How To Raise Money From Angel Investors For Your Startup
Most of what you read from me, if you have followed my blog and IG posts, are friendly, conversational and has a fairly heavy dose of dry wit.
This one is going to be starkly different. This blog is likely to make you angry, upset and have you throw your hands in the air and say, “Screw it! It is not worth the time!”
Good; stop wasting your time reading. Go do something else, like work to make someone else rich.
I will let you stew on that for a second.
Those of you who stick around, on the other hand, will understand my point and reasoning.
I want to make something perfectly clear, right now.
Business is like a fight. There is NO such thing as fair.
You bring a knife to a fist fight? Good. The other guy brings a gun? Oh well; nice knowing you.
The business world has all of those ‘Motivational Posters’ floating around. Here is my favorite:
Each day, the prey wakes up and realizes it has to run faster than the fastest predator to stay alive.
Either way you look at it, you wake up running.
What am I getting to? Simple: 90 to 95 percent of all startups fail. Simple. In other words, one out of ten of you may make it. Sorry; life is harsh. Get a helmet.
So, you want a startup? You want to raise some capital? You want to have the greatness, the accolades, the cash and everything that goes with it?
Are you ready to grovel, kiss ass (maybe literally), do things you never thought you would do, take the chance of being embarrassed in front of people and possibly have your world shattered?
Good. If you have made it this far, then there is a chance.
Here is how to raise money for your startup. Note: This is exactly how I did it. By myself.
These are the people you are looking to target. These are the people with money, and like a fallen angel, they write a check and step back for you to work.
These are investors who:
Have a net worth of over 1 million in tangible assets;
Bring home more than 200K annually, AFTER taxes.
These are raw requirements from the SEC. Why? The SEC does not want people with no business sense, IQ’s of bananas and deep pockets to give you money for your stupid and idiotic concept.
Again, harsh? Yep. Apologize? Excuse me while I laugh heartily in your face for a few minutes.
You see – your idea is a joke. Your idea is about as smart as a screen door on a submarine. It is going to fail. Why would an investor drop 20 – 100k on you? You and your less than 10 percent chance of actually turning a profit. Before you start with the ‘but … but … but …’ let me butt (pun intended – okay, maybe a bit of humor so I don’t hurt your feewings) in. In today’s economy, based on mathematic probability and people much smarter than you are, your precious, dear, sweet, awesome concept for your startup is going to crash and burn.
Have a tissue. Hell, take the box. You are going to need it.
You want Angels not VC’s, venture capitalist firms. VC’s want a board seat, a hand in decisions, in your business, which may have some benefit when you are trying to expand and scale. If this is your idea of capital, knock yourself out.
Me? I use Angels exclusively.
The reason I am writing this piece and being a complete ass in the process is because I get people asking me all the time,
“What can I do to score an investor?”
Well, let’s take a look at what you must do.
SELL YOURSELF AND YOUR IDEA
Now, this does not mean stand on a street corner and pick up Johns. This means you. Are you believable, trustworthy? Would YOU write a check to YOU for 20, 50 or a million with a huge chance of never seeing that money again?
I can make suggestions, offer ideas, what documents to have on hand and the like. Again, would you write you a check? Money speaks.
Most of the people who come to me for money, and I have a lot of people who come to me for money, make me realize it would be cheaper to go back to Vegas and play the slot machines than give them any money. Why? I have a chance of a return on the slots. I believe half of what they are saying and have zero confidence they have what it takes to carry through with their idea.
These sheep (people is a nice word) have an idea that makes as much sense as drinking 12 mole hydrochloric acid. They have: no pitch deck, no projections, no marketing and expect me to give them capital.
Show me your marketing strategy – How is this going to sell?
Sheep will come to me for 20k. I get zero equity and a promise to pay back plus 10 percent. WOW! Let me give you cash, NOW!
Do I look like I have the word ‘STUPID’ on my forehead (Hey – I earned those millions before I squandered them. ME. 100 percent alone. I am a lot of things, but stupid is not one of them.)
I am your first guy you are hitting up for capital. I want equity in your idea. Hard equity. 99 percent of the people on IG and real friends are clueless with their concepts and how these concepts sound to someone with a clue about such things.
These sheep are not acting like entrepreneurs looking to build an empire. Sorry. You lack the work ethic and are speaking out of your rear. I have to believe in you. Sell me in five words. I have Gypsee’s pitch deck. I have ‘projections,’ which mean as much as your promise to pay me back, but I see you did your damn homework first before pestering me about your lousy idea.
YOUR IDEA – YOU BETTER HAVE DONE YOUR HOMEWORK
Before you step out of the door to your first meeting, first phone call, first anything – decide what to do, have these things in order:
A website – Not just a website, but a website that is beyond awesome. I bought a theme for Gypsee and worked in other things from themeforest.net, mine is custom. You can use Squarespace.com or Wix.com. If you want to drop coin and have someone else do it for you, that is all you.
Have a pitch – This is usually a presentation of 10 to 20 slides. Check my Gypsee pitch; how to make a pitch; my favorite pitches. (https://piktochart.com/blog/startup-pitch-decks-what-you-can-learn/)
Register your company – Do a Delaware C Corporation. Google how to do it. If you are not sure or comfortable doing it, find a competent attorney or accountant to do it for you. This will cost you money. Your money. Deal.
EIN – Again, Google it. Fill out the paperwork online.
Bank – Open an account with your money.
Set up email – I use Google Suite and attach to my domain.
Projections – You need them.
Sell – I want to believe you can sell people air conditioners for the North Shore of Alaska, where on a warm day it may reach 32 degrees.
Amount – Know, in solid numbers, the exact amount of money you want. At minimum, offer a 10 percent share of stock and holdings for any amount of capital. Do not be smart and think you can get by with 2 percent. Investors want their money back plus. You are the one who wants to get rich – they are already.
10. Idea – An idea is nothing. Angels are taking a risk on you. Have something solid.
Check gypsee.travel. This was done before I set foot into a meeting. I was ready with leverage. I had contracts from gust.com; pitch deck; video; projections; market strategy. I sold me and Gypsee because Gypsee is making a fundamental change in travel.
If you cannot do these nine things, excuse me for a second as this is not my personality, but
Get the FUCK out of my face.
Your idea is crap. This is the honest truth. Switch places, and be objective. Would you invest in you?
You see, you are sold on your idea. You know it is going to be the best of the best. Your idea is the greatest thing since the invention of the smart phone. Have you done your homework? Have you:
Interviewed hundreds of people (not sheep);
Are you thinking like an end user;
Did you accept raw, honest feedback;
Have you really thought about it.
You want my money. Prove to me that you deserve it.
People come to me and just ask for money. These are derelicts, beggars or panhandlers as far as I am concerned. They are no better than the guy on the side of the road with a sign:
“Hungry; homeless; please help – God bless.”
Why? They have nothing to offer me and my money.
The is the Law of Attraction. If you have done all of this, there is a better chance you will get some money.
You have three potential pieces of capital you can get:
Convertible note – Promised equity, but this is a debt instrument;
SAFE – Simple Agreement for Future Equity, but this is not a debt instrument;
Stock purchase – Hard equity at a percentage per dollar amount (10 percent for 50k – for example)
There is a blog somewhere in these three things, but I have more important things to do. Google is your friend. I am 100 percent for SAFE, 100 percent of the time if you can convince the investor. It is the most fair and reasonable option.
Ycombinator created the SAFE agreement. They have been instrumental in some serious startups – Dropbox and Scribd are two for example.
Learn the three of these. Commit them to memory. Learn a cap table, authorized vs available shares, common stock vs preferred stock, vesting schedules, and the most important thing to understand is DILUTION.
If you cannot understand these options, then I cannot help you.
Dilution is a big one. So big in fact, here is what it is:
Dilution – Investors offer five percent based on your initial offer. Things get rolling, you add more people to work. Their equity starts to dilute, and their percentage drops based on the cap table. You need to be able to explain this is a part of business and how it works.
Add new shares; people get diluted.
This is likely to make some investors nervous. You must be able to explain this to them and how it is not a bad thing.
Guess what? You are halfway there now.
The first two are important. This is the most important.
I spent seven months trying to raise money for Gypsee.
I lived on the beach for a day; I went from buddy to buddy for a place to sleep and some food; I stayed with some girls (and had to do some things that still give me shudders). I went until I was stuck. I was living in a soon-to-be-repo’ed Maserati before it was totaled.
Seven months I was broke, struggling, homeless and did what I could to make it (Oh – don’t forget Sage, my life, I still made sure to attend to her and her needs).
Well. You may say to me, “Andrew, why didn’t you get a regular job?”
That is an easy question to answer.
Let me explain. I see the look of complete and utter confusion on your face.
I made a choice. I could have gotten a job, joined the Rat Race, been absolutely miserable being made to answer to anyone but me and possibly made it a few years before I exploded.
I chose to focus on Gypsee.
Here is something about people with ADHD. Yes; they are scatterbrained and jump from topic to topic like changing channels. They can also focus. I mean hyperfocus on some things. Particularly if they are passionate about that thing. It stimulates them. That stimulation is what keeps them so focused. The Zone if you will.
Gypsee is my passion.
I made a choice: Be broke, grovel, beg and live like hell and develop Gypsee, or the whole find a job thing, and deal.
By the way, did I mention I am in Vietnam? Right now, as you are reading this, I am in Vietnam, enjoying a phine bowl of pho (two attempts at humor) and soon to depart to Japan.
Now, dear reader, how would I do this if I were living on someone else’s dime?
Remember the little incident with the 80k that got stolen from me? All of the people I called? I called them back, plus some during those seven months. IG, Facebook, phone – I called everyone I could think of that had some extra cash. I begged, pleaded, pitched and refused to stop until someone agreed.
How did I score funding? It was not because I knew someone. It was because someone whom I contacted just happened to have a contact. This person I would have sworn would know nobody with capital. He found me an investor.
Networking – it exists. It works. Period.
You call. You call everyone. You call someone else. You call the phone number before and after yours and then some.
There are places online with Angel Investors, startup pitch events – eventbrite.com is one as is angel.co.
There are plenty.
I have no clue how to use them.
Cold emailing may work. Google how to do that, and get cranking. Use email instead of the phone. Go full on HAM – Google that, too.
End. Of. Story.
If you want to know more about market research, pitch decks and the like, post a comment on my Instagram page @andrewfashion – I may write you a new blog. A nice one this time – with some humor.
My pho is getting cold.