6 Angel Insights for Early Stage Startups
Access to capital needs to be more democratized. This includes access to discussions with angel investors, meetings with potential funders, and angel groups. Hera Fund hosts twice a month, angel access hours at Hera Hub, so that startups in the San Diego ecosystem can ask any question they want to an active angel investor. It’s a conversation about pitch decks, financials, what angels look for, how do angels think, and everything in the middle! Why do this? Access to capital for female founders has been extremely low, only 4% of VC funding is received by female founders and 20.2% of angel funding is portioned out to women-led startups. Progress Report: I KNOW this number has increased because of work being actively done by 37 Angels, Pipeline Angels, Portfolia‘s Rising Tide Fund, Female Funders, Golden Seeds and ACA.
In terms of self-confidence, women are often seen, or even describe themselves, as less confident in their own abilities than men. One way to overcome self-efficacy challenges that I have personally seen and researched, is to gain knowledge, insight, and perspective to feel equipped with enough knowledge to feel confident (women also are known to seek more input before execution, aka analysis paralysis), thus empowered to execute and thrive!
During ANGEL ACCESS HOURS at Hera Fund, an angel investor meets with startups to discuss their challenges and give their insight from seeing and analyzing hundreds of pitch decks and deals. It’s that simple and yet powerful. Here are 6 insights I have given to these bold startups who come to get advice and leave equipped and empowered to ask, confidently, for funding to bring their passion-filled business idea to light. These insights came from our March 2016 angel access hours – enjoy!
1. Exhaust EVERY possibility in the funding continuum. Friends and family round can include close colleagues as they will invest in YOU more readily, especially in the early stages of your startup. Remember to follow up with each one of them. Sometimes startups feel weird to follow up with a close family member about an ask, but consider them just the same as a professional colleague you have asked. They will be giving you a personal check, might as well find out early HOW they want to be followed up and the FREQUENCY they want communication.
2. SIMPLIFY. When pitching a tech startup, simplify the product description upfront for ease of understanding the rest of the investment pitch. You don’t want an investor to be thinking the entire pitch, “What exactly IS this product?”.
3. PROOF OF CONCEPT map. Show proof of concept milestones by giving a clear picture of product development, business metrics accomplished, strategic partnerships secured, and funding. You are painting a fabulous picture/map of what you have valiantly accomplished. How do you show funding milestones even before you get the money in the bank? Describe and plot out angel meetings secured, VC introductions, business plan competitions, and pitch sessions. These milestones show you can execute and have found momentum for possible funding. Of course, receiving the money is the end-game, but I get asked a ton about how to show progress.
A simple timeline or map of product development, business development, & funding milestones accomplished shows execution and momentum.
4. GIFT IN KIND resources are priceless. Start up “funding” is not only financial, as much as you can, call on favors. Start up “funding” could entail your very good friend who is an incredible graphic designer, helps you develop your logo or your wire frame mock ups for your online platform/app. Then call on your friend who is in accountant and have him or her look over your financials. These resources decrease the amount you need to truly launch, gives you the confidence an expert is working on your passion-filled business idea, and get your early adopters even more excited about your product or service because they were a part of it. You build a startup on trust through a robust network effect.
Ask your trusted network of resources for help because gifts in kind are priceless.
5. Early-stage investors can be as different as the hues of color of a RAINBOW. Some can be early stage investors in YOU, because they know you personally throughout your career or they know you from a play group in preschool. They’ve seen you be a successful entrepreneur / serial entrepreneur or a fantastic she-e-o of your family. Then there are early-stage investors know the INDUSTRY you were going into inside and out. They know the projections of growth of that industry, the saturation of the market, and some of the competitors. They can make an educated guess or risk on the business you are launching and want to be a part of it. The third type of early adopter is the Evangelical CUSTOMER, or early adopters who love your product. They might just want to be part of the start of something great and get their hands on whatever you are developing. They want to be part of the genesis at the idea and be involved with the founding team as an investor.
6. Do you pay for help? That is a very personal decision that every start up will have to take at some point of their development. Being as efficient as possible in your capital burn is important on a day-to-day basis but it also is important when investors are looking at you as a potential addition to their portfolio companies. If you’ve shown consistent capital efficiency, they know their dollars will last a lot longer and be used more wisely.
Capital efficiency at every stage will signal to angel investors your real burn rate.
Angel access hours are not meant to be close-door meetings, just a foot into the door of angel funding. I will be sharing month after month, the different questions and discussions that come up during these office hours so that access to capital and insight is democratized. The underfunding of women entrepreneurs is evident and the need to support women is clear so they can reach their full potential. I am also so encouraged by some players in the corporate sector that are starting to step up to meet this diversity challenge. It needs to be done at every stage of funding so that pipeline is more robust and equitable. Recently, Intel Capital launched the Intel Capital Diversity Fund, the largest of its kind at $125 million, to invest in businesses led by women and minorities and fuel economic growth. At Hera Fund, we focus on access to capital and resources in the San Diego region with strong strategic partners across the US (we actively connect with US female angel groups and are members of the Angel Capital Association) and globally. Learn the insights of your funders so that you can master them like an artist.