Charlie O’Donnell over at ThisIsGoingToBeBig.com wrote a great post on the value that the right investors can bring to a company. He uses the case study of Summize vs Tweetscan to highlight how the right investors led Summize to get ahead in the Twitter search race.
This is the definition of what it means to have Smart Money in your deal. Smart Money refers to investors that have insight into your business or industry that can help you grow as a company. Dumb Money refers to investors that can write a check and not much more.
When you’re handed a term sheet where the investor is taking a sizable chunk of your company, make sure you’re taking into account the value of that investor. The right investor can help you grow making the additional percentage your giving up negligible.
While it may feel like investors are evaluating you, you should be equally critical of them. This may seem hard to stomach when your in desperate need of capital, but getting the right person in can prevent you from having your back up against the wall in the future.
1. Enter your location in the left hand column of the Group Finder to sort groups by distance from you.
2. Click the View Site link to learn more about the group and the Start Application button to begin the application.
3. You can have up to three active submissions. If you apply to more than three, your deal will go into the group's Bulk Submission folder.
4. If you want to apply to an additional group click the Delete button next to an active submission. This will free up a spot and allow you to submit without being placed in the Bulk Submission folder.
Full Explanation:
Finding the right group to apply to can save you considerable time and money. Groups often have specific criteria they are looking for in a business such as industry and investment range. Applying to the correct group greatly increases your chance of additional funding talks. While it may seem like a good idea to send your plan to as many groups as possible, this can actually hurt you. Angelsoft is an ecosystem, and investors quickly ignore companies that abuse the system. To further prevent misuse, if you have more than 3 active submissions, your application will go into a group's Bulk Submission folder. You may delete an application to free up a spot. If you are looking for broad exposure we suggest applying to the Investor Community , which is accessible to the 8000 investors and 450 groups that use Angelsoft.To find the right group for you, start by entering your location in the left hand column of the Group Finder. This will display the groups that are closest to you. A local deal is more attractive to an Angel, so these are the best groups to apply to first.
Click the View Site link next to a group's name and familiarize yourself with their funding criteria. If you think your company is a fit, click Start Application. If you do not have an Angelsoft account you will be asked to register.
You can save an application as you work on it, so there is no need to finish it at once. All of your applications can be managed from the My Application tab. You can start as many applications as you want; you will only be placed in the Bulk Submission folder if you SUBMIT to more than three groups.
If you have already submitted to three groups, and would like to submit to an additional group, you can click the Delete button next to an active submission. Usually you would do this after the group has declined your deal. This will allow you to submit to an additional group without being placed in the Bulk Submission Folder.
Once you have submitted your application you will be brought to the Entrepreneur Application Manager. From here you can see the number of investors that have viewed your deal, referred your deal into their Angel Group, the ratings you have received, the comments left for you by Investors, and the amount of time your have remaining in the Investor Community.
On the right hand side is the News Feed, where you will see all investor activity on your application. Investors rate submissions to bring the best opportunities to the top of the Investor Community. Investors can choose to share comments on your deal, which you can reply to. Read more about ratings and comments.
If an investor is interested, they will refer your deal into their Angel Group’s Angelsoft account for review. Angelsoft is used by most of the world's Angel groups to manage ALL their deals, not just the ones from the Investor Community.
When an investor refers your deal into their group's Angelsoft account, the General Manager is notified by email. That deal shows up at the top of the New Submissions list which is the first thing that the members of the group will see the next time they log in. You will be notified by email of the referral. When you log into the Funding Manager you will see that you have a new section for this group.
A deal-specific email address is included. This allows you to communicate with the investor that referred your deal along with the General Manager of the group. As your deal progresses, you will continue to use this email to communicate with all interested investors.
2. Register or Login if you already have an account
3. If you have previously applied to another Angel Group, you will be asked if you want to import your answers from that application. You can do this at any time by clicking the import button at the top of the screen
4. Fill out your application. This is often the only document that an investor will look at; make sure that you fill it out completely. Do not put “see business plan” in any of the fields. Investors do not look at business plans until much later in the process, if at all.
5. Upload a video pitch or click “Record With Webcam” to record a video using your webcam directly in your browser. A video pitch vastly increases the number of investors who will look at your application.
6. The application will autosave every 10 minutes, but you can click save at the top of the screen at any time. Click Save & Close to finish your application later.
7. When you are ready, click Submit at the bottom of the page. You will be brought to the payment screen where you will be asked to pay by credit card. The cost to post to the Investor Communtiy is $250.
Over the years Angel Groups have found that by charging a submission fee, they dramatically reduce the number of frivolous submissions from entrepreneurs. The logic goes that a less than serious entrepreneur will find a fee daunting, while a serious entrepreneur will find the fee a nominal cost of business.
We applied this same logic to the Investor Community and have found that it works. It’s not a perfect system, but it does act as a pretty good filter. Without it, our community would be crushed with an influx of low quality deals, and its value would be lost for both entrepreneurs and investors.
In the interest of full disclosure, we operate a global infrastructure and provide world class software tools for both Investors and Entrepreneurs. Investor Community submission fees help cover some of these costs.
The Investor Community is open to 13,000 investors in the 400 groups that use Angelsoft. We have spent 4 years hand-selecting each Investment Group on our system to ensure that their membership is only made up of SEC Accredited Angel Investors or Venture Capitalists.
These are wealthy individuals who have already made their money and are now looking to invest in startup companies. They are not looking to startup another business, and therefore not interested in stealing your idea.
All of these investors can see your deal and has the option to rate and comment. Read more about ratings and comments. Ratings and comments can be seen by all investors.
While we wish we could let you in to take a look around, we need to keep the community restricted to SEC accredited investors. What we can do is give you a peek behind the scenes of what the Investor Community looks like to investors.
Deal Directory The Deal Directory is where investors can browse through submitted deals by criteria such as location, rating, number of views, and industry.
Summary Information On the Deal Directory each company is shown with a summary.
This includes:
Company name
Whether or not a video is included
The One Line Pitch
Industry
The Thumbs Up/Thumbs Down rating investors have given the deal (entrepreneurs can see ratings on the Application Manager)
The number of views the deal has received (entrepreneurs can see this number on the Application Manager)
The number times the deal has been referred by an investor into their group for further review (entrepreneurs can see this number on the Application Manager)
The number of comments that have been made on the deal (entrepreneurs can see comments shared with them on the Application Manager)
A Deal Each deal is displayed in a standardized format that Angels are familiar with from their personal Angelsoft accounts.
The answers to Angelsoft application questions are listed in the main section. Company vitals such as Management and Financial Information is listed in the side bar on the right.
The video is available to watch as the investors read through an application
Documents are available for download. A PDF of the application is automatically generated for the investor to print out (entrepreneurs can also download this PDF by clicking on Preview in the Application Manager)
Investors leave feedback with the Thumbs Up or Thumbs Down rating
Investors leave comments in the Deal Discussion section at the bottom. Entrepreneurs can respond to comments from their Application Manager and the response is posted here.
When An Investor Is Interested If an investor is interested in a deal they click Refer This Deal To My Group for further review. At this point the entrepreneur is notified.
Since Bill Hewlett joined with Dave Packard in 1939 to create what is today the world's largest personal computer company, there has arisen an evergreen debate as to who is more important in starting a tech company: the techie or the business guy? Steve Jobs or Steve Wozniak? Bill Gates or Steve Ballmer? Jim Clark or Marc Andreessen?
I propose that it is time to reject the notion of the “business guy” (or “business gal”) entirely. The underlying problem is that there are really three different components here, and like the classic three-legged school, they are all essential for success, albeit with differing relative economic values. What gets things confused is that the components can all reside in one person, or multiple people. And what gets people upset is that there are different quantities of those components available in the economic marketplace, and the law of supply and demand is pretty good about consequently assigning a value to them.
Perhaps surprisingly, the components are NOT the traditional coding/business pieces; nor are they even coding/UI/business/sales, or whatever. Rather, here is the way I see it, from the perspective of a serial entrepreneur turned serial investor, listed in order of decreasing availability:
1) THE CONCEPT
A given business starts with an idea, and while the idea may (and likely will) change over time, it has to be good on some basic level for it to be able to succeed in the long run. How excited am I likely to be when I see a plan for a 2008-model buggy whip? another me-too social network? The 87th investor-entrepreneur matching site with no investors? The base concept has to make some kind of sense given the technical, market and competitive environment, otherwise nothing else matters. BUT good ideas are NOT hard to find. Not at all. There are millions of them out there. The key to making one of them into a home-run success brings us to:
2) EXECUTION SKILLS
It is into this one bucket that ALL of the ‘traditional’ pieces fall. This is where you find the superb Ajax coder, AND the world-class information architect, AND the consummate sales guy, AND the persuasive biz dev gal, AND the brilliant CFO. Each of the functions is crucial, and is required to bring the Good Idea to fruition. In our fluid, capitalistic, free-market society, the marketplace is generally very efficient about assigning relative economic value to each of these functional roles, based upon both the direct result of their contribution to the enterprise and their scarcity (or lack thereof) in the job market.
That is why it is not uncommon to see big enterprise sales people making high six figure, or even seven figure, salaries or commissions, while a neophyte coder might be in the low five figure range. Similarly, a crackerjack CTO might be in the mid six figures, but a kid doing inside sales may start at the opposite end of the spectrum. Coding, design, production, sales, finance, operations, marketing, and the like are all execution skills, and without great execution, success will be very hard to come by.
BUT, as noted, each of these skills is available at a price, and given enough money it is clearly possible to assemble an All Star team in each of the above areas to execute any Good Idea. That, however, will not be enough. Why? Because it is missing the last, vital leg of the stool, and the one that ultimately–when success does come–will reap the lion’s share of the benefits:
3) THE ENTREPRENEUR
Entrepreneurship is at the core of starting a company, whether tech-based or otherwise. It is NOT any one of the functional skills above, but rather the combination of vision, passion, leadership, commitment, communication skills, hypomania, fundability, and, above all, willingness to take risks, that brings together all of the forgoing pieces and creates from them an enterprise that fills a value-producing role in our economy. And because it is THIS function which is the scarcest of all, it is THIS function that (adjusting for the cost of capital) ends up with the lion’s share of the money from a successful venture.
It is thus crucial to note that the entrepreneurial function can be combined into the same package as a techie (Bill Gates), a sales guy (Mark Cuban), a UI maven (arguably Steve Jobs), or a financial guy (Mike Bloomberg). And that it is the critical piece that ultimately (if things work out) gets the big bucks.
Who do you think got the biggest relative return from the development of Trump Tower? Architect Der Scutt (the IA)? Engineer Irwin Cantor (the coder)? Broker Louise Sunshine (the sales gal)? EVP George Ross (the biz dev guy)? Or whomever happened to be The Entrepreneur in that deal?
The moral of the story is that for a successful company, we need to bring together all of the above pieces, realize that whatever functional skill set the entrepreneur starts out with can be augmented with the others, and understand that the lion’s share of the rewards will (after adjusting for the cost of capital), go to the entrepreneurial role, as has happened for hundreds of years.
Tech Coast Angels has been promoting early stage investment for about 10 years. Frank Peters, the chairman of TCA, just announced that the companies that TCA has invested in have amassed a total of one billion dollars in early stage investment funds!
