Entrepreneur Beginners Guide
“The Biggest Investment in Your Company Is Yours”
If I have nothing to sacrifice, I have nothing to gain. —Catherine Ndereba, Kenyan marathon runner
Every now and then I attend angel investor meetings from which I draw much of my advice fur young entrepreneurs. Being part of the early-stage, technology investment community affords me an exclusive opportunity to assess firsthand the quality of several startups. In doing so, I see many of the mistakes that companies make when presenting their companies and ideas to angel investors. Criticism given behind closed doors or in personal conversations among angels is often more valuable than the feedback given after the official presentation to the body. Entrepreneur mistakes range from not preparing thoroughly to not answering a question asked by an angel during the dreaded question-and-answer period. Once in a blue moon, I come across a company that makes a mistake regarding its capital structure, g angels a sound reason to doubt the commitment of the founders or top executives in the company.
Before speaking to the body of angels, the person presenting on behalf of the company seeking funds disputes the company’s executive summary. This one or two-page summary ‘offers vital information in an easily readable tabular format—information like the business description, problem and solution, revenue model, board members, and funds sought. It also-includes the company’s current investment structure, which shows how much money the founders and other investors have put into the business.
In general, no matter how promising your business may be, investors Want to know that you have some skin in the game. How much money you put into a business is a reflection of your own commitment to and belief in the business. Would you invest in a company whose founders have put little or no money into the company during its early stages? Probably not. You would at least like to know why the founder’s investment is so small. Even if there is a technical founder on the team, for example, who has provided tens of thousands of dollars worth of sweat equity, it’s always a good sign that he has also put hard cash into the business.
For example, one company presenting at a recent angel meeting I attended had two types of investors: The founders collectively invested $55,000, and they also had a $45,000 research grant. The company was requesting a six-figure investment. Another company with a more complex investment structure had six different investors, totaling just under $300,000 in investment capital. The founder alone had invested $200,000. His company was asking for a $500,000 investment to scale and to reach projected revenues of almost $8 million by 2015. These two companies are great examples of companies that put their money where their business is.
If you are seeking investment capital from an -angel or a relative, be sure to quantify in clear terms the investment you’ve made in the company. Investors want to see that important information, which can increase your probability of getting funded. If you are raising money in an unconventional way, you may have to quantify your input in an unconventional way. For instance, log the hours you’ve worked on your business and price your labor based on cur-rent market conditions. Or add up all the expenses you’ve had to pay to get the business to where it is. Do whatever it takes to validate your dedication to the business. A business whose founders are well-vested is a business that’s worthier of investment.