Even in hard times, a smart angel will not pass up the chance to back a promising business. That said, don't expect much tolerance for missteps. All the old rules for pitching angels still apply -- be succinct, avoid jargon, have an exit strategy -- but they are even more true now. "Times like this separate the wheat from the chaff," says Andy Sack, an entrepreneur and member of Founder's Co-op, an angel fund in Seattle. Sack urges start-ups to be realistic about their prospects. "It's a hell of a tough time to raise money," he says. Below, some tips for ingratiating yourself with potential investors.
Add Some Experience
Seeing some gray hair on your management team will help ease investors' fears about your company's ability to deal with a tough economy. "Now more than ever, we want to see someone on board who's been through prior ups and downs and knows how to manage cash in the downside," says John May. Even if this individual is an unpaid adviser, he or she will add to your company's credibility. "Someone who is 26 and says 'I know how to handle this' is blowing smoke," May says. "They have never been through a recession."
Revise Your Game Plan
The economy has changed. Your pitch needs to as well. Presentations based on pre-meltdown figures and assumptions will seem like anachronisms. May recently met with a start-up that made a strong impression by presenting two business plans: one from before the market crash and the new one. "They showed me the '08 plan and then said, 'Here's the new vision; here's the new use of proceeds,' " says May. "It really showed me they were with it."
Keep Off the Bandwagon
Do some soul searching. Did you start your company because you are truly passionate about your idea or because you want to cash in on the latest trend? Angels can spot the difference and won't give much attention to those whose companies are essentially get-rich-quick schemes. "People who really believe in what they are doing should continue to do it," says May. "But those who are swept up in the latest 'me, too' idea, like social networking or mobile media, should really consider how much room there is going to be with a smaller economy and a tougher credit situation."
Know Your Stuff
This may seem obvious, but young, enthusiastic entrepreneurs won't get the handholding they may have received a few years ago. "Entrepreneurs who come across with unsubstantiated market assessments, no competitive analysis, and flimsy marketing and sales plans will be the losers in the race to money," says Warner. Young companies should be able to demonstrate an expert knowledge of the market they are about to enter as well as the discipline to follow through with their game plan. "Take everything you know about starting a business and multiply that by an order of magnitude," says Warner. Things like a well-thought-out business plan, cash-flow management, and time to revenue are going to be getting a lot of attention.
One Company's Story
Brett Owens created a company that keeps track of time. In his quest to land angel funding, he learned an important lesson about making better use of his own. Owens's business, Chrometa, makes software that helps attorneys and other professionals record their billable hours. He and his partner, both first-time entrepreneurs, launched the business in the spring of 2007 and have funded the venture so far with nearly $80,000 of their own money. Owens has been meeting with angel investors for more than a year without much luck. "A lot of investors are saying they are only funding proven entrepreneurs," he says. "This is our first time, and there's nothing I can do to change that."
So Owens has put off raising funds for now and is concentrating instead on building his business. Such efforts were recently rewarded when Chrometa received its first check from a paying customer. "It wasn't huge," he says, "but it reminded me that the bank account can actually go two ways." Owens hasn't been shy about sharing that good news with some of the angels he has met over the past year. "We try to stay engaged with our network, so we send out an e-mail every six to eight weeks," he says. Keeping potential investors in the loop without asking for money has changed the dynamic of his relationship. Owens says investors have taken a much more active interest in his success; indeed, now they call him with business advice. "Every conversation with investors has now become so much more productive -- even beyond the fact that they might fund us someday," he says.