Director of the UK's largest Angel Network and have been part of a team responsible for raising over £35m for over 150 Start-Ups. Shareholder in over 40+ start-ups (2 have exited). Team Member at Sean Ellis' Growthhackers.com. Mentor at Start Up Weekend and speaker at Escape the City 'School for Start Ups'. Notable clients include: Wolf & Badger, Grabble, What3Words, Intern Avenue, Bright North, Draper & Dash, Elevate, Fantoo, Droplet, Fantoo, Cornerstone, Numecent, Destiny Pharma, WAYN, Leaf.fm
Hopefully I can help, i've helped over 125 start-ups raise money spanning every sector you could think of.
The first thing to note is everything has a value proposition.
In this instance you are suggesting it isn't the profitability of the company but the founder's profile that represents this value. In that case this becomes more of a marketing exercise than a fundraising exercise.
I've done part-time work for Sean Ellis' Growthhackers.com for just under a year and in that time been lucky enough to speak to some really impressive people and onboard some exciting guests to do AMA's (including Guy Kawasaki). Sean actually launched a conference that went really well, this was a profit generating exercise but the draw was him and the profiles of the speakers.
The point i'm making is you are right to single out the profile of the founder and most likely the 'cause' the organization is supporting. E.g. If it's a non-for-profit that pours Benzene into waterways you're not exactly going to have much success irrespective of the founder.
So the formula you have is prestigious founder + good cause. The good news is from my experience of dealing with 1000's of High Net Worths is sometimes returns aren't everything. It is highly unlikely our client base would invest into start-ups just for the 100x returns as most start-ups will fail, they do it because they believe in what it is trying to achieve. Simon Sinek does a pretty good Ted Talk on 'The Why'.
So some investors may just want to buddy up with the founder of the organization e.g. I would invest into the Bill & Melinda Gates foundation if I thought at their annual conference i'd get to speak to them.
If this direct approach doesn't work look at tangibles. I'm sure there are organizations that would like to be associated with your cause or your founder - can they offer up rewards or giveaways? You can then take the Red Paper Clip approach of trading up good will for tangible value supplied by corporates fulfilling CSR etc and then trade this for cash.
Equally is there an educational component to the conference? I think i've hammered the point enough, it's just to say sometimes people won't do stuff for money and that's okay just make sure you don't confuse the message and appeal to a different sense.
Absolutely not. I do some part-time work for Growthhackers.com run by Sean Ellis and anyone on that site will tell you testing is crucial.
I don't know what vertical the app operates in, but not getting feedback is normally someone's laziness or fear of rejection. Predicting consumer behaviour is exceptionally difficult so why not let them provide you with clues.
Clearly any entrepreneur needs to have a vision and a set of core values - but then it's best to perform high tempo testing and collect meaningful data.
Online and mobile aren't the same experience - one is asking a user to sit at his desktop, the other is asking him to install it on his phone.
I mean how difficult is it to get user feedback even using a mockup tool like Axure, Mockingbird, Balsamiq etc.
I guess I would want to know what the levels of engagement were from the online test, have those users been retained and communicated with to become early adopters for the app?
To be honest if the dialogue between he and the online users has died down, then it shows he has no commercial acumen. They are prime candidates for feedback on how the app should work.
It's a bit tricky to call without understanding better what you mean by consumer electronics business.
If you smashed it out the park because you built the next 'Pebble Time' watch then I think most people (angels/VC) would be sympathetic to you courting the crowd.
However, if this was a more standard, less aggressively B2C electronics/hardware and your costs have runaway on you, you're likely to have a harder time.
I work for the largest angel network in the UK, so we are seeing a lot of people straddle the fence between crowdfunding/angel/VC and there's no doubt in my mind it's worth developing a strategy.
Be careful with the VC's - they are a fantastic way to scale, but if you are having cost control issues and you need the cash then that seems like a pretty shaky leg to stand on to me and that will probably be reflected in the terms you're given. Plus shooting £500k+ into a bucket that still has a few holes in it will put a lot of pressure on you as founders. Especially when you are now having to incorporate a whole new reporting structure.
The crowd is excellent source of cash but it sounds like some additional skills/contacts wouldn't hurt. I have a number of our investors who will steer clear of crowdfunding sites, it might be as much to do with the desire to feel they found the deals themselves. Or they have an expectation (again unless very B2C) that the company should mature beyond crowdfunding or at the very least do a blended angel crowd round and this largely means letting the angels in first.
There is no use in me hammering on about Angel Funding - because that is a non-discript term. Angels are people - if you think there is an individual who can add experience and really help you build your vision then to me it seems well worth hunting them down.
If cash is key and the business faces a gloomy future without it then at this point that's got to be your central goal.
So to circle round to your initial question of sanity, my answer yes - but be aware you face over exposure/deal fatigue (if people see you repeatedly raising) and the crowdfunding platforms often expect you to have part of the money already committed to create momentum.
It sounds like you know what a crowdfunding campaign entails - all fundraising is time consuming but preparing and knowing your strategy in advance will really help you.
Do feel free to reach out if you want help devising one.
Interesting, I spoke to a client at length the other day about this.
1. Firstly, there is 'perceived' value.
2. Secondly, there is actual value.
It sounds like you are trying to build the latter. I also need to make a second inference here, you say we are 'trying' to close deals - so i'm going to assume you are still pre or in the early stages of revenue.
So it sounds like you are hitting the procurement buffer. The biggest danger here is - to get a high valuation you will most likely have to sell your investors on 'potential clients', but then they will stall discussions until those deals are sealed. So you would have to be incredibly careful if doing that.
Firstly if you want to understand what creates strong valuations look at companies in your sector that you respect, or relevant start-ups in other industry verticals and ask yourself what made them sky rocket. As any potential investor will be measuring you by the same stick.
It's a bit hard to know how to advise you without knowing what industry vertical you are in. However, Slack who refer to themselves as B2B has been a runaway success it's probably worth looking at why, because everyone was astounded when it hit a $1bn valuation in approximately 1 year.
"Slack is a team communication tool. It brings together all of your team communications in one place, instantly searchable and available wherever you go. Launched in February 2014, it is now the fastest growing B2B application ever and is used by over 500,000 daily active users."
What made Slack strong:
1. 8,000 companies create accounts in the 1st 24 hours.
18 months later:
1. 500,000 people now use Slack daily, including users in 60,000 teams
2. 135,000 of those people are paying for Slack, adding up to $12 million in annual revenue
3. Slack users send 300 million messages to each other a month
4. The average Slack user is connected for more than nine hours a day and spends more than two of those hours in active usage, such as reading and writing messages
Basically the valuation was pumped because Kleiner Perkins, Accel, Index, Marc Andreesen realised if you put money in one side the user growth boomed on the other side.
So to make this actionable if I was interrogating your business for value:
- I would want to know what your pipeline was like?
- Which clients you were talking to and where those discussions currently were?
- What your anticipated procurement cycle was like?
- The anticipated contract lengths?
- The infrastructure required to onboard new users/make new sales? (in the instance of Slack they relied on viral spread)
- Testimonials about your product?
- Genuine IP sat behind your software?
- Churn + expected churn?
- Exposed to one or two large enterprise clients?
The list goes on really, but high valuations are because companies can see the 10x, 100x potential and that is because it's basically an arbitrage exercise or money in one side and user growth, customer acquisition and retention out the other.
I hope that helps a little?
Firstly - I think you are in a decent position. Any angel worth their salt will know that this is a negotiation and a fine balance between disincentivizing the management team and getting what they perceive as a 'good deal'.
Their are two sticking points as I see it:
1. The angel believes you are undercapitalising - occasionally you may need a reasonable amount of funds to generate product/market fit or to build the operational infrastructure to make/support sales. If the capital isn't available to reach these inflection points then it presents a serious systemic risk to the business.
2. The angel perceives that you are fixating on is valuation, for valuations sake. You have chosen an arbitrary number and in your head even if Peter Thiel offered you the money you, would still refuse on principle.
I think what troubles me about the way you've presented your question is it seems like a flick switch. If a then b, if b then a, you are curating a round of funding, that means if this guy gives you options above and beyond money then it's worth understanding and weighing up the associate benefits. He may reduce your marketing spend by x, he may have a black book that gets you into the offices of the key decision makers you are after. If this is the case then you are reducing your slice but ultimately ending up with a far bigger pie.
I think set out a considered and well worked rational for both scenarios. However, one thing I would say is get back up options in place. The one thing I do know from experience is you have a plan A and a plan B, but if he strings the conversation out till you are running low on cash then you will be wishing you had a plan C. As at that point he can call in any chips he wants.
I really don't think you have a problem though, bootstrapping and lean methodology are all the rage. Just suggest you want to solidify the business before accelerating it.
My last warning would be....if he is fixated and a defined % ownership probably worth questioning why. Investment is about cohesion and an angel that is willing to support you (you being the individual), a one size fits all for anything in life should be treated with suspicion.
I would be more than happy to address this question, I actually had a really interesting talk with someone on Clarity yesterday about pitching B2B to angels.
I would say the biggest mistake I see in SaaS B2B is over pitching the product. Or simply 'pitching the product and it's features', rather than the benefit to it's users.
Also, another massive turn-off for investors is hiding behind jargon and acronyms. Often entrepreneurs worry that by being clear and to the point and daring to draw simple analogies they are underselling their product. However, you are being judged just as much on your ability to sell, you are selling your investment - how you do this (in the eyes of an investors) will reflect how you sell your product.
I've helped raise money for about 125 companies at AIN in my time. When we've pitched B2B we will often lead with social proof over product.
- Client Testimonials
- The Team delivering the product
- The Advisory board backing it
If you're clients are Mercedes Benz, AT&T and Disney - an investor will automatically assume those companies have done more diligence than he'll ever do. For them to take a punt on you trumps any technical understanding of your product.
This is the same for client testimonials - often they will highlight the exact point of pain you are fixing and can be the best sales tool. It says 'this product is working'.
With the team, if you were ex-Google and PayPal well we've all heard of the PayPayl Mafia and we saw how well those guys did, plus you would have dozens of connections.
You probably get the point. Basically the points above will earn you time. The average deck (we track opens and page views) gets about 3 minutes with our investors. The investors stop on the team section, the client list and anything with big images (on the first comb through).
Drilling down a bit deeper, this is where I would want to understand a bit more about the product, the IP, contract lengths, anticipated churn and sales cycles.
I hope this helps, more than happy to hear your pitch or give any feedback. Just DON'T bore people, we managed to generate 6 leads for a waste collection comparison site (so anything can be polished).
Angel Investment Network.
Neville Medhora - Kopywriting Kourse.
I hung out with Neville in 2013 in Seattle. This guy is a master of what he does.
Even if you can't apply his techniques directly to your business, it will really reshape how you attack your copywriting.
Follow his newsletters - you will find yourself reading them to the end more often than you would like. He pretty much helped AppSumo kick arse for years. He also helped another of my friends whose now in Y-Combinator smash his email marketing conversions.
Hey buddy more than happy to help. I work as director of the brokerage for Angel Investment Network i've raised money personally for over 125 start-ups. We spend our whole life pitching start-ups, I have an evernote file the length of a playing field of investor feedback and we track metrics on all the pitch decks we send.
Here are my pieces of advice for what they are worth:
(I've put an answer under each of your questions).
1. I know for a fact that my offerings has value in the market but how do you see this as a potential?
I looked up your business - for any other readers here is the context.
Sales and Marketing Intelligence Solution
DataCusp is knowledge based outsourcing endeavor aimed at providing database solutions and research services to its clients across industries and domains.
Okay first thing I would say is, a product can be exceptionally complex but the explanation can be simple. You must jargon bust it will really hurt you.
You have about 3 minutes with a pitch deck to get an investors attention, on Angel List i'm guessing you have even less. Having to decipher what something actually does because of convolution can really hurt your chances of getting funded. Your job is to spend hours trying to get that message as tight and simple as possible, so an investor has that 'ah ha' moment. We sometimes spend 2-3 hours per mailshot to our database to articulate the problem as simply as possible.
I think there is a fear that simple, without acronyms = a bad business or a simple business. This simply isn't true, it just means a skilled communicator.
Watch this Ted Talk by Gemma Godfrey (sums it up pretty well).
I actually went to your website and it is still unclear to me exactly what you do.
I think the message should focus on 'the value' you add to the client e.g. cost, speed, reliability.
2. How to find and approach the right investor?
I think investors with domain experience will get your business faster than a 'non specific' angel. Angel List is a fantastic platform, also try Linkedin. Key to Linkedin is to keep the message very brief. I receive 10-20 Linkedin pitches a day and honestly they need to get to the point really quickly or else I just get lost in my daily work load.
3. What else can be done to make our profile interesting for investors?
You need to quickly address proof points
- potential clients
- sales pipeline
- testimonials from happy customers
- how quickly you can generate reports
- what cost saving
Your project isn't 'sexy' B2C, so over emphasis on the product will bore people. An interested investor can rummage into the product later, at the moment you are focusing on a hook.
4. Since, we are a start-up, we are trying to raise capital for sales, marketing and operational related expenses, do you think of us having any chance of generating some fund?
Certainly, however, sales & marketing is always treated with suspicion. Huge budgets are blown on 'sales & marketing' especially if the channels remain unproven. You will need to back up exactly where this capital will be deployed most effectively. VC's rarely invest unless these channels are proven because they just want to focus on cash in and spinning the CPA (cost per acquisition) vs LTV (Life Time Value) of the customer wheel.
At the moment, if I was being firm and professional. I would say you may get investment, but I would say you would struggle, the proposition isn't grabbing me. I am not suggesting this is a floor with the business but just a case of tightening the messages.
5. How do I calculate valuation considering that we have just started getting the traction with only few customers?
Valuation is what the market will pay for it. This takes into account laws of:
- Supply and Demand (how many investors are fighting for how much equity)
Please avoid discounted cash flows etc from accountants, they always over value businesses. The way most investors in the US will look at it, is route to upside. E.g. how can you hit your 10x and how hard will that be and can you go beyond that.
6. Where else should we be pitching?
7. What collateral should we have ready?
Collateral? I imagine this would be a simple equity for cash swap? I don't think collateral would be necessary unless you are looking to service convertible loan notes?
If you would like any more info please feel free to get in touch.
I can definitely help with this one. I work as the director of the brokerage at Angel Investment Network. I've seen more pitches than I can shake a stick at.
First things first.....don't ever pay an upfront fee for pitching. We never charge our attendees anything, it just isn't worth it. There should be no reason for any of the pitching events to do so.
My main reason for saying this is because the matching process is too inexact. On any given pitch day we can fill the room with 50-80 investors but they are from a host of different backgrounds and you are nested among a host of different companies. The likelihood of an investor in your case coming from a recruitment background is relatively slim.
That said pitching is not a waste of time, there is always value to getting out there and at the end of the day you are only spending your time. You never know who you will bump into and you might just as likely pitch to a potential customer.
My concern for you would be you aren't a high profile B2C app or new FMCG brand, which tend to be the event show stoppers.
I would actually recommend rifling through Linkedin to approach investors with a relevant background. Make sure if you approach via Linkedin you keep it exceptionally brief and work on intrigue - I receive dozens of Linkedin messages a day and it's really hard to read them all. So short to the point and ask a question at the end (just focus on getting them to say 'yeah sure').
If you are hell bent on events then some of the main ones are Angels Den, LBA etc. Then there are the novelty ones like 'Pitch to Rich' which virgin are doing. Other good pitch days are the demo days at the end of some of the top incubator programmes like Tech Stars of Wayra - primarily because their audience is specifically attending for Fintech in the case of Tech Stars.
I hope some of this advice helps - please feel free to call if you would like any further input. I know the London Start-up scene pretty well.
As said above you can't 'package up' an angel. They are individuals and on that basis some will like your business and some won't. You are however best, by the sounds of your business, to go for value add investors as it sounds like your business is quite B2B.
Well don't get discouraged. Though books like Hooked by Nir Eyal are very web focuses, it all boils down to human psychology. You are providing something of value to someone, customer development remains the same, staff motivation remains the same, good marketing remains the same.
It would be hard to think there was no web or tech component to this business, even if it were just your CRM, email client etc. I assume as your question mentions capital expenditure you mean who to talk to, in order to secure that? In my experience it would be quite difficult (unless you are self financing to get a lot of capital invested), mainly because bank loans to a single founders are hard to come by.
So breaking it down - it appears there is demand, assuming this other company has validated your idea.
Do you have potential customers, or letters of intent from potential customers. If not it couldn't hurt to warm them up and assess their needs when building your business case.
If it's serviced base then I assume you will need to staff up? In which case it might be worth ear marking key hires. If your company will achieve 'runaway success' then actually staffing, company culture and scaling becomes quite difficult. There should be no reason to leave this up to chance, hiring mediocre people especially in small companies gets mediocre results.
Without any more detail it is probably hard to troubleshoot this any further.
Always available to discuss further if you wish.