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Entrepreneurship Education: Are You Ready For Funding?

Posted on Friday, Jul 16th 2010

One thing we’re hearing continually from angel investors – mind you, angel investors, not VCs – is that entrepreneurs approach them too early and without adequate preparation. Folks, you cannot (and should not) do this. Once you get rejected by one investor, you will not be able to go back to that same investor anytime soon, unless you have a strong pre-existing relationship with the individual.

So don’t blow your cartridge too soon and without doing the necessary homework.

Just look at the statistics. Angels receive anywhere between 50 and 200 deals a month, and invest in 4–20 a year. Yes, a year. That means each investor rejects anywhere between 500 and 2,000 or more deals a year. Superangels like Mike Maples get 5,000–7,000 deals a year, and they too reject the bulk of their dealflow, investing in just 12–15.

The bar is high for entrepreneurs to qualify for investment. And you get only one shot with each investor. It is excruciatingly difficult to get an investor meeting, especially for first-time entrepreneurs. If you get one, you should make sure that you are prepared for it.

Here’s my Clarify Your Story framework. It gives you an idea of the kinds of questions you need to answer to come up with a robust strategy and fine-tune your pitch. If you need to discuss specific issues here, come to our 1M/1M roundtables.

Six hundred thousand companies go out of business each year. We don’t want you to be one of those. In 1M/1M, our objective is to check the high Infant Entrepreneur Mortality – the colossal waste of entrepreneurial energy that we see around us.

Take advantage of 1M/1M.

This segment is a part in the series : Entrepreneurship Education

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Dead on right, Sramana. Enterpreneurs need to have their ducks in a row. This also means that you and your team have to be on the same page and fully engaged with each other, so that when an angel investor asks questions of the lead entrepreneur and their partners they get a similar story and vision. This tells the investor that the team is working well together and is more likely to succeed.

Sandy McMahon Monday, July 19, 2010 at 9:57 PM PT

The reality is that investors regularly reject good start-ups, because they can't possibly perform the proper due diligence on every potential deal that hits their desk. Lets take "Super Angel" Mike Maples, according to your article he gets upwards of 7000 potential deals per year. Assuming he works 50 out of the 52 weeks and takes off weekends that leaves him 250 days to review 7000 deals. That's 28 deals per day! To perform the most basic of due diligence on a deal would require at least 10 hours. This would mean he would have roughly 280 hours of work per day. This would require a staff of 40 to get the work done!

Instead Angels like Mike Maples, at best, read over the executive summary of a business plan and make a quick gut based decision, as to whether or not to take it to the next level. A quick read of an Executive Summary only takes about 5 minutes. So, I would caution entrepreneurs to not put much stock into what Angels as a group have to say. I would even caution entrepreneurs to not put much stock into what most Angels say to them directly, as they will probably direct them down the wrong path. Most Angels have no intention of investing in your business anyway. They just do not have the funds to do so. And in the overwhelming number of cases, they do not have enough knowledge on you or your business. However, in almost all cases they do have an almost unlimited supply of advice.

Of course, if an Angel is serious about investing in your business and has some advice on what you need to do to get the Angel to write the check, then by all means listen carefully.

My advice to any entrepreneur is to find yourself an experienced entrepreneur that can serve as a mentor. This mentor will spend the time getting to know you and your business and can give you the advice you need when you need it.

– Remy

Remy Arteaga Sunday, August 1, 2010 at 7:13 AM PT

Hi Remy,

I think the algorithm the investors use to filter the deals is “who is the referral source?” If it is somebody credible, they will go ahead and invest some time. If it is a cold ‘ping’, they won’t. I agree with your advice to attach yourself to a successful entrepreneur who can not only provide guidance, but also this crucial referral into the investor community.

Sramana

Sramana Mitra Monday, August 2, 2010 at 1:08 PM PT