Kelly Hoey

Hints and tips for founders getting started with angel investment

awaken-angels-1

I’ve spoken on this theme a few times lately.  First for the GMIT Empower conference back in September & more recently for Republic of Work in Cork at their weekly lunch and learn.  It’s an interesting topic because raising investment really is one of those lessons that isn’t easy to learn from a text book.  Of course there’s loads written about the process and how to go about it … but in truth the hardest part of all is finding the right investors in the first place, right at the very beginning.  And this can be a bit of a dark art.  Why?  Well because a lot of it is about people, and as everyone knows, that’s always the trickiest part of any business transaction.

Angel investors themselves tend to be either very well known or completely hidden away.  You’ll all know the famous ones who are prominent in whichever city or county you happen to live in.  Some of them are full time & professional angel investment is all they do and they approach it very much like a job.  They’re active in the angel networks (like HBAN here in Ireland) or they’re members of the UKBAA or EBAN or the like.  They welcome approaches from founders & may well advertise or promote how they want you to engage with them.  Maybe they’re connected with one of the accelerator groups and you can access them via that route.  They’re clear about what sorts of companies they’re interested in investing in and may even publicise that information.  If you fit their profile then you’re golden and Bob’s your uncle – it’s a fairly clear path & they’ll either like your proposition or they won’t.  If they like it you’ll either agree on a valuation and investment terms or you won’t.  If you like them and what they bring you’ll either take their money or you won’t.  Job done.

In truth many of those well known angels tend to invest in the same types of companies that are already in the accelerators and on the government programmes and marked out early doors as companies with high potential for rapid growth and on a pre-defined trajectory to investment.  They tend to move in the same circles as the VC firms and they all know the same people.  It de-risks everything for them as the companies have already been through the mill in terms of copious amounts of expert due diligence performed and money is being thrown at them from all angles.  Often it’s a lot about tax breaks and managing their portfolios. 

But what if you aren’t one of those companies?  What if you don’t move in those circles?  What if you’re very early stage?  Then where do you start.

Again, like most things in life you start with your network.  (As an aside, if you’re an entrepreneur or a startup founder and you’re reading this and realising that you don’t have a network, you’re in serious trouble and you need to take speedy affirmative action.  That’s a blog topic for another day.  As a quick fix, buy Kelly Hoey’s book “Build Your Dream Network” and read it immediately).

As a founder or entrepreneur you will probably be part of a number of networks with other similar founders.  I would start there.  But before you do that, pause and have a long hard think about the sort of investor you’re looking for.  Do you want dumb or smart money?  Do you want to use this as an opportunity to bring expertise onto your Board and into your company?  Are you looking for someone that’s well connected into the investor community who will be able to bring in your next level of investment when you’re ready for the big cheque?  Do you want someone who has successfully sold their own company and might be able to help you do the same?

Remember that angel investing is a team sport and you only really need to find the first appropriate investor & convince them that you & your company are interesting & a good bet.  If you can do that, they will likely bring their friends.  When I look at my own investment portfolio, in 7 of the 10 companies I’ve invested in I’ve brought other investors in with me who didn’t know anything about those companies.

Once you’ve identified your ideal investor or investors, draw up your long list … and then make a start on your homework.  Against the names on your list you will need to research the following as a minimum:

  • Is the angel actively investing currently?
  • If so are they looking at new investments or focusing only on existing portfolio?
  • Do I meet their investment criteria? (For example, I have 3 criteria before I’ll usually even look at an opportunity – has to be female founders, tech for good & something I can add value to)
  • What size of investments do they usually make?
  • Do they invest alone or as part of an angel network?
  • What other investments have they made in businesses similar to mine?
  • Does the person welcome cold approaches?
  • If not, who do I know who knows them?

You can avoid this step by pitching to the angel networks.  This may save you time.  It may also result in you missing out on some of the more niche (and maybe appropriate) angels who aren’t part of the networks.  You will also be at the mercy of the angel network’s timetable in terms of pitch dates, pitch format and so on.  It’s perhaps worth mentioning that whichever of these paths you start with, there’s a good likelihood you’ll end up doing a bit of both routes.

Pitching to the formal networks saves founders a lot of time and legwork.  The organisers are super-experienced and may well help you get investor ready, explain the enormous amount of jargon that surrounds business investment, finesse your pitch & business plan, guide you in terms of the forms of investment itself that are open to you (it’s not all straight equity any more), narrow down your valuation range … some of them even do all the paperwork.  However, for some types of business they may not have many of the right types of investor in the network and this can lead to founder disappointment when no tangible interest materialises and a feeling that time has been wasted.  Weigh it up and have the conversation with the organisers of the angel network.  They’ll be keen not to waste their own time either.  Final point on this – there’s no guarantee or obligation on them to even allow you to pitch so this route may simply not be available to you for any number of reasons.

I’m going to pause here for a moment to cover off how I believe you should go about contacting angel investors for an initial conversation.  This is completely & utterly my own opinion.  I mentioned earlier that many angels welcome cold approaches.  I don’t and these are just a few of the more common ways that people I’ve never met or spoken with contact me:

  • They email me cold & include their pitch decks (& often bizarrely add a note to say if I’m not interested can I forward their deck onto others in my network who may be … WTF … dream on)
  • They send me Twitter DMs with a link to their pitch deck
  • They include me in desperate scattergun cold approaches via LinkedIn
  • They corner me at in-person events and try to pitch to me

When this happens my response ranges from deleting the email & ignoring the person to offering constructive advice to just plain being blunt or rude, which I don’t like to be.  None of these methods will ever result in me investing in that founder’s business and I say that with 100% certainty. 

I generally only have initial conversations if the founder comes to me via a structured introduction from a mutual respected & trusted contact.

I’ll leave you today with three pieces of advice and 3 pitfall areas for anyone who’s fundraising or about to start.  Advice first:

  1. Start looking early.  Start the process way before you think you need to.  There’s a lot you can do to get ready but the main activity will be building your network, starting to make connections and having early conversations.  Your first fundraise will likely take 6-9 months but it often takes longer and false starts are fairly common.
  2. Do your homework.  On investors as mentioned above but also in terms of your own prep.  Decide on the sort of investment you are seeking.  Go online & watch as many others pitching as you can.  Learn the jargon.  If you’re not an accountant, learn about balance sheets and cap tables at least so that you understand why investors are interested in them.  Think about your valuation and how much equity you’re prepared to part with.  On this, expect valuations to be under further pressure as the Covid period extends again (I’ve heard of term sheets again being rescinded in the last few days since more national lockdowns have been announced).  Start working on your pitch deck early as it will go through a lot of iterations.  Before we leave this point, make sure you’ve accessed all the free money (i.e. grants) that you can.
  3. Raise enough.  Especially now.  The process of raising in itself is extremely time consuming and a serious distraction to business as usual.  And who knows what the world will look like in 12 or 18 or 24 months time.  Watch out for tyre kickers who will talk to you until the cows come home but never get any closer to investing.  One of you needs to pop the question during this type of long courtship.  I heard last week that a number of funds are no longer doing smaller investments of less than £1m.  This trend is likely to spread & really early stage money is likely to get more & more scarce … so if you’re thinking about fundraising real urgency does exist.

And now some pitfalls:

  1. Don’t let the process go slowly because you aren’t prepared.  Get your due diligence documentation completed early and in order.  Business plan in the correct format and split into chapters, labelled & ready to send out to anyone who asks.  Share register clear & up to date with no anomalies.  Customer contracts in order & available, financial information up to date and company filings done.  Forecasts available in detail and ready to answer any questions on the underlying assumptions.  Board minutes written up.  No last minute surprises.
  2. Giving away too much equity too early or to the wrong investor/investors.  This will either put future investors off or maybe cause you a lot of heartache/embarrassment getting those shares back off a friend or family member who helped you out early days but doesn’t add much going forward.  Really do your homework on investors, and not only angels but VCs too.  Talk (as in speak, not email with) to the founders of other businesses they have invested in & ask if they delivered what they promised and find out what they’ve been like to work with.
  3. Not being prepared for the change that will occur post investment.  You may still be the figurehead but the company is no longer all yours.  Maybe things were very informal previously but now have to be more structured as you have investors that you’re accountable to.  Over time they may even decide to replace you although you will still own shares and make money when they company is sold.  You may decide to replace yourself.  There are many examples of both of those events happening.  This links back to your reasons for starting a company in the first place and is a little reminder from me that investment shouldn’t be rushed into or taken lightly.  Sometimes it’s better not to take it at all.

That’s all for today folks.  If you’re raising & would like a slightly different perspective from a founder who’s raised recently, then I recommend watching this video from Cerebreon’s co-founder Gillian Doyle recorded at August’s AwakenHub event.  20 minutes long and more useful than most MBAs.

Please do post any questions in the comments and I will attempt to answer them all & thank you for reading.  If you enjoyed this blog then please do share with your own networks.

Good Things Can Happen if you only say Yes!

Two recent trigger events prompted me to write this blog. The first was this tweet last week from Sam Missingham (@samatlounge) “Women of the world, if you are asked to speak at an event or appear on a panel say Yes (especially if you don’t really want to)”. The second was seeing Carey Lohrenz speak at Dellworld 2015 & listening to her talk in depth about (generally) how women don’t put up their hands until they’re sure they can do 120% of what’s being asked of them. Carey (& I) think you should put up your hand when you can do 75 or 80% & figure the rest out from there.

Badass Carey Lohrenz addressing the Women in IT lunch at DellWorld 2015

I know this topic has been done to death a bit in recent years but I’ve never written about this from my own personal perspective so I thought I’d do that in case anyone finds it interesting & maybe it will encourage a few more people to be brave.

It’s about 2 years since I made the decision to exit from my startup/scaleup Learning Pool, sell my half of the business & go & do something else. As CEO of a small growing business your default position when presented with most decisions is No. It has to be. In order to focus on growing your business, meeting payroll every month & moving the needle significantly in the right direction you need to eliminate as much distraction as you possibly can from your business & your life.

You say No to most conference attendance opportunities, most business social and networking events (especially if they involve travel or an overnight stay) and most requests for you to speak at other organisations’ events. Unfortunately, when you’re in a place where you sometimes wonder if you could function with one or two hours less sleep at night, you don’t have a lot of time to mentor people inside or outside of your organisation either – the smart ones learn by running along beside you.

One thing I did manage to make time for as Learning Pool grew was speaking to students at local schools about careers in STEM, usually through Young Enterprise NI. As entrepreneurs, business owners or people with careers in STEM we all need to do a bit more of this.  The other was chatting to other entrepreneurs who were a few steps behind where we were – I knew from experience how useful this had been to us when we were in startup mode.

I guess the most extreme example of me saying No was the night (it was International Women’s Day 2011 – the 100th anniversary of IWD) when I received a late call from someone in government inviting me to join the Northern Irish delegation to the White House to meet President Obama on St Patrick’s Day. What was my response? I said “I can’t possibly – our year end is end of March & I’m too busy”. There was a brief silence at the other end of the line & then the very sensible person said – Mary – when someone asks you in 5 or 10 years time, what were you doing on St Patrick’s Day 2011 which would you rather say – that you met the President of the United States or that you were doing spreadsheets… I made the right decision in the end!

So – for the last 2 years I’ve been running my own private social experiment in which I try to say Yes to most things that are presented to me – within reason of course. Below are some of the positive things that have happened as a result (to date there have been no negative outcomes).

Sam Sparrow & me (& the Mannequin Pis) in Brussels May 2014 for the final of the European Social Innovation Competition

Sam Sparrow & me (& the Mannequin Pis) in Brussels May 2014 for the final of the European Social Innovation Competition

I said Yes to Terry Ryall, vInspired’s founding CEO when she asked me to help the charity launch Task Squad. This gave me the opportunity to work in a charity for the first time in my career & the insights that gave me have allowed me to since make a contribution in a number of different ways to how charities and not for profits can better benefit from technology. I also connected with an entire new network of people (including the fabulous Sam Sparrow), charities and funders and learned all about social impact investment. This eventually led to me meeting Sally Higham and angel investing in her software platform business for youth & sports clubs, Run A Club.

I said Yes to John Knapton when he asked me to join Northern Ireland Science Park in Belfast as one of their Entrepreneurs in Residence. As well as being a lot of fun, this has led to me formally mentoring one young entrepreneur for the past 6 months and offering advice & help to a number of other startups. Best of all, I got to meet Her Majesty the Queen in Buckingham Palace in June 2014 and on the same evening met Norwegian entrepreneur Ollie Gardener & 8 months later angel invested in her social learning platform, Noddlepod.

Meeting Her Majesty the Queen in Buckingham Palace June 2014

Meeting Her Majesty the Queen in Buckingham Palace June 2014

I said Yes when my colleagues at the Irish International Business Network asked me to run the SharkTank at our November 2014 conference in New York City and by doing so met wonderful Canadian entrepreneur & angel investor Kelly Hoey.

With my favourite co-conspirator Kelly Hoey before our SharkTank in NYC

With my favourite co-conspirator Kelly Hoey before our SharkTank in NYC

We had a lot of laughs on the day, found we have a lot in common & since then we’ve helped each other on a number of things and are on the road to becoming firm friends.

I said Yes when the Research & Educational Network Norge asked me to deliver a talk on the Future of Learning to 200 people in Oslo, even though I can’t speak a word of Norwegian and the prospect of doing something like this was terrifying. You can read more about my Oslo experience in a previous blog here if you’re interested. Suffice to say it turned out well despite my fears!

Prized selfie with Michael Dell taken at DellWorld 2015

Prized selfie with Michael Dell taken at DellWorld 2015

More recently I said Yes when Will Pritchard of AxiCom PR asked me to follow him back on Twitter so that he could DM me about something. Before starting my Yes experiment I could possibly have responded quite rudely to Will’s request. This led to me attending DellWorld 2015 as a guest of Dell, meeting tons of fabulous people, meeting Michael Dell who’s one of my all time top business champions and finally realising my dream of visiting Austin, Texas after 15 years of being too busy to attend SXSW. Michael Dell doesn’t really do selfies so I had to trade him a story. I told him how my friend Tim Ramsdale persuaded our employer CIPFA to buy a Dell server back in 1989, shortly after Dell had started up in London. Michael loved the story & the selfie speaks for itself. I later told another story to the Dell senior team. It was how when Learning Pool was 6 months old we were evicted from the flat in London that we were secretly using as an office. The final straw was when our nosy neighbour opened the door to a courier who was delivering 6 large Dell boxes to us. She rang our landlord to report us & we were immediately evicted. The guys agreed I should have told Michael that story too because he would’ve loved it!

I said Yes a couple of weeks ago when Dee Forbes rang me & asked me to speak at the Digital Week Ireland event that’s happening in Skibbereen 3-8 Nov – more details here. November’s pretty busy so I was tempted for just a moment to say No – but I thought to myself, why not. I haven’t been to West Cork for years & years & it will be so much fun and a good thing to do. Watch this space or come & join us.

Our wedding, July 2014 photograph taken in Glencoe

Our wedding, July 2014 photograph taken in Glencoe

Finally, on a personal note I said Yes when my partner of 23 years asked me to marry him in June 2014. We were married 6 weeks later in Fort William, Scotland on 21 July 2014, a joyous & sunny day.

I have literally hundreds of other examples, big & small. In the past two years my life has been enriched by the people I’ve met, the places I’ve been, the experiences I’ve had and the tons of new stuff that I’ve learned.

Not everyone has the same luxury of time that I do right now but I urge you to try this too, even if it’s just in some small way and especially if it’s something that takes you out of your comfort zone. Next time an opportunity presents itself to you & you find yourself about to say No, pause for a moment and ask yourself if you could say Yes instead. I promise you it’s worth it & I look forward to hearing about your experiences in the comments below.

I’ll leave you with a food-for-thought quote from Carey Lohrenz: “Too comfortable is a heartbeat away from being complacent, and complacent is a heartbeat away from being irrelevant”.  Take action & don’t let yourself become irrelevant!