Every entrepreneur would love to remain a fly on the wall, if only for a few minutes, in the room where they just finished presenting their vision to a group of potential investors.
Fortunately, I’ve recently had the opportunity to sit in one of the monthly meetings held by a group of the most active angel investors in New York, with over 70 investments carried out in the last decade, and hear their first thoughts after presenting entrepreneurs had left the room. Those fateful few minutes usually determine whether your presentation of why you’re company is going to be the next Pinterest, hit its mark, and if you’ll be getting your requested investment.
Meet the NY Angels
New York Angels, the investment group which operates out of New York City and conducts monthly meetings with entrepreneurs who pass the initial screening stage, do not operate like our typical investment fund. Investors choose companies to review and negotiate as a group, but at the end of the process, each investor makes their decisions and investments individually. Often times the investors do wind up investing in groups, raising a combined average early stage investment of anywhere between $100K – $1M. These initial investments are designed to afford their vested entrepreneurs the leverage they require to move their business forward through an extended network of angel investment groups.
Among the group’s investments, which focus on Internet, media and e-commerce, one will recognize many notable companies, including Israeli expenses and investments company, Payoneer, and on the social media front, Pinterest. With close to 10 exits, the group enjoys an impressive variety of companies in various stages of their life cycle, coming over to try their luck at becoming part of this very successful portfolio.
It all began with a short conversation with Brian Cohen – Chairman and first investor of Pinterest.
I met Brian Cohen at a neighborhood bagel shop in New York. Brian, a warm person with boundless energy, is an entrepreneur to the core. His biography and credo is something that I recommend every entrepreneur to read, and I leave it to you to do so; but I will mention that this is a man who believes that regardless of race, religion or creed – he believes in people, potential, and in helping entrepreneurs fulfill their dreams. Make no mistake of it though, if you want him to believe in you enough to invest, you’ll have to go a long way in proving yourself.
After almost two hours of conversation, Brian invited me to sit in on The New York Angel’s (of which he’s a member) monthly presentations meeting, which introduces promising entrepreneurs who applied for funding and passed an initial screening stage. The presentation determines the next step.
What the Angels want to see?
Anyone who’s ever opened a book on entrepreneurship or taken a minute to read over the bios of the investors they’re looking to get investment from, knows that the most important thing to an investor is the team themselves. Now we’re going to take this tip a few steps further, so take note; What are the things that speak most to your competence as a Founder worthy of investment?
Did you fumble your answers to questions related to the structure of the company? Guess what? You just lost points. Did you throw out an unrealistic figure when answering to the value of your company? You just got filtered out. Does your business model fall short of yielding an adequate return? Why did you even bother leaving the house this morning? Your presentation was not full enough? Should have done some trial runs first with people who can give you feedback.
Divide and conquer
One of the best strategies in fundraising in general, and when trying to convince the New York Angel group to invest in you, in particular, is to create a personal connection. Angel investors prefer to invest in people where at least one investor told them personally about a positive impression they had of a given company or entrepreneur.
If you panicked, but managed to squeeze in a presentation to one of the Angels beforehand – then at least that one group member knows already what you’re capable of, and can accept that maybe it just wasn’t your day. While there’s no better impression than a first impression, you don’t always get to convey your message at the perfect time and in the perfect way. Also, after finishing your presentation and leaving the room, the first one to give their thoughts on you as a potential investment is the one who brought you to the groups attention. Having formed an initial relationship before the meeting with one of the Angels to any degree can come in handy when that angel steps up to speak on your behalf.
Another advantage of developing a prior relationship with a member of the group, is the ability to receive feedback on your business plan, presentation and message, even before you present, and getting to know whether this Angel will really be your ambassador to the rest of the group when the time comes. If they’re not interested, it’s really just a waste of your time, and the time of the other investors.
Introducing the Bicycle Law
Network connections offered by the New York Angels alongside financial investment is also a great advantage. Angel investor groups come from different parts of the world – these are business people who have already made their fortunes and are now ready to open their pockets and their contact lists to portfolio companies within their groups.
But to do so, it’s important to understand that you’re going to have to turn these Angels into close, personal contacts. The rule was explained to me in a somewhat humorous fashion, but it relays the message rather effectively: Can you ride your bike to the Investment office? If you can, the odds of you landing investment by that investor go up significantly. If the investor has to factor in an overseas investment, without physical representation close to the investor’s home base, investment probability drops significantly. that’s not to say there are no exceptions to this rule, but it is important to understand its impact on the decision making process.
It’s not only about the technology – Find the users
I know, it sounds bizarre, but a technological advantage is also significant disadvantage when it comes to securing investment. Entrepreneurs often come to the table with a developed technology, but without knowing or understanding why this technology is relevant, or who will be using it.
I know, we’re all graduates of elite technological programs from around the world, and American investors can almost smell the money they’re going to be making off our genius, but then come the hard questions – Why do we need it? And no, not all technology is the next game changer. Nikola Tesla can tell you all about the inability of the consumer market to grasp the benefits of technologies.
And don’t forget your users – the “billion Facebook users” are not your market, nor are “women” or “Mobile users.” Do your homework. Give some sort of intelligent explanation as to who your target market is specifically, and why they will truly value your product. Explain why you want to develop this product, and why competitors will want to as well (of which you always have more than you think).
Users like water
One of the things that bothers foreign entrepreneurs in the early stages of their startup, is the fact that New York based startups manage to attract large user bases very early on in the companies life cycle. Or as one of the angels put it “all the startups here couldn’t take two steps without stepping on 100 possible deals that could potentially bring them hundreds of thousands, if not millions of users.”
Even with the illusion that the Internet can bridge the gap between countries, foreign entrepreneurs usually fail to close a large number of transactions and bring in users on the scale that their American counterparts do. This holds true even in cases where foreign startups may have a superior product, a more interesting business model, or even an easier sale. Problem? Definitely. Can it be solved? Definitely. Be creative.
Money, money, money
When sitting in on presentations of entrepreneurs who begin to demonstrate a financial plan for the next 5 years, I always laugh a little on the inside. In my opinion, investors and entrepreneurs have no idea what will happen five years down the road. Two years, maybe, and that’s still mostly guesswork. All markets, especially those revolving around the Internet, are constantly changing. This isn’t to say you shouldn’t try and build a case for why your business will grow in the coming years. A realistic outlook and vision geared toward real growth and based on real data, that’s what investors are looking for.
You really don’t know how much you can expect to sell? Yes, it’s a gamble, even investors understand this point. So on the one hand, it’s important to know how to explain attractive numbers (tens of millions), on the other hand, don’t reach too high (remember what happened to Icarus?) – Try to remain rational and tell a story that you believe in yourself.
The money side of your presentation is foremost meant to demonstrate how you intend to create a profitable company, one that is worth the investment you’re requesting. If you can only show profits of a few million, you know there’s no point to shoot for American investment – they need to see companies that have the potential to reach profits of tens of millions of dollars. The company’s value should make sense to invest in it early. Don’t be tempted to attend a meeting where you will be expected to explain how your company will reach the tens of millions mark if you’re unable to explain it to yourself.
Money has a third side to it with regards to Angels – If you want to raise money, you should know exactly how much you want, what your goals are, what you imagine the terms of the deal should look like (of course it is open to negotiations), and understand concepts such as classes of shares, types of investments, loans and options benefits available to investors – CEOs who don’t understand basic concepts in the investment world are seen as unprofessional.
The best advice I can give you is to understand each letter of a contract. Yes, even if it’s incredibly boring reading. Do not leave it to your attorney or you may be surprised by the agreement you signed a few years down the road.
One of the last slides in almost every presentation I saw was that of consultants related to the companies. One of the things that generally impresses Angels are the approval and pledges of contribution by experts in your industry.
Do not be tempted to list industry familiar names here if they don’t know you very well. One of the worst possibilities would be for one of the angels to follow up on your list and hear something like “Yes, we met once but it wasn’t very interesting.”
On the other hand, if the list shows relevant people, internationally renowned individuals who can leverage your sales, marketing and/or your technology efforts to help you grow and eventually exit – that’s worth quite a lot of influence points. Checking out these references is a very important part of any due diligence process for potential investors, and that includes the New York Angels.
The Israeli Connection of New York Angels – Azi Cohen
Azi Cohen is one of the angels that I spoke with on the first day of presentations. Azi has a clear agenda to help Israeli entrepreneurs; whether it’s raising money from New York Angels, or serving as a pointman for Israeli startups in the New York market.
With a successful exit and many years of experience in information security, Azi invests primarily in information security, but not only. He also helps quite a few other companies. In a private conversation with him I found out that Azi is a self appointed chief ambassador for Israeli startups, helping them strengthen ties with the American market. He believes (as do I) that he can bridge the gaps and create a successful relationship between all parties for the benefit of all.
The bottom line
At the end of the day, you as an entrepreneur should ask yourself how to get an American investor who sees 100 requests a month, to choose a company located overseas and far from its target market, where the CEO speaks with a strange accent. Sounds too hard? Maybe you should reconsider your choice of careers.
Here’s the place where I tell you again exactly who we are. Geektime continues to be the home of entrepreneurs, startups and investors in Israel, and one of the purposes for which I went to New York was to strengthen Israel’s relationship with investors in New York. Please continue to contact us and tell us about your startups, investments and achievements. Good Luck!