What angels have to offer is what Inatome calls "career capital" -- contacts, resources, judgment. Such capital can be as helpful to a growing business as money, and experienced entrepreneurs stress the importance of lining up career capital even before beginning the search for real capital. "I was unbelievably conscious about seeking out relationships in the early going,"says Greenwich Technology Partners CEO Beninati. "I asked people to make introductions. For example, a board member introduced me to senior managers of Bear Stearns," which to this day uses GTP to help keep its IT infrastructure humming. Inatome, for his part, urges entrepreneurs to form business relationships "where money is not the initial goal. Well before you need money, recruit people whose reputation, values, and success you admire. Your relationships with them will make it a lot easier to raise money when the time comes."
Perfect Pitch and Other Money-Raising Secrets
How does an entrepreneur, immersed in the infinite details of building a business, form vital business relationships in the first place? A good place to start is the directory of private- and angel-capital firms and networks that appears on page 106. But that's only the beginning. SRC's Stack points out that local bankers are a font of knowledge about the local business and financial scene. Even if they don't have money to lend -- most early-stage businesses don't have sufficient assets or revenue to secure a bank loan -- they know who the local players are because banks are often invited to participate in private-capital partnerships. Another good place to start is the local chamber of commerce. Most chambers maintain close ties with local angels and private-capital firms and can often help match entrepreneurs with like-minded backers. Entrepreneurs should also consult local or regional business journals, many of which compile annual lists of business resources in the area, including law firms, insurers, professional-services firms, and private-capital outfits. People who are contemplating leaving the corporate world to start their own business have a particularly valuable resource: former colleagues who have already made the leap. They can help steer newbies away from avoidable errors and help sift the ranks of professional investors to find the best combination of money and what Inatome calls "nonfinancial currency."
Once introductions are made and relationships formed, the same sort of forethought should go into the process of actually raising money. Veteran entrepreneurs and investors agree that the time for a business to raise money is long before it's needed. "Start early," counsels Inatome. "Don't make your first contact when you're desperate -- it's intuitively distasteful to have someone ask you for money when they're desperate." But desperation is more than a lapse of taste, as SRC's Stack points out. It can also be a fatal strategic error. The more urgent an entrepreneur's need for money, the more onerous are the terms a financier can extract in exchange. "I've seen companies tie themselves in knots because they needed money badly," says Stack. "They'll sell 20% of their equity to someone and promise that the stake will never be diluted. Conditions like that can stop a company's growth cold."
Appeals for early-stage financing usually take the form of a presentation to a group of potential investors. Such presentations are crucial moments in the life of a nascent business, and they're worth every bit of energy expended in preparing and delivering them. It's hard to overstate the power of a good presentation. Potential investors remember pitches that anticipate and address their needs and concerns, if only because they are relatively rare. For example, it should go without saying that every presentation should include the idea for the business and a detailed plan for executing it. Yet every angel or private capitalist we spoke to for this article could recall instances of entrepreneurs looking for backing for an idea before they had any clue how they might profit from it.
Presentations should also be delivered in language the audience can understand. Severiens, of Silicon Valley's Band of Angels, complains about engineering types who forget that not everyone is as fluent in technical jargon as they are. "When they're developing their prototype," he says, "these guys spend 25 hours a day underground with other engineers, speaking a kind of shorthand. Then they come up to the surface to make their presentation, and they start talking the way they talk to their buddies, and I swear, you have no idea what they're saying."
As important as the idea and the business plan are, the real product entrepreneurs have to sell, especially in the early stages, is themselves. "First-stage investors are evaluating the jockey, not the horse," says Greenwich Technology's Beninati. "They need to see you're a capable person, and they need to see your work ethic. They need to be sure you're going to devote the intensity and the time to getting those first few victories." They also need to see that the entrepreneur is the sort of person who can be trusted with other people's money. That means being scrupulously honest about even the smallest details. This too should go without saying, but in their eagerness to turn their business dreams into reality, even the most ardent devotees of the truth might be tempted to round off the corners of a few sharp-edged facts or omit a piece of unfavorable data. This temptation, though understandable, must be resisted, counsels SRC's Stack. "One lie, and it's over," he warns. "One bluff, and it's over."
