Many angel investors remain anonymous. They prefer to stay out of the limelight, and to make their investments as privately as possible so they are not bombarded with unwanted business plans.
Some, however, are willing to share their tricks of the trade and expertise with startups. They hope that founders in-the-know will make their companies as attractive as possible before their CEOs start knocking on investors’ doors.
The two angel investors who came to the Morris Tech Meetup in March were of the latter persuasion, and the 100 or so attendees received some helpful advice from them.
The speakers were Benjamin D. Novak, a venture capital attorney with Morgan, Lewis & Bockius (Princeton) and an angel investor with Delaware Crossings Investor Group (Princeton); and Katherine O’Neill, executive director and investor at the Jumpstart NJ Angel Network (New Brunswick).
Some highlights from Novak:
- While it’s important to cast a wide net when looking for the investor of your dreams, it’s also important to know what that investor is looking for. “If you are in the sweet spot of an investor and can get a warm introduction, that’s a much better way in the door than spamming … random investors.”
- Use your angel investors’ contacts. “We often open our Rolodexes to connect entrepreneurs with customers, commercial partners or next-round investors.”
- While DCIG doesn’t have a reputation for overbearing investors who want to set the direction of a company, it is looking for coachable entrepreneurs who are willing to take advice from its investors or from other people.
- DCIG doesn’t invest in companies where the CEO is doing another full-time or equal-time job. “In my opinion, your most limited resource is your time, so even if an entrepreneur is totally focused on a company, it still doesn’t ensure success. So, if they are dedicated to the company as well as to a second opportunity, I’d be concerned about that company going forward.”
- DCIG is an angel group, not a fund. Each angel gets to make his or her own investment decisions. “We have about 40 different angels that work together as a group to source deals, screen deals, negotiate deals and close them.” The angels benefit a lot from working together, and they “individually pick whether we will invest in any given deal.”
- The group is a mid-Atlantic seed-stage investor. “We’re investing in companies that have good teams in place and more than one founder, people with complementary skill sets, the right people in the right jobs doing the right things.” And the tech companies generally have products in the marketplace. DCIG investors also like to see “traction” (i.e., market adoption).
- About 50 percent of the deals DCIG makes are in tech, with the rest in life sciences, plus a few outliers. The average check size is about $100,000, and it’s usually a smaller part of a larger syndicated deal. Most deals are equity deals, although DCIG will do a convertible debt deal if it makes sense for the company, Novak said. They don’t do common stock deals, SAFEs or KISSes “or other cute acronyms.”
- Novak personally only invests in East Coast seed-stage technology companies because he thinks he can add more value to them.
- One of the things that is helpful to entrepreneurs about the way DCIG works, Novak said, is its flexibility on diligence. If it’s leading a deal, DCIG does have an extensive due diligence process, “but if we are participating in a larger syndicate and we know the other members … we are happy to rely on the diligence of other angel groups.”
Some tips from O’Neill:
- Jump Start NJ Angel Group is not just a New Jersey investor. It deals with companies from Connecticut to Washington, D.C.
- Similarly, New Jersey entrepreneurs should also look for investments from angels based outside this state, but whose territories include New Jersey. There are many angel investor groups in New York, Washington and Philadelphia.
- Attend meetings and venture fares in New Jersey, like the New Jersey Tech Council’s Venture Conference, but also in other areas. The Philadelphia Alliance for Capital and Technologies holds a venture conference in the spring and other events throughout the year. The Angel Venture Fair is also in Philadelphia. And there are many angel events in New York. All of these events are open to entrepreneurs who want to attend, apply and pitch.
- “My favorite people for references are accountants and attorneys in the early-stage space. … Don’t go to your brother-in-law or your sister-in-law to become your attorney.” Find out who the active people are in accounting or law for early-stage companies because they can introduce you to investors. “They know angel groups and they know private investors. And if they think you match their requirements, they will introduce you.”
- You may think you can’t afford the fees for the larger firms, but most of them have a discounted fee structure for young companies, and most of them have all the contacts.
- Know your financial figures. You may think that you are building a technology that will make investors say “Wow,” but if you can’t show them a cash-flow or a profit-and-loss statement, that will be an issue.
- Early-stage VCs are very clear about the kinds of companies they will invest in. They don’t want to talk to anyone without a million in revenue. Go to their websites. You can find this information.
- Angel groups are also clear about the kinds of companies they consider. Jumpstart does not invest in food, fashion or pharmaceutical development. It looks for something where its expertise adds real value. Do your homework.
- Angel investors don’t have time, so don’t ask if they can meet for coffee. “This is not our full-time job. This is something we do while being semi-retired, with two other businesses on the side.”
- Send a one-page summary so that angel investors can easily see that you are in their space.
- “Investors have the attention span of a gnat, but the patience of Job.” The short attention span occurs at the beginning, and the patience comes in when a new business they’ve invested in has trouble getting off the ground. “To get our attention, to look at a new business, you have to be succinct and focused and give us a value right up front: why it’s interesting and why you are interesting.”
- When you talk to investors, be focused on what you want to get from them. Build a relationship. Ask if your startup is right for them and, if not, whom you should talk to. “Can you introduce me to these types of people because I don’t have contacts in this area?”
- Treat every interaction with an investor as an ongoing relationship.
- Never say “that’s a good question” as a filler. It’s annoying because you are the expert in your space.
- JumpStart allows a 10-minute pitch for funding. Everyone will have already seen the documents for the company. Then there is a 10-minute Q&A. In addition, your team has to know how to pitch your company. “A lot of times there is someone who can’t make it to the pitch, and the cofounder or CFO has to fill in, and they don’t know the script. Every person on your team should know the script.”