Top Ten Lies Angels Tell
With a nod to Garage Venture’s Guy Kawasaki and his Top Ten Lies of Venture Capitalists, I offer my Top Ten Lies Angels Tell. When I showed a draft to my angel friend Malcolm, he turned to me and said, “wow, this is really cynical!”. So let me acknowledge that first.
1. “That was a good presentation!”
I have to say something positive, but you’re not getting me to write a check. The fact is most funding pitches are terrible; they’re more product pitches with an appeal for money tacked on at the end. Passion, yes, every entrepreneur has heard by now they must show great enthusiasm for their endeavor, but show me how I can get my money back someday, too. Who will acquire you? Are you going to raise venture capital which will keep me in the deal for 6-7-8-9 years? Or are you aware of the new trend towards early exits? Show me how I can get my money back in 3-5 years and even I’ll be saying, “that was a good presentation!”.
2. “Fix these few issues and come back in six months.”
This is so much easier to say to the entrepreneur instead of “you blew it, you’re too early”. Worst of all, you mean it when you say it even though you know the chances of an entrepreneur re-entering the process is infinitely small, because next time I see you something will nag at me, “wasn’t there something flawed with this deal?” You only have one chance to make a first impression. This should remind you of Life’s Not Fair.
3. “We offer more than just money.”
Like referrals to industry contacts, but all our industry contacts have retired by now.
4. “I don’t think he’s coachable.”
Entrepreneurs can sometimes be cocky, even arrogant. But what’s really being said here is that the average angel wants to invest in deals where he can play in your sandbox, too. A self-assured entrepreneur is unlikely to look to me for guidance, so there’s no place for me in this deal.
5. “I can’t believe (name of big company) isn’t already doing this.”
I still think big companies innovate.
6. “Let’s let him in to present and we can negotiate a lower pre-money during due diligence.”
Maybe in 2006. Today though, just like in real estate, if a property is priced too high, no one will bid. We used to be able to generate interest among our fellow angels even if most felt it was too rich, but not in this economy. A deal must meet our sense of a reasonable pre-money valuation to attract any interest at all. (See #10)
7. “I’m looking to give back.”
I said this 10 years ago, it sounded so altruistic, and assuming I would make some money as an investor, why not accent the selfless side? Who would think in 10 years I wouldn’t make any money at angel investing?
8. “I’m in 18 deals.”
But how many are still alive today? And how long has it been since you wrote a check?
At a recent regional angel conference each group leader started off the session by introducing his network and sharing current trends, funding performance and membership growth; what was the most consistent comment from the leaders about their angel group members: “tired and tapped out”. They’re waiting to see some exits.
9. “I’m concerned about your barriers to entry.”
I forget that it’s all about execution. My friend Bill Baker summarizes concisely: “technology doesn’t matter anymore”.
10. “We’re not seeing any quality deals.”
Look in the mirror. The reason you’re not seeing any good deals is many fold, but most likely it’s a derivative of Tired and Tapped Out (see #8). This lament originated in 2008 well ahead of the economic downturn; was it an early indicator? When Angels sit back and instead of being proactive in finding good startups and making seed investments and mentoring the entrepreneurs and instead rely on a website’s online application to troll for investments, well, this is what you’ll hear. The paranoid corollary to #10 is “all the good deals must be going somewhere else”.
11. “We’ve got an expedited process.”
You’ll be pulling your hair out in frustration over the time it takes to get a deal closed. First, it’s so difficult to find a deal lead, a champion within the angel group who will take the time to shepherd your startup through the process of pitching, rounding up interested members and doing due diligence. (See #8, Tired and Tapped Out.) But even more challenging for entrepreneurs, I see fewer member-led deals coming into the process. A member-led deal is when the angel brings in a deal that he’s been mentoring for 6 months to a year and has made an investment in. Member-led deals generate instant credibility, in most cases, with the rest of the Angel herd which can really expedite the process. But without member-led deals then the only deals we see are those thrown over the transom via the website online application; without a champion it’s easy for the Angel to sit in judgment and complain, see #10: We’re Not Seeing Any Good Deals.
12. See Ty Danco’s contribution in the comments below.
Saturday, March 20th 2010 at 11:58 am |
Another good one, Frank —
Duly re-tweeted & passed along by email. Why more people don’t follow your blog truly escapes me!
Entrepreneur Up!
Saturday, March 20th 2010 at 12:13 pm |
Thanks for the links to “Venture & Angel Lies”. Makes our plan sound better than we thought – plan – avoid both VC & A
Saturday, March 20th 2010 at 4:34 pm |
#12 “Our group should be able to complete your funding needs just by itself.”
Saturday, March 20th 2010 at 8:59 pm |
I do not agree that Technology does not matter. How many companies with good ideas and good business execution fell prey to lack of good technology. Technology is as much a business process as Marketing, Finance and Operations and as such, it very much matters and needs to be executed well with a pace well ahead of the others business units.
Monday, March 22nd 2010 at 7:42 pm |
Nailed it. Heard them all and unfortunately many from our own investor group.
So what are the 10 things they say that mean they really will invest?
Tuesday, March 23rd 2010 at 12:20 am |
But now there is bigger opportunities. The next Googles will emerge now. It’s not everything so bad. But, these are times to redefine what we want to be. “It’s not about becoming a man of success, but a man of value” (Einstein said). It’s not about investing in successful companies, but in companies that bring value to our society and our planet. That will bring satisfaction to all levels (economical too).
Tuesday, March 23rd 2010 at 8:22 am |
Number one and number two are spot on! Nice post.
Tuesday, March 23rd 2010 at 2:58 pm |
Frank I want you to know that your Top Ten were buzzing around my group today. They are great fun and too true.
Monday, April 5th 2010 at 12:35 pm |
As the Executive Director of an Angel Investment Group I also see your “Ten Lies Angels Tell” and they do hit home on many levels but entrepreneurs should take these as objections or huddles they simply must get over to realize their objective. I find that their enthusiasm becomes sluggish when they see these stall tactics which makes the Angel Investor feel they were correct in their methods.
Thursday, April 8th 2010 at 10:29 pm |
Regarding # 4 and those “self-assured entrepreneurs”. Self assured entrepreneurs are “control” orientated, as opposed to prediction orientated. Prediction orientated entrepreneurs have a higher rate of failure, according to Rob Wiltbank. It is my opinion, and I could be wrong, but as long as the PPM has strong investor centric terms (participating preference 2-5x, redemption revisions, 100% ownership of preferred shares, etc) angels would not have to be as concerned over valuation. My theory is that a reason that some angels have so many failures in their portfolios is that their portfolio is filled with prediction orientated entrepreneurs, who don’t have a broader knowledge of the capital markets.
Instead, an angel should fill their portfolio with control orientated entrepreneurs that write strong investor centric ppm’s (5x participating liquidation preference, 100% ownership of preferred shares, etc) and the entrepreneurs valuation.