The excellent book “Venture Deals” by Brad Feld, Jason Mendelson gives a ton of great advice, one nugget you should know is smart Entrepreneurs, even experienced ones like me, get a stable of experienced mentors.
Here’s their specific advice:
These mentors can be hugely useful in any financing, especially if they know the VCs involved.
We like to refer to these folks as mentors instead of advisers since the word adviser often implies that there is some sort of fee agreement with the company. It’s unusual for a company, especially an early stage one, to have a fee arrangement with an adviser around a financing.
Nonetheless, there are advisers who prey on entrepreneurs by showing up, offering to help raise money, and then asking for compensation by taking a cut of the deal. There are even some bold advisers who ask for a retainer relationship to help out. We encourage early stage entrepreneurs to stay away from these advisers.
In contrast, mentors help the entrepreneurs, especially early stage ones, because someone once helped them. Many mentors end up being early angel investors in companies or get a small equity grant for serving on the board of directors or board of advisers, but they rarely ask for anything up front.
While having mentors is never required, we strongly encourage entrepreneurs to find them, work with them, and build long-term relationships with them.
The benefits are enormous and often surprising. Most great mentors we know do it because they enjoy it. When this is the motivation, you often see some great relationships develop. The Entrepreneur’s Perspective Mentors are great.
There’s no reason not to give someone a small success fee if they truly help you raise money (random email introductions to a VC they met once at a cocktail party don’t count). Sometimes it will make sense to compensate mentors with options as long as you have some control over the vesting of the options based on your satisfaction with the mentor’s performance as an ongoing adviser.
I often read Mark Cuban he has some really valuable insights for entrepreneurs.
When you are trying to hit up a potential investor you will only get one shot (if you are lucky enough to get hold of their email address) so make sure its a good approach.
Here is his pithy view on how to get attention and what not to do!
If you are an entrepreneur who is looking for capital and is sending letters or emails of introduction, leave out the Bullshit. Say who you are. What you have. What makes it different than the competition. What you want to accomplish. How you plan on getting there and how I can help. Everything else will usually hurt more than it will help
I was watching Michael Arrington interviewing Ron Conway and Paul Graham and this is what I learned and also my own view after several startups of my own and those of friends.
So Ron’s very simple data from 500+ startups on success and failure was:
- Ron Conway data shows a fail rate of 40% 2002-2010.
- Bubble years much worse – failure rate 77% (i.e. a total loss)
- Serial entrepreneurs better: 66% chance of success on repeat entrepreneur i.e. 20% edge on the second company i.e. vs 60% on current success rate.
- Regardless of economic climate, success probability is still the same i.e. any time is a good time to startup.
- Great defining companies are built at a faster rate than 10 years ago…now a couple of “mega” companies being built per year vs. one every 10 years.
- Younger entrepreneurs are more exciting, they will try anything and anything is possible.
- Trust gut and move faster – be decisive is also key to success.
* Success means still in business, a sale or not a total loss with no return at all.
OK so this data is from a small “gene pool” of companies that have managed to GET funded and doesn’t apply to all companies, also they will tend to be Silicon Valley companies and one’s where the founders have done a good job of working their network to get attention from Ron Conway…that’s a massive difference to the average startup – this is a very select group of companies already.
So from this select group who must have a big idea, a good basic team and have convinced their network to open doors in order to get funded in the first place…they have a current “success” rate of around 60% – what we don’t really know is what % actually got a good exit (yet) and therefore made money for themselves and Mr. Conway!
So what have we really learned from this then?
Only that if you are funded by someone as “networked” as Ron and can convince him then your odds are improved over the average…
So the learning for me is simple – pick your backers and investors very carefully and spend the time and effort to keep looking for funding until you get some “smart money” that will support and help develop you and your business. If you can’t get smart money then your risk goes up exponentially.
Additional comments from Paul Graham data from 400+ startup since 2005:
He didn’t get to say much but he saw some basic patterns for picking better startups:
- 4 person teams do badly, most likely security in numbers but this doesn’t work out after team formation. 2-3 optimal member teams.
- Men/women no difference. Couples good if they are stable.
- He has invested in 18-43 age range but no real difference based on age.
- Tough founders are best as they can weather the ups and downs vs. the others.
So my take from this is that you need a strong leader in a startup team and not a “committee” mindset. Anyone with the passion and drive can get started regardless of age, education or gender. If you have a team with a good mix of skills that has a good idea and that functions well then you are more likely to succeed (but that could be said of any team sport!).
In my opinion, Entrepreneurship is like “Chaos Theory” and that so many factors affect a good outcome that its hard to draw too much from these indicators other than what these big investors look out for when picking who to invest in – it’s not really a true indicator of success.
Today I did a Videocast with StartupSchool, it was a one hour session with on how to raise angel funding. We had a lively discussion about many of the core things Startups need to know about Angel Investors and how to raise the funds.
We covered a bunch of topics like those below:
- How to find & choose Angels Investors
- How to build relationships with Angel Investors
- How to pitch to Angel Investors
- How to value my equity
- Legal Options for Angel Investments
- What to expect from Angel investors
Check out the recording here:
Don’t forget to check out the many blog articles on this topic here:
This is also a useful resource i found recently:
I often get asked about how to raise Angel money and where to start. Well I have written a lot about this in the blog but personally I like learning from AV media more than blog posts so I tracked down this great session between my friends Tina and Mike (and Ron Conway).
This video session doesn’t get any better, this is the 101 you need and it’s only an hour of your time to watch the videos or listen to the podcast.
Now this is very “silicon valley” orientated but it will still work for you wherever you are, indeed this is the gold standard, it will be easier to raise funds in many places outside the valley.
Or listen in here: Listen to the entire talk
Mike only works a few deals per year and has a team of two, plus he will only work 2 at a time so you need good timing with him as well as being in his sweet spot. Ron does a lot more investing but you really need to be on his radar and also have some network effect to get to him (but a tip is he does a fair few seminars and events where you can get to him by simply walking up and exchanging a card and elevator pitch).
As for the Band of Angels (and other angel groups) we only see 3 deals a month and fund less then 1…so you really need to be on the top of your game to get funded.
This session will help you a great deal and is easy to absorb and understand as you see these guys on video than read a ton of books on the topic!