

Angel Networks - jsjenkins168

This morning I attended a seminar about attracting angel investment which was hosted by a regional angel investor network. Essentially, this angel network is a non-profit organization of independent angel investors who review and discuss business plans submitted from early stage (primarily tech) startups seeking funding. Each quarter they filter down submissions to 4 promising companies, which are invited in to present in front of all of the angels.<p>Does anyone have experience with such Angel Networks? <p>My impression from reading PG's essays and elsewhere is that the really "good" angel investors are typically independent and work almost entirely off of recommendations. It was mentioned in the talk that referrals really help, but they will also look at business plans which are submitted cold turkey (although there is a $250 application fee, which I found strange given the organization is non-profit). Does anyone have input on this?<p>Some things I learned:<p>- With the exception of basically 1 VC (Austin Ventures), VC money is still dried up post-bubble here in Austin. Angel investments are on the rise to fill this void in the mid-sized investments area however.<p>- An underlying theme of the talk was "risk aversion". It sounds like investors here are still very weary of risk, and therefore will only really invest in companies which have an established business plan with a viable plan for turning profit. If you are not cashflow positive already, you better have a plan to get there quick.<p>- Not only would this risk-aversion make getting seed investment more difficult, it might also yield terms which are less desirable than they should be. For this reason it really does look like moving to Silicon Valley is a good idea when seeking early-stage investment. I always speculated this before, but now it is pretty clear.
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timr
This is an interesting question to me, as I know someone who is actively
making the rounds with these angel cartels.

My impression is that these are just VCs in angel costumes. You have to do all
of the work and business development that you would need to do to pitch a VC,
but the dollar amounts are much lower. The funding terms may or may not be
good (my friend hasn't gotten a term-sheet yet), but the terminology is
suspiciously similar to the VC world, and most of these groups' members seem
to be VCs as well.

On the whole, it isn't clear that these organizations are worth the effort for
the money involved. You're not going to have a chance with them if you're
_truly_ seed-stage (i.e. you probably won't make it past the telephone screen
unless you have a really mature business plan), but if you're that far along
as a business, then it's questionable that angel investment is the right
strategy.

I think, perhaps, that these cartels are just a clever way for VCs to make
themselves more relevant in a world where their services are less and less
essential....

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RyanGWU82
The $250 application fee is a big red flag to me. Given that angel investments
are for small amounts of cash, $250 is a lot of money in exchange for a
_chance_ to _maybe_ ask for $100,000 of investment. It's worse than the
lottery, because you'd have to give up shares in exchange for that investment.

If I was an investor, I'd disqualify any company that was going to pay $250
for a _chance_ to _maybe_ speak to angel investors. That's not a sign of a
capital-efficient or customer-focused company. I'd much rather see a company
that put $250 into attracting customers or creating a product.

That said, I would contact the organizers anyway and try to meet some of the
players. If your story is compelling, professional investors will want to hear
it, even without a bribe.

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jsjenkins168
Actually, the minimal amount this particular angel group invests is $200k.
They classify themselves more as a "angel round" group than an initial "seed
round" group. Again I think this comes down to risk avoidance.

Just curious, do you have experience raising capital? I am quickly discovering
it is much harder than I previously thought. Its just not as easy as
contacting organizers and having them hear you out. I think YC is extremely
valuable to founders in this regard. But chances of being funded by them is
unfortunately even less likely (statistically at least).

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alain94040
Hi,

I went in front of angel groups, VCs, etc... I'd never pay for the
introduction. That's a really bad sign that something is wrong. Think of it
this way: that group is now more motivated to get lots of unqualified
candidates to apply, rather than find good investments.

I know it's tough to get your foot in the door, because you start from knowing
no one, and it feels like only friends of friends get funded. It could take
you a year to go out and meet investors and start to build your own
reputation, so do it before you have a project to pitch. Really.

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zach
So basically, neither the founders nor the angels are sufficiently bold or
well-connected to find a deal without going through some kind of rigid
organizational structure. Sounds like a sure-fire winner!

But seriously, these kinds of organizations seem like a nice place to learn,
network and meet angels... for the members. The startup founders of the world
would be better off creating their own organization, that is if they ever do
find the time...

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joshwa
pg's thoughts: <http://news.ycombinator.com/item?id=35177>

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jsjenkins168
Thanks for the heads up. Have you had any success/discoveries since you posted
that? Just curious.

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joshwa
Yeah, pg pointed out a big hole in my idea, so I scrapped it in favor of
something bigger/better, which I'm still working on.

But nothing related to angels, no, besides the video I posted below.

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herdrick
> An underlying theme of the talk was "risk aversion"

That's really funny. Why are they investing in startups, then?

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dpapathanasiou
_the really "good" angel investors are typically independent and work almost
entirely off of recommendations._

Yes, but it's not that hard to network into a meeting with an angel (remember,
they're out there trying to find you, too): use your alumni contacts, mentors,
attorneys, financial advisors, et. al.

 _they will also look at business plans which are submitted cold turkey
(although there is a $250 application fee, which I found strange given the
organization is non-profit). Does anyone have input on this?_

I've yet to hear of a deal coming to fruition through one of these "panel
submissions" (it seems the only reason most angels participate is to research
the current market, not to fund new companies).

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jkush
If you really don't know anyone who might know an angel then you have to ask
yourself if $250 is worth getting in front of them.

They all may say no, but at least you'll have the beginnings of a
relationship.

~~~
jsjenkins168
I agree. I think getting to know an angel is pretty key, so as to have a
reference. One thing nice about Austin is angles (at least from my impression)
are very down to earth and friendly, and are very willing to chat about
startups if you want to talk to them. Outside of that, it could be difficult
getting angel's attention though (which I think is a huge benefit to being
funded by YC, who help facilitate initial introductions through demo day). SV
could be a totally different ball of wax.

One thing that was made clear by those who spoke is that you need to be
careful not to spoil your image. News travels easily between angels. If your
company looks promising but the angels do not invest for a specific reason
(such as risk), then they are likely to look at you again in the future if you
improve. But if you leave a very negative impression or piss someone off in
some way, then you could have much more difficulty the 2nd time.

~~~
jkush
That makes sense because angels don't have to answer to anyone. They're
people, not businesses. If you piss them off, you've pissed them off
personally. If you pissed off a person at a company, the good of the company
often trumps their own personal feelings.

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joshwa
also related: How to Find, Pitch, and Work with Angel Investors - MIT
Enterprise Forum [video]

<http://news.ycombinator.com/item?id=35393>

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uuilly
Sounds like you went to Keiretsu. <http://www.k4forum.com/>

Our lawyers hooked us up w/ them. We're not ready to present there yet but it
was an awesome experience to see everybody present. It showed us what
investors are looking for. Ie: 20% of the time is spent talking about the
idea, 80% of the time is spent talking about the exit and the terms.

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edw519
"will only really invest in companies which have an established business plan
with a viable plan for turning profit"

Look on the bright side. If you're one of these (which you should be), then
they've already narrowed focus.

When the men are separated from the boys, the men oughta have a better chance.

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paul
If you're opening a sandwich shop, that's totally reasonable, but it's an
unnecessary limitation for technology companies -- there are so many more
unknowns. Companies like Google and PayPal certainly didn't start off with a
viable plan for profit. Perhaps that is why these angel networks have failed
to fund any truly significant technology company. They're probably great for
funding sandwich shops though...

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edw519
True, but not consistent with the theme of "risk aversion" cited in the
source.

For each Google or Paypal, how many startups without a "viable plan for
profit" failed? Hundreds? Thousands? More?

Just because a high tech startup has taken the time to pound the pavement and
get a little traction BEFORE seeking funding doesn't put them in the same
class as sandwich shops.

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vlad
I don't think Paul is introducing a new argument such that if a high tech
startup starts making money before seeking investment that they are in same
class as sandwich shops are. It looks like he's just pointing out examples
that disagree with your post (that every company needs to have that strategy.)
He then suggests that maybe such Angel networks are behind the times and have
unrealistic expectations, if they expect companies with customers, income, and
a proven business plan to go to them for $200-300K when those may be ready to
contact Silicon Valley VC's for millions.

I can see why Paul believes this isn't a very realistic strategy, long-term.
With such a low volume of investments, the investors would be busy working on
other things, some maybe unrelated to technology. On the other hand,Silicon
Valley VC's would be researching technology and figuring out what is hot and
how to help their companies full-time. (I'm just extrapolating here.)

~~~
edw519
Actually, this thread brings up an interesting point.

How many people here are trying to hit a home run right out of the box?

And how many are trying to hit a single, understanding that the odds are
higher, but want to leave the door open to hitting the home run later?

~~~
jsjenkins168
Thats another thing the seed investors at this talk harped on. Don't try to
hit a home run right out of the box. Start out small and try to self fund
early on. Once you are starting to prove yourself, and can back up your claims
with customer references and numbers, then you should seek funding.

Doing it this way will make investors more confident that your venture can
succeed, increasing your chances of being funded and improving the terms of
the investment. At least this is how they explained it.

~~~
edw519
They suggest this to minimize their risk. I suggest it to minimize their
equity.

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pageman
as a rule - I think most people would stay away from a "service" from a for-
profit or non-profit that charges something with a "tangible" product. It's
almost like a pyramiding or Ponzi scheme.

