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Seed Capital From Angel Investors: Brian Cohen, Vice Chairman, New York Angels (Part 8)

Posted on Friday, Dec 31st 2010

By guest authors Irina Patterson and Candice Arnold

Irina: What can angel groups do better?

Brian: I think there are a variety of things that angel groups can do better. They could – I would say, most important – make it clear to the entrepreneur what their ability is to actually fund him or her. That’s a very deep point.

I think an angel group should be more upfront with entrepreneurs about what they’re capable of funding and what they’re not. I think it also behooves the entrepreneur to question the angel group on that issue. Have you funded companies in this area? They should ask this question.

I think there’s a certain kind of development relationship early on with an entrepreneur that, for example, in the screening, they should know up front [whether] we’re curious or we’re interested.

There’s a big difference between the two. I think the entrepreneur is the most important person in the room, of course, and that lends itself to even more understanding of the process and what can be achieved out of it. That’s the relationship with the entrepreneur, giving them that transparency of what the real possibilities are to fund them at various levels.

For example, entrepreneurs could come in say they want $2 million. So, up front, we say to them, “That isn’t necessarily an angel deal.”

We may say, “Try and get to profitability sooner by reducing your overhead and not expecting so much, because that kind of number is a harder number to reach,” rather than waste their time and listen and not explain that to them. I think that’s important.

I think another thing angel groups can do better is more deal collaboration. I don’t know of any real angel group that completes a deal fully on its own. They tend to try to move and try to find money in a variety of places. I don’t have the statistics on it, but deal collaboration, syndication, that’s a big part.

Those are the two areas that are most important.

Also, angels can always improve the due diligence speed. That’s the other one.

Irina: What can entrepreneurs do better?

Brian: Again, it’s about their being aware of what the angel group is capable of. Maybe even prior to the angel group meeting, meet with some of the angels, gain some insight. Work the room before you’re in the room. I think they should take advantage of that.

I think that they should also do their own due diligence on the angel group. What kind of deals have they done? What experience do they have? Who are the people in the room? They should be very aggressive about that. They shouldn’t be sheepish about it.

Irina: What about entrepreneurs ultimately succeeding with their ventures, besides getting funding?

Brian: Use their money wisely. Make sure that they think like entrepreneurs. A lot of the times, it’s about spending more money than they need to. Though they think they aren’t, they tend to spend more money than they should on some things.

Recognize that it may be their first round and not their only round, and they should start fundraising for the next round sooner rather than later so they don’t find themselves in a cash crunch. They generally do find themselves in a crunch, which is unfortunate.

It’s more about prognosticating and forecasting, their cash flow requirements. From a management standpoint, just keep learning and use the angels as mentors. Some of the entrepreneurs whom we invested in come to the angels constantly to get input and advice. I think they don’t use the mentorships of the angel groups that they’re getting their money from as wisely as they should.

Irina: What are your personal daily challenges in your work?

Brian: Making sure that the best deals come to us.

Irina: How do you ensure that?

Brian: By being out there, encouraging angels to be out there, going to events in New York City, going to the meet-ups, being very visible, and creating strong mentoring relationships with the university students.

We judge almost every business plan competition in New York City. Those kids will talk to each other about the sense of relationship that many of the New York Angels provide them with.

This segment is part 8 in the series : Seed Capital From Angel Investors: Brian Cohen, Vice Chairman, New York Angels
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