Friday, June 15, 2007

Visit to Tech Coast Angels

One of my fellow judges at the 2007 Kravis Business Plan Competition is a member of the Tech Coast Angels, a Southern California based angel investor club with approximately 300 members in its four networks located in Los Angeles, Orange County, San Diego and Santa Barbara.

I accepted his invitation to attend a deal screening today for the Los Angeles network and hear pitches from four companies seeking angel financing through the Tech Coast Angels network. Each of the four companies was given about 20 minutes to sell their idea to approximately 30 angel investors followed up by about 10 minutes of Q&A.

The four companies were at different stages of their development - some were in the seed stage, others were already generating revenues. Or as they say in the venture capital world, they've already got proof that the dog is eating the dog food.

The follow up questions were all good, solid questions reflecting the varied backgrounds and experiences of the investors. The answers from the entrepreneurs were not always so solid - which is what one would expect. No amount of coaching can prepare the typical entrepreneur for some of the questions posed. But that's what the angels look for - they note everything from how well the entrepreneur thinks on his/her feet to the tone of voice that is used in the response.

The most interesting part of the morning for me was the open exchange at the end of the session after all the presenters had been excused. One gains tremendous insight into how angel investment opportunities are critiqued in a "club" environment and their philosophies about building their investment portfolio with companies ranging from good solid "hits" to potential "home runs". The interplay between the different investors is also interesting - like in any situation, two different people hear the answer to a question in different ways. Which angel investors volunteer to serve on the due diligence team for an investment opportunity and the chemistry amongst them no doubt will impact the final conclusions reached in the due diligence process.

By the way, in the April 30th Wall Street Journal, the Tech Coast Angels were featured in an article by Jaclyne Badal entitled "Early Options". The article discusses the Tech Coast Angels' recently launched "seed track" funding program. I'm not sure this new program is found on the website for Tech Coast Angels, but there is plenty of information on their deal screening process and investment criteria (it's not just technology companies that interest them). Most budding entrepreneurs will also find great value in the online Guidelines for Entrepreneur's Presentation - a useful tool for whatever forum from which you might be seeking investment capital.

Like most angel groups, the Tech Coast Angels focuses its investment dollars in its own backyard. If you're looking for money for your venture outside of Southern California, you might investigate the angel clubs in your own neighborhood. A good place to start looking is the listing of groups by location on the website of the Angel Capital Education Foundation.

And my pitch to the angels - once your portfolio company starts to generate revenues, consider using secured debt financing where possible to leverage your investment and minimize the dilution that would result from additional equity raises.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

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