Startups and angels: Along the way to success

The Next Generation of Angel Investors

Earlier this year, two dozen former students of mine, their friends and colleagues, formed Golden Angels Advisors.  Their goal is to help the next generation of investors grow their expertise in both new ventures and early stage investing. 

Over the past fifteen years, while Golden Angels Investors was growing, I was teaching Entrepreneurship in a local MBA program.  Many of those 1,000 former students, their friends, colleagues and acquaintances, have kept in touch while they've grown their careers and have often asked about participating in Golden Angels events and meeting entrepreneurs. 

Those early and mid career professionals are the beginning of Golden Angels Advisors.  Their goal is to acquire experience to help them broaden their horizons.  They launched last month at a kickoff event featuring Justin Beck, the CEO ofwww.perblue.com who talked about his experience as a CEO of a venture backed company.

Golden Angels Investors hope to learn from them about their world view, and perhaps to pass along some of the pattern matching experience that we've learned from 15 years of angel investing. So, in addition to planning and running their own events, they've become part of our deal committees and member investment process. 

Our membership has always grown each year because we think adding new investors brings a fresh point of view and diversity of experience.  Now, this is the next explicit step in that process. 

As Rich Meeusen underlined in this article from Sunday's Journal Sentinel, http://www.jsonline.com/business/pass-along-the-torch-of-institutional-knowledge-b99715461z1-377689081.html, passing along the torch of knowledge is a requirement if you're forward-looking. 

For Golden Angels, it's a two way street.  We hope to be able to help the next generation of investors in an explicit way, but really know we will gain more than we give.

Contact them at: [email protected]

Referrals: Worth Their Weight In Gold or Passing The Buck?

It depends.  If you're asking to be referred to someone, or introduced, you may want to try and understand the dynamics in a particular situation. 

There is a lot of power for the recipient of the right referral - a chance to get the attention of a potential investor or advisor and to penetrate the normal screening mechanism.  

If I'm doing the referring it carries my implied endorsement of the person and venture being referred.  Because I value the relationship with people I know, I most probably will add some color to the "why" and explain what I think the benefit might be. 

For instance, I've recently written "Bill, I'd like you to consider talking to Ned at Newco who has an intriguing start up that's made some traction in the party planning/social media space as evidenced by some good stats on customer sign-up and early salres results.  We aren't looking at SM deals right now as we're busy with what we re in, but I know you re in this space and suggest you take a look.  I'm attaching a deck. Let me know if this is interesting to you and/or if you wnt to talk about it."

It's clear that I am making this referral because I think it may have value for Bill - a friend of mine - and will be good for Ned as well.  

I consider introductions to imply less commitment, as in "Sally, meet Joe Smith who would like to talk to you.  He asked if I knew you, and, having recently met him through Milwaukee Talks, I was glad to send this note."

In this second case, it's clear to both parties that I am taking less responsibility for the contact - and am saying so.

A third way this happens for me is that if I'm talking to someone about ideas, plans or goals, and I think they are credible, I'll often proactively suggest people they should meet - and I'll tell them why.  Our group recently reviewed a plan that included a couple of high powered and very competent advisors - and those advisors got to the opportunity because I'd suggested - years ago - that the entrepreneur talk to them.

All of this stuff is a virtuous cycle that enlarges opportunity for everyone - to meet new people, think about new ideas, put things together.

So what is the "depends" part?

 It's called "passing the buck." If you feel you've been passed on to someone just to get you off the phone or some other similarly inappropriate reason, you've learned a lot about the character of the person.  

I think it's perfectly fair to politely ask a little about why the person referring you thinks this is a good idea and what it might do to help you.   

And, of course, be prompt in your followup.  

Does the world need "tough" entrepreneurial coaches?

No.

I have, twice in the last week, listened to "haven't really been there, but have talked about it" types expound upon how they work with aspiring entrepreneurs (some of them students) and "really make them sweat."  They gleefully tell stories of their fearsome, tough reputations and their critical prowess.

This seems to be some sort of virtue based upon toughening up people for the real world.  Getting them used to dealing with "Shark Tank" type investors so these aspiring entrepreneurs can be prepared.

I think that I would never lie to someone about their business prospects or flatter them just to do it.  But I would also never "drill" someone just to "toughen them up."

Entrepreneurs represent the best of America.  They take risks, create opportunities, satisfy customers - the list goes on.  Entrepreneurship is what the rest of the world looks to the US for.  And for those of us who have been lucky enough to get to be around aspiring entrepreneurs, we should realize it's a privilege every single day, not a podium from which to act like a pompous windbag.  

And if my son or daughter came from from college and told me that some teacher had proposed to treat them this way, I'd be, well, perturbed and might find an inelegant way of expressing this sentiment. 

If you're an entrepreneur, expect to be treated with respect by investors, advisors, teachers, all of them. Expect also to be told the truth (not to get the snipe hunt runaround). 

The Whitehorse Daily Star - good advice for entrepreneurs

I hope this isn't taken as a political comment.  I just noticed that the "motto" of The Whitehorse Daily Star is "Illegitimus Non Carborundum" the faux Latin slogan made popular in WWII by Gen. Joe Stillwell.  If you visit their website and mouse over it, you'll see their translation.

1.  Be wary of entrepreneurial advice from folks with little or no actual experience.  I'm struck by how many new places we have popping up to give advice, often from well meaning folks who really don't have much basis from which to be dispensing wisdom.  Regard advice givers the same way you do surgeons - or pilots.  Check credentials. 

2.  There's a way to do everything - or almost everything.  Steve Belkin , owner of the Atlanta Hawks,  couldn't get his first deal financed and wound up cobbling together a friends and family round to start his travel company in the 70s.  Wasn't experienced, didn't have the right whatever, etc.  Did it anyway.

3. "Yes" is the best of course, but a fast "no" is a gift.  A fast no with an explanation is a pearl of great price.  There's a special place in hell for the "I'll get back to you" crowd. 

4.  Don't envy those who love bureaucracies.  They'll die with a rubber stamp in their hand. 

5.  Tom Edison said something like "I have lots of experience.  I know thousands of things that won't work."  Controlled experiments that give you experience are priceless - or at least affordable.  So it learning from the experience of others.  Think Icarus .

6.  Nothing is as exhilarating as growing your own.  And success has many parents. 

Hear The Latest Angel Thinking: Live from the ACA

San Diego, Ca. May 8, 1:15 pm --This year, for the first time, the Angel Capital Association's Annual Summit talks are being recorded and offered for sale. 

This is a great opportunity to hear what angel investors are thinking on all of the topics important to entrepreneurs.  This is the strongest program on angel investing that I've heard, and is now available for broad distribution.

These talks are usually "not for publication," and I believe you will find them to be well worthwhile.  Click here for the summit sessions list and order information. Download aca_2008_summit_sessions.pdf

The first series of talks this morning, on board governance, is outstanding.  I'd encourage entrepreneurs and angel investors to listen to these presentations.  They provide real opportunity to know what the angels are thinking. 

Thoughts for New Angels

I was in Italy a couple of weeks ago at the request of the US State Department to discuss angel investing with IBAN, the Italian Business Angels Network.  Here's a list of angel practices I discussed at the end of the first day's presentation:

When beginning as an angel investor, think about these things:

1.    The most important person in the business is the customer.  Everything starts with solving a problem the customer has, and solving it in a way that is valuable - in other words, that the customer will pay for.

2.  The inventor is critical to the business, whether he works in the business or not.  Without his commitment to helping the business succeed, chances for success are much smaller.

3.    Spend lots of time making sure that the people in the company are the right people.  Know what critical experience and skills will be needed and make sure it is there.  All successes and all failures can be attributed to people. 

4.    We must always remember that there is plenty of money to be invested but too few really good ideas.  As soon as we have made an investment we become members of this team and our sole focus is on helping them succeed so that we may be worthy of their effort and their respect.  Over communicating our expectations, hopes and goals will build a more trusting and more successful company.

5.    There is no substitute for experience in the process of assessing and investing in companies.  We seek to cooperate with other investors so that we may have access to as much experience as we can get.

6.    We tell entrepreneurs that who they take money from is much more important than the relative price they pay for it.  We are very careful about our investment partners for this reason.  It would be a terrible idea for an entrepreneur to take what we call “dumb money” – from unsophisticated investors who may have restrictions or controls about what the company can and cannot do, for instance.

7.    It is more important to prove that a market exists and that a product works than it is to build infrastructure.  We actively discourage companies from hiring when they can use contractors, from thinking about developing their own manufacturing, or in any way building too many fixed costs.  Fixed costs can be a real burden in a situation of cost overruns.

8.    When companies do hire, hire slowly and accurately.  The cost of hiring quickly and making mistakes is very costly in many ways.

9.    A simple business model is always better than a complex business model.  It should be embodied in a business plan that is robust and is the constant guide for the daily implementation of the business.

10.    Before you write the first check, have an agreed upon exit plan and strategy.

11.     Always remember that entrepreneurship is at the opposite end of the spectrum from administrative or bureaucratic behavior.  It is a never ending process of innovation, Identification of opportunity; marshalling resources; action/exploitation; and, harvesting. 

The Big Idea

For those of you who did not see it, here is a 5 minute excerpt from CNBC's "Big Idea with Donny Deutsch" show a couple of weeks ago, on angel investing.  Let me know if you'd like to know where to get a copy of the entire 60 minute broadcast. Download the_big_idea.wmv

The Best Advisors are Teachers

Several of the insightful comments I've gotten this week asks if I don't see a place for the business advisor in the entrepreneurial business.  That is, aside from lawyers and accountants, whose expertise is undeniably required in ventures, do I think the business advisor generally brings value to the venture?

The best advisors are teachers, I think.  This is a way of being.  By contrast, the advisor who wants to make decisions - or give strong advice and then sell it to the entrepreneur - is often a less than optimal fit in the venture.

We call on the entrepreneur to be decisive, to prioritize, to make decisions and test them, changing as required, all the while operating on 10% less than humanly possible. 

Into this very difficult and altogether human mix, enter the advisor.  If the entrepreneur has wisdom, she asks "why" all the time.  She uses her advisor to teach the why and the how.  She probably verifies the advice enough to advance some trust to the advisor.  She begins to build experience more rapdily than she would by herself.  The advisor who relishes the role of assisting the entrepreneur to grow stronger and more capable - and independent - is invaluble.

The strongest potential advisors operate from knowledge based on a broad set of real experiences - both successful and not.

If the entrepreneur, on the other hand, cedes decisions to the advisor, the venture is out of the entrepreneur's hands.  Making a decision to trust an advisor based on the entrepreneur's judgment about the advisor's ability, rather than on learning the decision making process, is a dangerous game.  And the advisor who likes the role of decision maker rather than teacher often makes the entrepreneur less broadly capable and more dependent.

That does not apply to every operational issue - but it sure applies to strategy and finance.   

More on Plan Development

This story "From Idea to Reality" appeared in yesterday's Milwaukee Journal-Sentinel about this blog and the "Growing Entrepreneurial Ventures" post.  This has become a hot topic; perhaps this might be going somewhere.

Looks like we've started something...

Yesterday's post drew several comments and a lot of traffic.  Seems this whole subject is a hot button.  This being a holiday weekend, I only wanted to post a link to the SBDC (Small Business Development Center) and keep the conversation going. 

The SBDC provides classes for entrepreneurs and business owners.  Take a look.

Another comment raised the question of advisor compensation, and yet another asked what the difference was between the idea I posted several days ago and more traditional one-to-many classes. 

I'll try and tackle these in the upcoming week.  Stay tuned.