Did I get your attention? Well, "How to Finance Anything" was the title of a session that I attended at Inc.'s GrowCo. conference in Orlando, if for nothing else to see if it lived up to its name. The session featured a panel of four really great speakers who definitely knew their stuff.
Getting VC/Angel Money -- What Should You Go For? According to Steve Mercil who runs an angel investment firm, angels typically focus on early stage deals with high growth potential, and the business has to be able to scale to a pretty big size. Angel investors usually like to be more hands on and try to help the business with their knowledge in addition to giving it capital. Depending on whether it's a singe investor, a group of angels, or a network, a business can probably raise $50K-$1million. Angels are typically looking for a 10x return on their money in 5-7 years. Here's the typical investment range for different types of investors:
Angel Investor - $50-100K
Angel Group - $100-300K
Network - large number of angel investors - $1 Million
Ben Lerer, co-founder of Thrillist, started an Angel fund with his entrepreneurial father and they invest $50-150K in a start up. They often invest with other Angel groups. He said that he often times invests in pre-revenue companies, which I found kind of surprising. Steve indicated from what he's seeing, as opposed to angels, VCs want deals where there is already revenue, traction, and customers. So it really looks like your choice of VC vs. Angel investor might depend on where you are in your business, early stage or later.
Ben also brought up a great point: once you do get an angel or VC who wants to invest, raise enough so you can focus on executing the business and not spending more time fundraising. I can agree with that; I had to raise four rounds of investment over four years. Chasing money down takes a ton of time.
Someone in the audience brought up a great question: What do you look for in a company when investing?
Steve looks for passion and experience in the management team. He looks at things like how big the market is, how much you'll need in human and financial resources, and how unique the business is. The most important caveat for Steve? He looks at the type of people in the company. Ben seemed to echo Steve's sentiment as far as people. He likes to sit down with the guy (or the girl he added after a moment of hesitation), and try to find out if he really wants to be partners with them. He'll basically make a bet on this by gut feel.
Bootstrapping Your Business Bootstrapping a business can be tough, but also very rewarding. Andy Craig bootstrapped his own business and I was intrigued with his story because that's what I did here at VerticalResponse. He did anything it took to get that first client then relied upon referrals 100 percent. His company did a ton of work for free for a few years so they could get in front of other possible clients, which is a really smart idea.
Ben raised a little bit of cash for his company Thrillist. He waited until his employees got to the end of their rope (each employee doing 2 jobs) and only then did he hire someone new.
Steve invested in his company with his time. He is a fan of taking 2nd mortgages, and looking at retirement savings. As an investor he wants to know that you'll do whatever it takes and whatever you have to commit to your business. Boy was he right; in my own experience since I wasn't able to take a paycheck for a few years, my husband and I lived off of one salary. And as revenue grew, I grew my paycheck slowly.
They didn't really talk about going the "friends and family" route, which can be rough at times. It's almost easier to take money from a stranger than from a close friend or family member. You don't want to let your friends and family down and you'll lose sleep over not being successful in their eyes. Make sure you're up for it. Not only do I have about 18 investors that are friends and family, but I also have employees who have invested in our company.
All good ideas as far as how to fund a company. How to finance anything? You can't do it in a 45-minute session, but a great start to a conversation.
JANINE POPICK is the CEO and founder of VerticalResponse (a Deluxe company), a leading provider of self-service email and event marketing, online surveys, social media, and direct mail solutions. The company was ranked No. 2,802 on the 2012 Inc. 5000. @janinepopick