... only 51 companies out of 20,395 that were processed through their system over the last 12 months received funding. The odds of writing a New York Times Best Seller are greater than the odds of getting funded by an angel!
Even though I have been writing about this problem since 1995, I had no idea that the odds could be so poor. The typical numbers are one out of every 500 companies applying for venture capital gets any and perhaps one in every 200. The Angelsoft numbers translate to one in 400.
That's why it's called the Financing Valley of Death. Investors want entrepreneurs to prove their mettle by surviving it before any checks are written.
Don't kid yourself about business plans, Powerpoints, and elevator pitches eliminating this test.
A revenue-based financing instrument called a Revenue Royalty Certificate.
I'll gladly pay you Tuesday for a hamburger today. - Wimpy
The above quote sums up in one line what most first time capital seekers sound like to angel investors. I say this because the number one concern of investors is the preservation of their capital which includes the ability to extricate it from the company within a reasonable amount of time.
When the investor asks what sort of liquidity event the entrepreneur plans to create for this purpose and when, the answer is invariably vague. "Oh well, if everything goes perfectly we will IPO in a few years or be acquired by a big company." That folks is as confidence inspiring as Wimpy's famous offer. Investors require a minimal level of certainty. Vague answers only scare them off. That is the first big deal-killer.
The second deal killer is an inability to agree on a valution. The entrepreneur needs $500K and is offering 20% of the company for it. That's only fair, right? The angel wants 51% because of the high level of perceived risk. The chasm between the two valuations is in most cases too wide to bridge.
The third big deal-killer is over how any potential profits may be split if they do occur. Since the startup will be a private company initially the founders will want to minimize taxable income via the standard ways. This usually means that nothing is left over to share with the passive investors. Considering that his money could be tied up for five or more years without any return, can you blame the investor for not being excited enough to write a check?
Is there a solution? Is there a way to eliminate these three deal-killers? The answer is yes. It's done by using a revenue-based financing instrument called a Revenue Royalty Certificate.
Revenue-based financing is becoming the hot new way to provide capital to companies. I'm proud to be the first person to ever provide entrepreneurs with a tool for raising money with this type of deal structure.
I have now just released version 3.0 of How Deal-makers Close Investors. It shows you how to approach capital raising like a deal-maker as well as how to utilize revenue-based finance with a Revenue Royalty Certificate. There is nothing sadder than someone with nothing but a business plan and Powerpoint who can't understand why people aren't throwing money at their venture. Don't be one of these time wasters.
Here's more information on how to be successful at raising capital from private investors and business with revenue-based financing.
We look only at companies in "cleantech" or "greentech" and invest in seed, A and sometimes B rounds. Our geographic focus is the Pacific Northwest (Washington, Oregon, Idaho, Montana, British Columbia and Alberta) but we look at deals from other regions, particularly the Western U.S. Although we welcome companies with "chiseled-in-stone" term sheets, we are experienced in leading both seed and A rounds. (Read investment criteria.)
This is a BBC show on the Dragon's Dens from around the world. In the USA the show was called Shark's Tank.This is part 1 on how to
raise capital from angel investors. Some of the business ideas are unintentionally hilarious. However, the show is packed with valuable insights and tips for anyone trying tom attract capital from angel investors. I should add that I have always disliked the label "angel investors" because it implies that they are as free with their money as a doting 89 year old aunt. They're not. Instead they are hard-nosed business people.