very helpful on both business and financing advice, and making the necessary investor connections.
As noted, the extent of your personal network again is very important. Network heavily; leverage the law firms around town who are in the “deal flow” and know angel investors. Ask fellow entrepreneurs. You will find that angel investors come in many flavors:
– Experienced, invested in many startups
– Inexperienced, heavy handed, potentially tough terms
– Make quick decisions
– Take forever to make decisions
– Interested but wants a “lead” investor
– Wants to be actively involved in the company
– Could care less about day-to-day management
– Invests based on “who else is in the deal that I know and trust,” i.e. the “social proof”
– Invests based on their overall “asset allocation” or have some “high risk” funds that they are prepared to invest out of
– May or may not write another check (i.e. follow on)
– Will invest in convertible notes
– Will only invest in priced rounds
As you pull your round together, a good piece of advice is to find a sophisticated lead angel or angels who can help you craft the deal and lead the round.
2. Angel groups. Groups are very active in New England. You can find a list of groups at Angel Capital Association and Xconomy also has a good list here.
Angel groups in New England vary in size and focus. Check out their websites to get a feel for the membership, types of investments, criteria, and process. Then network around town—find someone from the group you are interested in and talk to them to better understand their process and whether your startup might be a good fit for them.
As a general observation, I’d say the groups are filling an important capital gap—financings between $250k and $1 to $2M. These are financings around “go to market” and typically provide runway for 6 to 18 months. I’ll blog at another time on angel groups, but my rough back-of-the-envelope calculation is that Boston area angel groups have probably invested around $30M+ in local startups over the last five or so years.
Going to a group may seem intimidating, but they offer the benefit of a centralized process and provide momentum to get a deal done. In contrast, talking to individual angels one at a time means you need to build your “sales funnel,” keep replenishing the leads, figure out closure rates (i.e. I need to talk to 6 angels to close one)—all of which takes time and effort.
With groups, you will find the initial screening is based on whether there are members who know your space. For example, at CommonAngels, if it’s a startup in cloud computing I’ll pull in John Landry; for online display advertising, I’ll ask Jay Habegger (CEO OwnerIQ); for digital media; Steve Woit (publisher of Xconomy); for lead gen, Dan Kaplan, (founder of Lowermybills.com); for energy IT, Martin Flusberg (CEO of Powerhouse Dynamics); etc.
Raising capital in either stage can be challenging. The good news is that there are active, enthusiastic, experienced angel investors in Boston who are willing to help local IT startups, with their time and advice if not always with their money.
