Thoughts on startups by investors that
fund them & entrepreneurs that run them

The #1 Rule For Getting Funded

Of course, the most frequent question angels hear from entrepreneurs is: what’s the one key thing investors look for in the funding process?  The answer is below, but don’t cheat. You have to read #3 and #2 first.

These days, a million dollars goes a very long way in startup world.  So long a way, in fact, that you’ll be expected to show very concrete results with it, proof that the business is really on its way. So Rule #3 is:  know what you’ll have that will prove that point once a million dollars is spent.  This metric doesn’t have to be a sales or revenue figure, of course (although those are my personal favorites); but it does have to be something solid that shows you’ve got something people want.  It might be a rapidly growing audience;  a bevy of third party developers who have adopted your platform;  ever increasing average engagement; whatever.  But you must be able to articulate, from the start, a very clear and compelling benchmark for success once a million has gone out the door… and, ideally, intermediate goals for each few hundred thousand spent along the way.

Rule #2 is: demonstrate not just your wonderful idea, but that you understand the concept of product-market fit.  This is a core concept in the “ultra-light” school of startups, but is important for nearly all early stage development philosophies.  Nobody ever knows in advance exactly which feature set will be the magic formula for broad adoption, even when you’re introducing the most amazing concept of all time.  Generally, you’ve got to get out with the basic version at the lowest cost possible, test it, and rapidly iterate until you see the formula’s really working. That’s when to plow ahead and up the spend.  Angels want to know that you get this.

And Rule #1 is: act like a great entrepreneur in your pitch, over drinks, and in the back of the cab. Most angels and VCs are after “people pattern recognition”: they tend to invest in entrepreneurs who are like those they’ve made money with in the past.  Even Rules 2 and 3 take a back seat to this factor, and this is certainly the one most likely to attract a follow up meeting from a brief interaction.   And what defines those people? I’d say they’re passionate, realistic, and up for the fight ahead.

 

Written by Bob Rice

user Bob Rice Managing Partner,
Tangent Capital

Bob is Managing Partner of Tangent Capital, a registered broker-dealer and merchant bank focused on alternative assets and strategies. He is the resident industry expert on early stage and other private investments for Bloomberg TV, appearing daily as Contributing Editor on “Money Moves.” Bob is a Director of asset management companies with over $2 billion in AUM. Bob began his career as a trial attorney at the U.S. Department of Justice and then became a partner at Milbank, Tweed, Hadley & McCloy, where his practice centered on financial products. He left the law in 1996 to found a 3D graphics technology startup that eventually became the publicly traded Viewpoint, provider of the web’s first “rich media” advertising platform. He has been an active angel investor and startup mentor since 2004. Along the way, Bob also served as the Commissioner of the Professional Chess Association and authored the business strategy book Three Moves Ahead.

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