Carnegie Mellon Entrepreneurs Group Boston Early Stage Funding Breakfast
As a proud member of the Boston Carnegie Mellon Entrepreneurial Group, I helped organize and present at a panel session last week at TechStars/Dogpatch Labs in Cambridge. We had a great diversity of investors on the panel, Bob Crowley, B. Christopher Kim, Jim Lang, and Katie Rae. Rick Lucash hosted the panel. Thanks to the presenters, TechStars for hosting and thank to everyone that attended
Your network matters. The panel was in universal agreement that investors, particularly in Boston, are not going to take your phone call or read your business plan, if you aren’t introduced by a trusted source. This is not your standard old boys’ – or old girls’ — network. It is a filtering process. If you can't find the kind of investor the project requires, then you probably are not building a business to thrive. If you are building a business, you have got to network, face-to-face, and not virtually. There is no excuse for not getting out there and talking to people. Between Greenhorn Connect and VentureFizz, you can likely find a networking event in Boston every day to attend. Enjoy the free pizza and beer and build your network.
Low capital intensive companies make more sense to investors. Angels like businesses that don't require gobs of capital. Later stage funding is becoming more prevalent, but it still hard to raise later rounds. When companies do raise later rounds, angels usually don't have the capital to preserve their ownership position in the company. My friend Andrew Varley from Swellr had some poignant thoughts on this subject: "I think for a lot of businesses that straddle Internet and offline, finding ways to minimize capital intensive offline issues is key. Rang true to me as we look for ways to crowdsource business leads from natural community partners."
Great teams act as a team. As Henry Miller said, “The real leader has no need to lead – he is content to point the way.” When your team is meeting with investors, act as a team. It sets the wrong tone, if every time someone on the team is asked a question, the CEO answers. Investors pick up on this dynamic really quickly. Build and trust your team.
Traction and progress before funding. Some more input from Andrew: "Have a hypothesis, setup an experiment, record results, and do again. Along these same lines, there needs to be continual testing of the product with quick iterations. By showing a track record of successes (and failures) of your hypotheses, you can look for money with a stronger argument and hopefully give away less." An additional take away from this line of reasoning is that investors are not likely to fund software development. Most Web 2.0, mobile apps, software businesses today can launch beta software in less than a man year. If you believe enough in your product to raise capital, figure out how to get the software done on your own nickel. Again, if you can't self-fund the demo/beta these days, you are probably not going to get very far with your business.
Plan and people both matter. Investors like plan and slide decks that are clean and accurate. They certainly understand that the business plan will change, but your ability as an entrepreneur to cleanly articulate a plan is important. The numbers do need to tie together and you need to be able to explain what you are working on, what you expect to do in the coming months/years and where it will take the business. The plan is important, but it is not enough. People really matter. Katie Rae reviewed 600+ plans to get to 12 TechStars teams in Boston this year. In order to get to 12 finalists, she spent a lot of time interviewing the teams. Why? Because people matter. It is not enough to have a great plan without the team to make the plan happen.
Here are some other comments I received about the panel session:
- Strategize communications with investor as you would for a PR plan: connect through their trusted connections, plan on follow-on communications when you've hit milestones, and stay focused on the overall story you want them to have about you and your company.
- Evaluate what investor is right for you and your company and qualify investors based on this criteria. The goal should be finding the right funding, not just finding funding.
- Creative Funding Structures – as someone who loves exotic financial products I was happy to hear there are funds out there that are looking for other ways to fund early companies. I am not sure how they would apply to our model but I would definitely want to learn more.
- Search for the right investor. It is easy to talk with people who will never invest in you.
- Ask your friends and to sell yourself. "At the beginning, it is just you" it's my favorite sentence.
- important to build a relationship with an investor that you are courting - need to demonstrate that you can make and communicate progress on a consistent basis
Any other thoughts on the panel? Please feel free to add your comments below.