In the spirit of covering topics that my readers are interested in, today's blog topic comes from a good friend and former colleague of mine (Ed) who wrote to me recently asking if I could write a "how-to" article of sorts about how to navigate the angel investor waters. In these challenging economic times, coupled with the complex landscape found in the venture and private equity worlds, angel investors occupy a very worthwhile niche within the start-up ecosystem -- typically offering a combination of funding (albeit generally at lower amounts) and hands-on assistance that the majority of bigger money shops can't or don't offer -- although as we've read recently a handful of them are starting to set up "seed bet" funds.
Like many of us, Ed has spent many years in the digital media space and along the way has put together some potentially viable business ideas/plans that he would love nothing more than to incubate them and see if there's any "there" there. The challenge is that Ed, again like many of us, falls outside the traditional demographic of "bootstrap entrepreneurs" - early to mid-20s, living either on campus or at their parents house and funding the development of a business idea through credit cards, family loans, etc.
While many in the investment community would argue that this is the only demographic worth funding, I couldn't disagree more (and yeah - I may be a bit partial since I'm a bit past my 20s!) since those of us who have "been around the block" can and do add tremendous domain expertise and business acumen to a venture. The challenge becomes that those of us who are a bit older actually have lives and obligations -- kids, mortgage, bills, charity work, friends . . . and as such, are not in a position to max out the credit cards to help fund a business idea. But just because you're not willing to take that risk doesn't mean that your idea isn't viable.
In my quest to get some answers and potential clarity, I decided to go directly to the source and pick the brain of a prominent angel investor and industry colleague of mine - Mark Sigal. In addition to being an eight-time entrepreneur (four-times as co-founder) and 'platform guy' with deep domain expertise in digital media, social networking, software as a service, systems management and embedded systems, Mark is an angel investor and also authors an industry blog called The Network Garden.
Mark's advice for folks like Ed who have potentially great ideas and are looking for some help from the angel investor community to help them make those ideas reality:
* Ideas are a dime a dozen, now more so than ever;
* Proof is what you pay for, and proof is achieved one of two ways. First, build something to a base minimal functional state that can show whether "the dogs will eat the dog food." Second, have SERIOUS pedigree such that you can prove that you've been there, done that before;
* If you lack the ability to code, persuade someone to code your idea for equity only in order to achieve that base functional state.
The harsh reality is that there are less active angels right now since everyone's net worth has been whacked 20--50%, meaning that former investment dollars are now going towards personal expenses (read: room and board, lifestyle spend and/or "weather the storm" spend). In the axis between fear and greed, fear (and by extension poverty) still have the upper hand. In Mark's humble opinion, without most or all of these bullet points addressed, then chances are you're shit out of luck save for taking the route of the 20-somethings.
While I'm sure this isn't exactly what Ed may have wanted to hear, it does seem to reflect the current realities that we're facing with the economy. But even in these challenging times, I do think that great ideas that achieve some level of visibility beyond just a Power Point and a corporate summary do get noticed -- after all, weren't we here once already after the bubble of Web 1.0?!
As always, comments are welcome -- ideally here on my blog as opposed to my Facebook page or Twitter feed - but I'll take them anywhere!
And please keep the topic ideas comin'.
Monday, June 01, 2009
NO BOOTSTRAPS . . . NO PROBLEM (MAYBE!)
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That's exactly what I wanted to hear. I now know how to proceed. Excellent work!
Hey Chris & Ed, been going through a similar process in the UK, though a course called Gateway 2 Investment (g2i.org) and also angelsden.co.uk - there is money out there, and angels seem to be investing less, but at a slightly higher level. Everyone I've spoken to has asked for a proof of concept that has real consumers, making real money - once you have that and a solid business plan, you can at least have some serious discussions. I managed to get a design/development agency to build a proof of concept for me in return for equity....but as we come up to launch, now is when we need angel funding.....ReplyDelete
Hope you're well Chris!
A very relevant post - thank you. The other phenomenon occurring with "our" demographic (not 20, not living at home, have lots of bills....) is that we are not necessarily sitting on tens of millions from Web 1.0 either. I would add those folks with the "FU money" to the list who actually attract more interest from investors but don't need it anywyay.