Saturday, June 21, 2008

Where to find seed funding?

Browsing many VC/startup websites during my free time, one of the questions I see very often is, "I'm looking for angel investors to put in some seed funding for my high growth company?"

First of all, don't try to pitch your idea to the public. None of the investors I know use publicly written business idea to find companies. I know many founders are just dying to publicize how great the idea is and how fundable his company is, but this is a question that you should be answering during the diligence process.

Let's now focus on where to find angel investors. Just so that we are on the same page as to the definition of angel investors, not all high net worth individuals are qualified as angel investors. There are some, but most of the angel investors are part of angel groups like CommonAngels in MA. I've had great opportunities to get to know many of these "certified" angel investors, but I guess not that many people have the same chance. So, where would you find them?

Here are some ways that I find quite successful in having any luck finding angel investors.

1. Networking events: If you don't show up in any tradeshows, networking events, conferences, etc., you better get a ticket and go there. Just to name a few networking events in Boston, you can go to Web Innovators Group, Tiecon East, ACG, AlwaysOn East, etc. Investors hang out where entrepreneurs hang out, and vice versa. Some of these events publish the list of people coming. Before you head out the door, jot down some of the names and do some targeted networking. The trick here is that angel investors don't really have official title like "Angel Investor". If you get lucky, the chances are, you will end up talking to some wealthy individuals to advocate your company, advise your management, and possibly pitch in some personal money to run your business.

2. Introduction through VC: It's not a secret that VCs and angel groups talk to each other for many reasons. There are different investment strategies and focus that they go after. Let's say that you talked to an investment professional at a billion dollar fund, and he finds some merits in your business. Yet, your capital need is too small for their fund size. Then, the VC probably knows an angel or two to make some introductions and let you figure out if there's a better fit.
4. Introduction through well-known entrepreneurs: Some entrepreneurs think that money comes from .....well... people who seem to have money (like VC, angel groups, etc.). Talking to well-known entrepreneurs can get your foot in the door to angel investors. They might as well be angel investors as well. They are in the same shoes as you are and will be interested in hearing more about what you do.

3 comments:

Amy Jenson said...

Interesting article. I want to run my own business, but I'm a little shy of having enough capital. An angel investor would be great and very beneficial. I'd like to buy a business instead of starting one from scratch, but I haven't had any luck looking for the right one. Do you have any suggestions? Thanks.

Coasting through the world of early-stage ventures. Official geek and all about changing the world. said...

hi Amy, raising capital from angel investors (and from any serious investors) is very very intricate. Given the mere information that you shared, I really can't make suggestions.

If you don't mind my being very vague, your option seems to be a)grow slower with your existing capital and re-invest with future cash flows, b)find some angel investors confident (or foolish) enough to share the risk with you. Now, remember that angels are not really literally angels. They expect equity stake and get at least 2x-5x return over several years. Is this something you thought about?

If there are any specific questions, please send along and I will answer more comprehensively in a new posting.

Amy Jenson said...

Thanks for the advice. I really appreciate it. I'm most just looking for a lender and thought an angel investor would be a good way to go. I would love to get a 2x-5x return, but I know that is often difficult with new businesses.

I did do more research yesterday night and was able to find a couple of businesses that caught my eye on BizTrader.com. I'm interested in buying a business, which makes it perfect. Anyway, there's a find a lender section, which makes things easier.

Thanks again for your help!