But don't take Amis's word for it -- he's only one guy. Instead, take the word of 50 experienced angels. They're the folks Amis and Stevenson interviewed for their book. Among them are well-known investors such as Esther Dyson of EDventure Holdings Inc., Mitch Kapor of Accel Partners, and "virtual CEO" Randy Komisar. But their ranks also include lesser-known though experienced angels, including Lucius Cary, who has invested in more than 50 companies; John Hime, who's invested in 29; and Bert Twaalfhoven, who's invested in 24. Among the companies funded in part by Amis's Fabulous 50 are Apple Computer, Amazon.com, House of Blues, Idealab, and Sun Microsystems.
You can use Amis's research to create an entrepreneur's checklist. Follow these steps to catch an angel.
STEP 1: Sourcing, or Who Are You, Anyway?
The best angels are always looking for good new deals. They call it "sourcing." Before you go courting them, do some sourcing of your own. Look for angels who can do you the most good. Here are five traits all good angels share:
CONTACTS. You want angels who can help you locate suppliers, customers, and employees. Ideally, your angels will know important players in your industry.
INDUSTRY EXPERIENCE. Related to the first point, you want someone who understands your business and has worked in your industry. Such an angel can help you anticipate some problems and deal with others as they arise.
ENTREPRENEURIAL EXPERIENCE. Angels who have previously raised money for their own companies tend to be easy, quick, and direct to work with. They also can detect the likely trouble spots in your company. That way, they won't be too surprised when, for example, that 12-month project stretches out to three years.
ANGEL EXPERIENCE. It's four times easier to deal with someone who's been an angel before than it is to work with an investment first-timer. Says Amis: "Everything moves so much quicker."
DEEP -- BUT NOT TOO DEEP -- POCKETS. The ideal angel has a personal net worth of $2 million to $50 million. If an angel has more than that, the $50,000 your company needs may fall beneath his or her radar. But if your angel has less, you'll be out of luck if you need to go back for follow-on financing.
OK, so you've narrowed your choices. Now you need to get noticed. Even the best angels can't invest in your company if they don't know you exist.
The most effective way to find them, as in nearly every other aspect of commerce, is word of mouth. "You want to come recommended," says Amis. In a perfect world you'll have a track record and will be known by someone who knows an angel. That someone introduces you, and you're off and running.
But what if you don't know a friend of an angel? Here's where the definition of recommendation can be stretched a bit. "If you talk to someone you don't know and they say, 'Why don't you call so-and-so?' you've got a referral," says Amis.
Another option: get an invitation to present to a local angel group. Most won't take cold calls, so you'll need to wrangle a referral. (See above.) But once you're in, angel groups offer a unique opportunity to present your company to anywhere from 10 to 110 angels in one throw.
Resourcefulness never hurts, either. Explore your network of friends, acquaintances, and friends of friends. Talk to professional-service providers you know -- for instance, accountants, investment bankers, brokers, consultants, and lawyers -- who are likely to know angels. It may sound hokey or obvious, but it works, says Amis. He recounts the story of an entrepreneur in the medical-products sector. The entrepreneur knew of an angel who he felt certain would be the perfect investor but who wouldn't return his calls. The upshot? Says Amis: "He finally found out who the angel's accountant was, worked on him, and had the accountant make the introduction." Go forth and do likewise.
STEP 2: Evaluating, or Let Me Get This Straight ...
During evaluation, angels size up your company's fundamentals in four main areas, says Amis:
PEOPLE. You, the entrepreneur, and your management team, of course, but also your other investors, advisers, and significant stakeholders -- anyone who has a stake in your company's success.
BUSINESS OPPORTUNITY. Your business model, market size, potential and actual customers, and the timing of the opportunity.
CONTEXT. External factors that could affect your business, including available technology, customer needs, the overall economy, regulation, and competitors.
DEAL. The price of the deal you propose and its structure. Price starts with your company's valuation. Structure refers to the terms of the investment and other factors -- board seats, salary limits, and so on -- that can affect the likelihood and the size of the angels' return on their investment.
Once you've identified potential investors, you must next prepare to cover those four areas in your first meeting with them. "You want to make your argument so compelling that they have to learn more," Amis says. "It's just like going on a sales call. You plan what you're going to say, warm up the prospect, then close -- that is, you ask for them to make an investment."
Be sure to tailor your pitch to the angel. "Almost everyone immediately launches into a 30-minute explanation of the deal, and that is wrong," Amis says. "You want to talk only about the things that interest the potential investors."
First, focus on your team. Angels want you to have a team of at least five senior executives in place. Your name may be on the door, but there's no way you can do everything yourself and still build a company big enough to attract angels. You don't have to bring the entire team with you to your first angel meeting, but you should offer to make them available later. "If the company is built around a good idea, I will never understand it as well as the principals," Amis explains. "That's why I want to know who is running the company."
