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Ask the Expert - Angel Investor
Angel investor Ellen Weber is executive director of Robin Hood Ventures, a Philadelphia-based angel investment group, and managing director of the strategic consulting firm Antiphony. We asked her to share some of her insight into entrepreneurial ventures from an angel's perspective.
What are the advantages to seeking funding from an angel investor (as opposed to venture capital groups or banks)?
Angel investors fill the funding gap between earliest start-up (where you should self-fund or obtain funds from friends and family) and the later-stage funding done by venture capitalists and banks. Angels are prepared to fund smaller investments and are prepared to invest at earlier milestones. Most VC funds invest when the company needs $5 to $10 million and has enough revenue to predict success. Angels will invest as early as proof-of-concept, although most angels wish to see some revenue. What we are seeing today is angels investing at a time where terms are tied to getting VC funding at a later date.
What factors should entrepreneurs consider before seeking funding from an angel investor?
In general, entrepreneurs should determine if they are really willing to give up equity in the company with the hope of growing something bigger (smaller piece of a bigger pie), if they are willing to take some direction and advice from investors, if they are willing to commit to an exit (sale of company, IPO, etc.) and if there is any way to continue self-funding.
When deciding about a specific angel, entrepreneurs should consider the added value the angel brings (most angels do not just bring capital; they also bring expertise, contacts, etc.), what terms are important to them and if they want this angel as a business partner.
As an angel investor, what do you want to hear from the entrepreneurs who approach you for capital? What are the questions you find yourself asking most often?
We want to hear that they have a deep understanding of the market, that they have "skin in the game" (they have invested more than just their time, but have actually invested their own money), that they are willing to listen to the advice of others, that they have an exit strategy in mind and that they understand how funding works. We want to know about their management team and who their advisors are. We want to see that they have the entrepreneurial DNA and the passion to make the company work.
What would you say are the most common mistakes you've seen entrepreneurs make when trying to convince you to invest?
One of the biggest mistakes is not having good advice and counsel. Dealing with a naive entrepreneur is difficult; we like to deal with entrepreneurs who have been through the start-up process before or have someone on their team who has and we want them to have good counsel. One of the best investments you can make is a great attorney with expertise in the venture raising process.
Another mistake is not listening to the angels. If you are not willing to take our advice, you shouldn't be asking for our money. Another common mistake is focusing on valuation, especially a valuation that's too high.
Of the business ventures you've funded that have been particularly successful, what are the qualities they've had in common that set them apart?
The ventures that we've funded that have been most successful have had a great team with industry experience, a good plan with measurable milestones, a good business model, a strong independent board and most importantly, resilience to deal with the changes that are due to arise in any start-up.
What sort of role do you like to play in the ventures you fund?
We like to take a board seat and only invest in deals where someone in the group has expertise in the industry. We like to work closely with the company, which is one of the reasons why we only invest in companies in our region.
How important is a good presentation and/or a solid business plan in securing your investment (as opposed to financial projections, market research, personal net worth, etc.)?
Before we bring a company in for presentation, someone from our group has worked with the team to understand financial projections, market research, etc. Once the person from our group believes there is substance to this company, they will sponsor the company for presentation. Generally the sponsor will work with the company ahead of the presentation to ensure that their presentation is succinct and covers the basics (business model, team, financials, how the money will be spent, basic terms, etc.). The presentation is important, but it's not the only thing that matters.
In your experience, what challenges do women entrepreneurs in particular face when attempting to fund/launch a business venture?
Generally, people like to invest in people who they trust and understand, people who are "like them," and angels are no exception. Since there are fewer women angel investors, women have to work that much harder to help angels see that they have the right stuff. Most of the women entrepreneurs have encountered this throughout their careers and know how to handle it. There are two specific areas that are challenges:
What is your advice to women entrepreneurs?
Reach out to other women entrepreneurs, angels and VCs. In Philadelphia, AWE is an excellent organization for women entrepreneurs to join. AWE promotes the expansion of women-led and women-owned businesses with high growth potential through education, networking, mentoring and exposure to investment resources. Also, consider applying to women-lead angel groups for funding. Golden Seeds is an excellent example.