For more info please visit: http://cynthiakocialski.com/

12 Ways forEntrepreneurs tounderstand AngelInvestors Better

B

BY CYNTHIAKOCIALSKI

For more info please visit: http://cynthiakocialski.com/

12 Ways for Entrepreneurs tounderstand Angel Investors Better

Entrepreneurs often seek funding from angel investors, and oftentimes, angelinvestors banter around terms that are ill-defined or confusing forentrepreneurs. It is simply expected that the entrepreneur knows what theinvestor means.

1.How much funding do you need?

When it comes to angel funding, entrepreneurs are most concerned with howmuch money an angel group is willing to provide. However, an overlooked pointis the total investment needed to make the company viable. For example, anangel may provide $500,000, but always have a limit on the total investmentthrough all funding rounds.

2.What do these company stages mean?

Seed stage This is the stage in which investors will put in a relativelysmall amount of money to a venture for initial exploratory research or thedevelopment of a management team. Seed stage companies by definition havenot established any commercial operations.

For more info please visit: http://cynthiakocialski.com/

Early stage Companies in this stage are still not commercially viablewithout continued investment. However, an early stage company is able tobegin operations.

Pre-Series A and Series A, B, C, and D These are just other names for seedstage (pre-A), early stage (A), late stage (B, C, D, etc.), development stageand start-up financing rounds. Sometimes, there is a pre-seed round, whichmay refer to either no outside funding or funding less than $500,000. Usuallythe angel round is usually the first funding after the founders own money.The series rounds are the professional funding rounds after the angel or seedround. The terminology of series comes from successive tranches of preferredstock, so for example, series C preferred stock. Each series of preferredstock has its own specific rights and priorities in relation to the other.

Late Stage Commercial manufacturing and sales are a reality; however,there has been no IPO. The product that the business is backing is availableto the public. Companies at this stage have usually been in business for morethan three years, but may not show a profit.

Development Stage This level of financing includes both early stage andseed stage financing. It is often used as an accounting term for tax purposes.

Start-up This is the phase of funding that supports the initial marketingcampaign as well as product development. Start-up firms will usually havea management team in place with a business plan and some market research.Typically, a business in this stage is showing revenues but is still in thered overall.

3.What is a lifestyle business?

A lifestyle business is a venture that is run by its founders with the primaryaim of sustaining an income level. This type of business is so named becauseits first purpose is not limitless profit; rather, it is so that the founderscan enjoy a certain lifestyle. Investor have little interest in lifestylebusinesses.

For more info please visit: http://cynthiakocialski.com/

4.What does high growth really mean to investors? What does rapid growthmean?

Established definitions of a high growth business quantify the distinctionas a company with 10 or more employees that grows by an average of more than20% for three years in a row.

Rapid growth is a term that has been similarly quantified by certain businessagencies; however, there is no set definition that separates a rapid growthbusiness from a mid-growth or slow growth business other than the relativegrowth that business has against others in its industry.

Often investors desire $50 million in revenue within 4 years or an excess$20 million in revenue with 5 years.

5.What is a strong management team?

A strong management team is a group of highly reputable team members who haveexperience working in their designated capacities and have a track recordof prior success. Investors like to connect the dots, which means theylike to see a career path in marketing versus an engineer suddenly appointedto CFO.

6. What is a breakthrough product?

Breakthrough products are usually products that are able to monetize atechnological breakthrough that was previously untapped. In the market ofagriculture, fructose was an easily produced yet underused product untilGeneral Mills commercialized its use in the 1960s.

Breakthrough products can usually prove a dramatic improvement in the waysomething is done. For example, the cotton gin boasted a 50 fold improvementin cotton processing.

7. What is a disruptive or game-changing product?

Game-changers are the products that affect all of the other players in theso called game. If you had the ability to add a Las Vegas square rightnext to the Boardwalk square in a Monopoly game with a $4000 rent, then youhave effectively changed the entire game. People will begin to change theirbehavior based on the action that you took.

For more info please visit: http://cynthiakocialski.com/

9.What defines market traction?

Market traction is your ability to prove interest in your product to aninvestor. Although there is no set way to showcase market traction, as thereare many ways in which people can show interest, showing proof of interestto conversion in units of marketing cost to revenue is always a plus.

10. What does a highly scalable business model mean?

A business model that is scalable will work when the company is big as wellas when it is small. A trucking business may be able to handle normal dieselfuel prices when it is delivering food to local stores. However, the costof gas will outweigh the profit from delivery over a long distance. This isa business model that is not scalable. Investors like proven business thatare ready to scale because its perceived as an easy play.

11.What does a defensible competitive advantage mean?

A defensible competitive advantage is one that can be sustained in the marketover time. Any copyrighted intellectual property is an example of anadvantage in the marketplace, but only as long as the company has the moneyto pay their way through due process. The other consideration is the lifecycleof the product in relation to time to build up a patent portfolio.

In most cases, small companies with new products will be going up againstlarger companies with a much stronger financial position. Small companiesmust cultivate strong alliances and customer stickiness in order to fightbig money.

12.What is a clear exit strategy?

From the point of view of an investor, a clear exit strategy allows theinvestors to realize a return on their investment through a change ofownership. This is accomplished through a merger and acquisition, or a publicoffering. Most investors arent interested in a vague notion of an exit.They want a list of potential acquirers, or a clear strategy to achieve theminimum revenue and growth to take a company public. If a company cannot besustained over time, at least the company can sell enough product or retainenough savings to pay back investors.

understandAngelInvestorsBetter