You’ve got to be able to run through walls, leverage connections and focus on revenue — all while raising money.
Those were some of the tidbits of advice today at the World Financial Symposiums conference in downtown Seattle where three of Seattle’s leading angel investors — Andy Liu, Geoff Entress and Gaylord Kellogg — discussed what they look for in entrepreneurs and some of the warning signs of bad deals.
“The most successful (investments) have all been about the team, and primarily how much fortitude does the entrepreneur have in terms of being able to push through tough times,” said Liu, an angel investor in about 40 startup companies.
Entress, who has backed about 100 companies to date, including about 50 active software and Internet companies in the Seattle area, agreed.
“It’s all about the team. That’s what I am investing in,” said Entress. “If I meet you and I don’t like you, I am not going to invest. I don’t care what the deal looks like.”
Entress said he appreciates when entrepreneurs share the “warts” of the business, being upfront about the problems and challenges they are facing.
“These are long-term relationships. I often categorize them as getting married,” said Entress, who sits on the boards of Big Fish, WhitePages and eight other companies. “You are going to be in this thing seven plus years, so you are in there for the long-term with this person … and you are going to be spending a lot of time with them every month for years. So, you want to be with people you really enjoy being with, and helping.”
Liu expanded on that notion, adding that he prefers an A team with C minus idea, to a C team with an A idea.
Kellogg, an early investor in Amazon.com, noted that Seattle is a “small town” where angels and VCs like to work alongside one another. That means entrepreneurs should do all they can to leverage those connections. Since the bar is high to raise angel financing, Liu added that entrepreneurs should “try to stand out just a little bit more than all of the other guys.”
To do this, he suggested that entrepreneurs should try to get an endorsement from someone that the angel already knows, prior to the meeting. “That gives you a leg up,” he said. “I would go out of my way to find out who this person is hanging out with.”
Seaton Gras, who runs Seattle’s SURF Incubator, noted that entrepreneurs should be focused and direct in their approach. He pointed out how one entrepreneur he worked with sent around a presentation deck with 52 slides — something he said no angel would ever have time to read.
In order to be credible with the angel investor, you need to be able to convey what you do in an efficient manner, said Gras.Don’t waste the angel’s time.
“They need the clarity to put a pitch together that is not going to waste the time of angel investors,” he said.
In terms of common mistakes that entrepreneurs make, Entress said that startups fail because they don’t communicate with their investors enough. But the most common issue is that they simply run out of money.
“There are bunch of reasons why they run out of money — number one is they spend it too fast. Oftentimes, I see that as a problem from a very experienced executive from a big company, and they have a tendency to spend money too fast. I’ve see the opposite too where they won’t spend any money. They are so cheap, they won’t spend money on things they should be spending it on. That’s a different problem, but it is not as bad as spending it too fast.”
Kellogg added that entrepreneurs also can burn too many cycles on raising money, rather than driving revenue. That, he said, can be the best way to attract investor interest.
Kellogg noted that entrepreneurs can get “hung up on the valuation” of the round rather than focusing on getting the deal completed. “In the long run, the valuation is not going to make that much of a difference, especially early on,” he said. “So, do what it takes to raise the round.”
Secondly, he noted that entrepreneurs sometimes just spend too much time raising money. “As soon as you get revenue traction, it is going to be so much easier to raise money,” he said. “Focus on the business, not on raising money.”