matter how cool or innovative it is. They don't give a shit. The only way you will get money from investor with an idea is if you have raised capital from them before or you are an industry veteran who has built a track record in the corporate world. The latter is still a tough sell.
2. You need an MVP, Proof of Concept, something tangible to show that you have thought through this and market validation. This will determine based on industry.
3. No one cares for business plans. Seeing is believing. Projections, estimates, it is all bullshit.
First, make sure you have a good lawyer who has a lot of experience in early stage deals. Glad to recommend some for you if it's helpful. In terms of your questions:
1. If you don't know the investor well, check references, ideally with entrepreneurs they have funded. Meet the investor several times to ensure that you'd want to spend time with them in the future.
2. The angel investor can provide guidance, but as the CEO/founder, it is up to you to drive the company, figure out what needs to be done, and do it. The investor provides capital, and you runs the company.
3. Most entrepreneurs take the funding, work on their startup for a few years, and then go bankrupt. If you don't have a sense of how to make the company successful, surround yourself with experienced people and do everything in your power to figure out how to be successful, the byproduct being that you will have given your investor a nice return.
1. When you have the luxury of choice: You chose the right angel based on:
1.1. Culture and personality fit. Do they trust you? Do you trust them?
1.2. Do they have a network of funders, mentors and business relationships they can and will open to you?
1.3. Are they experienced investors? Better if they are as they will understand how a business is built and that it takes time. The course is NEVER straight nor smooth
2. To ask for capital, you start by laying out the goals. Generally you raise 18 months of funding. Figure out what you need to accomplish to take you to profitability/ the next raise. Reverse engineer toward those goals. Create a budget. Add 25% fat.
2.1. Once you have a budget you will know how much you actually need to ask for
2.2. Set a valuation/ valuation cap
2.3. You NEVER let an angel set your goals or execution plan. You set it, stand by it and execute. Investors invest in the team that executes on the team vision.
2.4. You pivot when the MVP hits tests and the market resists, not on an opinion unless that opinion is ENTIRELY convincing. Don't confuse capital with control nor insight.
3. Good ones execute to plan, inform the investors every month with a simple financial and business update + asks
Related Questions
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Among platforms for startup funding, AngelList is the 800 pound gorilla. Does it make sense to use simultaneously other platforms like Gust, etc?
Short answer: Of course! Many angel groups require you to submit through Gust because it offers a consistency and makes reviewing applications easier. But not all use Gust same as not all use AngelList... I haven't met an angel who frowns upon using multiple platforms. I would encourage you to leverage your twitter and Facebook or Instagram to meet angels and get in their radar (don't hassle or stalk) just try to get exposed a bit to them by being part of the same meetup group, follow the same blog, membership... Subscribe to their own blog.. And when you submit funding request considerations do please send a follow up email or a call or basket of fruits if you have contact them before.Humberto Valle Texas Real Estate Investor, Wholesaler, & Airbnb SuperhostHV
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What percentage of VC funded startups make it to 100m+ revenues in 5 years or less?
100M+ in revenues in 5 years or less does not happen very often. As an example of one sector, here is an interesting data visualization (circa 2008) of the 100 largest publically traded software companies at that time that shows their actual revenue ramp-ups from SEC filings (only 4 out of these 100 successful companies managed this feat, which themselves are an extremely small percentage of all of the VC-funded software companies): How Long Does it Take to Build a Technology Empire? http://ipo-dashboards.com/wordpress/2009/08/how-long-does-it-take-to-build-a-technology-empire/ Key findings excerpted from the link above: "Only 28% of the nation’s most successful public software empires were rocketships. I’ve defined a rocket ship as a company that reached $50 million in annual sales in 6 years or less (this is the type of growth that typically appears in VC-funded business plans). A hot shot reaches $50m in 7 to 12 years. A slow burner takes 13 years or more. Interestingly, 50% of these companies took 9 or more years to reach $50m in revenue."Mahesh Bhatia (Early-stage pitch decks)MB
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Launching a startup with no job and no savings. Should I get a job or find investors?
Wow, lots of questions here. Let me try to hit them in order: "Should I get a job or find investors?" IF you have access to enough investor capital (not debt and not your savings) and you can get to MVP and still maintain ownership of a sizable majority of the business then do it. IF that means debt financing then only use the debt lines the cost of which can be carried by returns generated by the use of funds. I would prefer to offer a convertible note to prospective investors that can be easily extended throughout both friends and family and seed rounds (up to $2M to $3M) to get to proof in the market. If you can get to revenue and earnings fast enough then you can avoid equity dilution all together. IF you cannot secure that find of funding AND you cannot produce enough revenue from your business to deliver sufficient earnings for you to live on, then by all means, you should find a way to make the money you need and not burn all your savings or mortgage your home If that means short term contract work that's great. Particularly if you can find log term work that is relevant to the business you're building. If that means taking a job then do that. IF you do that, then yes, be transparent with your employer and let them know you're working on your own business also. Hope this helps....Stephan LittleSL
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When raising money how much of equity do you give up to keep control? Is it more important to control the board or majority of shares?
It entirely depends on the kind of business you have. If you have a tech startup for example, there are pretty reliable assumptions about each round of funding. And a business plan and financial forecasts are almost totally irrelevant to sophisticated tech investors in the early stages of a company's life. Recent financial history is important if the company is already generating revenue and in that case, a twelve-month projection is also meaningful, but pre-revenue, financial forecasts in tech startups mean nothing. You shouldn't give up more than 10-15% for your first $100,000 and from that point forward, you should budget between 10-20% dilution per each round of subsequent dilution. In a tech startup, you should be more nervous about dilution than control. The reality of it is that until at least a meaningful amount of traction is reached, no one is likely to care about taking control of the venture. If the founding team screws-up, it's likely that there will be very little energy from anyone else in trying to take-over and fix those problems. Kevin is correct in that the board is elected by shareholders but, a board exerts a lot of influence on a company as time goes-on. So board seats shouldn't be given lightly. A single bad or ineffective board member can wreak havoc on a company, especially in the early stages of a company's life. In companies outside of tech, you're likely going to be dealing with valuations that are far lower, thus likely to be impacted with greater dilution and also potentially far more restrictive and onerous investment terms. If your company is a tech company, I'm happy to talk to you about the financing process. I am a startup entrepreneur who has recently raised angel and VC capital and was also formerly a VC as part of a $500,000,000 investment fund investing in every stage of tech and education companies.Tom WilliamsTW
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What would you do differently today if you were starting over with your business?
If I was going to start over, with a blank slate I would do several things differently. 1. I would hire an accountant and bookkeeper on day one. I know that on the surface it's easy to look at the cost of an accountant and justify spending those resources in other areas, however I have seen this play out horribly for a number of businesses (ours included.) An ounce of prevention is worth a pound of cure. 2. I would make a list of all of my start up items, edit it and then edit it again. Start as lean as you can. We started our t-shirt company with basic equipment in my mom's attic and slowly moved into proper production space as we needed to, however we made the mistake of buying too much equipment early on because we thought we needed it. Get by with the bare minimum for as long as you can, get traction, customers and cash flow and then expand cautiously. 3. Don't listen to salespeople! Talk to friends, other businesses and look on the web for answers to common questions. Salespeople are great when you know what you need to buy, however often times you are going to end up wasting money that would be better spent in other places, like on your accountant. 4. Don't take on bad customers just to make a buck. If you are interested in knowing our 10 tell tale signs of bad customers, schedule a call with me and I'll run down the list. It will save you hours and it only takes a few minutes. 5. Find a team of advisors and listen to them. I wish I would have listened to advice that people were giving me for free when we first got started. There's an old saying, "if you're the smartest person in the room, you're in trouble." Find good council and listen. Hope that's helpful, I've been a freelancer and small business owner for almost twenty years and enjoy coaching startups and entrepreneurs in getting their ventures off the ground. Feel free to schedule a call and I can help get you started.Shawn MatthewsSM
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