1) Before You Start
2) Need an Idea?
3) Ways to Increase Your Chances of Funding
4) The Lean Startup & Business Model Canvas
5) Market Research
6) Costs, Expenses, & Budgeting
7) Exit Research
8) Building a Team
9) Running Your Company
10) Applying for Funding
11) Your Presentation
13) Additional Resources
Before You Start
Read Paul Graham's Before the Startup.
LIFESTYLE VS. INVESTABLE BUSINESSES
- "Lifestyle companies are usually owned and operated by an entrepreneur and his or her family, or a small group of partners. They tend to grow revenues slowly without investor capital and most do not need a substantial number of employees. Examples of lifestyle companies could be: single store retail outlets, software developers, restaurants, franchisees, lawyers, plumbers and many others." -Bill Payne & Associates
- Investible businesses are different from lifestyle companies in that they are scalable, durable, and sellable. They have a focus on growth, plan for, and expect to get acquired. They tend to be higher risk, have larger market opportunities, and oftentimes require world class professionals to run the company effectively.
Read: Understanding Investors.
PUT YOURSELF IN THE SHOES OF AN INVESTOR
- Are you going to blow my initial investment, or are you going to make me a ton of money?
- Are there customers for what you are building? How many are there? Now? Later?
- Is there a profitable business model? Can it scale?
- And finally, is this a team that can build this company?
Ways to Increase Your Chances of Getting Funding
By following the Lean Canvas and Customer Development process, you may have a greater chance of getting listened to, believed, and funded.
The first step in Customer Development is Customer Discovery; extracting hypotheses from the business plan and getting the founders out of the building to test the hypotheses in front of potential customers.
Your goal is to:
- Preserve your cash while you turned these guesses into facts
- Search for a repeatable and scalable sales model
The proof that you have a business rather than a hobby comes from:
- Customer feedback and orders
- Users for your buggy, unfinished product with a minimum feature set
- This process even works for Life Science
HOW DOES THIS AFFECT YOUR PITCH?
- If you are following Customer Development, you are raising money because you believe you have found product/market fit and you want to scale.
- A Customer Development fundraising presentation tells the story of your journey in Customer Discovery and Validation. While your presentation will cover the same ground as the traditional investment pitch, evidence and lessons learned from customers and stakeholders are intertwined with statements reducing risk while increasing credibility and probability of being funded.
For a more in-depth look at the Lean Start-Up methodology and why you should spend time validating your Business model
THE BUSINESS MODEL CANVAS
Determining Your Market
Who are your customers? What problem are you solving? Why would they give you money?
What is your Value Proposition?
Validate, go out and talk to prospective cutomers. use a customer driven approach.
Costs, Expenses, & Budgeting
Your goal is to:
- Preserve your cash while you turned validate your market assumptions
- Determine your user acquisition cost and lifetime customer value
- Search for a repeatable and scalable sales model
USE OF FUNDS
The team should have a focused plan to maximize the investment’s impact on efficient growth. The mentoring, networking, and capital sought should propel the company to a critical inflection point and should materially increase its valuation.
Who would buy your company & why? what value can your company add to their organization?
Vertical or horizontal integration, etc.
Building a Team
Watch: Why Do You Need A Cofounder?
A STRONG MANAGEMENT TEAM
An ideal management team has relevant experience and domain expertise. They understand industry dynamics, are coachable, and are fully committed to the business. Teams should have a focused plan and should be able to demonstrate that they have the ability to execute. Management teams should utilize pro forma financial statements to set realistic goals and benchmarks, and they display a history of achieving projections and obtaining critical milestones. We would like to see that they are realistic about their company's critical risks and valuation. If the team is incomplete, it should recognize who is needed to complement their knowledge, skills, and abilities.
Slicing the Pie: Fund your Company without Funds provides a simple model to help founders properly slice the equity pie so each founder receives what they deserve. The framework is dynamic; it adapts over time to re-allocate the equity so that the distribution stays fair until the fledgling company takes flight. (Overview) (Buy The Book)
How to Split Equity Among Co-Founders by Michael Seibel
Running Your Company
Things never go exactly as planned, those who survive prepare for this eventuality.
Read: Knowing When To Pivot.
The Florida Angel Nexus will not release your private information outside of our membership base without your consent. Our members are accredited investors, fund managers, and co-investment partners. Share enough information to allow members to vet and get excited about the deal without putting your company at risk.
ANGEL CAPITAL ASSOCIATION: ASKING INVESTORS TO SIGN AN NDA
"During the initial portions of the evaluation process, the vast majority of angel organizations will not sign non-disclosure agreements. Angel groups just see too many deals, often in a similar space. When submitting executive summaries and even business plans, the entrepreneur needs to explain the business so that the potential investors can understand the company's opportunity for success, but don't learn about any confidential issues. If you have intellectual property that has not been patented, it is best not to disclose it to the angel group when you are first submitting your company for investment. Remember that angel groups are most interested in the business behind the technology or idea they don't invest in the inventions but in the business models and management teams that will grow the companies. If your company makes it through to final due diligence, the angel group may need to research intellectual property issues and then would sign non-disclosure agreements at that time."
Companies may utilize Gust or AngelList if they wish for their information to be in a more public forum. The NEXUS process prepares much of the information needed for entrepreneurs to present and work with investors. We welcome co-investments. At the consent of the company, NEXUS may syndicate investment opportunities in order to raise larger amounts.
Frequently Asked Questions
Angel Capital Association's FAQs about Angel Investors.