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Randall Reade Washington DC ArchAngels Founder

Washington, DC

Founder, The Washington DC ArchAngels, which has met monthly since 2011. Reviewed over 3500 companies and have presented over 450. On Quora.com, I have answered over 1800 questions on early stage companies, angel investing, funding, and entrepreneurship, and have been certified as a Most Viewed Writer in those categories.

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Advice on Developing a Winning Pitch Deck, and How Investors View Companies.

Randall Reade • Washington, DC
Created 9 years ago in Funding / Venture Capital

I have coached and judged hundreds of companies over five years. I personally know several hundred investors. Our angel investment group has a track record second to none: Several IPOs, several dozen acquisitions, and more of the remaining have completed their fundraising and are generating revenue.

Randall Reade Washington, DC

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Randall Reade

Washington, DC

Founder, The Washington DC ArchAngels, which has met monthly since 2011. Reviewed over 3500 companies and have presented over 450. On Quora.com, I have answered over 1800 questions on early stage companies, angel investing, funding, and entrepreneurship, and have been certified as a Most Viewed Writer in those categories.

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Advice on Developing a Winning Pitch Deck, and How Investors View Companies.

I have coached and judged hundreds of companies over five years. I personally know several hundred investors. Our angel investment group has a track record second to none: Several IPOs, several dozen acquisitions, and more of the remaining have completed their fundraising and are generating revenue.

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Randall Reade answered

Why do Startups Fail?

No entrepreneur wants to hear this, but one of the biggest reasons companies fail is because of the entrepreneur. There is a term, "founder's disease" that investors like to use, and it refers to an entrepreneur who already knows everything, thinks he's got it all figured out, and has a business plan that he thinks will work. However, there are real problems -- and he won't listen to anyone because he already knows everything and has it all figured out.

These types are uncoachable and won't take advice from anyone. They have a plan and they are going to stick to it no matter what. Also, they tend not to want to share in success because they are so sure their idea is going to make them millions, perhaps even billions.

How can you spot one of these people? They don't like hard questions about their company, they get defensive when you ask them such questions, they dismiss competition and don't treat it seriously, and they can't understand why you won't put money into their company right now.

When I deal with entrepreneurs, I like to push them a bit or be a little rude because I want to see if they give me attitude. If so, that's pretty much a clear indication that they have founders disease. Investors will never put money into such a company because they almost always fail.

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Startups

Failure Analysis

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Randall Reade answered

VCs: What are some pitch deck pet peeves?

Plenty! Let me list a few:

1. Wasting time by talking about your history, your products history or the company's history, or talking about how much you love this or that. The first words out of your mouth should be about what you have.

2. Spending the whole pitch selling the product but not the company. Investors only care about one thing, and that is whether an investment in your company will make them money. The product itself isn't as interesting as the company. Therefore, do not spend all your time telling us what a great product you have -- that's a sales pitch. Instead, tell us about how much money your company will make.

3. No experience in selling, and no plan for marketing.

4. The financials are bogus. Any one who thinks that the financials are just made up numbers anyway, so you can just throw up anything that looks good will not get any funding from any real investor. Make your financials as real as you can by having a CFO experienced in the industry.

5. Not making the "ask." Surprisingly, a lot of pitches forget to ask for money and how much they need, and fail to explain what that money is needed for.

6. Finally, do not ever say you are "passionate."

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Funding

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Randall Reade answered

So I have an invention idea but do not really know how to go about

You are right to be suspicious. This industry is filled with vultures and consultants who, for a fee, are willing to tell you whatever you want to hear. If their advice turns out to be wrong or otherwise worthless, they don't really care -- they already got your money. I've seen many companies ruined this way.

Instead, you should find an experienced person in the field and ask him or her to be a part of your company. Offer them a healthy equity slice in exchange for their contacts and know how. This way, he or she has skin in the game and incentive to have you grow as quickly as possible. By making them a part of the team and given a large equity slice, they are unlikely to steal the idea, as they would only be stealing from themselves.
The really good ones are hard to find. They don't need you. They certainly do not come out to tech meet ups, or seminars or what ever watering hole entrepreneurs like to hang out at. You have to do your research, find them, and convince them that they can make a lot of money by joining your company. IF they like you and the idea, they will do so. If not, ask them why not, and make whatever adjustments they desire.

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Invention

Cosmetics

Business Ideas

Randall Reade answered

How important is a co-founder when it comes to raising capital?

After two and a half years, it is a bit of stretch to bring someone in and call them a co-founder! You already have a successful business, so you may claim full credit for that.

What you are really asking is how much should you build out your management team. On that score, you must. If you are pretty much the sole person running the show, then the first thing an investor will ask is: What will happen to my investment if you get run over by a truck? Crap happens, and if you are no longer running the show, who will take over?

If you don't have a person, no one will want to invest. So you should develop a management team that will be able to seamlessly take over should you not be able to continue. It doesn't matter what title you give these people, just make sure you have them.

The second aspect you need to address is growth and scalability. Sure you are doing fine now, but what will it take to increase revenues by 5X or 10X? If you don't have a team in place that can achieve that, then you need to get them.

No one wants to invest in a company unless it is scalable. That is how they achieve a high ROI within a few years. You need a plan to show that you can scale, and that you have the team in place that can do it. Again, it doesn't matter if they are advisors, or VPs, or whatever. The point is that you have to have these people committed to working to achieve that scalability.

If you can't afford to bring them on now, then that's a good reason to raise funds. But at least have those people identified and ready to join.

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Fundraising

Randall Reade answered

Should I incorporate a new business?

You do not need to incorporate, and you may use the other company for now. Of course, it is always better to incorporate so that you have a legal entity by which you operate, collect fees, pay taxes, and so on.

If you choose not to incorporate at this point, then you should at least have a written agreement with your partner. It should say that you both intend to start a company and are using the other corporation only temporarily and only for the purposes of the merchant account, and that as soon as you have enough money, you will incorporate properly.

Your agreement should also spell out the different roles you both will play, and who owns what. I would assume you stipulate that you each own 50% of the new company, and therefore each of you are entitled to 50% of any profits after all expenses and taxes are paid, and you are both equally responsible for any debts that are incurred
You should also stipulate that for the terms of the agreement, all decisions must be unanimous, but that either of you may withdraw from this agreement at any time and end the relationship.
If you need help drafting the agreement I can help. I'm an attorney as well.

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Incorporation

Ideas Development

New Product Ideation

Randall Reade answered

What steps do I need to take to cash out the equity I have within a company?

You own 90% of what? We don't know what the value of your company is, so first, you would need to put a valuation on it. There are many ways to value it, but you need to come up with something reasonable.
Then you have to find a person who is wiling to buy the 10% that you would like to sell. After that, it is merely negotiations.

I would approach this as you would pitching the company to any investor. You need to show how your company plans to grow, projected growth numbers, and your exit strategy.

If you don't have an exit strategy, then you won't be able to find an investor, and you will have to raise the cash through other means, such as a loan.

In short, we need more information about your company to make a short list of options and which are the most likely ways of accomplishing your goal.

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Fundraising

Equities

Private Equity

Randall Reade answered

As a startup, is it better to find a way to pay for services (i.e. design) or trade equity for it?

You need to understand what equity is and what it isn't. Equity should be used to launch your company and get you to revenue. It should not be used for one time expenses.

So you use equity for talent, because talent is difficult to find and you want people who are willing to stay with you to reach your goals. Or you use equity to obtain cash, since you need cash to pay for talent, and for developing the company.

Furthermore, equity is finite -- there is only 100% of it. At the point when you have given away all of it, you have zero left to give for the life of the company. Obviously, you want to avoid giving away equity as much as possible.

You do not want to use equity for one-time expenses, such as office furniture, or ongoing overhead, such as rent. Paying rent adds no value to your company, and neither does furniture. They may be necessary expenses, but they themselves add no value.

So now you should understand that a company that sets up your website is an ordinary business expense and you should not use up your equity

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Early-stage Startups

Start-ups

Equity Funding

Randall Reade answered

What roles should the CEO and CTO have in a VC meeting?

You, the CEO should do all the talking. Period. At this point, no one cares about the CTO.

You may certainly introduce your CTO and explain that he is here should any investor have any questions, but they likely will not. At the initial pitch, the investors assume the product works as you describe it, and if they have any serious questions about the product, they will save that for later discussion.

Right now, the only thing the VC is interested in is whether your company will make money. The actual product is only one issue, and usually not the most important one. The management team is.

Every investor I have ever spoken with has stressed that they would rather invest in "A" class management team with a "B" class product than the other way around. That's because a mediocre management team won't be able to sell or market even a top notch product.

So this isn't about the product, it is about you and your management team.

You should only spend about 20% of your time talking about the product. The rest of your time must discuss your experience and your management teams network and experience in selling and marketing products of a similar nature. You must talk about who the customer is and what your plan is to reach them directly. You must talk about how much money you will make, when you will be profitable, what the money you ask for will be used and so on.

Remember: the investor is investing in your company, not your product. There is a big difference.

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Fundraising

Venture Capital

Randall Reade answered

I have an idea of a hardware product, that has received good feedback until now.Should I fill for a provisional patent or start an indiegogo campaign?

There are lot of questions here. First, you got good feedback -- from whom? If from your friends and family, that's worthless. If from a professor or consultant of any sort, that worse than worthless.

The only feedback that is worth anything of course is the market itself. IF the product sells, it's good; if it doesn't, it's no good. Since that makes its chicken and egg issue, the next best feedback is from someone who has sold something similar in the market and has been successful at it. Everyone else is just guessing, at best.

Unless you can say that the feedback you got is from someone else who holds a patent in the same field and has worked for or started company that because very successful selling that. For instance, if I want to sell a new type of soft drink, I would want feedback from someone who has sold new soft drinks successfully in the past few years.

Assuming you have that feedback, and it is positive, then you must consider why a indiegogo campaign? The fact is that most campaigns fail to raise any money at all, much less their targeted goal. To do a successful indiegogo campaigns requires several months of planning and quite a bit of time, effort and money to get the word out. Do you have a marketing plan that will drive at least 10,000 people to your indigogo video?

These are questions I would address before doing either action.

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Patents

Patent Strategy

Business Ideas

Randall Reade answered

What legal precautions can I take to make sure nobody steals my startup idea?

Obviously, if you can trademark or copyright your idea, you should do so. They are easy to do, and the government website gives you all the information to do it.

But most wanna be entrepreneurs just have an idea. The first thing I tell people is to google the hell out of your idea. Search it every which way possible. If it's a product, search for it on Amazon too. The fact is that most ideas are not really so original that no one has thought it up before.

More likely, there is already a company out there doing something similar. Generally speaking, if your idea is in the area of social media, shopping, restaurants and bars, education, or travel, it has been done already. Parking apps are also popular today, and nearly every city in America has a startup along those lines.

If you have found a company doing it already, then dig a little deeper to see if they are achieving any revenue or some success. if not, then investigate why not. This will only help you -- even if you continue with your idea, you can and should learn from the mistakes of others.

Look at their management team: Do they have people with deep domain experience or contacts? If you don't, then they will likely beat you out.

If there is no other company doing anything remotely like yours, fear not. No one is interested in copying your idea because they are too busy pursuing their own dream.

Now, that isn't to say that your idea won't be copied, but it really isn't the big deal people make it out to be.

The real worry, though is that if your idea is that easily copied, then my question as an investor is what will stop some bigger company, such as Amazon, Google, Apple, Groupon, or who ever, from starting their own company and putting you out of business?

I have seen exactly that happen to many companies. Every one of them swore that no one could possibly copy their idea because ......And then a few months or a year or two later, guess what? That is exactly what happened.

Bottom line: If you are that scared of having someone steal your idea, it's not a very good idea to begin with and one you will find few investors.

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Early-stage Startups

Legal Advice

Randall Reade answered

What are the best strategies to stop moving from one business idea to the next and start implementing one of them?

1. Make a list of all your business ideas.
2. Eliminate the ideas that you cannot execute on within six months in your current status. It doesn't matter why not -- whether you have enough money, time, or talent to do it. Contrary to popular belief, starting a company does not start with the product -- it starts with what YOU can do. You may have the best product in the world, but if you are incapable of selling it or finding people who can, your company will go nowhere.
3. Of those that remain, you must do your research. By that I mean, you first must google the hell out of it. Most likely, someone else is already doing something similar, or it was already tried and a company failed at it. Find out why it failed. If another company is doing it, dig deeper to find out how they are doing, and what markets they are currently. Also, research the bios of all their team members and compare them against your own team. If you are falling short on expertise compared with them, it's probably not a good idea to directly challenge them.
4. Do more research. Talk to a CFO who is in the industry and ask him or her what the likely profits are for each.
5. Choose the idea that will generate the quickest amount of profits in the shortest period of time.

Notice I said nothing about passion. That is because passion is way overrated. I've seen companies run right into the ground because the founders were so passionate about it they refused to alter critical elements.

Some of the best companies I have seen the founder had very little passion for. Rather, they were in an industry, and they saw an opportunity to make money where no one else did, so they jumped on it and made it into a fast growing company.

It is NOT about passion -- rather it is about finding a product that the market needs and you can sell and scale quickly. If you can't do that, all the passion the world isn't going to save you.

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