Editorial: This is not my story. Having spent a better part of today reviewing angel and venture investment options, I was baffled at how differently a few dozen people approached a simple application. As I wound up my reviews, this post from a startup founder bubbled to the top. His frustration was borne out of a serious disconnect between him and a potential ‘angel investor’. This is his anonymized story, shared only to underscore that before you get into those applications, discussions, and negotiations for money and partners, step back and gauge the human sitting across from you — you might do a double take.
The day I met with the angel investor, I was at my breaking point. The last of my seed money was shipped overseas as part of a settlement with a development team to regain my IP rights. In the middle of dealing with a malware attack on my server by some Russian ne’er-do-wells, I had to leave to meet an angel investor. For two weeks, I had worked putting together a detailed business plan, executive summary and four year projected financial pro-forma. We were three weeks from launching the beta version of our software and I had just demoed the product to a local bank who seemed excited to be able to use it. Surviving long enough financially to make it to the launch would be another story.
This particular angel investor was new to the startup investment world and seemed to be not much of a risk taker. Knowing about his risk aversion, I had spent two weeks meeting with him putting together a business model and financials that “no angel investor in their right mind could turn down”. I figured this way that he would be fully vested in my project and I wouldn’t have to bring him up to speed when I pitched him for money.
As an aside: He didn’t know that I was going to be pitching him at the end of the 2 weeks of mentorship, but he had actively stated that he was looking for deal flow. What better way to garner investment than to pitch a guy with a pitch that he helped devise, right?
After about 10 min of warming up, I just decided to cut to the chase and ask, “Do you see this as an investable business?” It was then he began to talk about how getting money for startups was not a quick process and would likely take 3-4 months to vet out. Four Months!?! He had mentioned this the first time we met which is why I spent two weeks courting him and getting mentorship to speed up the process. Trying to be helpful, he pointed out that usually angel investors want to see some sales and revenue to be able to show how “the accelerated seed capital would lead the chart into that ‘hockey stick graph’ that angels look for”. You get used to these colloquialisms in the startup universe, and if you want to get money you begin mirroring back this jargon back to them so they-know-that-you-know what you are talking about.
By this point in time, I am sure that there is no love connection in the offing and the stress of having no runway left has me idling in the red. The edges are beginning to fray, and I got all Michael Douglas in “Falling Down” and snapped.
Me: “You know, there is no reason that a deal needs to take 3-4 months. If a deal makes sense and you have a checkbook, it can take 3-4 minutes. I’ve seen deals happen on the back of a napkin. “
Angel: “Well Jeff, you know there is paperwork, deciding on equity splits, doing due diligence to make sure the market for your product is there.”
Me: “I tell you what. Tomorrow you and I will run out on two sales calls. You can see a live demonstration and hear from two prospective clients. If you like what you see, we’ll stop by the attorney, hash out the details, draw up the papers and you can write me a check. Bam! Four months of work in one day. Welcome to startup life!”
Angel: “Jeff, I tell you what, when I hear people say they need money now, it sends up red flags and I wonder ‘what is wrong here?’ Why did this person not plan better, and what are they hiding?”
Me: “Oh. Well, let me be completely transparent with you then. I sold a house, used all my cash, and swallowed my pride and asked my in-laws for a loan to build some software only to have some overseas developer &*%$$ pull the rug out from underneath me! It’s called a black swan, and you really can’t PLAN for it. I then had the choice to either pack up my shit or make rock soup. I purposely put myself in a very visible environment to make sure that any failure would be very public. So, packing my shit up isn’t an option. That’s why my ‘runway’ disappeared.”
Angel: “O.K., I could see that”
Me: “Now do you mind if I give you my take on you?”
Me: “I think that you are not the kind of guy who likes to be the first one in the pool. You want your cake and eat it too. You want the security that comes with existing sales & revenue and the upside of investing in a startup. Startups are run by unreasonable men. Reasonable would have been to stay in my sales job making $150,000/year and not quitting cold turkey to start a company with no income. Reasonable would have been giving up when I ran out of money. If it weren’t for the unreasonable men, technological advancements wouldn’t occur. I have walked in Vegas and watched men pitch a $50k chip on black. It’s that easy to make an investment if you really want to. Flip a chip, take a flier, trust your read in a guy because you believe in him. I once met a guy who needed a loan. He had donated his kidney to his dying girlfriend. That was all the underwriting I needed on him.”
The thing about angels. They don’t exist. There are only people, and people have varying risk tolerances and things that ring their bells. My angel said to me, “I think that you would really like me to cut you a check today for $50,000.” . I thought for a split second and said to him, “No, I really don’t, not any more. It would only be a bandaid. I don’t just want any money, I want smart money. Money that gets what I am trying to do.” I went into business so I could pick who I worked with, and that comes to investors too.