Just Raised an Angel round....

Hey all,

So I raised an angel round for my software start up (mostly B2B). Would love to help in answering any questions you may have regarding the process, venture capital, or just whatever.

One thing I've learned through all of this is it ain't for the faint of heart....way too many ups and downs. But, it truly is an exhilarating journey!

btw, I came from a semi, quasi, pseudo target*...lol, if that matters.

*just tryin to poke fun at this forum's seemingly constant obsession with labels.

Also, Go Illini!

 

Really appreciate you doing this. Just a few questions to start this off

  1. How old are you, and what did you study at UIUC (I'm assuming EE / CS)?
  2. Can you describe, even vaguely, your software and how it adds value?
  3. What process did you take in raising capital?
  4. Give us a run-through of your typical day?
  5. One common misconception about tech startups

Thanks for doing this! Also, some general operating info for us finance folk would be helpful (i.e. sales, geography, # employees, financing terms, etc)

 
  1. how much equity did you give for how much $$$
  2. where was this San Fran?
  3. how did you convince VC's to meet you?
  4. did you create this software or did you come up w/ idea?
  5. how many partners you have in this venture? whats the equity division?

i am starting my own start-up too, dont need VC's right now but who knows!

 

How does one even go about starting the process of pursuing an angel round? Who do you contact? How far along in your start up are you...like just have the business on paper...or do you actually operate right now to some degree? Are you still working full time while maintaining your start up? Basic questions I know, Im just really curious how to be legit.

If you can't kill them with kindness, just kill them.
 
Best Response
  1. How old are you, and what did you study at UIUC (I'm assuming EE / CS)?
  2. Accy/Finance actually. Took a few CS courses...not enough for a minor though. My co-founders are CS.

  3. Can you describe, even vaguely, your software and how it adds value? It helps companies, especially F500, reduce certain supply chain costs and measure the ROI (can't say exactly what....it would probably give our company away....and I'd rather keep a low profile).

  4. What process did you take in raising capital? Created slide deck (see Mint.com example: http://www.slideshare.net/hnshah/mintcom-prelaunch-pitch-deck) Then networked as much as I could...LinkedIn, professors, school admin, friends, cold emails. Develop relationships early. Many people will be pretty open to giving feedback on idea/business model.

  5. Give us a run-through of your typical day? Well, I just finished my last few classes....so I was juggling school and this. But I am now full-time. But basically, my responsibilities right now are to hustle and get companies to do pilots, targeting large companies. We've got 2 F500s on board. Also, marketing to SMBs so that we can get quick revenue and good feedback. I also manage the direction of the product. Right now, I just experiment with many things....I'm sure things will get more structured in the next few months.

  6. One common misconception about tech startups I'm gonna give you 4:

  • For enterprise software, it needs to do one of two things: increase revenue or reduce costs (indirectly or directly). Everything else is BS.

  • Build first, then sell. You could do that...but I woudn't. "Build" the thing on paper...talk to potential customers. Figure out if there is a market, what features they want, how much they are willing to pay etc. Read blogs by Steve Blank and Eric Reis about this.

  • Become facebook size, get a million users, raise a TON of money or bust. I'd argue that its better to focus on "less sexy" areas and create a decently sized, profitable business in the many, many niches that are out there.

  • Ideas are valuable. No, they're not. They don't mean jackshit, so stop telling people to sign NDAs. It's all about execution, domain expertise, and the team.


  1. how much equity did you give for how much $$$ not gonna say the exact equity (a bit below market for our stage). amount was 150K. We may take another 100K soon though. Although, I'd like to finance from customers. So, we'll see how the next few months turn out.

  2. where was this San Fran? No; midwest.

  3. how did you convince VC's to meet you? through referrals.

  4. did you create this software or did you come up w/ idea? I came up with the idea but I was actively involved with the product direction over the last 1.5 year. I came up with it when I was an intern at a large company. After that, I entered business plan competitions, just kept going and iterating with VPs, managers, fellow students, etc. Then, brought on CS buddies....and that's a whole other story.

  5. how many partners you have in this venture? whats the equity division? 2 Main partners (including myself). 1 part-time employee, 1 intern. A few other partners who have since dropped off/have smaller roles and equity stakes.

Feel free to PM as well.

Hope this helps!

 
Arpster55:
Then, brought on CS buddies....and that's a whole other story.

Care to explain how this came about, this part seems rather essential.

If you can't kill them with kindness, just kill them.
 
2Shae:
Arpster55:
Then, brought on CS buddies....and that's a whole other story.

Care to explain how this came about, this part seems rather essential.

Sry abt the late response. Basically, good CS guys know they have high demand skillz. They're going to be very rational with their time and only jump on your project if you can limit their risk and decrease their opportunity cost. For instance, they always have their own ideas and most likely would rather pursue those rather than your "sure" thing.

Your job is to sign up beta customers, get some seed funding, and/or demonstrate market interest. Even if you can't code, you need to learn as much as you can and supplement that with some wireframing and mockups.

If you're in school, go to your ACM club meetings or something similar. DON'T try to recruit them for your pet project but rather demonstrate your genuine interest in building things and learning as much you can. In addition, make sure to befriend as many as you can. As you continue to make progress, some of them will take notice and eventually you can naturally bring the convo up about teaming up.

If you're out of school, go to start-up/hacker/software meetups (meetup.com) or something of that nature and repeat process above.

Hope this helps.

 
Arpster55:

Become facebook size, get a million users, raise a TON of money or bust. I'd argue that its better to focus on "less sexy" areas and create a decently sized, profitable business in the many, many niches that are out there.

Couldn't agree more with this point. You gotta start somewhere. Attempting initially to go big or bust is a fallacy. It's unrealistic to say my company will be a billion dollar company. You just don't know.

"Sincerity is an overrated virtue" - Milton Friedman
 

Congratulations!!!

How'd you go through the process of starting your company?

  1. Did you know exactly where you wanted to go and executed or did the business plan change through the process?

  2. How long did it take for the business to get off the ground and become a viable business?

"Sincerity is an overrated virtue" - Milton Friedman
 
OhYeah:
Congratulations!!!

How'd you go through the process of starting your company?

  1. Did you know exactly where you wanted to go and executed or did the business plan change through the process?

  2. How long did it take for the business to get off the ground and become a viable business?

Thanks!

1) Definitely did not know exactly where I wanted to go. I had a general idea of what my solution would target but all the mechanics, we just figured out along the way (and still are). For instance, I involved potential customers/users pretty early on to give me feedback on the concept that I said I was building. I hired a graphic designer to make some pretty mockups and literally presented to the solution to them. Some even thought it was ready! LinkedIn is a great tool for this. It helps to also work in the area that you will eventually sell to. Anyways, through all of the feedback I learned about what price they would pay, why they would potentially buy it, the features they wanted/didn't want, etc.

Basically, you should nail the macro trends and how your proposed solutions fits into a problem. From there, you will learn to adapt and evolve as you glean information from the market.

Business plans won't do shit for you, imho. Just create a short slide deck that hits all the salient points i.e. Market Problem, Solution, Competitive Landscape, Market Feedback, Capital Needs, Value Proposition, Team, etc.

2). It took 8 months for me to go through the above and refine the solution. Then I convinced a VC firm to give me seed funding of 25K. That really got my tech partners wide-eyed. Before, they had a sense of mistrust but after I got that, they accepted me as a leader. 25K isn't that big but for a few 20 years olds, it's pretty good. That paid for their salary (they also got equity), legal fees (proper legal structure is a must), incorporation, website/logo, software, hosting, etc. Make sure you do a 4 year vesting schedule with a one year cliff when starting out. We did a 2 year vesting and that bit me in the ass recently when going through the angel round. There will always some people who lose passion or just have other options and think they deserve the whole portion.

Then, we kept working on the prototype throughout senior year. I was also able to connect with an CXO from a F500 and get an approval for a pilot. His team provided even more crucial feedback.

By the end of senior year, the technical risk was virtually eliminated and part of the business risk. Now, we had to prove the business side. We got a few SMBs using it and subsequently sold some software. But the business risk was still there since we needed F500 companies buying the thing to make it worthwhile. For that, we raised an angel round. So, in terms of viability, it's not for certain. It's looking good but the going concern is perpetually there.

So, to get to this point, it took 2 years.

Hopefully, I was able to answer your questions.

 

This may not be the best place to post this, but I'm actually engaged in a similar pursuit... first round for a tech startup. I've got an investor on the line but he's asking for an "excess cash flow formula." This is a pure equity deal. I'm fine committing to dividends through a hybrid structure, but he's playing extremely hard to get and refuses to explain what he's driving at, just saying I can talk to him when I have it ready to show him. I've asked CFAs and CAs about this and none know what he means.

What is he asking for?

 
ojnutter:
This may not be the best place to post this, but I'm actually engaged in a similar pursuit... first round for a tech startup. I've got an investor on the line but he's asking for an "excess cash flow formula." This is a pure equity deal. I'm fine committing to dividends through a hybrid structure, but he's playing extremely hard to get and refuses to explain what he's driving at, just saying I can talk to him when I have it ready to show him. I've asked CFAs and CAs about this and none know what he means.

What is he asking for?

That is kind of odd. I think basically he's looking for a financial model where he can see what he can get out of the start-up in case it doesn't get bought out. To give you a better opinion, what is his background? Is this is first time doing such a deal? Is he an individual angel investor or part of a syndicate/group?

 
Arpster55:
ojnutter:
This may not be the best place to post this, but I'm actually engaged in a similar pursuit... first round for a tech startup. I've got an investor on the line but he's asking for an "excess cash flow formula." This is a pure equity deal. I'm fine committing to dividends through a hybrid structure, but he's playing extremely hard to get and refuses to explain what he's driving at, just saying I can talk to him when I have it ready to show him. I've asked CFAs and CAs about this and none know what he means.

What is he asking for?

That is kind of odd. I think basically he's looking for a financial model where he can see what he can get out of the start-up in case it doesn't get bought out. To give you a better opinion, what is his background? Is this is first time doing such a deal? Is he an individual angel investor or part of a syndicate/group?

Thanks for the response. I agree, and he knows we have a full model available. I also provided him with a dividend structure and was very clear about our flexibility (the company will be cash flow positive very soon), so it's not like he doesn't know we can do a dividend or return of cap.

He is an experienced tech entrepreneur and investor. He's got his hands in a large number of deals and actually coaches startups on pitching...

 

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