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Oct. 12, 2004 – As any angel investor will tell you, this is not venture capital. There may be less pressure to generate extraordinary returns or engineer a fast exit. Instead, angel investors tend to tout the ethics of self-sustainability and the virtues of running on fumes.
There are 220,000 angels, according to the Center for Venture Research, and they’re hardly all alike. Here are three angel perspectives, in their own words, on what works, what doesn’t, and how to succeed.
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President and CEO of Builder Homesite, angel investor, former vice president of Applied Materials
The majority of companies fail because they get bad advice or they get advice from greedy money. They get advice that pushes them to get too big too soon, long before they have any idea about the market. Internally, a lot of these folks (VCs) haven’t worked in real companies, companies that took 20 years or longer. They’re very impatient. They’re all looking to get monetized within three to five years and that’s just unrealistic.
What works: At some point that good idea is seasoned with information. It’s that close relationship with real customers that eventually builds a business based on real value.
Red flags: Are entrepreneurs’ expectations reasonable for how big this market really is? How fast is this market going to grow? Is their expectation seasoned with experience that knows just how hard it is to double your revenue every year? Do they have realistic goals? Do they either understand the space personally or do they already have business partners buying their products that understand the space? Someone has to have profound knowledge. You see lots of technology plays with incredible IP fail because no one understands the market.
Advice: Put your customers’ results first. You need to help some other company make more money.
Angel investor, co-founder of Prairie Angels, author of “You Need to Be a Little Crazy: The Truth About Starting and Growing Your Business”
First of all, it is all about the management team. We would much rather back an A player with a B idea than a B player with an A idea. You’re looking for someone with experience in the area they’re trying to execute in.
What works: We look for people who have not only succeeded before but also failed before. There will be some difficult times and we want to see that they bounce back.
Red flags: On people, we get very concerned if the entire management team is related. It adds another complicating factor. At the same time, we look for people who have worked together before. The biggest mistake most people make is they do not have a sales executive on their team.
Advice: Most angels are focused on one or two or three vertical segments based on what their experience has been. It’s always important for entrepreneurs to see what the angel group has invested in previously. Don’t go there too early. Make sure you preview your concept. Find out a way to get referred into an angel group. Don’t go into it cold.
Managing member and founder of The Angels’ Forum, founder of Sands Marketing-Plus, former Arthur Young and Coopers & Lybrand executive
One of my core philosophies is you don’t want to ever flood a very early stage company with cash. It teaches bad habits. They don’t have the skill sets.
What works: The number one issue is, do they have true entrepreneurial spirit? When they hit a stumbling block, do they pull back and look at it and say, “OK, am I going to go over it? Around it? Am I going to go get something and blast through it? Dig underneath it?” That’s somebody with entrepreneurial spirit, versus somebody without entrepreneurial spirit, who just starts whining.
Red flags: The minute that we get a business plan that is just like the last 15. The other major red flags are inventors rather than businessmen. They don’t let anybody else in. They don’t let anybody smarter in. They don’t want to surround themselves with different types of experience. They don’t want to let go of ownership.
Advice: The company absolutely has to be within a two-hour drive of Palo Alto. We are professional investors with a staff and 22 partners. Since this is what we do for a living, we expect to have outrageous returns. What we do is we get involved on a board level as well as an operational level.