The Most Comprehensive Angel Investor Guide Ever

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The Most Comprehensive Angel Investor Guide Ever Powered By Docstoc
					I Was Denied Angel
  Investor Funding:
  Now What?
Why I Wrote This Guide

I am the Client Services Manager at a technology-based
business incubator in Indiana. I focus my attention on a
number of common startup phase issues including:

• Business Planning
• Raising Capital through Loans and Equity Investments
• Business Strategy Development
• Grant Writing Assistance


Through my time working with entrepreneurs, one of the
biggest common issues I have noticed is lack of access to
startup capital. It is no surprise that most small business
owners need capital, but it was surprising how difficult it can   “According to the
be to secure this funding. According to the Angel Capital
Education Foundation (ACEF) only 25% of angel investment          Angel Capital
applicants even make it past the initial pre-screening            Education
round. I realized that I could write a guide on how to secure
angel investment capital, but the overwhelming majority of        Foundation (ACEF)
small business owners will never be qualified for angel           only 25% of angel
investment. For this reason, I decided to write a guide for
the 95% of entrepreneurs that have been denied angel              investment
investment. What can you do now? Well I believe the               applicants even
following guide provides some excellent, concrete steps for
entrepreneurs to take after being denied funding.                 make it past the
                                                                  initial pre-
I have provided this guide for free to the world through my
blog/website www.theexecutiveplan.com. My blog is simply          screening round.”
a hub of resources and tips for entrepreneurs as they
navigate through the difficult startup phase of
business. Make sure to check out the blog for new updates
and feel free to connect with me through email at
adam@theexecutiveplan.com. Thanks for taking the time to
learn     more       about      the      startup    process.

 Sincerely,

 Adam Hoeksema
 Founder - ExecutivePlan
 www.theexecutiveplan.com
        What to do After Being
       Denied Funding by Angel
              Investors


Odds are, if you are reading this, you are one of the thousands of entrepreneurs turned
down by angel investors and venture capitalists each year. Not to worry, you are not
alone. According to a report distributed by the Angel Capital Education Foundation
(ACEF) only between 1 and 4% of entrepreneurs that apply for angel investment
funding will make it through the process to secure angel investment.

Just knowing that you are not alone probably doesn’t help too much if you need this
capital to grow or sustain your business. What steps can you take after your denial to
keep your business alive? Do you really need angel investment? Are you ready for an
investment right now? What are your options? How can you better prepare yourself for
a second attempt at raising capital? These are just a few of the questions that I will
attempt to answer in this comprehensive how-to guide.




Step # 1 - Do you Really Need
Angel Investment?

The very first question to ask yourself after a
failed attempt at raising angel investment is, “Do
I really need angel investment?” You may not
even know the answer to this question which is
why the second step is quite possibly the most
important thing you will ever do for your
fledgling business.
 Step # 2 - Vision, Strategy, Tactics Plan

 To help identify the best type of investment, the amount
 of investment, and the timing of the investment in your
 startup, go back and develop a vision, strategy, and
 tactics plan to re-assess your situation. What is your
 vision for this business? What handful of strategies are
 you utilizing to reach your vision, and what day-to-day
 tactics are you using to best implement your strategy? If
 you do this one of two things will happen, you may
 realize you don’t need the extra capital right now to
 accomplish your vision, or you will determine what steps
 you need to take to prepare your business for success
 and a successful capital raising campaign.

As you develop this plan consider the following example.

Let’s say that your vision is to become the world’s premier online retailer of coffee mugs. This is a
great vision because it is big, but also specific at the same time.

You will have a number of strategies including:

• Utilizing Google Adwords to attract interested potential buyers to your website
• Use search engine optimization to rank high in search engine results for relevant keywords
• Collaborate with large coffee wholesalers and retailers to offer your products on their website

So now you have 3 strategies to accomplish your vision, but you will need day-to-day tactics to
successfully implement your strategies. For instance, if you are trying to rank high in search results for
“coffee mug” you might use the following tactics.

• Write articles about coffee or even coffee mugs
• Create a blog and develop a loyal following that will tweet and retweet your blog posts to the masses
• Post comments and links to your site on other coffee related blogs or websites

Now take this outline and expand.
Step # 3 - Other Funding Options

After completing a comprehensive vision, strategy,
and tactics plan, you may realize that you don’t need
angel investment funding to implement your
strategies at this stage of your business. Believe it or
not there are other investors out there ready and
willing to back your business – your friends and
family.

Friends and Family: A $60 Billion Investment Opportunity
 Before you throw in the towel on your business because you can’t find investors you should
 consider the following:

 According to a report distributed by the Angel Capital Education Foundation#, total startup
 funding from venture capital funds, state funds, and angel investors totals approximately $20.8
 billion annually. Surprisingly, friends and family contributed nearly 3 times the amount of
 capital to thousands of startups each year. With approximately $60 billion in startup funding
 coming from friends and family, entrepreneurs must consider this as an option as they seek to
 launch new businesses.

 Money issues between friends and family can ruin relationships. Due to the risk involved with
 investing in a startup, if you are requesting investment from friends and family, be sure to
 consider these 5 steps before you begin the capital raising process.

 1. Prepare a Pitch - Just because you are requesting investment from your mom or a group of
 your college buddies doesn’t give you an excuse to be unprofessional. Take this opportunity
 and the potential risk taken by your investor seriously. Do your homework, and prepare a
 professional, persuasive and passionate presentation. You want your friends and family to buy
 into your vision, not just hand over some cash because they feel obligated or pressured.

 2. Have a Game Plan - When you are seeking angel investment or venture capital investment,
 you will need a strong business plan, but do you really need a business plan for your friends and
 family? Instead, you might consider a vision, strategy, and tactics plan. You will start by
 developing a vision for the future of your business, then strategies to reach your vision, and
 finally day-to-day tactics to accomplish your strategies. For example, assume that you have a
 vision of becoming the leading online retailer of picture frames. One strategy may be to utilize
 search engine traffic to bring in customers. Finally, you will develop tactics such as building
 quality links to your website through social media and professional article writing to boost your
 rankings in the search engines.
3. Have an Exit Strategy - Angel investors and venture capitalists want to know how you
intend to grow their investment. They want to know when and how you intend to repay
them, with interest. Your friends and family should be no different. Although you want to
disclose the fact that investing in a startup is risky, you should also outline a detailed
strategy for the investor to exit profitably. Maybe you will structure the capital as a high
interest loan, or maybe they will own a percentage of the business and be repaid through
the profits. No matter the structure, you should have a detailed plan for repayment.

4. Consider Making it Official - Depending on the size of the investment you may consider
hiring a lawyer to file the necessary paperwork to make everything official. Obviously this
will give the investor peace of mind, and it should help you in the future as you seek angel
investment.       Making it official gives you credibility for future rounds of
investment. Remember to use judgment though, if your buddy is going to invest $10,000,
and the legal fees amount to $2,500, you may want to resort to a firm handshake.

5. Follow Through - Again, investing in a startup is risky, and your friends and family
probably know that, but they should expect to earn a return on their investment. Don’t
view this capital as a gift, instead follow through with what you promised. If things don’t
go exactly as planned, be sure to communicate regularly so that they know what to
expect. If at all possible, follow through. If you fail to deliver as promised, you risk your
entire relationship and your ability to raise capital in the future.

As you seek capital for your startup don’t neglect the $60 billion opportunity represented
by friends and family, but tread carefully as you risk something far greater than the failure
of your business--your relationships….


Step # 4 - Develop a Killer Elevator Pitch


Because you never know who you might
meet, you need to have an elevator pitch
ready to go at all times. The key is
practice! When someone asks you what
you do they don’t want to be listening to
you rambling 17 minutes later. In one
minute you need to be able to explain the
essence of your business.
An elevator pitch is just what it sounds like, if you stepped on
to an elevator with a potential investor and knew that you had
7 floors before he got off, what would you tell him about your
business? These “elevator opportunities” happen everyday
when someone asks, “So what do you do?” Obviously not
every person you speak with is a potential investor, so you
might tweak your pitch a little bit, but ultimately you need 200
to 300 words that you can recite on command when the
opportunity presents itself. Here are a few guidelines as you
create your elevator pitch:

The Grab - Just like your executive summary needs something
to immediately grab the attention of the reader, your elevator
pitch should start with a statement that intrigues your
audience. Maybe it is simply the name of a partner, customer,
or team member that elicits interest by the name alone.

Big Problem - Creatively and quickly state the problem that
your company seeks to address. For example, businesses hate
to constantly replace the ink cartridge for their printer.

Unique Solution - Explain your unique solution to the big
problem. Do this quickly. For example, if your company
developed a new chemistry based nano-technology ink
cartridge, don’t worry about the details of the chemistry,          “You need 200 to
simply explain the results. “You can print twice as much for the    300 words that you
same price as traditional ink cartridges.”                          can recite on
Vision - You explained your solution to the problem you are
                                                                    command when the
addressing, now let them know your vision. Again keep it            opportunity
simple. For example, “We seek to develop and commercialize          presents itself.”
the best products in the ink cartridge industry.” Letting your
audience know your vision is vital because they might be able
to help.

Request - Finally you need to request something. Don’t just
say, “nice to meet you.” Maybe you can ask for their business
card, a time to meet with them again, or an introduction to
another VIP that you would like to network with.

So take these tips, write out an elevator pitch, and then
practice, practice, practice. Don’t wait to develop your elevator
pitch because you never know when you might bump into the
Vice President of Hewlett Packard’s Ink Cartridge Division!
Step # 5 - Generate Revenue

Unless you are a life sciences company developing
a drug or a new medical device you need to be
generating revenue before you start to seek angel
investment. Of course there are exceptions, but
typically an angel investor is going to want some
assurance that you can sell even just 1 product
before they make an investment.

Also according to the Angel Capital Education
Foundation, angels are looking for more than just
revenue they want a scalable business model. If
you can’t find a way to create $30 million in
revenue in 5 years you probably are not a good fit
for angel investment.


Step # 6 - Get Your House in Order

If you are lucky enough to make it past the
prescreening round of the angel investment
process, you better be ready for questions – lots
of questions. Make sure you spend some time
with your accountant to get your tax information
and business financial statements in order.


You should also take the time and the small
investment to incorporate your business. Angel
investors are going to expect stock ownership in a
company. Don’t walk in as a sole proprietor
asking for angel investment. For $100 you can
incorporate your business and set yourself up for
future investment.
Step # 7 - Prepare a Powerful Executive Summary

The executive summary is the first 2 pages of your business plan. This is typically used as a
prescreening tool for angel investors. Only 25% of entrepreneurs will make it past the
prescreening round so your executive summary is probably the most important 2 pages
you will ever write! For an extensive guide on How to Write an Executive Summary make
sure to visit:

You have 2 pages. Two pages to compel your readers to ask for more. If you are
successful, then the reader will absolutely need to dig into your business plan, loan
application, or funding request to find out more. A successful Executive Summary is so
much more than a summary – in fact, if you are starting with the intent to summarize your
document you are setting yourself up for failure.


 An Intriguing Executive Summary

 Have you ever walked out of a movie saying,
 "Wow that was nothing like the movie
 preview. I thought it would be much
 different."? Clearly the movie preview was
 effective because you went to see the
 movie. A great movie trailer leaves you
 curious. You want to know more. They don't
 give away all the secrets or all the twists in
 the movie. In the same way, your executive
 summary should do just enough to leave the
 reader curious.      It should not be a
 "summary" of the entire business or
 project. If a reader determines that in two
 pages they have a good understanding of
 your entire document, they have no
 incentive to read on or ask more questions.

 There are dozens of reasons you may need
 to write an executive summary, but for the
 sake of simplicity this report will cover three
 of the most common reasons for writing an
 executive summary.         Loan applications.
 Attracting    Investors.     Business      Plan
 Competitions.
Before I discuss the unique characteristics that your executive summary should possess for
each of these three cases, I want to borrow from famous author, speaker, and venture
capitalist Guy Kawasaki's blog article "The Art of the Executive Summary". The article is
written by Kawasaki's colleague, Bill Reichert. He provides an incredible generic summary
and outline for your executive summary. Let me explain this outline in my own
words. The main sections are as follows:

       The Grab
       Big Problem
       Unique Solution
       Market Potential
       Unique Selling
       Proposition
       Management Team
       Financial Projections
       Request

Executive Summary Outline and Description
The Grab - This section does not actually have a title, but it is probably the most important
part of your entire executive summary. In two or three sentences you should tell the
reader why your business is special. Maybe you have Michael Jordan as a customer and
he has promoted your product on twitter for free. Maybe you just signed a partnership
with Google. Maybe you were just awarded a patent, or maybe you just made your first
big sale. Whatever it may be, ask yourself "so what." If it sounds reasonable to say "so
what," then you didn't do an adequate job. Obviously if you just signed a partnership
agreement with Google no one would say "so what" so grab their attention.

Big Problem - The first ingredient of a good business idea is a Big Problem, so explain the
Big Problem that your product addresses. For instance, there is too much traffic in Chicago
and everyone hates traffic. Everyone in the room should be saying "yeah I hate that."

Unique Solution - The big problem is the easy part. Now you have to convince the reader
that you have come up with a unique solution to the big problem. If you have these two
ingredients you have a good business idea. Maybe you developed a new traffic control
system that will save one minute for every person in Chicago each day during their
commute. One minute each day is valuable when you are talking about a couple million
people.

Market Potential - Elaborate on the big problem by providing stats for your industry. How
much is spent annually on similar products or services and how fast is it growing. Maybe
you operate an in-home health care company. With all of the health concerns brought
about by aging Baby Boomers, you have a large market potential with a rapidly growing
market.
Unique Selling Proposition - This is where you elaborate on your
unique solution. What specifically gives your product or service
an advantage over the competition? Maybe your home health
care service actually sends doctors to the home instead of just
nurse practitioners, or maybe you guarantee same day visits so
that you don't have to schedule ahead of time. Just point out
why you are special.

Management Team - Depending on what industry you are in,
this can be one of the most important parts of your executive
summary. Regardless, your investors or bankers are putting
trust in the team, not the idea. Ideas are easy to come by, but
executing on those ideas can only be accomplished through a
strong team. Quickly show why your team has the experience
and knowledge to execute your business plan.

Financial Projections - Based on your market, your business
model, and your historical performance, you need to develop a
bottom-up financial forecast. If your plan is for a group of
investors, don't spend too much time on this section because
they know that you have no idea how much money you might
make. Investors typically won't make a go / no-go decision
based on your financial projections. They will essentially make
their own financial projections. That being said, you should have
some sort of graph or table with current sales and projected
sales going forward for at least three years.

Request - Now it is time to request either an investment, loan,
grant or sales contract depending on the purpose of the
executive summary. You should restate why your company
provides value. Remind the reader of the big pain that you are
solving and your market potential. Finally reemphasize your
team and its ability to get the job done. Ask for the dollar
amount that you need to reach the next major milestone for
your business. Don't disclose how much equity you are willing
to give up or what interest rate you are willing to pay. This
should be done later through face to face negotiation.

I recommend that you start by writing your executive summary
following this exact outline. This will give you a great base to
start from each time you need to write an executive summary
for a new audience. For each new audience, you will need to
analyze their specific needs and consider what they are looking
for from your executive summary.
Step # 8 - Write Your Business Plan

If you are lucky enough to make it past the executive summary round you will probably be asked
for your full business plan. The Angel Capital Education Foundation strongly suggests writing
your own business plan. In fact, in their report titled, “Important Things for Entrepreneurs to
Know about Angel Investors” explicitly says, “Entrepreneur MUST write plan (no consultants).”

So how do you know if you have a winning business plan? I would suggest that you ask your
spouse.

If you are like me, you have a new "GREAT" idea every other day. How can you tell if your
business plan is likely to be successful? Well, believe it or not, if your business plan can convince
your spouse of your latest and greatest business idea, then you are well on your way. Here are 4
ways to know you are on the right track:

1. Your Spouse Understands the Business - This sounds simple enough, but it is difficult to
explain your business in a way that anyone can understand. If your spouse can read your
business plan and have an understanding of your business model, you have accomplished a lot.

2. Your Spouse Only Reads it Once - Typically, it is hard to write in a way that your reader
understands the details of your plan, while keeping the plan short and sweet. If your spouse
only needs to read the plan once you probably succeeded in communicating a clear and direct
message.

3. Your Spouse Wants to Talk About the Business - You may often tell your spouse your ideas,
and when you are done you hear silence. This is probably a sign that, either your idea stinks, or
you are not successfully communicating your ideas. It is a good sign if after your spouse reads
your business plan, he or she actually wants to talk about the business.

4. Your Spouse is Willing to Invest Family Resources in the Business - WOW! Now you are
talking. If your spouse is willing to discuss investing precious family resources into your business
idea, then you must have accomplished a great deal through your business plan. Your plan may
now be ready to bring to bankers or angel investors for additional funding.

Ok. Spousal consent is a great step, but it would still be a great idea to have a professional
review the plan. I strongly recommend my friend Scott Pollov at www.bizplanit.com. His team
of professionals will be able to review your business plan and set you on the right track toward
securing angel investment. You will also find great free resources and guides like this one
available for download at www.bizplanit.com.
Step # 9 - Network
Now it is time to network. Although you might be able to make it to the second round by simply
submitting your executive summary to an angel investor group, your chances for success will
skyrocket if you are introduced to the group by a reputable CPA, attorney, or another
referral. Now is the time to use the elevator pitch that you have been practicing. Tell others
your story and look for ways to help them. If you help others be assured that they will look for
ways to help you.

How to Network and Actually Get Something Out of It
So often small business owners will attend a "networking event" in hopes of expanding their so
called network. Instead they simply pass out business cards that end up in the trash or in a pile
with all of the other business cards gathered at any given event. So what can you do to
legitimately build a network that you can utilize in the future? The key is in the relationship, and
there are a few ways to build relationships through networking events.

1. Be Prepared - When you go to a networking event to meet people you don't know there is
essentially one way to start a conversation, "What do you do?" I hate to break it to you, but they
probably don't care what you do. They are at a networking event for the same reason you are –
to get something out of it personally. So when you are asked what you do, be prepared to
answer with how you provide value. That is really all they want to know, how can you provide
value to them, and in return they may be able to provide value to you. Just don't explain each
painstaking activity that you do at work or in your business, instead stick with what value you
provide others.

2. How can you Help? - As previously mentioned, at the typical networking event everyone has
come to find out how they can benefit personally, not how they can benefit others. If you break
that mold and ask others how you can help them, you will undoubtedly create a relationship
with that person that will last beyond swapping business cards. Don't be afraid to give first. If
you help others you are building a network even if you haven’t seen any benefit from it just yet.

3. Follow Up - So you get back from a networking event and have a stack of business cards.
Within the next two or three days you need to follow up with the people that you want to keep
connected with. A personal e-mail is alright, but a phone call is so much more memorable and
more likely to result in some sort of relationship. Maybe you thought you could help someone
that you met and you mentioned that to them, and gave them your business card. How great
would it be for them if you actually contacted them to start helping out? They will remember
that forever, and that is what you want in a network.

So focus on preparing a concise explanation of how you provide value to the world, determine
how you can help those you meet, and then follow up shortly thereafter. If you do these three
things you will surely grow your network in a way that may actually provide value to you in the
future.
Grow Your Business
Now that you have all of these things in place you are
ready to apply for angel investor funding again. Don’t
give up after one more denial because many of
today’s greatest companies were once denied angel
investor funding as well.

As you move forward with your business venture
remember to stop by www.theexecutiveplan.com
frequently or sign up for our mailing list so that you
have access to more free guides, tips, and resources
for startup companies like yours. The ExecutivePlan
is a startup business in its own right and as such we
want your feedback.           Please email me at
adam@theexecutiveplan.com if you have any ideas,
partnership opportunities, feedback or even criticism.
I look forward to serving you and your business now
and for a long time to come.

Sincerely,


Adam Hoeksema
Founder – ExecutivePlan
www.theexecutiveplan.com
                      Sources
Angel Capital Education Coundation
http://www.angelcapitaleducation.org/data/Document
s/Resources/AngelCapitalEducation/What_Ents_Should
_Know_About_Angels.pdf

The ExecutivePlan
http://www.theexecutiveplan.com

				
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