Tag Archives: Willamette Angel Conference

10 Things Angel Investors Ask About Startups

Angel investment, Business Pitch, business plan

Today the angel investment group I’m a member of (Willamette Angel Conference) finished our eighth year of choosing a startup to invest in. Our investment runs $100K to $500K, roughly. It’s announced every year on the second Thursday in May. The announcement comes later in the day, not here.

Our annual angel investors process

Every year we review 40 or so submissions from startups. We look at summaries, videos, financial projections, and pitches posted online at gust.com. We invite our favorites to pitch to us live in a series of meetings. We assign due diligence teams to read their business plans thoroughly, check documents, talk to customers, test products, look at their legal situations, and so on. And eventually we choose a winner (or two or three).

My personal list of 10 things I want to know

Push PinDuring the process, we’ve had to review again what we want to know from startups as we review them. What information is essential? With that in mind, I wrote up my own list of what I look for in startups, from the outset. This is what I want a startup to tell me from the beginning.

  1. The startup team’s background, experience, and credibility. Specifically, what experience do you have with startups. Have you run a startup? Have you been an employee or team member of a startup? And of course your education, degrees, schools, etc. And your work experience. That goes for founder or founders, and main team members. If you don’t have a complete team, have you identified the key skills you need and candidates to hire? Are they likely to come on board? What are their backgrounds, skills, and experience? Who will do the administration, production, marketing, and sales?
  2. What problem do you solve, and how? I want to understand the needs and wants so I can decide for myself on product-market fit. What kinds of people or organizations have that problem, and how badly do they need or want what you are going to sell? For that you have to give me the whys and the background, the stories, not just the numbers; but numbers are good.
  3. And why you? Why are you more qualified than anybody else. How can you keep others from jumping in on your business if it’s successful?
  4. And who else? Who else is doing what you are, or solving what you solve? How do they do it?
  5. Key Metrics. What traction do you have so far? How long have you been up and running, and how many customers or subscribers or sales or visits or downloads or conversions or leads and inquiries? What are your metrics so far? Where do you see them going.
  6. Milestones met and milestones to come. I want to see both what you’ve done and what you plan to do. Your valuation today is about what you’ve accomplished already. What you plan to accomplish gives me an idea of possible future valuations.
  7. How much money are you raising and what are you spending it on. Investment should be used to finance deficit spending that’s going to generate a lot of growth and increased valuations. If you can relate your financial ask to milestones you plan to meet, then that’s great.
  8. Strategy. Strategy is focus. What markets, what products, what specific attributes of your business make this focus realistic? What markets and solutions are you ruling out, or leaving for later?
  9. Tactics. Tactics are essentials like pricing, channels, online, social, marketing, sales, financial plans.
  10. Essential projections. Sales forecast built from bottoms-up assumptions, spending budget, projected P&L, balance, and cash flow. I’m annoyed if you don’t provide these, but I should add that I’m also not going to eliminate a startup for bad financials. Bad financials are the easiest problem to fix.

I should note that I do care a lot about exit strategies, and even more so about the intention to exit. But I assume the intention is there when you seek angel investment. And I want to go from your product and solution to your market, your competition, and my guess about future exits. Exits happen 3-5 years from now. I want you to focus on your business, and I’ll decide whether I believe you’ll eventually become an attractive acquisition so we can get an exit.

Also, on financials, I look for understanding the relationship between spending and growth, how much you need spend in the main spending categories, in broad brush, to be able to grow. I expect growth to cost a lot of money and almost always rule out profits. If you were going to be profitable, you wouldn’t need investment, and you wouldn’t offer a great ROI. I don’t hold you accountable for accurately projecting your essential  numbers, but I do expect you to understand the assumptions and the drivers that you use to develop the forecasts.

And, a third point: We usually get this information several ways, starting with the summaries our startups post on gust.com. There are summaries, slides, videos, and financials. I do always want to see a business plan, but I don’t care about all the text summaries and descriptions. I do want the business plan to include strategy, tactics, metrics, milestones, and essential business numbers.

The Best-Ever One-Word Answer to A Critical Entrepreneurship Question

Current Affairs, Economics, Entrepreneurship, ,

In one of the best moments of our regional angel investment event last month, keynote speaker Diane Fraiman was asked to name the biggest obstacle to entrepreneurship in Oregon. Her answer (the first emphatically-delivered word of her answer):

Diane Fraiman, Voyager Capital

PERS

It’s been more than a month since and I didn’t take notes so the rest of this post is my opinion, not Diane’s. It wouldn’t be fair to pretend to be quoting. Diane is a partner at Voyager Capital in Portland. She has a great track record and the respect of every entrepreneur I know who knows her, or of her. And this is a sensitive subject because of politics, unions, and public priorities. So don’t blame her for anything except the first word of her eloquent answer. 

PERS is the public employee retirement system. I relate it to public schools, teachers’ unions, political power brokering, and, to my mind at least, chronic budget problems for public schools. Budget problems that are rooted in the so-called tax revolt of 20 years ago, politics of voting blocks, campaign financing, and talking points. For a couple generations, people on both sides of the public employee and teachers’  unions negotiations made compromises that postponed problems for the future. And the future they avoided, back then, has arrived. 

PERS relates to entrepreneurship in a community because it connects to the problem of declining quality of public education. When the quality of education suffers, entrepreneurs go elsewhere. And the entrepreneurs who might move in choose other places where their children and their future employees have better education in public schools.

It’s not a simple issue. In our community, teachers are getting laid off and schools closing, and the average number of kids per classroom is way up. But some say the teachers who aren’t getting laid off get better than market compensation. Others say the administrative costs have skyrocketed. Some people believe that restricting funding forces institutions to be more efficient. And I know employers who tried and failed to hire administrators from the local school district because they — the would-be administrators — were getting about 1.5 times market compensation. There’s no room here for knee-jerk reactions. 

I don’t claim to know much about this topic and I don’t want to engage in a political debate. But I do think people who let public education slide should be aware that declining quality of schools affects the entire community, not just kids and parents. It hurts job creation, startups, economic growth, housing values, crime, and all those other hard-to-quantify facts that make one town in the U.S. a better place to live than another. 

I wish more people would realize the far-reaching impact of communities failing to maintain the quality of public education. And I’m glad Diane Fraiman added that into a conversation around communities, startups, and angel investment. 

(Image: courtesy of Voyager Capital)

Willamette Angel Conference Invests More than $450K

Angel investment, Business Plan Contest, Starting a Business, , , , , ,

Yesterday’s Willamette Angel Conference (WAC) 2013 event invested more than $465,000 in four Oregon startups, highlighted by more than $250,000 in Portland-based Sonivate, which has developed a fingertip-mounted ultrasound probe that enables imaging while leaving both hands free to do work with simultaneous tactile feedback. 

Willamette Angel Conference

Three other startups got WAC investment at the event: Amorphyx, a Corvallis company with innovative technology that reduces manufacturing costs and increasing the brightness, speed and efficiency of LCD and flexible displays; DesignMedix, a Portland company addressing the rapid rise in drug resistance in multiple diseases; and Green Zebra Grocery, an innovative chain of small healthy-food grocery and convenience stores, based in Portland.

The event concludes three months of study (called “due diligence”) by the group of more than 30 angel investors, about half and half from the Oregon university towns Corvallis and Eugene. This year’s event was held on campus at Oregon State University. The event alternates between Corvallis and Eugene. I’ve been a member since it started in 2009. 

Earlier in the day, keynote speaker Diane Fraiman of Voyager Capital noted that Oregon companies have received more than $600 million in venture capital funding, and challenged us, the WAC members, to continue investing in our area. That might have influenced us — our deliberations are strictly confidential, so I’m not saying — that afternoon as we added more than $200,000 to the investment amount originally planned that morning. That also doubled our previous year’s investment, and — we think — made this WAC event the largest investment of any of the Oregon angel investment groups. 

Hallspot, a Eugene company that started on campus at the University of Oregon, was awarded a $2,500 Palo Alto Software prize for the best concept-stage company. 

Blogger About Angel Investment: “Confused, Scared, and More Than a Little Ashamed”

Angel investment, , ,

(Note: I posted this first on the blog at gust.com, my favorite site for entrepreneurs and angel investors. I’m reposting it here because I want to make my points under my own banner too.)

Rick's PostNow there’s a great title for a blog post. Writing about angel investment, on his Portland-based Silicon Forest entrepreneurship etc. blog, Rick Turoczy titled his post: I’m confused, scared, and more than a little ashamed. Don’t even try to tell me that doesn’t make you curious. Rick’s a smart guy, very well known in Portland (OR), and his blog matters. So here’s his problem:

WTF Angel Oregon? This is one of your concept companies? Blanket Booster? Again… WTF?

Yes, it turns out that the Portland angel group called OEN Angel Oregon just announced an investment in a startup making a bar that goes on a bed to hold the blankets up so they don’t weigh down the feet. What’s the problem?

I’m struggling to grasp how a rail that holds your blanket off of your feet is a better investment than the hundreds of concept companies I’ve talked to in the past six months.

Rick likes high tech. He’s a techie, entrepreneur, and startup expert, deeply immersed in a local incubator. (And I get that, I’m a techie too. Look at my bio.)  He says this shows two problems:

  1. Angel investing in our region is decidedly weak in tech. And with good reason. Very few of the Angels in our region have a tech background. As such, they’re not very confident investing in tech. Angels invest in what they know. I get that.
  2. You didn’t even enter the race. You didn’t even have the confidence to take your awesome idea to Angel Oregon. That you didn’t feel like you had something worthy of investment. That you didn’t think your startup was worth submitting to a selection committee.

I like the way Rick writes. His point number two is golden. I hope it’s clear he’s talking to all the techie entrepreneurs in his incubator, on his blog, and working in Portland. You didn’t enter. Touche. Well said.

Posting here as a very active member of an Oregon angel investment group — not Angel Oregon, but one in Eugene and Corvallis, the Willamette Angel Conference (WAC), I’m not comfortable with Rick’s summary of Oregon angel investor tech background. Our group has 35 members and more than half of them have come out of software, web business, or computer hardware. We have two major universities in our two towns, and there’s a huge Hewlett Packard installation in Corvallis. We’ve made three investments so far, two of them software companies, one a clean-and-green personal product. I don’t think we’re weak on tech. But Rick’s talking about the group in Portland, 100 miles north.

Here’s part of the comment I left:

One thing I dearly love about business is that almost everything is a marketplace. Buying is voting, and investing is voting. And people are unpredictable. Self interest rules in these markets, and investors are spending their money. Some consider the good of the community, some care more than others about the environment, some want to change the world, most are comfortable with investments in industries they are familiar with, some care only about what gives them the best risk-return relationship. You wind those various factors up like a top or a wind-up doll, and you set them lose, and what happens is what happens. It’s beautiful.

That’s my answer to Rick’s worries. I’m not confused, I’m not scared, and I am not in even the slightest bit ashamed. Hooray for business.

 

Why The Bank Won’t Finance Your Business Plan

Advice, Business Financing, Starting a Business, , ,

Over the years I’ve received hundreds of emails from entrepreneurs complaining about banks not lending them money on their business plans. I just got another one this morning, and when I searched this blog I couldn’t find a post to cite as an answer. So here it is, today:

Banks can’t lend you money on your business plan. It’s against the law. They’re supposed to protect their depositors’ money by demanding collateral, credit history, and low risk. And startups are high risk.

Bankers are good and bad, smart and not-so-smart, liberal and conservative. Sure, some just follow rules and fill forms; but I’ve known some smart innovative bankers. Just as an example, one of the senior officers of a local bank is also a fellow member of the Willamette Angel Conference, meaning that he invests his own money in startups – his own money, not the bank’s money.

Banking laws have discouraged banks from investing in your startup since the Great Depression of the 1930s, when lots of banks went under. You have to have some assets – like your house equity – and you have to risk losing them. And if your credit rating is bad, that’s your fault and not the bank’s, but it does make it harder for the bank to lend you money. And that means that you can lose your house.

Yes, there are exceptions to these rules. For example, The U.S. Small Business Administration (SBA) can guarantee portions of a commercial loan so you don’t have to. For that, ask your bank; those loans are managed by commercial banks.

And yesterday I posted 5 non-traditional ways to get startup money, on this blog. None of those involve traditional bank loans.

(image: mmaxer/Shutterstock)

Angels vs. VCs on Business Pitches

Angel investment, Business Financing, Starting a Business, Venture Capital,

Over the weekend I caught Business Insider’s Five VCs Explain What They REALLY Think About Your Pitches. It’s a great post, gathering points together from discussions with several high-end VCs. If you’re looking at venture capital, read it. Business Insider

Part of what they said reminded me that angel investors and VCs have a lot in common. For example, these important points:

  • Keep it short.
  • Avoid buzzwords.
  • Answer questions quickly without getting defensive.
  • Be a good storyteller.
  • Know the people you’re pitching.
  • Don’t forget the financial info.

I’m pretty sure all of the 30+ investors in my local angel investor group would agree with every one of those. I particularly like the three about answering questions, telling stories, and not to forget the financial info. Those three are critical.

Some of the other points, however, remind me of the differences between VCs and angels. For example, the VCs say introductions matter:

The person introducing the entrepreneur is a big deal — if [the VC quoted] doesn’t trust the referral, he won’t even take the meeting.

Our group, in contrast to this, looks into every submission we get. Introductions aren’t required. Some of them don’t get past a quick read of the executive summary, but I think most angel groups are similar. We’re going to read the executive summaries, at the very least. And we invite submissions. Every plan submitted before March 31 is considered for our May investment. Some are not considered very long — like less than five minutes — but still. Introductions don’t matter. The plan does.

Two other points probably depend on the group, the particular angel investor, and the moment. The VCs said:

  • Think big or don’t bother.
  • Forget saving the world.

I don’t think those points are as true for angels as for VCs.VCs are investing other people’s money, mostly institutional money, and they’re paid to do that well. Professionally. Angels, on the other hand, are investing their own money. Maybe that makes a difference. It does to me. Angels invest smaller amounts, generally, and at an earlier stage, generally. Maybe that’s why sometimes we’ll consider a not-so-big deal, and sometimes saving the world, or not, makes a favorable difference.

That’s my opinion, anyway.

Pam Slim’s 10 Keys to Startup Sanity

Advice, Starting a Business, Work Life Balance, ,

I was sorely disappointed to miss Pamela Slim’s keynote speech for the Willamette Angel Conference 10 days ago. I’m a member, but I had to be away, and had to miss it. I hear she was great. Eugene and Corvallis startups are still talking about it.

She called her talk 10 Keys to Maintain Your Sanity While Hustling Your Startup. Great title. Especially when you listen to it.

I was glad, though, to see Pam has posted it for all as a slide show with her audio. If you’re involved with a startup, or thinking about it, give yourself the luxury of Pam’s real-world advice.

10 Keys to Maintain Your Sanity While Hustling Your Startup

Thanks Pam.

A Seasoned Angel Investor Highlights These 4 Factors

Angel investment, ,

This was interesting. The speaker, Wade Brooks, is executive director of the Willamette University MBA Angel Investment fund. A couple of nights ago as he shared notes and research with members of the Willamette Angel Conference. blocksThese are the top four things Wade and his group looks for in the companies his organization is considering for investment:

1. Entrepreneurial expertise

They want people who have been there, team leaders who have been through the experience of a startup. Wade says there’s no getting the kind of experience they need without going through it.

2. Affordable loss

Affordable loss is about planning, expense control and careful management.  “A little bit of money goes a long way,” he says, when a company is careful with it. If there were no loss, they wouldn’t need angel investment at all; but a big loss means trouble.

3. Early “yes” answers

Ideally, that means people are saying “yes” to sales, and signing contracts. That doesn’t always happen, but there can be yes answers to major allies, distribution channels, beta users, and so on. The best validator is early sales.

4. Milestones met

Wade talked about “a history of performance.” That’s a matter of setting goals and meeting them. He said the company that consistently exceeds its milestones is very rare, but very good to have. Sometimes his group will redo the projections on their own, come up with substitute numbers, and then, even if the substitute numbers are smaller, they still credit the company for making those lesser numbers, if they do.

Wade and his group work with Dr. Rob Wiltbank, who has one of if not the largest database in the world on return on angel investment. The program at Willamette University is impressive — MBA students, with the help of a lot of advice, guidance, and mentoring, are actively involved in making angel investment decisions. The group participates in several of the angel investment groups operating in Oregon, and makes multiple investments every year.

Business Plan Contests Leave Out Bootstrappers

Bootstrapping, Business Plan Contest, Venture Contests, , ,

I consider myself something of an expert on business plan competitions. I ran one myself for several years, I’ve judged several dozen including several of the most prestigious, my company sponsors more than a dozen a year, I’ve had students in my undergrad business classes competing in them, I’m an investor member of an angel investor group that holds an annual contest, and perhaps most important, I enjoy them.

business planSo when the National Association for Community College Entrepreneurship (NACCE) asked me to do a webinar on business plan competitions, I said yes. That’s going to happen August 18 at 1 pm PDT (and you can click here to register). And it also got me thinking about what’s right and what’s wrong with most of the business plan competitions I see. Which led to this post, about a problem I can’t solve. While it might come up in that webinar, it’s not going to be the main topic. But I do want to write about it here.

The problem is that business plan contests almost all undervalue bootstrapping. While the vast majority of startups are bootstrapped, meaning they start without venture capital or angel investment, the vast majority of business plan competitions award the best investment, not the best company.

And I’ve seen many a good-looking plan, and good-looking business, that should have been winning something but wasn’t a great investment for outsiders. It hurts to not find a prize for the startups that look really good for the owners and operators, long term, without an obvious exit, which makes them a good business but a bad investment. Why don’t they get a prize?

However, this is a hard problem to fix. How do you decide what’s a good business? High risk, low risk, change the world, maybe? It depends a lot on who you are.

Back in the late 1990s I judged some intercollegiate MBA-level contests that left the criteria for winning up to the judges. Most of the judges were investors so they leaned naturally towards awarding the top awards to the startups that seemed to offer the best investment.

I still remember a conversation we had in the judges room in 1998. One of the best businesses we’d seen said outright that they could do it without outside investment. They were there for the cash prize. They had a strong team, a good product, and a believable plan for financing themselves using early sales. Several of us thought that the best possible businesses grow themselves that way, bootstrapped; and a good shot at a $5 million business owned by its founders was, to us, a better business than a 1-in-100 shot at a $25 million business owned by investors who put in $2 million. Several others thought that a business plan competition prize should go to the best investment opportunity.

How do you compare the relatively low risk cool bootstrapped startup to the high risk, high-profile startup that might change the world? Sure, we all say the risk and return ratio, and the MBA world offers technical analyses like internal rate of return, but, as they look into the future, it’s all very subjective. It involves guesses about the future cash flows and the discount rate. There’s a lot of unequal comparisons.

But the classic business plan for investment, and the investment process, and the investment filter, are also what’s generally taught at the MBA level, a lot more than bootstrapping.

A few years ago half a dozen or so of the leaders of MBA-level business plan contests got together and, trying to solve this problem, agreed on some general standards. At that time – or so I was told; I wasn’t there – they standardized on using “the best investment” as the main criterion for determining a winner. I do sympathize. Although even this one is a complex and difficult standard to follow, it gets way worse when you drop it in favor of something even more vague.

Most of the major competitions go along with that standard. Some of them have added special channels for social entrepreneurship, with different criteria. And for the angel investment competitions, like our Willamette Angel Conference, it’s not a problem at all because we’re actually investing, so of course we want the best investment.

But in the meantime, the bootstrappers are still left out; and that’s a shame. I think it’s a problem we can’t solve easily. And it might come up in my webinar, but I won’t have a solution.  What do you think?

Our Angel Group Chooses to Invest in Healthy Natural Organic Intimacy Products

Angel investment, Business Plan Contest, Venture Contests, , ,

I fear you’d have to know the quirky nature of Eugene, Oregon, my home town, to understand how well the choice of our local angel investor group matches the area. Some people call Eugene “Berkeley North.” We have to have way more health foods stores, organic foods, and natural products per capita than any national average; and more Birkenstock, and more gray ponytails behind bald heads.

Good Clean LoveSo it’s not a complete surprise that the winner of the Willamette Angel Conference angel investment was Good Clean Love, offering all-natural intimacy products in a market that is dominated by petrochemical-based products. This is what people in this town call “Eugenian,” a natural product produced by a company built on values.

This company reminds me of Coconut Bliss, another local success story, which went from founding to successful exit in less than five years, built around the values of natural and organic and healthy. I posted the Coconut Bliss story on my other blog just a few weeks ago.

Good Clean Love won over an impressive field of startups. As one of the investors, I can tell you that the deliberations were very tough because we did in fact have several very strong companies to consider. If you’re curious, take a look at the conference recap here.

The choice may surprise you if you look at those other companies. But for me, the lesson here is being different, building around a story, credibility, and staying local. This is a good story of local investors believing in local companies.  And developing the local area without sacrificing investment potential.

(And that brings up an interesting conflict of interest point, since I’m one of the angel investors, that means I now have an investor interest in Good Clean Love. Just so you know.)