I recently attended a seminar on Trends in Raising Capital in Palo Alto sponsored by the Angel Capital Association (ACA). The ACA is an association of about 300 angel groups throughout the US and Canada. Those 300 groups collectively represent about 10,000 active angel investors.
The seminar provided information to leaders of angel groups on the current state of the angel capital market. One section I found particularly interesting was titled “Meeting Investor Expectations.” The information, which I summarize below, was based upon a membership survey by the ACA. 58 groups participated representing more than 3,400 individual angels. Those angels participated in more than 200 deals in 2010, and invested more than $45 million.
Generally only one out of ten or twenty applications receives funding. According to this survey, there are things the entrepreneur can do to improve the chances of favorable action. While the survey was of member groups of the Angel Capital Association, I believe the findings can inform entrepreneurs approaching individual angels as well.
Get a Referral. The typical group receives 15-30 applications a month, which is more than they can thoughtfully respond to. A referral to a group by a trusted party (e.g. another angel group, a respected individual angel or VC, an entrepreneur in which the group has invested) may help move the application to the top of the pile. Referrals from economic development organizations and websites are viewed as having little value. The perception is that the interests of these organizations are not aligned with those of the angels and therefore their referrals cannot be trusted.
The Importance of the Executive Summary. The executive summary is like a resume. The purpose is to get a interview. Likewise, the purpose of the executive summary is to get a meeting with the angels. In the case of the Boise Angel Fund, over four years we received 214 applications. Only 66 were invited to a meeting. So two thirds of the executive summaries did not capture sufficient interest to result in a meeting.
Good executive summaries are hard to write. In my experience entrepreneurs often spend weeks on their business plans and minutes on their executive summary, when in fact they should devote a great deal of effort to the executive summary. In the ACA survey, only 38% of the executive summaries were rated as good.
Writing the Executive Summary. Compelling executive summaries are not more than two pages in length. They are well written and without grammatical and typographical errors. They are delivered in PDF format so there are no accidental changes or formatting problems.
They cover the following both “POST” and “STORM.”
O-the Opportunity or market size
S-your Solution (your product or service)
S-your go to market Strategy
O-Others in the market (the competition)
R-Resources needed by your business
M-Milestones you intend to reach with the resources
Obtaining a referral to a group or an individual angel and preparing a thoughtful executive summary will improve your odds that you will be invited to a meeting with angels, which is the first step in the funding process.
Dr. Kevin Learned is a counselor at the Idaho Small Business Development Center (www.idahosbdc.org) at Boise State University where he specializes in counseling with entrepreneurs seeking equity capital. He is a member of the Boise Angel Fund, and is a principal in Loon Creek Capital (www.looncreekcapital.com), which assists angels in forming angel funds. Loon Creek Capital is working with The Core to help create the new Treasure Valley Angel Fund (www.treasurevalleyangelfund.com). He can be reached by email to firstname.lastname@example.org or by phone at 208-426-3875.