Early-stage entrepreneurs often think the first thing they need to do is raise money. In fact, there’s a lot you need to put in place before you pitch to investors. None of it is rocket science; mostly, it requires time, patience, and grunt work.
Here, Dennis Powers, a long-time angel investor and Managing Partner of VectorPoint Ventures, shares five steps budding entrepreneurs must take before they start chasing those dollars.
1. Get networked. This seems like common sense, but can often be the most important part of your campaign. Networking involves a lot of blocking and tackling. Often there will be people in the investment community willing to take a risk on your venture, but you need to find them and make sure they know what you are looking for. Unfortunately, there are no short-cuts for this step, but it is important to reach out to friends, family, and entrepreneurs you have worked with in the past for any leads. Beyond that, it’s all about conferences, Angel Groups, and networking events.
2. Build a solid management team. Angel investors invest in people. They want to see a team they can believe in. It doesn’t mean you have to have already had successful startups and exits (although investors do like to see that), but it does mean that you have to demonstrate to an angel investor that the team will bring domain, skill sets, and other expertise to the venture.
3. Form a board of advisors. Of course, even the best management teams won’t have all the expertise you need, so surround yourself with a group of experts to help with some of the more technical, business, and legal aspects of launching a startup and attracting investment. A board of advisors can be any group of trusted peers and mentors willing to help you grow and nurture your business through solid advice and regularly scheduled meetings to discuss progress. Do not rush into building your board; make sure that all members are a good fit and contribute to the growth of the company.
4. Know your market and your risks. Gain a thorough understanding of your competition and opportunities. Research your market’s size, distribution, and verticals. At the end of the day, preparation is all about mitigating the concerns investors will have about risk. Risk areas include management, product, market, and finance. Investors want to see a potential 10-25X return in 5-7 years, and they want to know what barriers might stand in the way.
5. Prepare your ‘sales tools.’ An executive summary, business plan, elevator pitch, and investor presentation are the tools you’ll need to ‘sell’ your vision and your team to investors. Make sure each component is convincing and complete. Business plan templates vary, but to attract investor interest, you must demonstrate: a) How your concept is new or disruptive, b) How you will beat out the competition, and c) How you will scale. Your plan must include financial projections that make sense for investors, realistic valuation, and a viable exit strategy.
Think you’re ready? Apply to OEN’s Angel Oregon Fall 2014 Program for a chance at a $75-100k investment. Want to learn more? Check out Dennis’ OEN webinar, ‘Raising Money from Angel Investors’:
Dennis Powers is a co-founder and a managing partner in a Private Equity Firm, VectorPoint Ventures that is actively working to develop a NW focused growth equity portfolio. He was previously the managing partner of a consulting firm focused on early-stage funding strategies and has also held senior management positions in a number local technology companies. He is an active community volunteer, has been involved for a number of years in the start-up community, and is an experienced Angel Investor.