The movie Jerry Maguire and its character Rod Tidwell remind us of what happens when you are unhappy with your existing contract. He jumps up and down uttering the words “show me the money” and asks Jerry to repeat the same words to ensure he is on the same page. “Show me the money”, in the angel capital world, reminds us that you must have evidence that your venture is not only valuable but proof (things that differentiate and distinguish your venture as noted below) it is investable.
I thought I would share in a Kiplinger-like format some key takeaways and insights from my attendance at the ACA (Angel Capital Association) Summit in Boston.
1. Entrepreneurs are comfortable with risks, but they are generally not risk-takers.
2. You don’t need the venture scale you used to need today to build a successful business.
3. The top 3 reasons for new ventures failing included:
- There is no validated market need.
- They run out of money.
- They fail because of the team and its dynamics.
4. Angel investors are drowning in things to invest in, but the biggest challenge for angel investors is time.
5. Attractive early stage investments share these essential characteristics –
- A finished product, IP protection, and for sale in 4-7 years
- A path to cashflow break-even not a path to next higher valuation (entrepreneurs and business builders need to re-read this statement)
6. Few exits generate distributions – returns are often only realized at exit
- Angel perspective – “Until the investment exits, we are all donors.”
7. Key exit fundamentals are determined by – time, multiple, terms, post-investment dilution and capital invested.
- Active boards are necessary to and essential to optimize exits.
- Companies must focus on what buyers will pay for (value).
- Outstanding companies are bought not sold.
8. Only 2% of VC is allocated to female founders. This is tragic.
9. Experienced CEO venture valuation multiple can be up to 3x higher than a new CEO.
10. 80% of early-stage ventures form as a C-corp. It is just the opposite in NE Indiana – 80% are LLCs.
11. Potluck comments- These comments are food for thought and not validated.
- Invest only in Myers Briggs NTs. They are your uber-successful entrepreneurs.
- Coachability is critical but how to measure or find it is difficult. Angels remind angels to “blink but verify” to assess adaptability, leadership style, and whether the founder is passive aggressive.
- Assessment tools used by angels include but are not limited to Myers Briggs, Watson-Glaser (score of less than 50 and the entrepreneur is likely not coachable), Kolbe, PI, Gallup BP-10 and entremetrics (thumbs up with a score of higher than 65!), and DISC. Do your homework, do background checks and determine whether the founder and team exhibit grit and self-control.