Can’t Raise Venture Capital?
n 2017, Utah was ranked the second-best state for starting a business. But that doesn’t mean it’s an easy place to raise venture capital. Despite a growing number of venture capitalists willing to invest in the state’s entrepreneurs, there are still a number of businesses who struggle to make it past the seed stage. Thankfully, when venture capital falls through, entrepreneurs have another option available to them: millionaires.
These Millionaires Might Invest In Your Business
Often wealthy from starting, selling, or going public with former tech companies, these 30- and 40-somethings are ready to hand over their personal dough for companies they care about. Take Jeremy Andrus, for example. After successfully taking Skullcandy from $1 million to $300 million to IPO as their CEO, the entrepreneur was ready to invest his own money to help other companies do the same.
And he’s done just that. Mr. Andrus has since built a portfolio of more than 100 private investments, including seed stage tech. “My passion is being an entrepreneur, but my favorite hobby, after my wife and six children, is investing,” he says. “You’re investing in people. You’re investing in an entrepreneur, not just a business.”
Of the latest trends in tech, Mr. Andrus is drawn to B2B SaaS businesses. “I think the model creates a lot of value. It creates predictability in business performance. Software businesses are enabling every business, and Utah has a great eco system of B2B SaaS businesses. From an investment quality perspective, it’s a great place to invest.”
Davis Smith, CEO of Cotopaxi, is also a huge advocate of angel investing. As a young entrepreneur, he depended on angel investors who bet on and believed in him, so for Mr. Smith it’s all about paying it forward.
“As an entrepreneur, I’ve raised around $100 million in venture capital over the years,” he says, “A lot has come from VCs and a lot has come from angel investors.” He enjoys identifying potential entrepreneurs who have a big dream and then giving them the capital they need to succeed.
As an angel investor, Mr. Smith mentors startup founders and advises them so they make fewer mistakes. “Especially if you’re an entrepreneur millionaire or billionaire, you have great insight into what makes a great entrepreneur more than a VC because you’ve done it before,” he says. “You’ve built teams … culture. You have a unique perspective in identifying other entrepreneurs, and your returns can be much higher.
Especially If You’re In Tech
Mr. Andrus loves investing in tech. “You look at Pluralsight’s IPO for example. It’s now worth over $3 billion. There are a bunch of unicorns going public this year. It’s interesting when you dig below the surface—there are a ton in Utah. We have a lot of really smart entrepreneurs with great ideas,” he says.
Mr. Smith agrees. He tends to invest in companies he understands well, companies where he can add value. “A lot of the companies I invest in are digitally native brands that were started online,” he says. “I’m really inclined to invest in those types of companies.”
Sid Krommenhoek, Managing Partner at Peak Ventures, says tech is so alluring because our lives are increasingly driven by, or enhanced by technology. From how we buy things, to relationships and the ways we stay connected to people, to the software and technology that’s supporting businesses all around us, tech is everywhere.
“Software truly is becoming a piece of any of the things we do day-to-day. What has emerged because of the successful tech companies around us from Google to Facebook to Amazon … more young people consider entrepreneurship a viable path,” he says.
Win or lose in your venture capital investment, you’re investing in a relationship with an entrepreneur, he says. “When you’re investing in tech startups in particular, you understand that the worst-case scenario is that your investment can go to zero. When in fact, most startups do go to zero. Then, the question is, why would you invest in something where most go to zero? Because, the ones that win, win big. Or, they have the potential to win big.”
Here’s How to Pitch Your Business to Angel Investors
When investing, Mr. Krommenhoek looks for founders who are obsessed with a mission or vision for their business, and tailwinds. “When [entrepreneurs] face struggle, they push through even when there are doubters, even when it’s harder than they thought because they believe,” he says.
The elevator pitch is the most salient, distilled piece of what your business is, which is a pain and a solution, he says. It’s your ability to succinctly articulate and convey to the investor, “I’d love to tell you more. When do you have a half hour to sit down?”
The point of the elevator pitch is not to sell the investor on your business, it’s to get the opportunity to pitch your business in its entirety. The goal is to create and stir enough interest that you get another appointment, he says.
Mr. Krommenhoek looks for several things in a good pitch, including a founder whose startup is speaking to something they feel viscerally. Meaning, it’s not just a problem you might forget about in a year, let alone months or weeks. It’s a problem the entrepreneur will pursue even if it takes ten years because it’s that important.
“Those founders naturally tell stories. They feel the pain and share the solutions because they feel it in their bones,” he says. “They’re willing to raid through the muck. Come hell or high water, they’ll find what it needs to build, to execute their solution for their business.”
Next, he’s looking for traction. “When somebody can show us, ‘I feel so passionate about this problem, I have the solution and here’s five people, listen to how they feel.’ Better yet, ‘Here’s customers who are speaking with their dollars.'”
Tech investors are looking for people who not only feel the pain and have the vision, but are competent to build, who have the technical wherewithal to build their solution. Lastly, he looks for entrepreneurs who, even though it may be murky years out, have clarity about the capital they need to push their startup forward.
“We’re looking for somebody who has a plan,” he says. “Not a plan for global domination, but for the next six to 12 months when it comes to pounding the pavement, boots on the street, shaking the bushes.”
During his early pitching days, Mr. Krommenhoek recalls sitting in a hotel room in San Francisco practicing and practicing until the late hours in front of a mirror before he pitched to a group of 500 investors. You’re not always on a stage, but you owe it to yourself to have thought it through, he says.
Before you pitch, think of the best way to communicate, about the right order, he suggests. Think storytelling. You don’t sit there in a monotone voice. Good storytellers know what to emphasize, and how to keep your attention, he says.
Understand Who You’re Pitching To
Pitching to an angel investor is different than pitching to a VC. You should do your homework, says Mr. Krommenhoek. Research who you’re meeting with, who they’ve invested in. Do they have anything on the internet where they talk about their own investing?
Investors are in the business of sniffing out all the reasons not to invest, so be genuine when you pitch. The biggest reason not to invest is distrust or sheer skeptics. People are inclined to say no if they felt you were over representing your company, embellishing, or you don’t seem authentic, he says.
But how do entrepreneurs get in front of investors? He advises against sending a blind email or a blind note through LinkedIn. Mr. Krommenhoek has never invested in a cold call. He says it’s better to find a contact through the investor’s network. You can go to an investor’s LinkedIn profile and see who you’re mutually connected to, see if there’s any overlapping in your social or networking connections.
If there are no mutual connections, follow or engage first on a professional or social level. “Whether it’s blogging or tweeting or Instagram—there are different ways to begin to connect in a softer way,” he says.
Mr. Krommenhoek says to look at the investments an angel investor has made. Do you know anyone connected to those companies? If you know somebody who works there, he says to ask them if their founder can help make an email introduction.
“If I get an email from one of my founders introducing me [to an entrepreneur], believe me, I’m going to respond,” he says, emphasizing that this is the best place to start, with founders the investor has backed. “There’s nothing more important. That’s our royalty.”