The view from both sides of the table – facing angels (part II)

So, if you stand as a founder in front of potential investors and especially in front of angels what is going on on the other side of that table.  You have done your homework:

  • You know the job for which your technology is being hired
  • You have clear focus
  • You know your audience
  • You are avoiding that big technical uh-oh moment
  • You display complete confidence in achieving the dream

And you stand and deliver a solid presentation.  It is obvious to you that you are well equipped and ready to turn angel money into pure profit.  Will they say yes?  (I sure hope so but probably not)

Let’s face it, most deals do not get done.  So what is happening with investors?  Well perhaps a few lessons from the angel side of the table are important to understand.  Again, I am no top notch investor so I will defer to better resources on the topic like askthevc.com, http://www.feld.com among others.  No, I will just share from experience and hope that helps.

Lesson 1:  Great financials do NOT equal investment!

I contend that the early, early angels are motivated for many reasons and it often involves a perfect storm of events and a little bit of luck.  Let’s start with a common believe that the numbers are the beginning and end of the story!  Sure, absent clear lines of sight to exit and a solid financial story you may have issues.  But as Brad Feld describes in an excellent book, Venture Deals, “your revenue forecast will be wrong, your cash flow forecast will be wrong.”  In other words, the magic spreadsheet is not the beginning and end of the story.

It is in fact a complete fabrication – and everyone knows that.  How you present it, however, says a lot about how you think through business issues and hedge toward success.  Do you understand the burn rates you are looking for and how to control them?  Do you account for lagging cash flow?  Have you placed money to work in key spots that drive the business forward or tend only to the knitting?   In fact, many successful stories brag about not having monetization methods.  Can you get away with such a story?  Well, before you decide check lesson 2.

Lesson 2:  Hey, I like these guys

One of the thoughts that strikes me as I ready sites like pandodaily, techcrunch, uncrunched, maskable and others is the closeness of the entrepreneurial community – almost family – complete with bitter fighting and self important praise!  What does this have to do with the angel on the other side of the table as you pitch?  Well, much of an early decision is about WHO you know.  The company you keep.  Let’s face it, if a good friend asks for help to move from one house to another you are more likely to say yes then to that “jerk” down the street.  [Except for me because I just don’t like moving, but that is another story].

If you connect on an emotional level I believe your are in a far better position to win. (Too obvious?) Case in point (sorry I don’t have a reference):  I was just browsing around blogs one day when I came across a post about a new entrepreneur in residence at a major Silicon Valley VC firm.  The post literally bragged that this individual had largely failed in previous ventures but had great talent and was an idea factory.  So, the firm provided an office for this person until they all decided what was best to pursue together!  They wanted this leader.  Do you think that raise was difficult?

If you can find ways to avoid the cold pitch then I find it always goes better.  It may be a casual referral or known friend willing to help.  It may be you have to work your way into the active angel group by seeking advice (no pitch, no strings attached) from its members.  Anyway you can try to connect emotionally and reveal your character and commitment (which I am sure is stellar) will benefit you when it comes to pitch time.  We have all heard it:  “I would rather invest in an A team with a C idea, then a C team with an A idea.”  Cliche?  No, human nature.  We bet on each other.  We are in relationships no matter the business like terms and we want to root for success for those we believe in personally and that is often something that cannot be fabricated.  I have witnessed several instances of this over the years of attending pitch days and know personally that going in with a warm handshake and hearty recommendation can be a major boost!  Find ways to connect!

Lesson 3:  It solves MY problem

Several years back in a Live Fire event I sat and watched a respected set of investors respond to founder after founder.

In one case, a founder with a rich history and literally a life saving product (as in cure for cancer life saving) was up in front of the group.  The enthusiastic response from the team:  We never invest in life sciences, you need to find people ready and willing to do just that.  Good luck.  Wow!  I mean this solves a potential MY problem, no?  Certainly, it does – but in this case life sciences investments which tend to be capital heavy with long cycles just did not fit the investor profile and exercising that investor discipline meant it fell into the NOT MY category.  Goes back to knowing your audience – and to be honest – this founder was speaking towards a bigger assembled crowd and knew the panel may not be directly interested.  I can say I was ready to invest!!

In another, a company was pitching GPS enhanced audio tourism.  One of the judges said, “I travel in silence and like it this way.”  Instead of just moving on the founder pushed the issue and kept drawing back on the amazing opportunity.  Finally, a dismissive, “I would NEVER invest in anything like this.”  That is not a feeling you want in the room.  In this case it simply did not hit a pain point for this investor.  When that happens, understand and move on!

Finally, I heard the story of a local investor running across a pitch around bicycles.   It so happened that the investor was an avid rider.  The investor agreed to make a few introductions and eventually a deal was struck!  It solved (or at least appealed greatly to) that investor’s interest.  Nice.

So, if you have more then a hockey stick spreadsheet, connect on an emotional level and provide a simple, clear solution that solves an investor’s problem you have the beginnings of that perfect storm.  But make sure that simple, clear problem is big enough!

Lesson 4:  It solves a BIG (enough) problem

This loops back around to the financial story.  Please realize that bootstrapping might be the best way to build a successful start-up and make sure you really need investment before you seek it.  As soon as external money (beyond friends and family) gets involved then returns (despite other lessons) become important.  It may be that you really are better at providing consulting services or that visionary product is simply an app that will generate a nice yearly income for you and a few friends.  But when money starts to go to work, it is hungry for return.

I have first hand knowledge of an organization that is very successful but not wildly, exit ready successful.  Why?  Well, to make the story short when the curtain was pulled back on the target market and focus moved away from overall market size the real market simply did not have enough juice.  Sometimes that is easy to see but often it really is not.  Continue to challenge yourself to know your REAL markets.  Do not let vanity metrics, see Lean Startup, blur your vision.

Solve a BIG (enough) problem.  You don’t have to change the world to succeed but it is a nice goal.  If you can close less than 10% of sales, build-measure-learn lots of times and still have plenty of space to make an impact then you are trending towards the right size problem.  Hint:  If you are looking at an 80% adoption by your target clients in order to generate profits then your problem is probably not BIG (enough).

Little Lesson 5:  Wow, that was way better than the last pitch I heard

And finally a personal note.  I simply did not practice enough.  Nail that elevator speech and know your presentation!  Helps with all the other lessons. Remember, angel groups and investors are constantly being pitched.  No shortage of ideas and people who want to separate wealth from the wealthy.  So, you may be a little off on financials, market and idea but you are flat out the BEST in the room!  Think that being the best in the room will not be a difference maker? Investors have an expectation of quality and want to fly to it.  So, while it may not get you through final diligence on those terms, making sure you have your game together and care about your audience can at least leave you with one more conversation!  And plenty of founders never get that far!

No, we cannot all be Silicon Valley and it does not matter

In a recent article by Trevor Gilbert over on PandoDaily (a good site) entitled “You will not be the next Silicon Valley, please stop trying”  he clearly says enough about Newry, Northern Ireland to get a few excited comments (which is the point, right?).  Several of those comments pointing to the seeming arrogance of the post in stating that Silicon Valley is a one (well probably one except for maybe New York and Las Vegas) and only proposition when it comes to launching great startups.

As a serial entrepreneur from the mid-Atlantic (yes we do start companies on the East Coast in areas other than Cambridge and New York even) can attest Silicon Valley and Alley both have superior chemistry in that regard to many regions, so let’s not hate.  But I am not sure Mr. Gilbert fully grasps the true point of Newry despite his updated comments regarding them specifically.

In what should be more complement than challenge for supremecy, entrepreneurs and investors are waking up to the economy of abundance.  They are saying yes to creating unique ecosystems to foster local innovation and development like the Valley.  Essentially this economy of abundance suggests that the ingredients to success can come together in many places and spaces.  That talent need not flee to a physical zip code around Sandhill Road to succeed.  We are not assured success in trying but in short, a ‘cook can come from anyone, and anyone can cook’.

Going to an unusual disney source for inspiration, Remy the cooking mouse discovers this very fact, that indeed a ‘cook’ can come from anyone – even a mouse!

Individual regions now understand the value in creating start-up ecosystems.  Hubs that can retain local talent and use the new power of connectedness across boarders to fuel the best ideas from around the world, not from around the Valley.  I am pretty sure by scrolling through the comments this is the simple cry that is heard.  We do not want to be Silicon Valley, it is unique, no doubt.  However, many entrepreneurs and investors don’t want to have to live in a certain region to make ideas work.

I think even David Cohen of TechStars would admit that Boulder (which also did not make Mr. Gilbert’s list of interesting technology places) did not start out with a vibrant ecosystem but I doubt many would question what TechStars has accomplished.  And now with the support of the Global Accelerator Network, championed by TechStars and efforts like it across many regions we may even find here in the mid-Atlantic that we don’t need to be Silicon Valley but we all can cook!

Introductions are in order

My name is Todd Nuckols and I have spent the last 10 years in Virginia founding, advising or helping to start software companies.  The process has been filled with both success and failure.  It comes as no surprise to any fellow entrepreneur that the process of creating a new company is hard.  In this blog I will attempt to reflect on those challenges and discuss my current passion:  starting an accelerator in central Virginia.  In fact, I hope that March will bring quite a bit of new news in regards to the establishment of a world class accelerator in central Virginia.  One thing I know is that collecting a number of smart people in a group focused on building great companies with ready access to capital will help propel the region.  It is already happening all over the country and I know it…but more on that later…