As part of our continuing series about the ecosystem necessary to bring technology to market, we asked entrepreneur and long-time angel investor Frank Peters to share some insights from his lengthy experience investing in startups.
With a nod to Garage Venture’s Guy Kawasaki and his Top 10 Lies of Venture Capitalists, I offer my Top 12 Lies Angels Tell. When I showed a draft to my angel friend Malcolm, he turned to me and said, “wow, this is really cynical!” So let me acknowledge that first.
1. “That was a good presentation!”
I have to say something positive, but you’re not getting me to write a cheque. The fact is, most funding pitches are terrible; they’re more product pitches with an appeal for money tacked on at the end. Passion, yes; every entrepreneur has heard by now they must show great enthusiasm for their endeavor, but show me how I can get my money back someday, too. Who will acquire you? Are you going to raise venture capital that will keep me in the deal for six, seven, eight, nine years? Or are you aware of the new trend towards early exits? Show me how I can get my money back in three to five years and even I’ll be saying, “That was a good presentation!”
2. “Fix these few issues and come back in six months.”
This is so much easier to say to the entrepreneur instead of, “You blew it, you’re too early.” Worst of all, I probably mean it when I say it even though I know the chances of an entrepreneur re‐entering the process is infinitely small, because next time I see you, something will nag at me: “Wasn’t there something flawed with this deal?” You only have one chance to make a first impression. This should remind you that Life’s Not Fair.
3. “We offer more than just money.”
Like referrals to industry contacts, but all our industry contacts have retired by now.
4. “I don’t think he’s coachable.”
Entrepreneurs can sometimes be cocky, even arrogant. But what’s really being said here is that the average angel wants to invest in deals where he can play in your sandbox, too. A self‐ assured entrepreneur is unlikely to look to me for guidance, so there’s no place for me in this deal.
5. “I can’t believe (name of big company) isn’t already doing this.”
I still think big companies innovate.
6. “Let’s let him in to present and we can negotiate a lower pre‐money during due diligence.”
Maybe in 2006. Today though, just like in real estate, if a property is priced too high, no one will bid. We used to be able to generate interest among our fellow angels even if most felt it was too rich, but not in this economy. A deal must meet our sense of a reasonable pre‐money valuation to attract any interest at all. (See #10.)
7. “I’m looking to give back.”
I said this 10 years ago. It sounded so altruistic and, assuming I would make some money as an investor, why not accent the selfless side? Who would think in 10 years I wouldn’t make any money at angel investing?
8. “I’m in 18 deals.”
But how many are still alive today? And how long has it been since you wrote a cheque? At a recent regional angel conference, each group leader started off the session by introducing his network and sharing current trends, funding performance and membership growth. What was the most consistent comment from the leaders about their angel group members? “Tired and tapped out.” They’re waiting to see some exits.
9. “I’m concerned about your barriers to entry.”
I forget that it’s all about execution. My friend Bill Baker summarizes concisely, “Technology doesn’t matter anymore.”
10. “We’re not seeing any quality deals.”
Look in the mirror. The reason you’re not seeing any good deals is many fold, but most likely it’s a derivative of Tired and Tapped Out. (See #8). This lament originated in 2008 well ahead of the economic downturn; was it an early indicator? When angels sit back and, instead of being proactive in finding good startups and making seed investments and mentoring the entrepreneurs, rely on a website’s online application to troll for investments, well, this is what you’ll hear. The paranoid corollary to #10 is, “All the good deals must be going somewhere else.”
11. “We’ve got an expedited process.”
You’ll be pulling your hair out in frustration over the time it takes to get a deal closed. First, it’s so difficult to find a deal lead, a champion within the angel group who will take the time to shepherd your startup through the process of pitching, rounding up interested members and doing due diligence. (See #8, Tired and Tapped Out.) But even more challenging for entrepreneurs, I see fewer member‐led deals coming into the process. A member‐led deal is when the angel brings in a deal that he’s been mentoring for six months to a year and in which he has made an investment. In most cases, member‐led deals generate instant credibility with the rest of the angel herd, which can really expedite the process. But without member‐led deals, the only deals we see are those thrown over the transom via the website online application; without a champion it’s easy for the angel to sit in judgment and complain. (See #10: We’re Not Seeing Any Good Deals.)
12. “Our group should be able to complete your funding needs just by itself.”
This last point was contributed by Ty Danco.
Frank Peters started Plaid Brothers Software in Long Beach, CA in 1983, creating portfolio management and contact management systems. The portfolio software pulled him east to Wall Street and New York City. After running the company for 15 years, he was ready for a change, so he devoted himself to dance photography both in New York and at UC Irvine.
Now he has settled in Orange County where he is a member of the Dean’s Leadership Council in the Claire Trevor School of the Arts at UC Irvine and past-chairman of the Tech Coast Angels. Hear his startup stories in angel investing and venture capital at The Frank Peters Show.