At first I thought it best to completely stay away from this story, then I realized after a conversation in our office tonight that there are some interesting details in this story that may make sense for me to collect and reflect on. This is a collection of the posts on the AngelGate drama going around in the venture financing world. If you read the following articles in order, and some of my personal insights provided below, you’ll understand what’s going on and  have a great understanding of the topic from multiple, differing, but all intelligent perspectives.

Format is:

Name of author (sentence summary)

My insight/review, blah blah blah.

Enjoy.

#####

TechCrunch (this is where it all started)

Mike Arrington of TechCrunch, went to a dinner with some super angels, meaning people who invest early stage, but with other peoples money (some definitions may vary). Arrington was tipped off on the dinner and had a hunch that it was about price collusion in early stage deals. So, he just showed up in typical hard nosed journalistic fashion…

http://techcrunch.com/2010/09/21/so-a-blogger-walks-into-a-bar/

Dave McClure (we’re not bad, we’re hustling & a healthy fuck you)

Dave’s approach is consistent and honestly I kinda like it. He basically makes the claim that these meeting happen but no, they weren’t colluding on prices. They generally meet with some of the big names to make good things happen and help direct the industry in a positive direction.

http://500hats.typepad.com/500blogs/2010/09/fire-in-the-valley.html

Ron Conway (blasting super angels)

Ron is a stand up angel and I hope someday I get the chance to work with him. This letter (that was intended to be private) got out and of course published on TechCrunch. He basically calls out some negative super angel behavior and attempts to disassociate with the crew that is potentially acting in an unethical fashion. If there’s anything I took away from this, it’s that some nasty things were going down around that table.

http://techcrunch.com/2010/09/23/ron-conway-angel-email/

Brenden Mulligan (can’t we all just get along)

This post is probably the least circled of all the posts here. However, its one of the most honest and innocent summaries that I’ve seen and I have a huge amount of respect for it. Brenden is a good friend and he literally nailed this one. If I were to write a post with my thoughts, I’d probably just ask to repost his. The gist is chill out, we all need each other.

http://bmull.com/dont-let-this-angelgate-crap-drag-out-communi

Mark Suster (reality sets in, advice for entrepreneur)

Like I posted on Marks blog tonight… Every time I have an interaction with Mark, whether twitter, or reading his blog, I have a growing respect for his perspective and realistic, balanced approach to business and life. This is the best response yet to a very sticky but interesting topic. It’s fair, it’s real, and it like most things I agree with, sides a bit with the entrepreneur about how to handle what is inevitably the real world. His advice is a little bit deal with it, and a little bit, how to deal with it. Thanks Mark.

http://www.bothsidesofthetable.com/2010/09/23/what-entrepreneurs-should-do-about-price-fixing/

[This is the second portion of a series on raising seed funding for a web startup. You can find the first post here, where we discussed referrals, short pitches, accountability, and tracking opportunities. Note: I’ve never raised any seed money for a startup. I write these observations to share what I’ve been learning and to motivate myself and the other entrepreneurs in my shoes to get out there and get’r done.]

I won’t take those terms. You know your situation better than I do so any decision about funding must be very specific to the conditions of that startup. Always keep that in mind. However, it’s my opinion that if your a new entrepreneur, you take what you can get. Don’t push for one form vs. another, or hold out for a great named investor. Take something to get you going and/or keep you alive. If you’re important to the business as the entrepreneur (which I assume you are) then you get equity in later rounds, they’ll have too to keep you. People who are good get compensated, end of story. On your second startup you can become particular, negotiate harder, and work with the big name investors.

Giving away shares for cash. A lot of founders and early-stage investor are focused on percentage. This may help in initial deal terms, but this is a short term number. It’s healthy and common for companies to take 2nd, 3rd, and more rounds of funding so percentage won’t ultimately matter. What you need to focus on is price. Investors want to avoid dilution but often mix up percentage dilution with economic dilution. Their percentage might decrease but the value may increase.

Percentage dilution in most contexts is actually rather meaningless, but economic dilution is crucial.  The reason is simple.  An emerging business which is growing and creating value for itself is able to sell its shares at a higher common share equivalent price than in previous financing rounds.  Under this scenario, new investors buy shares at a higher price than existing investors.  Existing investors surely suffer percentage dilution, but they also enjoy economic accretion.  This is a good thing for existing investors, because although their percentage interest in the emerging business goes down, the value of their economic interest in the company goes up.

Once you throw blood in the water the sharks come. Ok I’m not sure if the analogy is that good but deals will get competitiveve once you have a single term sheet. Momentum becomes critical to prove to your first investor that you’re legit and to show that the deal terms were favorable. Each consecutive term sheet you get makes the next one easier. Remember that pipeline we talked about? Now is the time to hit that hard.

Here’s a voicemail Travis Kalanick left on a 2nd termsheet prospect on a recent *competitive* deal. The recipient of this voicemail called back in 5 minutes, AND ended up being the lead on the deal (notice the urgency while staying true and credible):

Hey , wanted to check in with you regarding . . .things are heating up with a couple other parties and it looks like things could get done pretty quickly from here… wanted to check in with you, see where you’re head’s at on the deal, and see if we there’s a shot we can work together on this one… give me a call back as soon as you can… talk to you soon

Piggy backing is piggy banking. You’ve likely talked to many “small time” investors leading up to this point. They weren’t ready to make the investment at first but now that you’ve landed a term sheet from a likely larger investor there is nothing wrong with letting the small players piggy back the deal. They now have confidence that it’s a legit investment and can just use the same terms as the existing term sheet. $200k can double or triple relatively quickly this way so don’t slow down after 1 or 2 investors agree. The clock is ticking.

Don’t be this guy, what an idiot.

The best entrepreneurs are never finished. Keep selling your idea, keep piling on investors at the original terms, and don’t let the first big guy change his terms just because you’ve added others, fight collusion. A very smart entrepreneur, Travis Kalanick, says that “until the deal is closed, you have at best a 50/50 shot of it happening.” The moment you think you’re done with a deal, watch this video again and save yourself the embarrassment.

image via BenGoode

Related articles by Zemanta

• Term sheets that you don’t want (startupcfo.ca)
• Raising Seed Funding For A Startup (Part 1) (thedreaminaction.com)
• The Down Round (startupcfo.ca)

If there is one thing that I do plenty of at GE, it’s present. Whether this be over the phone or in person telling a story in a business setting is a skill that one should continue to foster and treasure everything you learn. Along with presenting, the skill of building powerful Powerpoint presentations in order to communicate a project status, present a business case, and sometime request funding for a project is key. I’ve never pitched VC’s or Angel investors for funding on a startup, although I may soon :), but I have learned a thing or two about requesting cash using a solid slide deck and good story.

Recently, I’ve been studying methods on pitching for startup venture funding and have looked through many example decks and I’ve created this list of tips for getting funding in either the corporate or startup worlds. Believe it or not, I find many similarities between the two. I’d love your feedback on which tips have worked for you or which tips you disagree with.

1. You can visually overwhelm, don’t – Your visuals will usually be posters or charts and most of the time in a PowerPoint deck. Whatever you decide to use to grab your audiences attention, you should keep visuals simple and focus on adding to the story, not distracting from it. The most powerful tool you have in the presentation is you, so make sure that is the focus, take the Steve Jobs approach and use very simple slides to enhance your vocal presentation.
2. Be you, that’s what they are investing in – Especially in the startup world, the investors will be looking at you very closely to see if not only your idea is good, but how you plan to execute that idea. Make sure to be yourself and show them the real person they are investing in. By trying to be something your not you won’t come off confident, capable, or authentic…3 must have’s before making an investment.
3. Don’t be boring – Your goal is to keep the audience engaged and interested in what you’re pitching. If they get bored, they won’t invest, so make them laugh a little. My junior year Chemistry teacher educated her audience, but it wasn’t interesting or engaging at all. Had she made us laugh a little and been cognizant of the fact that half the class was sleeping I think we may have invested more time into her class.
4. Focus on them, not the idea – If you lose focus of your audience, they’ll lose focus of you. Make sure not to dive too deep into the details of your project or idea otherwise you’ll lose their attention and the chance of getting funded. If you are staring at your slide or the screen, then they are looking at your ass or their blackberry’s, and not your pitch. If you don’t keep eye contact with the investors then you’re essentially talking to yourself.
5. Have a conversation – If you are reading your presentation or just going through the bullets without any real engagement then your not getting anywhere. Keep them engaged by keeping examples relevant to them, or ask them direct questions that require a response. This will keep them on the ball and related to your story. If you go too deep in the technology or details of your idea then they won’t be able to respond or relate with you.
6. Say, “I don’t know” – Do not try to be flawless. It is critical to built a rapport with your audience so that you can connect with them on a real level. If a question is asked of you that you don’t have the answer to, then just say, “I don’t know, I’ll definitely get back to you”. They will be impressed with your honesty, your comfort level, and with your request for a follow up. Sometimes, I’ll say I don’t know just so I have the opportunity to follow up with them. This gives me the foot in the door next time. The uber critical key here is to be honest. If they sense that you are trying to pull one over on them, your chances of funding are finished before they started.
7. Prepare but don’t obsess – You obviously need to prepare enough so that you know the topic you are presenting, but if you are too rigid and too rehearsed it will be obvious. Do not try and memorize a script! Know the bullets of your pitch, then wing it. There is a comfort level that you’ll build with your audience when you talk with them versus reciting to them that will be very valuable to you. Comfort level is very important when pitching for funding so find your personal, ideal level of preparation by doing it over and over.
8. Don’t be stiff, but don’t rock out – When presenting I’ll usually stand up if I can. Even when it may seem more appropriate to sit I like to stand to grab the audiences attention and introduce the right amount of motion. When beginning public speakers talk they are usually doing 1 of 2 things: They are stiff as a board and their audience falls asleep, or they are rocking from foot to foot so bad that it completely distracts from the message. I like to use the area to walk from side to side to highlight a specific points and draw visual focus to the point I’m making at the time. If you know your slides, you can use your body position to really bring focus to the topic. Just remember, save your rocking for the weekend.
9. Remember me – Just like in my post about getting a job talking about the importance of elevator pitches, it’s critical that you do or say something that will be memorable. In the case of VC’s, they hear tons of startup pitches and there needs to be something about you and your idea that really grabs their attention. Think about crazy “go-to-market” strategies as a way to capture their attention…
10. Call to action – At the end of the pitch, do not just finish with “Questions?”, that’s weak! Make sure you have a clear and concise call-to-action from the audience. You’re either asking for an approval, for a funding, or for a pat on the back, but you want something, so make sure and ask for it. If you leave the end of the pitch open ended even the best slide deck and greatest story can be turned down or brushed off. Put the ball in their court and call for a decision.

We’ve all heard the adage, you need money to make money, well in my experience it’s true. Asking for money is not easy but it’s a skill that if you work on now it will help you exponentially later. If you’re 22 with the next Facebook, or if you’re 60 and you just found a must have investment property, pitching for and getting funding is a must have skill.

Have you ever raised VC money? What tactics did you use to land the much needed cash? Or, if you’ve pitched for, but never received VC funding what were some of your lessons learned? We’re all about helping each other out on THE DREAM IN ACTION so let’s hear your stories!

photo credit: tiedemann.marc

via mario.nolla

I’m now working on startup numero 3. I’ve thoroughly enjoyed the process but I’ve not really enjoyed the process, yet. As in, I’ve not made it. I’ve yet to create anything that was sell-able, sustainable, or strong enough to go full time on. So, I decided to make a list for myself of the first 25 things that I should do before really diving into the next one. Each step or tip has a link to resources on making that step happen. Follow these steps (not necessarily in order) so that you don’t have to use tip #26.

Here’s what you’ll first need to do in order to really start on the right foot.

1. Get Your Head Right
2. Build The Right Foundation
3. Put Your Lipstick On and Pucker Up
4. Getting Attention
5. Oh Yea, You May Need Money

Get Your Head Right

There are so many great blogs out there with experienced advice on starting businesses that it’s foolish not to read them. Spend some time learning from the experience and mistakes of others.

“Smart men learn from their own mistakes, Genius’s learn from the mistakes of others.”  -Unknown

1. Start a Business with Passion – Loic Lemeur is one of the most passionate entrepreneurs I’ve watched. He talks about how to start with passion.
   
2. Read Getting Started - This book by 37 Signals is one of the best books for starting a technology business. How to develop with style, speed, adn efficiency using Agile. Learn from the great companies especially when the provide such a valuable & insightful resource.
3. Treat Competitors with respect – Again, Loic is experiences and has learned to benefit from competitors. Learn how to work competition to your advantage.
4. Learn from The Top 10 Startup Mistakes – Not knowing what mistakes you could potentially make is your first mistake. Know what to avoid when starting up.
5. Learn from Millionaires (if you want to be one) - Who better to learn from than the folks who’ve already made the cash.
6. Solve problems before they exist - Preventing problems is the most valuable action you can take. Learn how to solve before they start.
7. Get inspired from Mixergy interviews – Andrew Warner provides personal insight and detailed, challenging interviews of enterpreneurs who’ve gone through what you’re about to take on, and have succeeded. Also check out ActionsTalk.com for tacticle startup spotlights.

Build The Right Foundation

Legal structure and accounting are not fun, the suck, but they are very important so take the time to setup the right foundation and structure to avoid future drama. Here are four steps with resources to setup the right foundation.

1. Choose between Inc. vs. LLC - Legal structure is important and you’ll need to decide what the goals of your company are. If you plan to one day go public LLC may not be your best option, however if you plan to privately own LLC may be much simpler to get launched.
   
2. Accounting Sucks but someone’s gotta do it - Accountings goal is your “score”, but it’s task is your records. Here’s the basics to accurate record keeping. Learn how to record these transactions that change the balance between your startups assets (code?), liabilities (debt?), and equity (your shares!).
3. Save money using Docstoc templates – Save tons on legal documents and templates using Docstoc’s resources, this doesn’t mean you won’t need a lawyer but rather will cut your legal fees.
4. Open a Business Bank Account &/or Accpet CC’s and Online Payments– A great first step to setting up the feeling of ownership is for each partner to put in their determined share (in cash) into a bank account. This will be the building block for determining allocation of shares and equity.

Put On Your Lipstick and Pucker Up

Having a polished web presence is NOW absolutely critical for your company. Whether you’re a web based startup or a offline consultancy it’s critical that your customers can find you easily and find out about you easily. Put on your make-up.

1. Set up a blog with WordPress.org – Get a SEO friendly blog up so that the Google Bugs can scan it and share it. Having a .html file up with one page just won’t cut it anymore. Hosting is cheap, WordPress is free, and your excuses are dying fast. Get on it!
   
2. Top Ten Mistakes in Web Design – The ten most egregious offenses against users. Web design disasters and HTML horrors are legion, though many usability atrocities are less common than they used to be.
3. Google Website Optimizer – A free tool that will help you maximize your conversions. The web is a metrics driven industry to know how people are interacting with your website.
4. Signal vs Noise is a blog with amazing design tips from amazing designers (37 Signals) - A design and usability blog by 37signals.
5. Find out who is clicking where - Use CrazyEgg, a simple tool that shows you how website visitors interact with your website. Knowledge is power!

Getting Attention

You can have a great product or service, but if no one sees it you will never make any money. Now this doesn’t mean you have to hire a marketing firm to help you out, but you could learn some basic things about Internet marketing.

1. Get on the blogs - Mike Arrington of TechCrunch wrote this post on how to get your company blogged.  Tim Ferriss used blogs to get his book to a NYTimes Best Seller, do the same thing! 
   
2. Yes you have to worry about SEO - Niel Patel wrote this article on how to optimize your blog to be found by search engines. With the right content 50% of your traffic may come from search engines so make sure to understand these basics.
3. Web businesses are Metrics based so use Analytics - An Hour A Day – Avinash Kaushik, a Google’s analytics guru, simplifies web analytics and what/why you need to understand your analytics.
4. MailChimp – Collecting email addresses to build your audience and leads is super valuable. MailChimp is the easiest system I’ve found. Sending mass emails can be difficult to impossible without using a 3rd party service so this is a inexpensive and valuable option. 

Oh Yea, You May Need Money

Without experience, raising capital is a pain in the ass. If you want to do it you’ll need to understand the minds of the folks your asking. Learn how to give the right kind of pitch, know the terms, and understand what they’re hoping to get from you so you don’t get screwed.

1. The 10/20/30 Rule of PowerPoint – Save yourself the embarrassment and understand what type of pitch investors want to see before you give’m your ‘dog and pony show’.
   
2. Venture Hacks – I’ve learned so much about the VC industry from this site, it’s an incredible resource.
3. Building the budget and revenue model -Ross Kimbarovsky of crowdSPRING breaks down his tips for building a budget and rev model. Investors really won’t talk to you without it.
4. Understanding Angel Investing - Understand what an Angel Investor is looking to get out of the deal is important before dealing with one. If you can understand their goals and tailor the deal to those goals, you’re much more likely to raise funds.
5. How To Raise Angel Dollars - Learn how to raise money without giving everything away. At the end of the day you want to own your company not just work there so read how to raise Angel funding.

Wrap Up

That’s 25 Steps, with resources to get going on your startup… also, here’s a bonus source if you don’t follow the above resources well enough. I’ve done it twice :) so don’t worry if you have to scrap it and start over, you’ll learn everytime then you can build your own list of must do’s.

1. Closing Down :( a startup - If things don’t go as planned, make sure you shut things down the right way.
   

Let me know if I missed anything critical or if you have steps and resources that should be shared!

As I continue on my quest to better understand venture capital the question arises of, what is the difference between angel investing and venture capital? I’ve found there are many; involvement, who’s money, what stage, what size, required performance post investment, type of person, etc. The differences are practically endless so I’ll try to address the basics here.

First, Angels are investing their own money, they are usually individuals not private entities, although there are a decent amount of angel networks that pool money for these types on investments. Angels typically get involved much early in the start-up process and for better or worse their investment decision is much more emotionally charged. Because of that emotional involvement the angel is usually much more involved in the growth process.

Venture capitalist are an entirely different beast. The perceptions of VC’s varies quite a bit amongst the start-uppers and entrepreneurs who often seek there help/money. The term “vulture capitalist” is not uncommon and is used for VC’s who take all control away from the entrepreneur who is building the company. Different from Angels, VC’s are investing someone else’s money and get paid a mgmt fee (around 2.5% of the total fund) and also get carry (a piece of the upside gains, around 20%). A VC’s performance is measure by the investor or LP (limited partner) and a VC is successful by picking long shots and helping them “make it”. Venture capital investments usually come at later stages that Angel investments and VC’s look for “exits” or profitable outcomes usually in the form of an IPO or acquisition. These events can usually return 5-10x on investment (or higher) for big pay-offs.

However, when it comes down to it, both Angels and VC’s are looking for extremely high returns because the investments they make are extremely risky. For VC’s this is a job and for Angels, it is an opportunity to be involved with a success story and entrepreneurs should realize and acknowledge it.

*The image above was taken from the 2008 Risk Capital Report: Wisonsin prepared by Dr. David J Ward.