Have you ever faced fear straight into the eyes and answered yourself or someone else’s hard questions? I think I’ve done that today.
Let’s start with David Rose. He is a prominent angel investor and the founder and CEO of Gust. He has personally invested in over 70 early stage companies and Gust is a global platform for the sourcing and management of early-stage investments. The platform is endorsed by the world’s leading business angel and venture capital associations, and powers over 1,000 investment organizations in 80+ countries. More than 200,000 startups have already used the platform to connect and collaborate with over 45,000 investors. In his blog post “The reality of returns on angel investment“, David Rose wrote that “A majority of all new, angel-backed companies fail completely, the odds are that you will LOSE ALL YOUR MONEY, not just “not make a profit”.” WhoAPI is profitable, and has Wikipedia, King.com, Sendgrid, Tellapart, and hundreds of users around the world. Just yesterday former CTO of Obama for America started paying $199 per month to use WhoAPI. To quote his Tweet – “He is using the shit out of WhoAPI”.
Another example that David Rose shared is that: “average holding period for an angel investment in the United States is NINE YEARS, after only five years it is quite likely that the value of the syndicate’s portfolio will still be underwater”. WhoAPI had its first angel investment and incorporation in Croatia in December 2011 and second angel investment and incorporation in US in December 2012. Since majority investors and me are Croatian, I still consider WhoAPI a Croatian startup, not a US startup. Also, it’s not even three years when we first started working.
The return for investors is not in question at all. So far the only thing that matters is that the company is providing value to the marketplace, and it’s growing in customer base, usage and revenue. Key metrics in my opinion. The return will come for investors if the company is sold (most likely to happen in today’s economy), goes IPO, or a VC fund enters with a huge investment, which is all very rare, and won’t happen soon. That’s the deal that the majority angel investors today do. I explain this very nicely in my new ebook “26 Fundraising Questions for Startups“.
I can’t really obsess about investor returns at this point, I am not Apple Inc. or Google Inc. I have to obsess about: online marketing, sales, infrastructure cost, bookkeeping, taxes, hiring, firing, R&D, customer support, the list goes on and on. It goes on when it’s 6 AM, and I have clients in India, it goes on when it’s 1 PM and I have users in Europe, it goes on when it’s 11 PM when I have users in the US.
Just because I wrote a book about fundraising it doesn’t mean I think it’s the most important thing. If you buy the book, you will see at the very beginning I explain that fundraising is only the first step.
This time I’d like to share with you 4 dirty little secrets that will get you funded. This topic is good both for fledgling entrepreneurs, and for investor wannabes. When I first started out, I couldn’t tell a difference from a real angel, and an angel investor, and there was a lot of trial and error on my behalf. I did manage to raise $240.000 ($100.000 from American investors) from 6 angel investors, and government grants, which is a lot for a startup coming from Eastern Europe. Hopefully this post saves you a few hours, a couple hundred bucks or some embarrassment. I know there are more than a few entrepreneurs coming into Shark Tank that don’t know this.
1. If you have preorders (lots of them) or orders, you have a proof that the market is craving for your product. Five thousand dollars worth of orders won’t get anyone’s attention. You really have to have a lot of money coming in, or proven potential. If your product/service is low cost, you have to have a ton of them.
Like everything else in the Universe, if you are not growing, you are dying.
It doesn’t matter if it’s a one-time purchase, or a monthly subscription, high LTV or low LTV as long as there are a lot of them to hint that the company is worth over a million dollars. If the valuation of the company is lower than $1M, it’s hard for an investor to imagine further growth, and a return on the investment. There has to be growth! Growth first, investment second, not the other way around.
2. If the team is complementary (technical + business) or (design + business) or a third combination for your particular type of project, and has a good enough track record you have a good chance of attracting investors. Someone has to pull this idea off, and by someone, that means the founder.
Investors can help, accelerate and connect, but the founders are the ones that have to pull it off.
You have to build it, and sell it. Peter Drucker said that business (this includes startups) is two things: innovation and marketing. As founder(s) you are responsible for both.
3. If you know something “they” don’t, a.k.a. have a secret weapon, a.k.a. an unfair advantage like a proprietary system. That’s right, if you have the power the pull the Houdini trick on your competition, it will definitely attract some investor interest. Sometimes that scrappy guy/underdog look can help you stay below the radar, but you need to have that special sauce.
Barcelona has Messi, Chicago Bulls had Jordan, who do you have?
When you are good at something and making money, there are so many companies entering your field you have to have a secret weapon. IPhone – Galaxy, Mac – PC, MySpace – Facebook, the examples are limitless. I bet that for every product on your table right now, there’s a competing product.
4. If you have the No Matter What. Some entrepreneurs have that “no matter what” attitude, and investors love that. Do you want to know why? Clients also love that attitude. The opposite sex loves that attitude. Business partners love that attitude. No matter what, wins every day, every week, every month, every year. No matter what is called resourcefulness. It’s when you don’t have money for a marketing budget so you take out your magic hat and your guerilla-marketing ad goes viral and brings sales.
No matter what is called “against all odds”
It’s when you have mononucleosis, your company is running out of money, and the service isn’t ready to ship, but you raise another $50.000 to survive through the winter. No matter what is called tenacity. It’s saying no to your old friends (“let’s go grab a beer”), and getting no’s from clients and investors.
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