Angel investment isn’t something that every startup needs, but many startups will be incapable of growth – or run over by the marketplace – if they don’t have the kick-start of a half-a-million bucks in the bank to get the balls rolling.
John Collins has grown and sold a number of companies – most notably in manufacturing – and now serves as one of the members of the Cherrystone Angel Group in Rhode Island. I caught up with John about some of the advice he’d dole out to entrepreneurs “stepping up to the plate” for the first time with an angel group.
“The first thing we look for is a passion.” John’s advice echoes that of nearly every investor in this respect. Without the energy and drive to carry out the undertaking of a startup, success is tough to find. John also looks for someone with explicit experience in the field. Most of the deal’s he sees with Cherrystone involve people with a pedigree, often coming out of the top universities in nearby Boston, notably MIT and Harvard. However, this isn’t necessarily a requirement. The requisite is to have enough hands-on work in the industry you’re moving into for someone to see your “enthusiasm” as realistic and not whimsical.
John mentions that Cherrystone themselves has everything from a psychiatrist to biology PhD’s and more, and uses that rounded perspective as an asset when approaching deals. However, they have to see some of that same hard-earned insight in the entrepreneur, even if the idea is hypothetically viable.
It’s also important to understand the screening process. “That’s what boils down about 15 out of ever 50 applications,” John said. Beyond simply following directions to the letter in terms of each phase of application (a given), entrepreneur’s should be more than wary of throwing around wild figures for their pre-money valuations. “It’s always the inexperienced ones who overvalue early on, people who’ve been through this game understand that you have to give something up to raise capitol, and that an idea’s only worth so much.” At least for Cherrystone, a massive pre-money valuation is a red flag at the screening level.
The group at Cherrystone sees a lot of esoteric technologies and ideas coming across their proverbial “table.” I asked him about how a group tackles the challenge of handling such a vast array of opportunities. Most of the time, even the “esoteric” stuff can be understood by one or more members of the angel group (for smaller groups this may not be the case as often), but sometimes an Angel group will bring in some outside help. “One of our initial deals we did hire some outside help and hired a consultant.” Needless to say, entrepreneurs should be conveying their technology at a level of depth that investors can grasp – and that if a consultant is called in the review the idea – it’s usually a pretty good sign for the founders.
John made a point to mention that an honest, realistic approach is what an investor usually wants to see. Someone with their head on their shoulders. How does that manifest itself in the presentation? For him, it means having the ability to be up-front about the real dangers to your potential companies, your technical blind spots, and the potential flaws in your initial plans. “They should be capable of doing their own SWOT analysis.” Essentially, he’d like an entrepreneur who can see through the goggles of an investor. This doesn’t mean being overly critical of their own idea, but it means having the foresight to identify flaws, issues, and unclear elements of the plan – as well as the ability to point out the blatant threats.