Chapter Three - who’s got the money? Where to look.
by Joe · 72 things on Twos
- Investors are constantly looking for places to put their money
- 2/3 of startups do not return the initial investment to the investor that funded them
- BUT the ROI of startups that did pan out is 21.5% over a 30-year time period, while the S&P return is merely 11.69%
- Investors are looking to see that you put your own capital into the business as a bode of confidence
- 38% of all startups received money from friends and family
- Turning friends and family into investors can complicate your relationship with them.
- Instead of asking for money, ask for help.
- Give early adopters the ability to purchase your product before release. Can be a proof of concept for next stage investors.
- Use deep discounts
- Rewards
- Multiple months for free
- You do not need to give any equity away in order to raise from a commercial lender (bank)
- But you do need collateral.
- Approach small community banks.
- Develop a relationship with your bank before approaching them.
- Grants (business and state) and local accelerators
- Intuit, Walmart, FedEx
- Fulfill certain eligibility requirements
- Winning a place in an accelerator can prove a valuable point to future investors about your companies viability
- Incubators and investor run accelerators
- 7,000 accelerators
- Organizations dedicated to helping startups succeed
- Many are non-profit
- Have an innovative idea but need help with a business model, regulatory compliance, or reaching the marketplace
- Goal of growing businesses in a particular area
- Rigorous application process
- ‘Goldman Sachs 10-Ds’
- Businesses are encouraged to come up with an innovative idea
- Accelerators focus on technology groups that are well past the ‘idea’ stage
- Usually only last a few months and make the company more investor worthy
- Sometimes the founders need to move to the host city
- Could receive funds in range from $10,000 - $150,000 in exchange for small stakes in equity
- Accelerators usually culminate in ‘demo days’ where they pitch their ideas to VCs.
- Graduating from an accelerator can grant access to better future funding tools
- They have been ‘vetted’
- Angel investors are wealthy individuals that invest in high potential startups usually in exchange for debt, equity, or a combination of both
- Angels invest their own money while VCs invest other peoples
- There are more than 300 angel groups throughout the US
- Angels invest $24B per year
- The medium check size is ~$35k
- The average rate of return is a 9x multiple within a 5-year time frame
- 5 things angel investors can offer
- It is most important for angel investors to have quality deal flow
- Angels do not need to consult with anyone else
- Angels can make decisions not just based on financial return but also upon causes or categories they wish to support
- Green startups
- Social impact investing
- Startups in their local communities
- Angellist.com
- Gust.com
- Search for LinkedIn groups for angel investors
- Angels sit on panels and give speeches in the hopes you can find them
- When you approach angel investors think about the problem you are solving, because angels are always looking for good deals.
- 1:53:54 - venture capital firms.
- VC’s come in during later rounds in order to write bigger checks
- Look for proven sales
- Mainly look for the exit of being acquired or IPO
- and VC’s look for board seats to have more control over the company
- and VC’s look for board seats to have more control over the company
- Associates are happy to hear your pitch but then VC’s will come in with a more realistic approach
- Do your research on the VC’s you are approaching and get the partners so excited they are willing to spend their time and money on your business
- Most tech start up’s fail because they do not know how to make money they only know how to raise it
- We can create Twos as a product that can be offered to organizations to help them make more money themselves
- Corporate venture capital
- Family offices
- Wealth preservation
- Often take a more long term approach
- Make sure that you have a long term business plan with lasting value
- Almost always sourced through personal relationships
- Get in touch with the CIO through your own personal network
- Crowdfunding
- Must comply with the SEC