Tag Archives: Entrepreneurs

When Should I Apply for Angel Funding?

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So you decided to apply to an angel network for funding.  When is the best time to apply?

Before you run out of money, of course.  But most startups these days have some flexibility given the low cost of lean design as well as funding from self, friends and family.

If you have a truly exceptional startup, or a truly exceptional track record, don’t wait, apply asap.  What is a truly exceptional startup?  As Justice Potter Stewart said in 1964, “I know it when I see it.”

If you are in the other 99.8% of startups, you should be more strategic about timing.

Some angel groups like to be the first outside funding source.  These favor earlier companies with lower valuations, and regularly lead rounds of $500k and up.  For them, the sooner you apply, the better.  Consider them as soon as you need funds beyond friends and family, and have a hint of demonstrable traction.  New York Angels is one of these groups.

For most all angel networks, better to try to wait until you have basic business traction, which I see as:
  1. A working product,
  2. Some revenue and market validation,
  3. Your co-founders are in place (e.g., “I’m looking for a co-founder with [insert skill]” is a red flag.)
It is also better to wait will you have some basic financing traction.  This means:
  1. You have a credible lead investor,
  2. You have at least $100-200k and 20% of your round committed,
  3. You have deal terms largely agreed by the lead and committed investors.

Yes, this is an chicken and egg problem. How do you get there without funding?  Wing it?  Sorry about the pun.  Here’s where being a scrappy entrepreneur is a plus.

Most companies that raise angel network funding successfully do so after they have some business and financing traction.  There are many more entrepreneurs seeking funding than there are early stage angels and VCs.  Supply and demand means that investors can wait, at least in most cases. Harvard Business School Alumni Angels is one large angel network that prefers companies with at least some basic business and financing traction, and most angel networks fall in this group.

Waiting and self-funding for more months than you’d like isn’t fun.  But it may save you time and money, and lead to more fun over the long haul.

Some additional suggestions as your move ahead:
  1. Focus first on angel groups and micro-VCs who could lead your round.
  2. If you do pitch before having a lead investor committed, be prepared for other investors to wait until you find a lead.
  3. Put forward your ask for funding amount and terms, and indicate that you are negotiable once you identify a lead.  [If you say that terms are “TBD and up to the lead” you risk coming across as clueless].
  4. Don’t be so greedy that spend too much time with a funding ask that is above the market, and you run out of money and never raise a dime.
  5. Never insist on a SAFE note with a serious angel.  They know that is so unfavorable to angels that it can easily be a worthless investment in at otherwise successful company.

Good luck!

 

The Facts on Deal Valuation and Structure

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Attention Entrepreneurs:  Investors at different stages have varied interests so you are likely to get different counsel from Big VCs, Big Accelerators, and other Big Shots.

I’ll keep this post brief and fact-based.  Early stage financing has supply and demand, and deal terms and valuation are determined by market factors.  When you determine valuation and deal structure for your company, consider the current data on Angel financing.

66% of Angel financings are done at a pre-money valuation of $4.5 million and under.60% of angel financing is done with Preferred Stock.

The source of this data is the Angel Capital Association’s new Angel Funders Report, dated August 2018 and released October 2018.  Drawn from 432 investment rounds in 2017 across 393 companies totaling $102 million invested.  Companies were located in 36 US States, Canada, and Israel.

So when you set your terms, the closer you can price your deal based on its merits relative to other angel deals getting funded, the faster your funding round will go, and the quicker you can get back to your business fundamentals.

To Start Your Own Company, Go to HBS

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if you want 0if you want hbs 1if you want hbs 2

 

from the New York Times, April 7, 2015

 

 

 

 

 

 

 

 

 

It’s hard to break out of the pack

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Noted investor Chris Dixon’s recent blog post on the crunch in consumer web start-ups has gotten a lot of notice.  It’s unfortunate that so many start-ups tend to chase the same concept. That’s why, generally, Chris’s points are correct, e.g., you do need 10 million uniques to get anyone to pay attention to you.

But you don’t have to follow the pack. Find a niche segment, where your content had real value.  Don’t jump on the next popular trend, like a new app to figure out what to do tonight. Create a real new idea, and calibrate your own metrics.

“Ten million users is the new one million users.

Entrepreneurs and investors have been enamored with consumer internet startups for the last few years. But there are signs this is ending.

Some observations:

– Thousands of early-stage consumer web/mobile companies were started and funded in last 24 months.

– There are only a few dozen VCs who actively write consumer Series A checks, and those VCs will only do a few deals a year.

– Facebook’s market cap is about half of what most tech investors expected before the IPO.

– A few breakout early-stage consumer hits (Instagram, Pinterest) have reached tens of millions of users in record time.

– Internet users have tens of thousands of services/apps to choose from but limited time and attention…”

Read more here.