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Finding Angel Investors is All About Social Media Now – What BS!

Andrew — Wed, 09 Mar 2011 13:07:56 +0000

Image via CrunchBase

Alright, I don’t rant often, in fact, I don’t rant period – its not my thing…

…and you can probably hear the ‘but’ about to arrive right?

So what’s got me hot under the collar?

The latest string of articles pounding the drum for Social Media and Social Networking – suggesting this phenomenon is the new secret sauce to raising angel investor funds. What utter and absolute BS!

Look – I love social marketing, its been a key way I’ve been able to get out and meet some really cool folks…but to try to say that social networking is the new panacea for entrepreneurs looking for startup capital is, well, its just pure crap! And more than that, it could be harmful if new entrepreneurs actually believe and act on it and think its the way to expedite funding their new businesses.

Why?

Because, and this is another reason why I’m getting a little frustrated, there is not ONE kind of angel investor and therefore there is not ONE general method for engaging and establishing a relationship with them if they don’t already pop over for Sunday lunch or for a bottle of Cabernet.

Just because we label them ‘Angel investor’ doesn’t mean they are all the same or are one type.

Their PRIME motivations differ just like any of us.

Now are there key considerations or ‘must haves’ when engaging with angels? Sure.

Does it need to be via twitter? Of course not.

Now this is where the social networking junkies will get all bent out of shape and claim that social networking is a more efficient way to network and connect with angels.

Again – underscoring my point – there are different kinds of angels (See a theme here?)

In my opinion – the angel investor community is going through an evolution – let me explain that…

Once upon a time angel investors were predominantly mature business people and the wealthy.

Angel investors are still mature business people and the wealthy but we’re seeing new-rich twenty and thirty somethings who have exited one software, internet or other meteoric rising company recently having being acquired by Google, Facebook et al – and when asked what they want to do now, being an ‘angel’ seems kinda cool as they watch Chris Dixon and others gaining cult followings. Sounds good at cocktail parties right and doesn’t require being in the same place every day.

Let’s all become angels – where can I get some new business cards made? Anyone?

What does this influx of new blood mean?

It means angel investing is getting shaken up.

It means that angels, what they want from investments, how they make decisions, and what startups can expect from angels is changing. Big time!

We’re seeing a new breed of super angel, and angel networks – both formal and informal.

But, and this is why I’m not climbing on the “Oh, isn’t Social Networking great for finding Angels” – is because I think, despite all the tectonic shifts occurring in angel investing, there are some threads which continue.

The best way to connect with an angel investor is to be referred by a trusted advisor, friend or contact. And having your investment begging tweet forwarded by one of your 5055 followers to an angel investor that is connected digitally just doesn’t cut it as a ‘trusted advisor or friend’. Sorry!

Another factor to consider is that angels want to ‘get it’ when they look at your business model. So, getting your concept out to everyone on the planet is just inefficient.

Angels will often invest in spaces /industries where they have experience or a strong interest – if you are looking for an angel remember this next point. Every hour you spend talking to investors is an hour taken away from your customers. And one could argue is therefore not where you should be spending 80% of your time and if you are not laser focused on what kind of angel you need, want and is most likely to say ‘yes’ then you are wasting precious time. Yes angels are smart people (often but lets not forget that having cash does nothing to increase your IQ whatever an angel may tell themselves when they look in the mirror in the morning) but you should try to get the investment process resolved efficiently so you can focus on…your business (remember that?)

Finding the perfect angel is not a throw it at the wall and see what sticks process.

So – love twitter but:

1) Understanding your angel needs beyond the cash (What I call your “Angel DNA Match”)

2) Finding the people who will refer you to the right angels (People respected and with some gravitas is always good)

3) Making sure you have the key proof points stacked right (Ask me if you want more info on this concept)

4) Being ready for the first, second, third meetings… (Your Angel tools to move them around the Angel Wheel of Yes…)

Should be your areas of focus when looking for investors.

And one last point – despite the changes, many angels invest in companies within 100 miles of where they’re based. Probably has something to do with the fact that investors are often ‘risk mitigators’ rather than ‘risk takers’. People (and angels are people too BTW) are prone to say ‘No’ when the risk seems to balance the benefit. The reality is that the benefit needs to be a multiple of the risk and you need to stack the proof as a way of giving as close to a guarantee as you can.

Here’s a weird recommendation – Learning the psychology of creating offers in copywriting wouldn’t be bad idea for this part of the process. If that sounds strangely logical – here’s a course that might be worth taking a look at - 3 Hour Copy

And how do Angels mitigate risk?

By meeting the company they considering investing in and seeing the white of their eyes and smelling their fear

So, arguably, any investor connections you make with twitter, facebook, whatever – beyond that 100 mile radius is just wasted effort.

Using that as a filter – this is where I would invest my time if looking for an angel investor:

My own network – friends, friends of friends, my social groups (Church, Sports, Wine Group etc), Alumni groups (School, College, military service)

Can you use twitter, facebook, linked-in etc as tools to mine your own extended local network – Abso-freaking-lutely!

But use these tools precisely - don’t – please – think that getting your message out to the whole world is going to get your an angel investor. It won’t. Leveraging your own network, finding the trusted advisor who will be your champion, will.

Let me know if I can help you go through this process and leave a comment or email me if you agree or not…

Andrew

NOTE: I grant permission for every reader to reproduce on your website or blog the article you are now reading. But copy this article ONLY, without any alteration and please include the copyright statement.

(NOTE: I am giving my permission to host on your website this article only. Reprinting or hosting my articles without express written permission is really not pleasant and a violation of my copyright.) Copyright © 2011, The Funding Guru. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place.)

Angel Investor Mind Control?

Andrew — Tue, 09 Nov 2010 18:34:16 +0000

: Image via Wikipedia

Is raising funds for your new or growing business tougher than you thought it would be? Are you wondering what it will take to get an Angel to say “Yes!”

Well in this article I’m going to give you two things – one is a powerful angel investor suggestion which will help you (even though I don’t know about your specific business…magic huh?) and then I’m going to offer you something for free that could help you. How do I know? Because I’ve tried to spin my way to funding and I learned from the experience, so knowing this suggestion will help make sure you don’t fall into this trap.

Before we get into it – I’d like to stress one point – if you read this all the way to the end and then take action, you will be much better off than you were just ten minutes ago…but if you don’t then you will be no better off and perhaps you’ll end this day not making the progress you want to achieve and without positive action, why will tomorrow be any different too?

So read this very brief article, take a specific action and you’ll be make a move closer to getting the funding you need for your business – and we both know that more funding for your business will mean more growth, more success and a future that today you can only envision. Sorry to get all ‘Tony Robbins’ on you but I woke up today wanting to make more of a difference to you and your business and the best way I know how is to make sure you take action – and I want to help you do it…

So first the suggestion…and then I’ll get to the free offer…

Here’s Secret #1 – Angel Investors have SUPER powers…

Now they can’t leap tall buildings or see through clothing but the majority of them have a common super power which, when you know about it, will help you find and close your angel investor FASTER than you thought possible.

So what is that super power?

Angel Investors have invisible psychic tentacles which wave around their bodies.

You don’t believe me do you?

Well its true. And these invisible psychic tentacles capture and filter every communication you make – from the words to the body language, to the presentations, phone calls and emails and do you know what they are filter for?

In short – bullshit, fudging, spin, exaggeration, guesses, gloss and hyperbole…

Now you don’t realize it yet (but you will after a few months of banging your head against a wall while you DON’T get funding…) but I have given you one of the golden keys to the Angel Funding Kingdom – and collecting and using these keys means you can pretty much raise what you want, when you want and take any business idea and make it real.

Again – Angels really do have these psychic tentacles and if they touch bullshit, spin, exaggeration and the rest then any trust you’ve created will likely disappear.

So what do you do about it? How do you neutralize these psychic tentacles?

The answer is “You don’t!”

If you learn how to raise angel funding and get your angels and your funding then you will WANT there to be absolute and complete honesty and disclosure BEFORE you sign any of the contracts and get that cash. Believe me – if you are ‘spinning’ your way into the cash and then they find out you’ve been secretly exaggerating your way into funding then your life will be a living hell.

So does that mean that you tell them absolutely everything, warts and all, from day one?

Day 1 should focus on the big idea…the story behind your business…the why you matter and how you will change the world. The first meeting is NOT for airing all your weaknesses.

But the reality is – angels expect weaknesses – they’re WHY you need they money? They know that.

Don’t try to hide it from them- your goal is NOT to look perfect…

Your goal is not to look like a $1m business when you are worth $50K – your goal is to create an open and honest working relationship with angel investors who can give you the money you need.

In fact, if you bring out your weaknesses – point to then – and start talking them through how you are thinking of addressing them – you will get a few amazing results – it could even get you the funding you need.

If you and they start to brainstorm what your business needs to be successful – this is magical – because the Angel is imagining how to make your business better….and here’s the really powerful element…by giving you their ideas, they are mentally investing their will and desire to making your business successful – you are making them WANT to see you business succeed because you are following their advice – when you succeed, they succeed. And this is about ego and self image – not just about making a financial return.

So get them focusing with you on what it will take to address your companies weaknesses and you HAVE them…

And here’s the alternative – if you show them your weaknesses and they couldn’t care less and don’t have any suggestions, ideas or contacts for you -THEN YOU DON’T WANT THEM AS AN ANGEL INVESTOR. Kick them to touch, go focus on angels delivering real value above and beyond the money.

I mentioned at the beginning of this article that I would share some critical information with you and give you a free offer. What you have just read really does have the power to save you months of running around trying to lock in funding and get you not only the cash your business needs to be successful but identify the RIGHT angels who will work with you, as partners, to make your business something to be proud of.

And the free offer is the action you need to take right now to progress the funding you need.

I have just had some slot come available and will offer the first ten people who respond 20 minutes of free consultation about your funding over the next two weeks. If you would like a free 20 minute consultation about your startup there are some rules.

1) If you schedule a call and need to cancel you need to give me at least 24 hours notice. If you don’t cancel 24 hours or more before then I will not work with you in the future.

2) You need to come to that 20 minute call with the ability to communicate what your business or concept is and with 5 questions already thought through and prepared. Ideally you will email them to me 24 hours before our call. The why of this is so I can really give you value when we talk.

So if you would like a free 20 minute consultation about your funding – contact me through the ‘Contact’ page right now.

Make progress on your funding now and contact me for a free 20 minute consultation.

If you are one of the lucky first ten people then we’ll be talking soon.

Best of luck in your business.

Andrew

How to get cheap money for your startup

Andrew — Wed, 14 Apr 2010 14:26:16 +0000

How do I hook a Venture Capital Investor?

Andrew — Tue, 09 Feb 2010 00:57:04 +0000

How Do I Get A Venture Capitalist

I just received an email from a reader and it was one of the shortest emails ever…”How do I get a Venture Capitalist?” This subject could be covered briefly in a book or two rather than a post so I thought I would cover [...]

What are Angel Investors Looking For? The Six Key Motivations of Angel Investors (#2)

Andrew — Tue, 02 Feb 2010 10:00:09 +0000

One of the best Angel Investors I ever had was Professor Howard Stevenson - while driving through Princeton's leafy backroads recently I had my radio tuned to NPR and was listening to Fresh Air or some such audio contribution to my ears and brain - I'm a sucker for public radio....what can I say - and after the show wrapped up, the radio broadcaster went into their 'sponsor' regurgitation telling me and anyone else listen who's dollars had made that particularly good show possible. In this case I almost swerved off the troad to hear that Howard Stevenson and his wife's fund had paid for the radio show I'd just enjoyed. Now that was the second time I had enjoyed the output of something that Howard had contributed too...and the reason I say that is because Howard Stevenson was my first ever angel investor in my first real company. Related posts:

What are Angel Investors Looking For? The Six Key Motivations of Angel Investors (#1)

Andrew — Sun, 31 Jan 2010 22:25:44 +0000

Key Motivations for Angel Investors

I was recently asked “What are angel investors looking for?”

My knee jerk response was “a significant return on their investment…”

…and like most knee jerks responses, I was both right and wrong at the same time and (and this is probably where the phrase comes from…) I was a bit of a jerk for not thinking it through better…

Yes – when an angel invests in a business they are likely looking for a significant return on their investment but that return is isn’t necessarily just measured in dimes, cents, dollars or whichever currency they happen to be dealing in.

So with a good cup of coffee I sat down to think through and home in on what ‘Returns’ an angel investors might be looking for when they make an investment – in other words, ‘What are the key motivations for angel investors?”

Now before I launch in – consider that angels are people and will be motivated by multiple reasons and what motivates them today, may not be what motivates them tomorrow. But I would suggest that there are primary and secondary motivations and by understanding them as an entrepreneur – you are ahead of the game….and by ahead of the game, I mean you are more likely to be able to lock in an angel investor and keep them in your corner if you identify and consider their key motivations. Look for the verbal and body language clues and once you’ve figured them out, keep them in the back of your mind because these are the engines which are potentially driving your angel today and during your ongoing relationship…

This week I thought I would examine what I’m calling ‘the Six Key Motivations of Angel Investors’

The Six Key Motivations of Angel Investors:

Motivation #1: A Financial Return
Angels back entrepreneurs and young businesses – a key motivation for doing so is to see that investment increase in value to the point where, at some stage in the future, they can gain the benefit of that increased value through some form of return.

Angel investors who are driven by the financial return ‘win’ when they invest in a business which goes on to increase in value by a significant multiple and when they can withdraw that financial return through some for of liquidity event – a term meaning some form of occurrence which makes the investment they acquired transferable into cash. These occurrences usually take the form of the company being acquired or being able to offer its shares through a public market of some kind.

Example – you invest in company A and get 1 of 10 shares for $1 (keeping it simple). If that company is then purchased and the company purchasing pays $5 for those shares – that purchase is the ‘liquidity event’ which allows the angel to sell their 1 share and gain the $5 offered for their share.

Some angel investors are focused on making a significant financial return – perhaps they are using these funds as a way of increasing their retirement income – angels who invest early enough can purchase a piece of a company at a reasonable price – but the earlier in the company’s life – the less visible the company’s future and therefore the higher the risk.

If we could all place a bet on a horse just before its about to cross the finishing line then we’d all make money gambling – the challenge is to make a winning bet before the race begins or when its in the first few seconds. The better an angel is at picking those winners early – the more likely they are that they will make mega returns on their investments – we call them investments but really the angel is gambling just like on a race. If you are the entrepreneur, you are the horse and the reason why you get asked some many questions during the due diligence stage is because the angel is checking out your pedigree and looking at your metaphorical teeth. Enjoy!

There are a few important facets to the financial return that investors are looking for – in the above over simplified example an angel buys 1 share and eventually gets to sell it for a multiple of the initial investment because there is an event (in this case a purchase) which allows them to transfer that share of ownership into cash. In many cases companies go through more than one round of fund raising – most go through multiple rounds. A round is just one way of saying ‘times’. So an entrepreneur sells 20% of the stock in their company round 1. During the next round (round 2) they create more shares and sell some more shares – during the second round the first group of investors often get asked if they also want to buy shares in the second round. Why is this important?

Because by selling more shares in the second round, the ownership percentage of the initial investors goes down unless they buy more shares equal to their original percentage in the second round.

Example: angel investors focused on a financial return consider two factors above all else: how much money they’re putting in, and the valuation of the company. The valuation of the company (i.e. how much it is valued to be worth) determines how much stock you give the angel. If an angel puts in $100,000 into a company at a pre-money (i.e. before the money is put in) valuation of $1 million, then the post-money valuation is $1.1 million (i.e. the pre-money valuation + the value of the investment…get it?), and the angel gets .1/1.10, or 9.1% of the company’s stock.

If your company raises a second round, the company will be divided among a larger number of investors which reduces their overall percentage (because you are dividing a slightly bigger cake among more people). If in the next round they sell 10% of the company to a new investor, your 9.1% will be reduced.

So if an angel is motivated by the financial return above all else – this dilution of their ownership stake will be important for them. You may find your initial investors being particularly active during the negotiations of company valuation in subsequent rounds. Interestingly, the motivations of founders are often aligned with the angels – they aren’t took keen on their ownership percentage being diluted either.

So if they are focused on financial return why will they allow their percentage to be reduced?

Because its being diluted by adding more cash to the company – the new shareholders brings in new cash, new contacts, new experience and increase the company’s potential for success. The early angels will often work with the founders to consider the new investors in terms of the whole package – i.e. all they can bring to increase the company’s trajectory and likelihood of success.

When talking with a potential angel consider the questions they are asking you and use that as a guide to what is this angel motivation for investing. If financial return is their key motivation – you’ll know what elements will drive their interaction with you both during the negotiations before they invest and their interactions with you after they invest. Investors who’s key motivation is delivering a significant financial return will emphasis valuation, dilution and achieving milestones towards a defined and reachable liquidity event. Angels are usually motivated by more than one of the key angel investor motivations – but understanding their key driver is critical both before and after they become your angel investor. By understanding this – you can align their interests and yours and negotiate the best deal for you, your business and your investors. Finding an angel predominantly motivated by financial return is neither a positive or a negative – but by identifying that financial return is a key motivator is critical so you know what information to emphasis during and after the negotiation. A good rule of thumb with ALL investors is communicate clearly and honestly about your business (even the problems and challenges – actually especially the problems and the challenges….), now you understand their primary motivation, keep that in mind during all interactions and focus on driving your business forward making sure you achieve the milestones you set and agreed with the angel when you established your relationship.

If you do that then their need for certainty and predictability will be fulfilled and you will be more likely to have happy investors who will back you today and with luck, with all your ventures in the future.

Questions on the first key motivation for Angel Investors? 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

PS: and here’s an interesting video with some good perspectives so you can start getting into the heads of the better angels…

The Abbott and Costello of Angel Funding – These Guys Rock!

Andrew — Fri, 14 Aug 2009 13:50:33 +0000

Abbott & Costello

Hepnova and WealthNet Partners. the Abbott and Costello for Entrepreneurs, have got together again to create a new video.

Now you could go and watch a boring video about how to raise money through multiple sources…YouTube or some other place *yawn*

Or – you can press play and enjoy the video made so you will never forget the message – so, over to Hepnova and WealthNet Partners.

So why do I like these guys? Because they turn what is an often dry and borng subject and have fund communicating a few key points in a way that makes sure you will never forget it (especially if you have a sense of humor…and lets face it, you’ll need a BIG sene of humor if you are working with VCs and angel investors…)

Thanks guys! You are awesome…

Any comments or thoughts on this video? Helpful? Useful? Useless? Add your comments now.