What Every Angel Investor Wants You to Know: An Insider Reveals How to Get Smart Funding for Your Billion Dollar Idea by Brian Cohen & John Kador

Author:Brian Cohen & John Kador [Cohen, Brian]
Language: eng
Format: mobi
Publisher: McGraw-Hill
Published: 2013-03-27T14:00:00+00:00

* * *

CHAPTER 7 TAKEAWAYS

• Investor raising is about creating relationships.

• It’s not the money that really helps you but a long-term relationship with a smart angel.

• It’s not easy to turn down money, but doing so may make sense.

• An important question to ask of angels: Do you write checks?

• Angels raised by successful investor raising generate ongoing benefits.

* * *

8 Don’t Hurt the Ones Who Love You

For most startups, the first source of funding is the people closest to the entrepreneur. This makes perfect sense. It’s easiest to approach the people who know you best and want to believe in you the most.

After all, trust has been established. They know you and often know your work ethic. They want to be helpful. In many cases, such investments are more like gifts than true debt that has to be repaid. In terms of startup financing, friends and family (F&F) money is low-hanging fruit, but be careful about accepting it in a less than professional way.

When I consider your opportunity, I fully expect that you will have F&F investors. According to the Global Entrepreneurship Monitor (Babson College and the London Business School), friends and family investing annually accounts for $50 to $75 billion in early stage capital in the United States. This is two to three times the amount of money invested annually by either angel investors or venture capitalists.

I always encourage entrepreneurs to consider all potential levels of financing, from the very beginning through to the exit. I want you to actually map out the funding process. Think of it as a series of steps. At each step consider how much funding you need and over what period of time you’re going to need the investment. It’s actually quite a logical process. The only problem is, entrepreneurs rarely treat this first investment with rigor, thoughtful professionalism and legal discipline.

Unfortunately, what happens is that F&F, the people who deserve the best outcomes, don’t get the benefit they deserve and in many cases get financially hurt. I get very upset when I see this, because these are the people who take the biggest risks and should receive the best returns.

For entrepreneurs, F&F money represents the smallest increments of funding yet claims the most time to manage. Annette McLellan, an entrepreneur in the biomedical field in Park City, Utah, knows this firsthand. She raised $400,000 for her medical devices company entirely from F&F and came away with two lessons. First, it’s a lot more work managing this class of investment. “It’s all about the fact that F&F investors have ongoing relationships with me, and they believe they can and should be able to talk to me about their investment,” says McLellan. With 45 investors in the F&F pool, that’s a lot of ongoing conversations.

The second lesson was how little power she had to protect the position of those early investors. “The reality is that new money sees little value in old money, particularly from the F&F folks,” she says. McLellan protected her

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.