Approaching Angel Groups

Friday, September 26, 2008

Don Jones, Always On Daily, http://www.venturedeal.com

There are a few ways to approach an angel group to present your company's investment opportunity. In order of preference, the following methods are most commonly used:

1. The best way to be introduced to an angel group is by being "sponsored"
by a member of the group. This usually means that you've developed
a relationship with a member and shared the business opportunity
with him or her and they bring you into the angel group evaluation
process by stating "I'm going to invest in this company and I think
it is a great opportunity to invest." This is the best introduction
you can get.
2. The next warmest introduction is through an attorney, accountant,
consultant or other person who puts you in touch with someone at
the angel group who then helps you through the process. Angel
group members are usually well-connected in the business community
and have relationships with other business people whose judgment
they value. Having a personal introduction via one of their business
colleagues is extremely valuable.
3. The last way is "over the transom," where you contact the group yourself
directly by phone, email an executive summary or go through the
angel group's online registration system. Even though this approach
is not via an introduction, you shouldn't downplay this opportunity.
Angel groups are very active and are looking for quality opportunities
wherever they may be.

While none of these ways to approach an angel group will guarantee you success, generally you should attempt to be introduced by a existing member, since this effectively operates as an initial "vetting process" in your favor. You can also obtain good feedback on the status of the evaluation process from an angel group member whom you have befriended. Even if the angel group decides not to invest, your relationship with the angel group member may assist your efforts in developing your technology or finding other potential investors.

Should you approach more than one group? Certainly. Most sophisticated investors will assume you are contacting several sources.

Obtaining funding is sometimes a function of contacting a number of potential investors with the understanding that many of them may not invest in your company for different reasons. Also, some individual angels are members of more than one group. Venture investing communities tend to be small and word travels fast. So if you are asked, simply disclose that you are contacting other investors as well. There's no need to be coy or not to disclose your actions. When in doubt, disclose, and you'll stay on the good side of potential investors.

Executive Summary And Business Plan
Executive Summaries can take virtually limitless forms, from one page introductions to 20 page documents. There is much variation among angel groups on format. Some groups use an online submission program that requires submissions be provided in a certain format. Others have no set format but a page limitation. Still other groups have no set criteria and leave it completely up to the entrepreneur to decide how to submit their information.

In any event, most summaries are no more than three to four pages in length. They provide just enough information in a variety of categories about company management and history, the technology, market dynamics and size, and the amount and expected use of the funding proceeds.

The tone of the summary should be factual, not "salesy." It should be brief and to-the-point. Readers of the summary will appreciate your clarity of thought, not a long rambling explanation of a small point. This is your first impression on the group, and as with all first impressions, it counts heavily. I suggest having others read your summary for content as well as any typos, mistakes or awkward grammar. When in doubt, keep your writing simple, clear and direct.

One question entrepreneurs often have is how much information to divulge, considering their technology may have significant intellectual property. A general answer is to explain as much as you feel comfortable doing so. A common misconception among entrepreneurs is that since angel groups have a large number of entrepreneurs, there is a strong chance of someone "stealing" an idea. While anything is possible, most angel group members are members because they want to give back to the entrepreneurial community from their own successes. The furthest thing from their mind is to take someone's idea.

Furthermore, regarding non-disclosure agreements (NDAs), most groups or venture capitalists won't sign them. An exception can be made in certain circumstances where an individual member of the group will sign an NDA, and the presenting company will then divulge the "secret sauce" for that one person to review and provide a comfort level to the rest of the interested angel members. So, if you have technology, you will have to show it to someone at some point in order to get them to invest. Saying "trust us, we have great technology" won't win an investor, at least not the kind of sophisticated investors that you want to ally yourself with.

There are a variety of excellent business plan software packages that can assist you in creating a high quality plan. Also, some groups and venture capital firm websites will include a sample summary or business plan in their "Resources" section. There are also consultants who specialize in providing business plan services.

Don Jones is a member of a prominent angel group based in Silicon Valley, a veteran of three startups, and the founder and CEO of his fourth company: VentureDeal, a venture capital database serving the emerging technology industry.

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