Fast Company

Angels and VCs Still at a Crossroads

It has been six months since my post titled "Angel Investors More Powerful than VCs." And since that time, I have gone to a few financial events and have witnessed some really unique situations out there in the investing world for seed and early stages. Some observations are encouraging and some not so encouraging.

From what I observed, here is what I can tell. Seed stage investors are simply not out there. You may have heard of one or two people who get financing from investors to support their first development, but more than likely it would be through established relationships or friends and family. I doubt you can go to an event, promote your idea without validation, and get an investor. Sure, I was able to accomplish this (getting seed financing) when I was launching MyOnlineToolbox but it was in a different economic environment. Go to the events to learn how to pitch and network, but do not go with the objective to find financing and you will not be disappointed.

Early stage investing is still on the ropes. I have found more angels coming out, which is good. This may be just curiosity. Or maybe it is with a sense of opportunity. The key is for you to know that they are coming out for the very first time, and no one knows them, so you need to network and introduce yourself to all unknowns.

The VCs are also in attendance, but it is very hard to get a real gauge on their objectives when it comes to early stage investing. They promote themselves as supporters but I am still skeptical.

What I find unique is how the angels and VCs seem to be entrenching themselves to bump heads. One event that I went to even had a panel trying to scare angels about the dangers of investing. Dangers in investing, one may ask? One would think that Angel Investors understand that they can lose all their money. Perhaps there are a bunch of terms that Angel Investors may need to be educated on (such as anti-dilution clauses, etc.), but all of that slowly begins to make the whole process more complex--especially for an early stage company. I am not saying that these issues shouldn't be addressed, but I am saying that things do not need to be that complex for an angel investor to join a company. I covered all this on my previous post mentioned above.

Another strange thing occurred when I was at an event when a panel of VC experts was scrutinizing the presenters. In theory, this is a great idea and I always enjoy listening to the constructive criticism. My problem with it was that the panel was made of analysts and not General Partners who make the actual investing decisions. I much rather be critiqued by people who have actually done things themselves and are going to make decisions to put their money on the table. One panelist made me laugh when he talked about the font on a particular PowerPoint screen. Perhaps he was right, but that is not what someone should be looking to learn at a financial investing event.

On the positive side, I do see investors are investing but you must show some form of real progress and preferably with revenue. People want to see that someone is willing to pay for your product, and therefore it proves value. Getting investment for an idea without any proven traction will most likely get you nothing more than promises and connections, but not money.

The events I went to were before we entered revenue mode ourselves just last month, so I have not raised money from a new investor perspective. My investors liked our progress, including being featured in Entrepreneur Magazine and the .NET Developer's Journal and subsequently they supported me with another internal round of investment. I am not sure whether it will be easier to find an angel investor(s) or early stage VC now that we have hit our next milestones with revenue. I will come back soon with my observations as I continue our search. Good luck with your endeavors in 2011.

- Brian

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