Too many entrepreneurs try to sell their product to potential investors. Instead, they should focus on the revenue model – how much money would an investor make, when, and how?
That was one of the big take-homes from “A Gathering of Angels,” an exceedingly well-run New Jersey Entrepreneurial Network Meeting today (June 2, 2010) at the Princeton Forrestal Marriott. Lou Wagman’s no-nonsense schedule included 60 self introductions (while everyone ate dinner) and Randy Harmon’s introduction to angel investing (while some gulped dessert). Then six angels dished out good advice (more on that in a later posting) plus final tips, as below.
From left: Loren Danzis of Fox Rothschild and Delaware Crossing Investor Group: Know whether you meet the criteria before you apply. Work through your team (lawyer, accountants) for introduction to those who know the market.
Stephen Nagler, TriState Ventures: Be really ready to answer such questions as market size, multiples, proprietary advantage, and exit strategies — and be able to justify your answers. Both the CEO and the fundraising job are full time, but when someone calls, answer quickly.
Larry Chaityn, Keiretsu Forum, NY Tristate Chapter: Be able to explain the the revenue model and the assumptions behind it, such as specific use of funds, the return on that use, and metrics you will use to track the returns.
Katherine O’Neill, Jumpstart NJ Angel Network:: Don’t take friends and family money at too high a valuation, and if you do, you must be ready to take a “haircut.” And don’t put a video in your presentation; they never work.
Frank Graziano of Golden Seeds, investments in women-owned businesses: Be relentless in your search for money. If you get rejected, the door is not necessarily closed.
Lou Wagman, meeting organizer, of Technology Management Associates and Einstein’s Alley.
Randy Harmon, moderator, of Foundations Business Development Group.
Christopher Starr, Mid-Atlantic Angel Group Funds: Try to get money when you don’t need it. If you don’t actually need the funds, you are in a better position. Pick lawyers and accountants who operate in the early stage space. You are going to pay someone anyway. Find those who know the issues. Their contacts and connections will be a bonus.
More organizations should operate this way: give attendees all the bios and then don’t repeat them, and handout the contact info for all those who register in time. That’s a big inducement to preregister.
For pictures of more than half the attendees, click here. (If you don’t like your photo, I’ll take it down. If you want to put more contact info by your photo, you’re invited to do that).
The discouraging part: of every 50 companies that apply to an angel group, one or two will get funded.
The encouraging part: statistics cited by O’Neill, on the board of the national Angel Capital Association. Angels do more deals than VCs. Last year angels invested $17.6 billion to venture capitalist investments of $17.69 billion, almost an even amount. But angels did 57,000 deals while VCs helped only 3,000 companies. The money is out there for the lucky (and well-prepared) few.
Princeton Comment 
Excellent comments, both. Thank you, Don and Robert. I'll be posting more about these issues and hope to incorporate your remarks.
The numbers tell an interesting story. Katherine O'Neill put angel and venture capital investment dollars pretty much on a par, except that angels do significantly more deals. So angels spend less per deal, and VCs spend considerably more. The takeaway here is that a lot of innovation dies on the vine, and even fewer entities survive the final push once they get VC funding. Why? This is certainly true on the life science side, where pharma keeps raising the bar in its growing passion for later and later-stage clinical data. After a while you have to wonder what's in it for the VC. How much is enough?The other key aspect that I heard yesterday was the number of casualties that emerge in the angel groups' winnowing process. At the end of the day a relative few entities are actually funded when all is said and done. Is this because of funding limitations, or do many technologies/innovations get passed over because the ability to do effective due diligence simply isn't resident in the group looking at the deal? True, some ideas simply aren't commercially viable. Others are, but something critical is missing–usually management or some other aspect of its critical mass. Still others have all the right stuff but come up short. Why, again? In many cases it's not for lack of trying.So what can be done?Fred Beste once suggested that "seed investing is a team sport." And I believe it still is. Or should be. The trouble is that the positions are changing (some have all but disappeared), the team has become a little shaky. Personally, I'd like to see more deals and more profitable exits. To that end, I think we need to look for which team members are missing and how we can effectively and efficiently maximize the many resources that literally abound in today's funding marketplace.
I would like to thank Randy Harmon and the NJEN for putting on such a useful and enlightening session whereby entrepreneurs and small business folks now have a better understanding of what angel investors are seeking. I've always had a guardian angel keeping an eye on me, but now I may be a bit closer to adopting an investing angel.Robert A EvangelistaBioenergia America LLCHighland Park, NJ