Last Wednesday night, I attended an MIT Enterprise Forum event called "Talk to an Angel: Crucial Connections to Early Stage Capital," a panel discussion on the role angel investors play in early stage companies. Here are the main points from panelists:

• The definition of angel investor
• There are many types of angels.
• Angels usually invest out of their pocket money and manage their own investments.
• Angel investing is a hobby and consequently usually a part-time endeavor.
• Angels were successful entrepreneurs before.
• The definition of venture capitalist (VC)
• VCs invest with a set of criteria, which are typically:
• They invest with a minimum amount of capital (typically, no less than $3 million).
• They invest in companies that fit their profile.
• These days, they invest in revenue-producing ventures with very short product cycles.
• VC is a full-time job.
• There are some VCs who may dabble in angel investing on the side.
• It may take 1-6 months for a VC to write a company a check. For angels, this time frame is drastically reduced.
• Advices for entrepreneurs
• There are 8 1/2 million millionaires in the U.S. and all of them have the potential to write checks for startups.
• On approaching an angel, don't ask for money from the onset. Establish a relationship first. Remember that most angels were entrepreneurs before, so ask for advices.
• Find investors who understand what the company is doing.
• How to pitch to an angel?
• A pitch should be terse. Keep it under 3 minutes. During a pitch you should always mention what you are selling?
• To take this value proposition further, entrepreneurs need to show how investor's money will grow and how their enterprise can be self-sustaining.
• Having difficulty composing a pitch? Try writing an newspaper ad for your company. It is recommended by one of the panelist because an ad is about selling something and you keep it terse because of the space constraints.
• Different business plans should be given to different investors. There is no "one-size-fits-all" business plan or executive summary. Build an arsenal of various business plans and executive summaries, each catering to a different investor.
• Put your contact information on every page.
• How to work together after funding?
• Keep in mind that a majority of small businesses that received angel funding won't see VC funding.
• A company's growth strategy may not need to involve VC funding or IPO.
• Useful resources
• Do due diligence before approaching an investors. You can get a wealth of information including forms and tools, from these websites:
• National Venture Capital Association
• Kauffman Foundation

6/10/2006 12:39:01 PM (Eastern Daylight Time, UTC-04:00)

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