By Stephen Day
You, the founder, has exhausted every friend and every family member you could find. Let us assume that you did receive a bit of funding from Aunt Martha. And, you cashed her check before she sobered up.
But now you need serious investment to get your startup up and going. Forget the venture capitalists (VCs). They have largely been replaced by tens of thousands of successful people who had lucrative exits from startups themselves. Tens of thousands of founders? No, most are not the founders, but they were often the early employees who took stock options in lieu of big salaries. Why? Because startups never have enough funds to pay talented employees market price, so they get compensated with stock grants and with stock options. When a company has a liquidity event, by going public or by being sold, these early employees often make millions, some tens, or hundreds of millions. These are the Angels.
Who are the Angels?
There are really a lot of them, although mostly they are located on the Pacific Coast, notably Silicon Valley, San Francisco, and Seattle. But in Washington, DC, NYC, Boston, Austin, Chicago, Houston, and every other city in the USA, there are Angel groups that invest in startups. Many times, Angels in a group will pool their funds and fund partly or all the A Round.
As a founder, you should seek out the Angel groups in your area. But not all Angels are members of a group. So be prepared to talk to every potential Angel you can find. Use every available resource to reach out to Angels: investor clubs and platforms, LinkedIn, Twitter, your connections. And, ask, ask, ask!
Some Angel groups focus on specific industries, i.e. Information Technologies, Life Sciences, Healthcare, Oil and Gas, Real Estate. Ask if your startup is within their portfolio focus. If so, pitch them! If not, pitch them anyway. You might just find one or more Angels who are intrigued by your vision.
When you apply to any Angel group, please be prepared. If you have not finished your pitch deck, your executive summary, and your business plan, do not apply. Most Angel groups will have a committee that will review your documents and will meet with you. If you present your company well, you will be invited to make a pitch to the entire group, which typically meets once per month. Expect to be one of several who will be pitching that day.
Keep in mind that Angels are looking for startups that can grow and can scale. If they vote to invest, they will already know the amount you are seeking and how much they are prepared to offer. Expect to receive the funding in tranches.
If you do not yet have a Board of Directors or Advisors, establish one. This will prove that you are open to advice. Expect the Angels to take one or more Board seats, either as Directors or Advisors.
Be prepared to negotiate. Can you ask for more funds or a better deal? Sure! But greedy founders often lose a deal when they ask for more and more.
These are seasoned investors who want to ensure your company is successful. This means that it is not only money that you will receive but sage advice and guidance. Smart founders will be open to such wisdom.
Angels have largely taken over the early investment rounds that once were the domain of the venture capital firms. Seek the Angels who can help you beyond just funding. Listen to them and make necessary changes to your business. You will find Angels a great resource.
At this stage, you need the plasma of startups - funding.