Shaojun Wang, founder of Beijing Capital Investments, gives his view of recent PRC regulation changes affecting the private equity market in China and discusses the Beijing Capital Growth Fund, the first fund ever open to foreign investors to co-invest alongside the investment arm of the Beijing municipal government. Read more here.
Category: Accelerate (Page 2 of 2)
There are roughly 265,000 active individual angel investors. If you want to go the route of tapping an angel network — a group made up of up to 150 individual investors who pool their finances and share the due diligence work — there are more than 300 of those. In short, there are lots to choose from and they’re ready to invest. The challenge is finding the right angel investor for you and your business.
What a lot of founders don’t realize is that not all angels invest for the same reasons. Backing a startup is a bit like shopping for a car: Do you want a sports car that does zero to 60 in four seconds? A dependable sedan? A Prius that appeals to your environmentally friendly side? Keep in mind that monetary gain may be a secondary reason for some investors.
Here are three of the most common types of angels and what motivates them:
• Hedonistic angel investors are attracted to what they perceive as exciting ventures, seeking the thrill that comes with risk and innovation.
• Angel investors looking for a significant ROI seek companies that have the likelihood to be bought out by a large corporation or the ultimate prize of going public.
• Altruistic angel investors are motivated by a desire to support new companies and entrepreneurs, community development, and job growth.
• Start by researching the backgrounds of individual investors to identify their motives. Once you know what they’re looking for, here are five more things you should take into account before you approach them:
1. The investor’s experience. Most angel investors are not only looking to provide their money, but their insight and guidance as well. You can bank on the fact that they will probably want to be involved with your company should they decide to fund it, and thus selecting an investor with market-specific experience makes it easier to speak the same language.
2. Geographic location. Investors in close proximity to your business are more likely to invest because it makes counsel easier. It is not a coincidence that in venture capital, most VCs are in New York, Texas, and California because they’re close to the action. Investors like to grow where they’re planted.
3. Rate of return. Does your projected rate of return meet their objectives? Does your company have the potential to pass their investment criteria? Each investor has different requirements.
4. The needs of the market. Investors always evaluate the market’s needs and consider whether your product or service will carve a niche for itself. Can you demonstrate vast growth potential, uniqueness, and an unfair competitive advantage? An investor is looking to see if you’ve done the research to show that you can make it happen.
5. Their investment portfolio. Investors have a comfort zone. Investors’ past actions guide their future decisions, so the most likely fit will be with someone who has previously invested in opportunities similar to yours. Even within the technology sector, some investors prefer to see innovative applications of existing technologies as opposed to brand-new technologies.
By Mary Goodman and Rich Russakoff, BNET – CBS Interactive Business Network
Bloomberg TV’s new reality show TechStars follows a half-dozen entrepreneurs through the TechStars three-month accelerator program. The six-episode show focuses on the New York TechStars branch as it takes its first group of entrepreneurs through the intensive start-up program, which combines mentoring with a little seed funding and access to heavy-hitting potential funders. See the shows here.
Oct. 3 — With Demo Day approaching, the companies focus in on raising money. Venture capitalist Mark Suster analyzes their pitches. One company has trouble hiring; another can’t find a business model; a third nearly blows up. The winning team meets AOL CEO Tim Armstrong. Tuesdays at 9pm ET/PT. (Source: Bloomberg)
I recently taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research).
I sketched some notes for the class which I’m posting below. I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. But since I wrote up these notes already, here they are.
1. Best thing is to either never need to raise money or to raise money after you have a product, users, or customers. Also helps a lot if you’ve started a successful business before or came from a senior position at a successful company.
2. Assuming that’s not the case, it’s very difficult to raise money, even when people (e.g. press) are saying it’s easy and “everyone is getting funded.”
3. Fundraising is an extremely momentum-based process. Hardest part is getting “anchor” investors. These are people or institutions who commit significant capital (more than $100,000) and are respected in the tech community or in the specific industry you are going after (e.g. successful fashion people investing in a fashion-related startup).
4. Investors like to wait (“flip another card over”) while you want to hurry. Lots of investors like to wait until other investors they respect commit. Hence a sort of Catch-22. As Paul Graham says:
By far the biggest influence on investors’ opinions of a startup is the opinion of other investors. There are very, very few who simply decide for themselves. Any startup founder can tell you the most common question they hear from investors is not about the founders or the product, but “who else is investing?”
5. Network like crazy:
Make sure you have good Google results (this is your first impression in tech). Have a good bio page (on your blog, LinkedIn and About.me) and blog/tweet to get Google juice.
Get involved in your local tech community. Join meetups. Help organize events. Become a hub in the local tech social graph.
Meet every entrepreneur and investor you can. Entrepreneurs tend to be more accessible and sympathetic and can often make warm intros to investors.
Avoid anyone who asks you to pay for intros (even indirectly like committing to a law firm in exchange for intros).
Don’t be afraid to (politely) overreach and get rejected.
6. Get smart on the industry:
Read TechCrunch, Business Insider, GigaOm, Techmeme, HackerNews, Fred Wilson’s blog, Mark Suster’s blog, etc (and go back and read the archives). Follow investor/startup people on Twitter (Sulia has some good lists to get you started here and here).
Research every investor and entrepreneur extensively before you meet them. Entrepreneurs love it when you’ve used their product and give them constructive feedback. It’s like bringing a new parent a kid’s toy. Investors like it when you are smart about their portfolio and interests.
6. How much to raise? Enough to hit an accretive milestone plus some buffer. (more)
7. What terms should you look for? Here are ideal terms. You need to understand all these terms and also the difference between convertible notes and equity. More generally, it’s a good idea to spend a few days getting smart about startup-related law – this is a good book to start with.
8. Types of capital: strategic angels (industry experts), non-strategic angels (not industry experts, not tech investors), tech angels, seed funds, VCs.
VCs can be less valuation sensitive and have deep pockets but are sometimes buying options so come with some risks (more).
Industry experts can be really nice complements to tech investors (especially in b2b companies). (more)
Non-strategic angels (rich people with no relevant expertise) might not help as much but might be more patient and ok with “lifestyle businesses.”
Tech angels and seed funds tend to be most valuation sensitive but can sometimes make up for it by helping in later financing rounds.
Have a short slide deck, not a business plan.
Pitch yourself first, idea second.
Pitch the upside, not the mean
Size markets using narratives, not numbers
10. Co-founders: they are good if for no other reason than moral support. Find ones that complement you. Decide on responsibilities, equity split, etc. early and document it. (Legal documents don’t hurt friendships – they preserve them).
11. Incubators like Y Combinator and TechStars can be great. 99 percent of the people I know who participated in them say it was worth it.
12. To investors, the sexiest word in the English language is “oversubscribed.” Sometimes it makes tactical sense to start out raising a smaller round than you actually want to end up with.