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What our members have to say...
"Angel Investment Network is a great tool for introducing Investors and Entrepreneurs and it has given me some great success stories over the years that I have been involved. "
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Damian Guy - ARC Investments |
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Start-ups hungry for financing tips
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There's very little that excites an entrepreneur as much as the chance to meet a potential investor who might help fund their big idea — except maybe getting personally introduced by someone he or she knows and trusts.
Introductions can be the golden ticket providing access to angel investors and a chance to personally present your business, according to Robert Lamkin, co-founder and managing director of the Cape Cod-based Bay Angels Investment Group.
"It's important to have an idea, but it's really important for you to get people who can introduce you to those who can finance your idea," he said.
Lamkin gave this advice to a group of 60 or more active and aspiring entrepreneurs who attended a recent Southern New England Entrepreneur's Forum event, eager to hear from the horse's mouth just what angel investors are looking for.
"The fact of the matter is that there aren't that many investors out there and therein lies the problem," he told them.
What Lamkin said is true — investors can be hard to find despite a growing interest in start-ups and the promise of jobs they hold.
Although the number of angel investors nationally has been growing, with groups tripling in number since 1999, the reality is that only a small percentage of companies who apply for funding receive it. Less than 2.5 percent of all new angel submissions, 545 out of 22,685, were approved in a recent 12-month period, according to Angelsoft, a provider of online tools for investors.
So, it's not surprising that entrepreneurs seek out any advantage they can find for connecting with investors.
According to Lamkin, Bay Angels was formed in 2003 to help individuals invest locally and improve local business and employment opportunities. The group provides funding in the Cape Cod, Southeastern Massachusetts and Rhode Island area.
"We invest in this neck of the woods so people don't necessarily have to leave (here) when they grow up," he said.
But the altruistic approach only goes so far — the bottom line for angels remains profit, Lamkin said.
"(Angels) want to make a lot of money and they want to make it fast," he said, adding that they also want quick exits, typically three to five years out.
Lamkin believes young companies often waste opportunities with investors by not being able to present important information quickly. Many could benefit from coaching before making their pitch, he said.
"They have 15 minutes to get their point across and a lot of them can't."
He advises having a CEO who has experience running a business and can tell angels what they want to know. If the entrepreneur or company founder is brilliant and has the technical knowledge but can't operate a business, that individual may be better off as the chief technology officer, he said.
"If an angel says get someone else, you have to be able to accept that," Lamkin said.
Being able to listen to and accept investor advice is one way companies can show they are serious about success, according to Lamkin. Another is to being willing to invest in your own company.
"Sweat equity is very important but (investors) want to see you put cold hard cash into the game," he said. "It doesn't have to be a lot, but it has to show you have skin in the game."
Although so many start-ups start and remain lean with few employees, the potential for future job growth is causing increasing attention to be paid to early stage companies.
Just last week a Kansas City-based foundation offered its proposal to help U.S. start-ups in a "Startup Act" unveiled in Washington DC. In the proposal, the Ewing Marion Kauffman Foundation suggests several steps to help accelerate the growth of startups and young businesses and thereby jump start the economy.
"With a recent Kauffman study indicating that new companies are starting smaller and staying smaller, and with our unemployment crisis, it is more important than ever for policy makers to create an environment that makes it easier for more startups to survive, grow and add jobs," said Carl Schramm, Kauffman president and CEO. "We hope that by outlining this idea for comprehensive startup legislation, we can stimulate a long-overdue, bipartisan conversation in this country about how to maintain and reinvigorate the entrepreneurial energy that has made our economy the most innovative in the world."
In the proposal, the foundation suggests creating better access to early-stage financing, including creating capital gains tax exemptions for long-held start-up investments and providing tax incentives for startup operating capital. It also looks to support a skilled workforce by helping talented immigrants remain in the country through the use of "entrepreneurs' visas" and suggests working to reduce the patent backlog and providing licensing freedom to academic innovators.
Key selling points that help early stage companies secure the promise of funding, in addition to revenue potential, include the commitment and talent of founding employees and potential interest from other investors, according to local investors.
Groups of angels have become more connected through organizations like the Angel Capital Association and online tools like those provided by Angelsoft. Joint deals can be attractive with one benefit being that angels can share in due diligence work completed by other groups, according to Lamkin.
Due diligence is being taken more seriously among angels, he said.
"Angels are doing more than they used to (with due diligence) but certainly not as extensive as (venture capitalists)," he said.
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