Startups and fundraising
Startups almost always must go through the exciting, excruciating, time consuming, eye opening, and ultimately important step of fundraising (at least once). It’s a horrific experience on one hand – taking too much time and work, requiring significant legal preparation and trust me, you hear “no” a lot, just to name a few of the fun things one encounters.
On the other hand, it is a valuable experience for a business – helping refine the plan, preparing leadership for what lies ahead, and offering introductions to many smart and successful mentors in the industry. And the money that comes in enables and accelerates growth, opens new doors and can provide some safety for the founders and employees. Contrary to what some entrepreneurs feel, though, bringing money in doesn’t make their jobs easier – they have more responsibility, more obligations and an important new group to report to.
It is this dichotomy of good and bad that makes the angel investing process so exciting. It is also what makes it so difficult. Each investor has his own process for evaluation and decisions. Some stick to one industry they know best while others diversify. Some invest in people with a proven track record and others migrate towards Intellectual Property. I look for four things in a company I evaluate – and only make decisions to move forward where a business scores well in all four.
Businesses must score well in these categories
Executive Leadership: It is people that behave ethically, work hard, innovate and ultimately turn a plan/idea into a thriving business that creates value. Or not. I have to trust the team I invest in – as people, leaders and business people. This is why I always prefer to invest in people I have worked with, know well or who have come highly recommended by someone in my trusted network… and I especially like to invest in companies where I am on the executive team.
Market Opportunity: I love markets that are already maturing or are fully matured, but that are growing. They need to be big enough so that a “win” will provide substantial financial gain for the business – but depending on competition and the current environment, this doesn’t always mean multi-billion dollar markets. Medium sized companies (and industries) can be home runs too. Be the best in a market.
Improve Business Efficiency: I look for businesses that use technology and/or methodology to improve the business model and create efficiencies that have tangible financial benefits. I don’t often look for leading edge technologies – or those that are unproven. I prefer proven technology or business methodology that is applied in a new way or in a new industry.
Improve Customer Experience: Customer experience is at the core of my business mantra. No business should be allowed to open its doors unless leadership has a strong focus on understanding who their customers are and what they want, and then keeps that focus to ensure customers are happy. Once again, I look for businesses that apply proven technology and/or methodology in a new way to improve the customer experience.
A beautiful road map
If you ask me, that’s a beautiful road map for successful early-stage investing right there! Even so, angels (myself included) don’t always get it right. Having solid criteria angels believe in, and that you can be successfully evaluated in, will dramatically improve success rates.This is why entrepreneurs who are looking for funding shouldn’t just perfect their pitch. They should learn about their network and the greater investment community, and understand their investor prospects. Business leaders should target their angels – if they do, they will increase their funding success rates.
What challenges are you finding in your search for early stage investment?