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Seed Capital From Angel Investors: Nova Spivak, West Coast (Part 5)

Posted on Saturday, Sep 25th 2010

By guest author Irina Patterson

Nova: Today, the world of angel investing is completely the Wild West. It’s extremely hard to find investors. It’s extremely hard to get them to give you money. And even when they do, it’s not very much. So, there’s a gap right now. Basically, the first one to three million dollars that a company needs is extremely hard to raise.

Angels will invest, usually, less than a million. And venture funds, they want to invest more than three million. They want it to be three to five. It’s extremely difficult to cross that gap between one million and three million, and very few companies make it through.

So, there are a lot of great ideas that aren’t getting funded. There’re great teams that aren’t getting funded because there’s a gap. I think what there needs to be a new kind of fund or early-stage fund that invests that first million dollars, or even up to two million dollars in stages, to get these companies to the point where they can raise venture capitals.  There are some early-stage funds, but they really aren’t many of them. Only a small handful. That’s the biggest missing piece right now.

Now, there’s another category called “super angels.” These are very large angels who can invest million dollars. There are a few of them, and they’re effectively early-stage funds. But it’s so chaotic and disorganized right now that the biggest problem is if you are an entrepreneur, first of all, it really depends on where you’re located. You have to be in the right place, because angels and funds only invest really nearby, usually. And you have to know the right people, because you have to be in the network.

You have to know people; they have to be able to hear about you and know that you’re not somebody from the outside. It’s very hard if you’re from the outside. You have to get into the network, wherever it is. It could be Israel, it could here in Silicon Valley, it could be New York — it doesn’t matter. But you have to be somebody within that network. And . . . it’s extremely difficult. It’s way harder than it used to be.

Irina: Right. So, what’s your geographical area? Where do you invest?

Nova: Primarily, the West Coast, San Francisco and Los Angeles. But also around areas and outside as well. That’s because it’s where I am, and I don’t want have to fly around if I can help it.

Irina: Where are you based?

Nova: San Francisco, but I’m actually moving to LA. There is a a lot of early-stage activity in LA. I think it’s the next frontier.

Irina: If you could talk about your own challenges as an angel, what are your personal challenges?

Nova: Often I have really interesting projects, I put in some money, and I want to find more money to those projects. So, I’m facing the same struggle of trying to help these companies to raise money.

There’s no shortage of great ideas, but it’s very hard to find funding to get things done. And right now that’s the challenge. Often I want to find some leverage – if I want to put some money in, I’d like to bring in some other money. So for some companies, like Klout.com, I was their first investor, and I found many of their other investors are actually helping them to get through that gap. That’s great, but it’s hard.

There needs to be a marketplace or something such as an aggregator of the angels so that it’s easier. There are some angel networks, but the problem with angel networks right now is that you have to get up and pitch in front of twenty-five or fifty angels all at once. And you risk giving out your ideas and spread before you’re ready. I think it’s better to do it in different manner where you might meet some angel networks but you can meet privately with some representatives of the networks, not the entire network.

Irina: I see. Thank you, Nova. I enjoyed our talk.

This segment is part 5 in the series : Seed Capital From Angel Investors: Nova Spivak, West Coast
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