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What Are Angel Investors Looking For? The Six Key Motivations of Angel Investors (#3)

Andrew — Fri, 05 Feb 2010 20:27:15 +0000

Key Angel Investor Motivations #3

Welcome to the third installment of “The Six Key Motivations of Angel Investors #3″

The first article is here and the second here – just in case you missed them…

So what are these articles all about?

One of the top ten most all time popular questions relating to Angel investors (aside from “Where the heck can I find them…”) is “What are angel investors looking for?” or “What are the main motivations of angel investors?”

Its just too easy and frankly a real missed opportunity just to say or think “to make lots of dough…”

If we consider that Angel Investors are accredited investors then making more dough is unlikely to be at the top of their motivation list and having had my own share of angel investors for my businesses, the profit motive was high up there but certainly not the only motivation and rarely at the top of that list.

I put forward that aside from financial return, contribution was also a key motivator for many angel investors. I personally subscribe to the thinking that once you are ‘secure’ a different set of needs kick in. So, aside from Contribution what do I believe is the 3rd Motive for Angel Investors?

Consider the accredited investor – what are they?

An accredited investor according to Rule 501 of Regulation D of the Securities Act of 1933 is a few things but the important sentences for most entrepreneurs are:

a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

Stepping outside of the legal verbiage – accredited investors are High Net Worth individuals, according to the World Wealth report written by Cap Gemini & Merrill Lynch, there are over 10 million people considered High Net Worth and there’s also a group out there in the Ultra High Net Worth Category who’s assets are worth over $30M (the UHNW definition).

Now I’ve seen all types of data which suggest how many accredited investors there are, how they are spread across the globe, the growth rates of their numbers and so on – but I have seen no studies that say how they made their money.

Given I’m just guessing here – I’m going to think about those people I know who fall within their ranks and think through how they became accredited investors – and they fall into a few categories as follows:

1) They made the money from starting companies

2) They are doctors, lawyers, surgeons or some other lucrative profession or

3) They inherited the money

So why is this all relevant?

Well, it leads me into what I believe is the third motivation of angel investors and it resonates strongly with some of the angels that have invested in my businesses.

Key Angel Investor Motivation #3 is the “Vicarious thrill”.

For those people who made their money starting their own businesses – the days when they can feel that first time thrill of seeing their startup baby taking their first steps have passed. If they’ve started and built companies – that deflowering of their startup virginity has already occurred – they cannot personnaly experience that unique thrill again. But they can invest in others and tap into that breath sucking in exhilaration of watching another entrepreneur crest that challenging hill…

For those that made their high net worth as Doctors or Dentist – investing in a young entrepreneur and startup allows them to get a real insight into a different set of experiences, to play a part in something outside of their current daily lives – why did angels start by investing in Broadway shows – the majority of which flopped? So they could do something exciting, so they could get their “vicarious thrill’.

I have a strong mental picture of one of my angel investors who had built one of the most popular pizza chains in Europe only to sell out for more cash than he can ever spend…in my view he invested in my first company because he wanted to make a contribution and he really enjoyed being a part of starting and growing a business – he went on to create more businesses of his own, to buy small failing businesses to turn them around, but he is was also a big supporter of entrepreneurs. In my opinion, he enjoyed the experience of the startup either directly or once removed.

Financial return was NOT the main motivator.

Consider motive number 3 when hunting for your angel, when locking them in and working with them ongoing. Critical to engage them are the ups and the downs of your business – the challenges just as much as the successes – at the end of the day, and this is hyper important stuff…

…one of the BEST things about starting a business and stepping outside of corporate life is the ability to be true to yourself and your business. Don’t make the mistake of letting your need for the money mean that you choose the wrong angel investors. You are not looking to exchange that angel investor cash for a new boss…if you want a boss, stay where you are and don’t start a business.

If you’ve already raised cash from angel investors I’d really appreciate hearing about your experiences – other readers would find it helpful too…if you are about to raise cash, where are you going to look? How are you going to find your angels?

If you’ve found this useful or thought provoking sign up to get email updates on the right side of the page.

Here’s to your startup success!

Best

Andrew

Ps: For those who are committed to raising funds for their business – this might help…

http://www.TheFundingGuru.com/1of10.html

Great Tips for Starting a Catering Business: Inspirational

Andrew — Mon, 25 Jan 2010 15:17:25 +0000

Tips for Bootstapping A Catering Company

(MP3 Download Below)

Today’s posting is an inspirational podcast. If you have an interest in starting a catering business then you must listen to this interview.

There are some critical elements in today’s interview with Chef Khalil that I’d like to call out…

Chef Khalil has leveraged his passion to not only start a business with different revenue streams but he’s also using his passion and common sense approach to growing a business which is making a difference to kids and other people.

There are many elements to take out of this interview but the one’s which I gained are:

Constantly learning – taking courses, signing up to news letters in your space, keeping up to speed on your area, never resting on the accomplishments you’ve had but be constantly growing and striving
Finding mentors who can teach you – even if it means working for free
Steady growth – don’t assume instant success, test the waters, plan and don’t over-extend yourself either financially or emotionally – keep a balance in your life
Sacrifice – Chef Khalil re-invested his profit into his business while managing his startup and a full time job – he knew what he wanted to achieve and was focused on achieving it
Partnering – Its common for companies to leverage affiliates and partnerships online but Chef Khalil is using this approach for his culinary business – its always possible to leverage partners and your community for any business
Vision – know where you are going, why you’re going to get there then figure out the how and do it

So – I highly recommend that you listen to this brief interview with Chef Khalil – its inspiring because he is using his passion to help others but his common sense approach to business should be a course taught in every business school throughout the country – especially in this time of economic challenge. The key thought I took out is – if you want to be your own boss, you can achieve your goal if you have a passion, a commitment and are prepared to sacrifice to achieve it – even if it takes time – because, everything worth anything ‘always’ takes time…it doesn’t matter if we’re talking business, personal life or a good bottle of wine – everything worth anything always take time, focus and passion.

Listen to this interview, give Chef Khalil and me your comments and let us all know what you gained from this interview. I hope you gain as much as I did…

If anyone would like to reach out to Chef Khalil – his web address is:

http://www.CateringToYourWhims.com

Thanks to all my readers and especially, to Chef Khalil.

Any more questions? Reach out via the contact page above and join my mailing list by adding your name and email in the box to the right. I’ll also send you some valuable downloads to help…

Andrew

Know your WHAT first, then Devise your HOW (celestinechua.com)
Goal Setting with The Goal Diva (slideshare.net)

How do I write an Executive Summary?

Andrew — Fri, 22 Jan 2010 20:17:22 +0000

How to write an executive summary

This has got to be in the top ten questions I get asked by those entrepreneurs who are kicking off their first serious and committed attempt to raise money. I know when I first went through this process, I went out and asked [...]

Have Two Brains When Talking to Venture Capitalists

Andrew — Thu, 13 Aug 2009 05:25:03 +0000

Homer

Have two brains when talking to Venture Capitalists

You are standing at the end of a board room, licking your lips, a warm moist sweaty hand leaving a print on the table, that if laden with turkey, sweet potato, gravy and stuffing – would be a Thanks Giving dinner for three families – but putting hot platters of food on top of the highly buffed cherry wood surrounded by misted brown glass floor to ceiling windows, would be close to sacrilegious to all the furniture lovers out there.

You have done it – your carefully crafted email passed to a friend who reassures you they have a relationship with a ‘known’ VC – actually arrived in the hands of the VC and something in your hopefully constructed paragraphs encouraged them to schedule a meeting with you – and here you are – your laptop whirring and the small machine rendering your first power point slide onto the pale cream wall.

A younger than you would expect, happy, hip guy strolls in – a perfect all American boy with near teenage good looks and a smile which makes you wonder if you’re about to be asked if you want cream with your coffee – is this an assisant to the VC?

…then the penny drops…no, this is not some intern or recently minted college grad…this is the Venture Capital – damn, they make them young don’t they?…

Doing your best to swallow as all the fluid in your mouth decides to disappear into your twisting gut; you press the down arrow on your presentation and begin to take the VC through it…

…who you are…

…who the team is…

…why this is the biggest market opportunity since the Ford Motor car…

…why you are the right team, nay, the only team to bring this soon to be huge business to the world…

…the barriers that will stop anyone following your world changing idea with a copy of their own…

… And before you know it – you’re done.

Presentation over.

The last slide.

And, with one of your trusty team members flicking the light switch up – you blink into the smooth face of the VC and not for the first time, wonder if he’s shaving yet.

So should you ask him a question or wait for him to ask you?

Whew – question answered – his pen taps on the table as he ‘hums’ – thoughtful…breaking the ice and asking the first question…

And during the next 33 minutes, you have a discussion, listen and retorting as wonder boy pulls and picks your baby apart…

Perhaps it’s the size of the opportunity – perhaps it’s a half complete team – perhaps it’s too close to a company in their portfolio – perhaps you need a few customers…or maybe, just maybe…he loves it and want to introduce you to his partners at their regular X-Day meeting – and you are on your way…

Now you can change the table, you can change the brown mist on the glass but much of the rest will likely be close to what you experience when you meet your first few Venture Capitalists – Oh, OK, they might be older than Wonder boy mentioned above…maybe…

But one thing that is an absolute certainty – you need to be in two brains when talking to VCs – the one that is making your mouth move and helping you put complete sentences together (if you’re lucky) and the other needs to be recording and analyzing because it may take 1 or 5 or ten VC meetings before you start to get real traction – hey, you may also be lucky and get that traction immediately – but either way – have more than one VC meeting and in each of them – learn what elements concern them, learn what parts of the business model they consider a weakness and consider if they’re right. If they are, work on fixing it and during the next presentation, home in again on those areas that are of concern.

Why?

A few reasons – you will only get VC funding when you are ready to get VC funding…

By listening and understanding your business weaknesses, you can address them and ensure when you next present, they’re not weaknesses but perhaps strengths.

Last – VCs see a lot of businesses and business plans – they tend to get pretty switched on about the areas of concern and weakness – if they point them out to you – take it as extremely valuable advice that you got for free. Hey – maybe they’re right and by listening and find a solution now, you might save yourself a lot of time, money and pain later. And worse case – by listening and addressing, it makes your next VC presentation that much stronger and your chances of securing the large check your business needs much higher. Do this enough and you WILL raise the money you need for your business – unless it’s a completely crazy idea of course…

So present, kick ass, sell your business but listen to the challenges and the suggested weaknesses – don’t take them as personal slights – they’re not, they are learning opportunities that will get you closer to raising a significant amount of money for your business and may help you identify and resolve business challenges very early in the life of your new business.

Remember – it’s not personal – its business!