
Learning How to Talk
To Angel Investors
For small firms looking to grow, angel investors can help provide needed financing. These affluent individuals typically fund companies seeking $250,000 to $2 million, usually in exchange for an ownership stake in the business. In addition to a capital infusion, angels may bring business acumen to their portfolio companies, says Bill Payne, an angel investor in Henderson, Nev.
Mr. Payne, who works as a consultant with the Ewing Marion Kauffman Foundation, a Kansas City, Mo., resource center for entrepreneurs, says before approaching angels, entrepreneurs should understand what motivates them and what they are seeking in a business plan. We asked Mr. Payne for a list of books and Web sites for entrepreneurs looking to familiarize themselves with angel investing. Here are his picks:
"Angel Financing for Entrepreneurs: Early-Stage Funding for Long-Term Success" by Susan L. Preston
"This book does a great job of providing entrepreneurs with a good understanding of who angel investors are, how to find them and what they're looking for in an investment plan. There is an appendix with over 200 pages of agreements, references, directories, checklists and Internet links that will be useful for entrepreneurs when they are preparing to present to angel investors."
"A Good Hard Kick in the Ass: Basic Training for Entrepreneurs" by Rob Adams
"Here's the mistake that Rob is addressing: Entrepreneurs focus on technology and product. Investors focus on the investment opportunity and growing a business, not selling a product. Rob says entrepreneurs must confirm that customers will actually buy a product before they write a business plan and spend money. He insists that entrepreneurs talk to 100 potential customers before finalizing product design. This is required reading before writing a business plan, completing product development or seeking capital investment."
"The Venture Capital Cycle" by Paul Gompers and Josh Lerner
"This book explains the whole cycle of professional investment from start-up to exit, including the investment by professionals in your company. It's a relatively academic, comprehensive look at the whole infrastructure of investing in early-stage companies, how investors grow the company and how they approach entrepreneurs. If you're trying to really understand how this whole process of making money by investing in entrepreneurs works, this is the bible for understanding venture capital and the operations of venture capitalists in investing in entrepreneurs."
"Attracting Capital from Angels: How Their Money -- and Their Experience -- Can Help You Build a Successful Company" by Brian E. Hill and Dee Power
"This book digs down into all the details entrepreneurs need to know before they go out and receive capital from angels. The authors do an excellent job covering due diligence, evaluation, how angels can help the company after the investment has been made and a segment on negotiating with angels. Read this before approaching angels."
"State of the Art: An Executive Briefing on Cutting-Edge Practices in American Angel Investing" edited by John May and Elizabeth F. O'Halloran
"This book is the result of a series of interviews and articles that were written by leaders of angel groups all over the country. This is an excellent book on angel groups and how entrepreneurs should approach angel groups. The editors interviewed all of the authors and they have a compact disk at the back of all of those audio interviews."
"Every Business Needs an Angel: Getting the Money You Need to Make Your Business Grow" by John May and Cal Simmons
"This book is a little old, but the tips are still relevant. Provides lots of tips to entrepreneurs on how they need to be prepared to pitch angel investors on their quest to raise outside capital and grow their companies. There's a chapter called 'Let's Make a Deal: Negotiating Investment Terms' that is valuable to entrepreneurs."
"Term Sheets & Valuations -- A Line by Line Look at the Intricacies of Venture Capital Term Sheets & Valuations" by Alex Wilmerding
"It's very difficult for entrepreneurs, especially first-time entrepreneurs, to grasp all of the lingo such as common stock, preferred stock, anti-dilution right and all of the terms and conditions that relate to doing a deal. This little book is a delightful reference. One of the reasons I like it the most is, not only does it give explanations of the terms, but it tells whether a specific example is investor friendly, middle of the road or company friendly, which is great for newbies."
"The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything" by Guy Kawasaki
"This is a great book to help entrepreneurs understand what investors are looking for in a company to invest in. He refers to the 10/20/30 rules. When you're making a PowerPoint presentation to a bunch of angel investors, don’t make more than 10 slides, don’t take more than 20 minutes, and since angel investors tend to be older, make the minimum font on your slide 30."