Part 6 of CEOs Dinner

Another great stat from last Thursday night’s dinner, this again from the same angel investor. He revealed something that I was shocked by!

The Inc 500 is a list that is published every year of the 500 fastest growing small businesses in the country (they do an Inc 5000) as well.

This investor revealed that over 85% of the companies on this list have never taken money from an outside investor! 85%!

So, think again if you want to raise money, is it really a good idea?

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Part 8 of CEOs Dinner…

Just to follow up to the stat we released earlier this morning (where less than 15% of the Inc 500 fastest growing companies actually take outside funding),  here’s another stat from the same angel investor (I told you he was chalk full of stats) that will knock your socks off!

Out of 19 Million small businesses, can you believe that only 15,000 are venture backed!?

So, again, if you’re looking for outside venture…

A) Now you know how hard it is
b) You also know that MANY are doing without it (actually an eclipsing majority are)…

I guess these “dinners” and “networking” really does work - I never knew all this!

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CEOs Dinner Part 5

Just wanted to take a minute to describe the difference between an angel investor and a venture capitalist - it’s very important to know if you’re looking to raise money any time soon.

The bottom line to use is the number $500,000. If you’re looking to raise anywhere from $50,000 to $500,000, your best option is to use angel investors - most Venture Capitalists don’t want to get into any deal that small.

If you’re looking to raise $1M or more, now you’re out of the angel investor range (for the most part) and looking for venture capitalists. But, honestly, even $1M for most VCs is not interesting - typically they don’t want to talk for less than $3M to $5M. As you saw from yesterday’s post, the average investment by a VC in 2007 was $7M.

With that out of the way, what’s the DIFFERENCE other than money given?

Mostly, they are the same - they are people who are giving you money for a share of your company. However, Venture Capitalists do this for a LIVING, they are professional money sources. They also tend to take larger stakes and be much more ruthless about management - they also really meddle in your business much more (typically) than an angel investor will.

An angel investor on the other side tends to just be a very wealthy person looking for good places to put their money. Many times angel investors are investing for other reasons than just the financial aspects. They could be investing because they believe in you, are related to you, believe in your cause, etc…

Most angel investors will be much more relaxed and will also probably take LESS of your company.

The other benefit of an angel investor is that sometimes the deal can be crafted as a “debt” too - so they have “rights” to convert that debt into stock later, but for the time-being, they’re just loaning the money to you. Each angel investor has their own thought/view point on which one they prefer.

 A big thing to be careful of when you use angel investors…

Don’t give yourself a ridiculous valuation in order to sell LESS % of the company. It may seem like a great idea at the time, but when it’s time to do a venture capital raise later, your valuation may be too high for anyone to get involved!

Oh, also, positive side to angel investors is that venture capitalists like seeing some of that money in there - they feel just a BIT more confident (especially depending on WHOs money is in first).

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Part 4 from my first “CEOs Dinner…”

There was an angel investor at this dinner who seemed to be FULL of yummy stats, every now and then he would shout some out. Here was one of my favorites…

Last year, in 2007, the average Venture Capital investment into a company was $7 Million…

So, you can tell, if you’re thinking about starting an internet company and think that it’s a GOOD thing that you only need a few hundred thousand dollars…think again.

Many times, VCs (venture capitalists) don’t even want to get involved unless they can put in a few million (it’s not big enough fish for them otherwise). In a case like that, you likely want an ANGEL investor - but there are down sides there too.

I’ll talk more about the difference between an angel investor and a venture capitalist soon…

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Part 2 from my first “CEOs Dinner…”

After the banker spoke, they had a local Venture Capitalist come spend 20-30 minutes giving some tips for anyone looking to raise money through VCs. He gave one tip that I’ve actually heard before as well and that makes a TON of sense.

Anyone who’s getting ready to go raise a “VC round” whether it be round A, B or even later will first develop a list of the firms you are going to prospect. By nature, you probably have a list of VCs that are your “top list” or the ones you really hope you’ll find.

Do yourself a favor - put those ones away for a bit, contrary to what your gutt may say - DON’T pitch them first.

Find the ones on your list that you are “OK” - nothing special and you wouldn’t be too heart-broken if they turned you down. Pitch THEM first.

Basically, it’s batting practice. You’ll need to refine your pitch, you’ll see what the common objections are and you’ll get much better at it.

Save the real goods for the VCs you really want. If you pitch the good ones first, you’ll screw it up (potentially). Also, it can’t hurt you to walk into the good ones with other VCs already interested - just knowing that gives you a TON of credibility.

So, think of pitching VCs in reverse order - save the best for last.

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Part 2 from my first “CEOs Dinner…”

One of the active angel investors there shared MANY stats with us, one of the stats he shared was the following:

“80% of venture capitalists invest within 100 miles of where they are…”

This does not surprise me and it can a major impact on you. If you’re sitting in Wyoming, trying to build a “web savy” business and need to raise money…you’re likely going to find investors in the Silicon Valley area.

So, start thinking - are you willing to MOVE to get the money? Venture capitalists know a certain area, they also feel they can have better hands-on control - convincing them to invest far away is an un-likely task.

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