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What Every Angel Investor Wants You to Know: An Insider Reveals How to Get Smart Funding for Your Billion Dollar Idea Hardcover – April 16, 2013
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"Chock full of real world advice, honest self appraisals, and good chewy information that I wish I had when I went out to raise money." Fast Company 20130408
About the Author
BRIAN S. COHEN is chairman of the New York Angels, an independent consortium of individual accredited angel investors, providing seed and early-stage capital. He is also the cofounder of Launch.it, a free newsroom for the world.
JOHN KADOR is the author of more than 20 books, including The Manager's Book of Questions, 301 Best Questions to Ask on Your Interview, and 50 High-Impact Speeches & Remarks.
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Cohen’s informative book starts with the premise that “startups are good for society, and they need angel investors to help them get started and build a strong foundation.” Every large business started as a startup, and the challenge is to assist startups to grow fast and huge.
The book is relevant to the many people who approach investors of all types, but is especially relevant to people who approach ‘Angel Investors’ to invest in their startups.
Cohen bases his approach to investing as an equal relationship between the startup and its investor. Most Angels are former successful businesspeople who wish to give back to others, most often to the next generation of business people.
Angel investors may be expected to provide insight and wisdom. Founders manage the business daily and have to rely on their own best judgement, informed by the best advice they can find.
Angels need startups, and startups need Angels. Angel are not charities who make funds available to the deserving; they are making an investment, not a loan nor a donation. They are businessmen who usually invest in a portfolio of startups with the intention that one will be the next Google, which will cover all the others that either lost money or merely broke-even.
Many founders believe that if they only had access to sufficient money, they would be able to be successful. That is wishful thinking. Founders need two things from investors – money and wise help. That is what the best Angels add – their wealth of experience in business and their contacts. In the world of investment, this is called Smart Money, to distinguish it from Dumb Money, which is an exchange for equity in your business, and no more.
Business if far too complicated and multifaceted to have all its problems solved by a large investment. Business is a never-ending series of decisions, many of which seem innocuous only to turn out to be superb or disastrous with time. In the book I reviewed last week, I described the dilemmas that founders face, none of which have obvious answers. Help could be at hand if you find the right Angel for you and your startup, and may well assist you to make correct decisions.
Cohen describes the intention of his book as “a guide to bring entrepreneurs and angels investors together for their mutual benefit and the benefit of the community.” All Angel have chosen this path because they want a financial return. The best Angels “because they sincerely want to help entrepreneurs.”
Cohen describes four attributes that Angels look for in the presentation of the startup for it to be fundable.
First, the business must have the capacity for growth. Built into the business model must be an ability to keep growing. Starting a business to cater to the mass of soccer fans who came to South Africa for the World Cup may make money, but will it continue to grow after the games? The capacity for growth must be part of the business itself.
Second, the business must have Scalability. The ideal scalable business is one where the costs of serving 100 customers or 100,000 customers are essentially the same. A hairdresser can service only a fixed number of clients each day, and there is little change of technology changing that fact. Hairdressing is an example of a non-scalable business. Clearly between these two extreme lies a wide range of businesses.
Third, the presentation must show that the business has been or can be profitable. That means, plain and simple, that revenues must exceed operating costs.
The fourth requirement is for a business to be fundable is that it is sustainable. In this context, sustainable means that profitability will be ongoing and that the business will be able to mutate to meet new circumstances.
With the relationship between the Angel and the founder being symbiotic, it is essential the founder shows his or her character early. The Angel needs to trust the founder based on evidence of achievement, not a slick presentation.
All businesses have to be led, and the quality of the leader will either scare the Angel or give confidence. If the founder (or founders) have led a successful business, that gives confidence. If not, their success at founding and managing a volunteer-led weekend sports coaching school is evidence of leadership and execution ability, if not business smarts.
All Angels will do a due diligence before finally committing to your startup. If anything you present as fact cannot be proven, it could raise just enough doubt to send the Angel flying away.
“Success with angel investors requires more than just a great idea. It requires creating an emotional hugging relationship,” Cohen notes.
Angels choose their founders, and founders need to choose their Angels thoughtfully. Founders need to do their due diligence on the Angel. Angels are high profile people, known to many and with many of their achievements publically available making the process that much easier.
Investment is a relationship that must work for both parties. As a relationship, it needs to be based on mutual trust and mutual respect.
There is much in this book that will help founders give the best impression of themselves and their business. It will also help them attract the best Angels into lucrative business relationship.
Readability Light -+--- Serious
Insights High -+--- Low
Practical High +---- Low
Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works.
Why would they want to invest in our business? What are they looking to accomplish? What traits and characteristics are they looking for in us? What is all of that important to them?
In What Every Angel Investor Wants You to Know, Brian Cohen answers these and many more questions.
Many might think it's all about the money.
Wrong. Angel investors already have a pile of money.
They don't want to lose money, to be sure. But angels are looking to accomplish something, to be part of something meaningful.
And if you are the right person and have the right business, you can help them succeed. You can help them help you get what you want.
The appendixes alone are worth the price of the book.
For a more extensive review, check out startupnegotiator.com/blog.
Cohen holds your hand and takes you step by step through the process of getting your start up funded. He gives you "key phrases" of what to actually say to investors in critical situations. He tells you the best way to approach an angel investor and how he likes to be approached. He lists the key things that angel investors look for in their decision process. He tells you the mistakes that most start-up entrepreneurs makes, so you can avoid making the same mistakes. And if that is not enough, he gives you resources and tells you exactly where to find angel investors and how to contact them.
"There are 250,000 Angel Investors in the U.S. funding 50,000 start-ups in a year. Angel investors commit about $20 billion to start-ups." I was stunned when I read this statistic in Cohen's book. It's data from the U.S. Small Business Administration. Bottom line... there are plenty of angel investors out there and they are looking for businesses to invest in. Mine as well be yours right?
If you are an entrepreneur and starting a business or thinking about starting a business my recommendation is that you stop everything you are doing right now! Buy this book, read it, study it, take notes and apply everything you see. If you do that, then I believe your $16 investment will pay for itself a thousand times over.