Wednesday, January 14, 2009
Orrick Total Access - Angel Investing. More On How To Raise Cash
I've become quite fond of the Orrick Total Access events. Yea, they're a law firm, but they firmly believe in reaching outside of their core competencies to further integrate into the startup community. These events are generally worthwhile. At least for a little while. I left after an hour today - because, well, I got as much as I thought I'd get out of it. And work was waiting.
Today's discussion was about raising money from Angels and it included several members from various angel groups, such as Sand Hill Angels and Band of Angels.
There were two important points to note about the Angels of today. And keep in mind, this refers to the Angels in Silicon Valley. Those outside are probably a bit less like this.
1) Angels are becoming more like institutional investors. They are doing more due diligence, making sure your company has customers and revenue, and participating much more in the evolution of your product.
Why? Well, we can blame the last downturn for causing this. Too many Angels lost too much money. So what's this mean will happen after this downturn? I don't think too much. They'll move a bit closer to becoming full fledged institutional investors - but it appears they're already like that. They're VC's that invest less money and are more accessible.
2) Angels are reserving cash for deals that are done. This means there will be fewer deals. But the fewer deals can expect more money over the life of the investment... because they'll reserve cash to increase the runway of their existing portfolio. You can see the cycle.
Look for Angels outside of the Valley. They tend to be more like the Angels of old. And there are definitely plenty of them who want to develop connections with the Valley.
How do I get in touch with Angels?
Get an introduction - it's infinitely more powerful than submitting your application online. How can you do that? Find a mentor. Look on the board of your competitors. Reach out to them. If they are in your space, they'll undoubtedly want to know what else is going on in the same space. If you can get one of them excited, you're on your way to getting a potentially great mentor. How else? Start building an advisory board... This can be the most successful component of raising money early on. The advisory board will help you build your product, develop your roadmap, write your business plan, and perfect your pitch. Among a great many other things. As an aside, generally an advisory board member will get between 1/4 and 1/2 percent. And, according to Jorge Fernandes, get as many as possible. He's had 30 on some of his companies.