The Secret Path to Raising Money From Angel Investors
GUY POREH | MARCH 30, 2018
It’s a gorgeous sunny day in New York’s Upper West Side and I’m too heavily caffeinated after spending hours hearing from 4 startup founders, pitching me their ideas in the hope that I can help them raise their seed round.
When the last one leaves, my head drops to the table with a bang..of despair.
They, just like countless others I’ve met, are all making the same mistakes. It’s so frustrating.
It’s not like there aren’t any books about raising money out there. There are plenty! Some are really accurate too, but for some reason these founders never seem to take the time and effort to read these books, and more importantly, to learn from them. And that is a huge shame since the words in those books have the potential to change their lives from one of poverty, struggle and frustration, to … well funded struggles and frustration(!). They also stand a much better chance of actually creating a world-changing company.
I’ve had the good fortune to help startups (including my own) raise multi-millions of dollars in seed funding. That doesn’t make me an expert, just like a person who has gone on many dates isn’t suddenly a relationship expert, but I did learn that there is a method to the madness. There is a way to make yourself more appealing, and convincing to investors and make them more inclined to hand you their hard-earned money, and to help them want to go on a journey with you to win.
It has always been my passion to help startup founders succeed, so I’ve decided to write a series of really short, easily digestible tips aimed at startup founders raising their seed round.
This is the first.
Before the meeting:
Investor meetings are all different. You’ll hear different questions, different levels of excitement, different expectations and so on, but if you have a solid foundation to stand on you ‘ll be able to go through them easily. So, how do you build that solid foundation? You start by asking yourself these 4 questions. I’ve heard these questions many times in many different iterations, but my favorite version is from Jason Calacanis’ book “Angel”. I’ll illustrate how important it is having answers to these questions by demonstrating their impact through 2 real startup case studies. One I work closely with (and have equity in) called Aquant.io. The other, well... I can’t name but we’ll call them SIA for now.
First Question: What are you working on?
The answer to this should be very clear to you and can be expressed in a line or a paragraph.
Aquant: We’re building a platform that helps large enterprise companies increase machine uptime.
SIA: We’ve created a service for social influencers that does X (sorry, not at liberty to say).
Second Question: Why are you doing this?
This is probably the most important question for both the founder and the investor. The “why” needs to be really compelling to the founder.
If it is compelling, then both the founder and the investor know that the founder is fully committed to making this startup succeed. And when the shit hit the fans (and it ALWAYS does!), they’ll be there, in the trenches, working their asses off to make it work. If the reason is not compelling enough, when things get really tough the founder will probably end up looking for a steady job with a nice steady paycheck and benefits, and ultimately leave the investors stranded, frustrated and mad as hell. In our case:
Aquant: We’ve been in the field service industry for 15 years, we’re deeply passionate about it. We know it inside and out and we know the biggest problem the industry has. No one was offering up a solution to clients for that huge problem. We desperately want to be the best at bringing that solution to the market. So we quit our jobs and committed to creating a product and service to fill that gap.
SIA: I heard of this cool industry called Social Media Influencers where people are making a lot of money, so I decided to try something there.
You’ve probably guessed who has a more compelling reason. Don’t get me wrong, stepping into a successful industry to try to create something isn’t a bad thing (ask any actor, musician, director etc.) but you better come up with something brilliant and fully executed before anyone will even think of giving you any money. Don’t fool yourself either. Answer this question truthfully: “Why are you doing this and is the reason compelling enough for YOU to stick through it when the money runs out, even when your friends tell you you’re crazy and nobody wants to invest in you?”
If that is not something you can stomach to answer, find something that is compelling enough.
Third Question: Why now?
This question is usually phrased as "Why do you think this will work now when dozens before have tried and failed". It’s can be really hard to answer since most founders aren’t aware why the timing of their idea/company is crucial. But it is important.
Let’s give a few examples:
Uber — "because now we have geolocation capabilities on every phone, which we never had before. So ordering a car with the press of the button is not science fiction anymore" (the reason is technology based).
Dropbox — "people are creating more and more content, whether it’s baby photos, presentations, or videos. They need a place they can access that valuable content from anywhere” (the reason is need-based).
You get the point, right?
In our case:
Aquant: IoT is about to change everything. And although it’s years away in this industry, we can help solve these problems NOW through our platform while ensuring we’re years ahead of any company thinking of using IoT to solve field service problems. We’ll literally be ready for the age of IoT” (the reason is lack of expected groundbreaking technology).
Fourth Question: What’s your unfair advantage?
I love this question. It really gets founders to think deeply about why they’ll succeed, and it gives the investor a level of confidence that these guys/girls know what they have and how to get to the finish line.
In our case:
Aquant: Our unfair advantage is 2-fold. A deep-seated knowledge of our clients and industry after being immersed in it for 14 years. Technological capabilities and a tech team that are all from the industry and know how to turn it upside down from within.
SIA: My daughter is constantly on music.ly.
Aquant raised a seed round of $2.6 million, created a stellar product and team, and are on the way to breaking the million dollar ARR barrier in just one year.
SIA created a platform for influencers, on DESKTOP (when Influencers are mobile first) They are still seeking funding …