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EXECUTION [Progress] - Getting Angel Investment

amp0193

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First, I wanted to start this thread by acknowledging the incredible value dropped by @Scot on this same topic in his recent Insiders thread. It's worth springing for that Insiders subscription to see the cool stuff he's up to.

Like @Scot, I also recently made the decision to start seeking Angel investment for a seed round, and am going to allow you guys to follow along for the ride. Our business models are completely different, and our journeys to seed funding are going to take different paths. I think it'll be an interesting to watch them side by side.

Thanks to @Kak for encouraging me to think bigger. Now it's time to see if I can make "bigger" happen.


March 2018 - I met up with a local tech CEO who had been through a seed and Series A round already. I knew almost nothing, and just wanted to get his thoughts. He shared his pitch deck with me, pointed out the weaknesses in my business (from an investor perspective). He grilled the hell out of me with tough questions, and then chastised me for not having the answers to those questions. I realized I had a ton of work to do.

I decided not to pursue funding any further at that point, as we had had some manufacturing and product quality trouble, and I wanted a couple more shipments under my belt, to try and correct those issues first, before putting gas in the business.


Fast forward to Now: Demand is far exceeding supply, people are begging me for product we don't have, and my cash is all tied up in containers that are in production. I've been self funded thus far, by reinvesting the proceeds from the sale of my previous business. That's getting stretched thin now. The product quality has improved, things are getting systematized, I've got good people around me... we're ready to go.


Why do I need the cash?

There are lots of reasons. In no particular order:
  • Product development - Need at least 250k for developing some new products.
  • Inventory - Need to fund more frequent orders. Need to be able to rapidly deploy a dealer network, which will involve net-30 terms, free demo models, an increased percentage of sales at wholesale pricing... all of which hurt cash flow. Also need to be able to purchase MOQs of accessory products, which we are adding lots of.
  • Staff - Hiring a full time sales/customer service person.
  • Marketing - To test/scale/max out/optimize all advertising channels. Trying some Big Media channels. Designing marketing materials/collateral.
  • Content - Professional video production, website additions
  • Overhead - Will need a bigger warehouse. Maybe in a year? It'd be nice to have an attached showroom, extra storage space, more office space. Maybe I buy instead of lease? It'd be nice to have some options financially.


Why not get bank financing?

I need more than what i'd be able to get through bank financing. At least with a business that's only been open for 18 months. I should have a small line of credit in place soon though to help for the short term. Also, I don't want the risk to be all on me. I've got a wife and two kids, and have a lot of skin in the game already. I'd like to share the risk with investors.


Why not bootstrap?

Because I want to go fast. The opportunity is available in this space now. I want to be the dominant player in this space, before the market matures. Bootstrapping, with products with long manufacturing lead times, and ocean freight, is going to take a while.



Excited to share with you guys what I learn on this journey. Hopefully someone finds it helpful and is inspired to pursue funding for their business. I know close to nothing right now, so if I can do it... you definitely can!


Coming soon: What I learned this week, and the Investors that are already showing interest.
 

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Scot

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Like @Scot, I also recently made the decision to start seeking Angel investment for a seed round, and am going to allow you guys to follow along for the ride. Our business models are completely different, and our journeys to seed funding are going to take different paths. I think it'll be an interesting to watch them side by side.
This is my territory! You better step off before I do a Ranch drive by...

Didn’t know you were going to do this thread. It’s going to be awesome to see how our two very different businesses play out. I think you’ll end up getting big chunk from the local Angel group while mine will be spread out amongst a lot of different investors. Well see!

Why not bootstrap?

Because I want to go fast. The opportunity is available in this space now. I want to be the dominant player in this space, before the market matures. Bootstrapping, with products with long manufacturing lead times, and ocean freight, is going to take a while.
This is the best way I’ve seen this feeling explained. Thanks for putting it into words better than I did.


Awesome thread man!
 

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Great to hear @amp0193. I can certainly understand wanting to raise cash to move fast.

It might be worth looking into local pension and retirement funds, as well as PE. They are always keen to invest in businesses that are already generating FCF with a proven business model, plus the equity they take tends to be reasonable. Could be easier than angels in some cases and you'll be able to raise far more money if you wanted it. The great thing about these companies and funds is that eventually you'll want to raise more or take out a huge loan and in both cases, they'll be able to assist you with that to put more rocket fuel into your growth. Good luck Amp!
 

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Hey @amp0193 great to be reading your progress thread through your funding journey.

A few years ago I worked with a team during a weekend startup contest to form an idea, business plan, and pitch deck to potential investors with the winning team getting funding. During our research we read from a couple resources online as well as a book that was recommended to us, "What Every Angel Investors Wants You To Know" by Brian Cohen and some other guy.

It was a great resource and I remembered that I had taken notes and dug for them. I finally found them and have attached them here for your reference, I think it may be useful. The caveat is that somehow my file was corrupted and the notes only go up until Chapter 4. Dissappointing, but I went over them and think Chapter 3 has some really good stuff that you could find useful, especially at the early stage you're at, and could use to then dig deeper and do some searches around those topics.

Some of the chapter 3 high level notes:
- Know your personal value proposition; not only the company's value prop to customers, but your specific value prop as an entrepreneur and why you have an advantage in your specific area.

- There is a section on business metrics questions that angels ask entrepreneurs about their business

- Strategic questions to ask angels to ensure that you raise strategic/smart money and not just any money.


Hope these are helpful. I'll continue looking to see if I am able to recover the full notes I took down.

Best of luck,
JC
 

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Subbed - excited to watch your progress. You have a super cool product, and when I saw the guy in your warehouse putting masking tape on the floor to figure out how to answer a single customers question I knew you had the grit to go for the win.

Have you thought about going blended? Given how far you've taken it by yourself seems like a shame to give up more interest for the inventory financing bit.

Really excited to watch you kill it.
 

Scot

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During our research we read from a couple resources online as well as a book that was recommended to us, "What Every Angel Investors Wants You To Know" by Brian Cohen and some other guy.
Bought the book on amazon, thanks for the recommendation!
 

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It’s going to be awesome to see how our two very different businesses play out. I think you’ll end up getting big chunk from the local Angel group while mine will be spread out amongst a lot of different investors. Well see!
I can see this as well. @amp0193's business has a very local, visible impact, so local angels will be more likely to invest.
@Scot, yours doesn't have the same local impact, so my crystal ball is broken as to how your funding round will play out. If it were 3 years down the road with proven sales, I could see a major food company scooping up as much as they could. With the initial round for you, I'll be following along to see how it plays out.
 

Scot

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If it were 3 years down the road with proven sales, I could see a major food company scooping up as much as they could.
That’s part of my pitch actually. Food acquisitions are all over the news. So, it’s a bit more of a lottery ticket I’m selling investors vs a regular dividend. I could be wrong, but my impression of @amp0193 business is more long term. He’s building a family business that he wants to grow and foster. I’m trying to build up a business that I can position for a strategic acquisition in 5 years.

You’re right. Amp’s business is certainly sexier than mine. I remind him of it almost daily. Mines going to be a much harder sell to investors for sure. But, I think the one unique I can offer investors is a plan for a big money exit soon.
 
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amp0193

amp0193

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when I saw the guy in your warehouse putting masking tape on the floor to figure out how to answer a single customers question I knew you had the grit to go for the win.
That customer ordered, by the way. Go the extra mile!!

Have you thought about going blended? Given how far you've taken it by yourself seems like a shame to give up more interest for the inventory financing bit.
Started thinking about it after a conversation with an investor earlier today actually. And then @Kak posted elsewhere about different bank financing instruments and that got me thinking some more.

Yes, I think maybe finding a way to get that inventory financed. It'll be tricky, but there's probably a way. I just need to learn more.
 
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amp0193

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@amp0193's business has a very local, visible impact, so local angels will be more likely to invest.
Yes, they are the low hanging fruit. They want to invest in local companies. I'm creating local jobs, and will eventually be bringing in high paid and high skilled jobs, and have been selling products locally as well.

I'm finding I already have personal connections to some of these guys. Friends of friends. That kind of thing.
 
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amp0193

amp0193

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I could be wrong, but my impression of @amp0193 business is more long term. He’s building a family business that he wants to grow and foster. I’m trying to build up a business that I can position for a strategic acquisition in 5 years.
I go back and forth between the two. So my approach is to build a business that could sell in 5 years. If I wanted it to. But, as of today, I think I will be running this for a while. I could see myself bringing on a CEO at some point and taking a step back and going into more of a director role, rather than selling. I will always care about this business and it's impact, but won't want to continue the 40 hours weeks forever.
 

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amp0193

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Hope these are helpful. I'll continue looking to see if I am able to recover the full notes I took down.

Best of luck,
JC
Wow, I appreciate the notes, thanks!

I think it'll "stick" better, if I just read the book myself. I ordered it yesterday.
 
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amp0193

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Learning what I need to know... straight from the horse's mouth


So I'm presenting at a local small business round table thing this week, and notice on the program that another member of the panel started a local angel investor group.

So I look up their website, and it turns out they had put together a 3 part seminar series on getting investment for your business, with the first of the series happening the next day. How serendipitous. I attend the first presentation. 3 of the local angels were present, along with 7 other attendees. Great ratio for getting some face time and asking questions! And surprise, the local CEO from the OP, is now also an angel investor in the group!

Here's some takeaways from the presentation:

#1 thing - Why are YOU qualified. Not the business model. Not the idea. Not the market. Seed round investors are investing in you as the founder, and the team.

Having a strong founder with a proven track record outweighs customers, revenue, product, and market. Age is not a factor when hearing pitches. Only competence. Have a team or advisory board that makes up for the skills and knowledge that you lack.


Hierarchy of funding in a business:

1. Personal Investment - Your skin in the game. Investors like to see you're putting your own money where your mouth is.
2. "Friends & Family" - If the people who know you wouldn't invest in you... why should we?
3. Seed Round - 10k - 1.5M - Angel Investors (crowdfunding another possible source).
4. Series A, B, C... etc. - Venture Captial, then Private Equity.


Biggest mistake people make when pitching: Showing up with an understanding of the product but having no clue how they are going to get customers. What's the path to market? What channels to growth?


You need to go in to a pitch knowing how much you need, and what equity you'll give up for it. i.e. how much you value your company at.
  • There are many ways to value a business. There are no cookie cutter formulas. Search for a valuation model that makes the most sense for what you are doing. Be able to rigorously defend the valuation that you come up with.
  • It is in your best interest to value the business as highly as possible, as you'll either get more funding, or give up less equity.
  • Similarly, it is in the investors best interest to value your business as low as possible... they may use a different valuation method then you did. Be able to defend why your valuation method was the best , and why your number is correct.
  • Factors that can affect Value: Market Size, Competitors and their size, multiple of revenue, strategic adders: defendable IP, barriers to entry, etc.

It helps to go into a pitch to an angels group, having already been in contact with one of the members of the group. Gotten their advice. Sought their help. Had them help with your pitch. Then, when it comes time to pitch, you've got someone in your corner, and it can help to influence the decisions of others.


Most of this was a refresher course from me. What I was really doing was reading between the lines and interpreting this presentation as "when you pitch to us... DO THESE THINGS". It was like getting the questions to the test in advance.


After the presentation, I stayed after to ask some questions. The presenter didn't have much time, but was very interested in what I was doing and wanted to learn more. So he asked if he and his partner could come by the warehouse next week to check things out.

Of course!!!


Also, I learned yesterday that my friend's boss happens to be in this angel's group! He's going to make an introduction. I'm approaching this like politics, and trying to get all the votes I can in my favor, before ever going to the pitch.



Next up: The crazy mind-blowing warehouse visit that happened earlier today.
 
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MTEE1985

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#1 thing - Why are YOU qualified. Not the business model. Not the idea. Not the market. Seed round investors are investing in you as the founder, and the team.
That echoes exactly what Chris Sacca says when he is looking at potential investments. Of course he is interested in market size and potential etc, but he says he can always tell based on the founder(s) if they will give up at big hurdles or propel the company past them.

Next up: The crazy mind-blowing warehouse visit that happened earlier today.
Well this is just mean. Can’t wait!
 
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amp0193

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