GUEST POST from Arlen Meyers
The most frequently asked question most inexperienced physician entrepreneurs ask is, “How do I find investors?”. The facts are that, according to the Angel Capital Association, only 2 percent of entrepreneurs are able to pry much-needed cash from the tight hands of angel investors, and less than a half of a percent raise money from venture capitalists, according to Price Waterhouse study.
Structural changes in the venture capital industry makes it harder to find seed stage money and investors who are willing and able to lead deals. The result is a seed stage gap.
Further complicating the issue is that investor ecosystems and funding requirements vary depending on the type of product or service you are building. For example, finding the amounts of money you will need to develop a drug, device or diagnostic product will vary significantly from how you find money for your digital health app or care delivery or service improvement. The time horizons and follow on round required are also different.
So, what’s a biofounder to do?
Here’s are the stages of funding.
Obviously, there is a lot of advice on how to raise seed stage money, but here are some recurrent themes concerning the strategy and tactics involved:
Strategy
1. Be sure your idea is ready for investor prime time–i.e. you have the pieces in place and have validated most of the elements of the your business model. The ultimate validation of your model will be if you have paying customers already.
2. Fight the right kind of investor who identifies with your idea during the right stage of development. Not all investors are the same. Some favor certain industries or products, some have personal connection, some want early stage, some want later stage. Do your homework. Here are the various stages of startup funding.
3. Explore alternative and new forms of funding, such as investor, charity or product/service crowdfunding, corporoate venture, state andlocal grants and university based endowments and investment funds.
.4. Network, network, network.
5. Fail early, often, and for as little cost as possible.
6. Self-fund or bootstrap for as long as possible. Build as much value into your idea as possible before shopping it to investors.
7. Consider customer-funded business models if possible.
8. Have a fundraising plan, just like a marketing plan or financial plan, and execute it
.9. Get the right people on the bus as soon as possible.
10. Find the cheapest, smartest capital (not necessarily money) to get to your next critical success factor.
Be sure you have a fundraising plan and follow these steps.
Tactics
Now that you have some strategy, here are some nuts and bolts:
1. Network, network, network.
2. Create a one-page executive summary, a 3-minute video, a website with a button “for investors” and a 10-slide Powerpoint presentation.
3. Sell to the heart, not to the head and be sure your pitch is investor ready.
4. Be sure you have the right story teller on the team.
5. Create social media buzz about your product or service as part of your plan. You know you are successful when an investor says, “Oh, I’ve heard of you.”
6. Apply for non-diluting sources of capital like SBIR/STTR, state and local eco-devo grants, international research, and development collaborations, etc.
7. Explore accelerators, generators, and incubators that have the right model for you.
8. Find out who funded your competitors and contact them.
9. Think big, but start small demonstrating customer traction with pilots.
10. Network,network, network. Even when you are networking, you might be mingling with the wrong people. There are 15 sources that you should cultivate who can make introductions or ease the way to meet investors. Here are some tips on how to find investors on Linkedin.
11. Here is your angel investor contact to do list
Here are 10 other places to look for money:
You should also look into investor crowd funding. Here are the pros and cons.
Here are some tips on how to find angel investors:
- Use personal networking. The best angels you will find are the ones who know you personally, or know a member of your team or advisory board. If a potential investor gets to know you BEFORE you are asking for money, your credibility and investment probability will be improved by an order of magnitude.
- Entice angels to play along. Of course, angels are really mortals. They want to make a difference. Asking an angel to work with your company in an advisory role is a great way to establish a relationship that may lead to a cash investment. If you impress the angel, it will likely make her at least an archangel (advocate) when it comes to funding.
- Court local angel groups. Since angel investors most often focus only in their own geographic area, it’s most effective to court the local group, or even make a guest appearance with an archangel. If you can earn an archangel’s confidence, he or she will invite you to pitch the group, and you’ll have an edge in the voting.
- Mine national databases. If you are still alone, submit your application to the leading online website national databases of angel investors, Gust (USA) and National Angel Capital Association (Canada). These sites have arrangements with hundreds of local groups and individual investors that you might otherwise have missed. You might also check angel funds that target bioscience or digital health ideas or raise money from doctors for doctors.
Gust (formerly AngelSoft). This is perhaps the most widely-used source of information on angel investor groups across the world, run by the “Father of Angel Investing in New York,” David Rose. This software platform is used by many local angel organizations for managing deal flow.
Gust claims to have facilitated over $1 billion of investments in 500,000 startups to date, via connection through their platform to over 70,000 angel investors in 190 countries. As an entrepreneur, you simply use their investor search engine to find appropriate investors for your business according to location, industry interest, and other relevant criteria.
AngelList. This is another very popular website for raising equity or debt investments for startups. It was founded back in 2010 by Naval Ravikant and Babak Nivi of Venture Hacks, which is also a great place to visit for startup advice.
AngelList has featured over 3 million businesses for potential investors in a format that is, effectively, a social network for entrepreneurs and angels. They claim to have already raised over $560 million for 1400 startups, primarily in the US and Europe. In addition, they serve as a jobs available site for 24,000 startups.
Keiretsu Forum. This one claims to be the world’s largest single angel investor network, with 2500 accredited investor members throughout 52 chapters on 3 continents. Since its founding in 2000, its members have invested over $800 million dollars in over 800 companies in technology, consumer products, healthcare/life sciences, real estate and other segments with high growth potential.
The Founding Chapter is in Silicon Valley, California, (naturally). A caveat is that this is a for-profit organization, so fees to present may be significant.
USA Angel Investment Network. This group claims to be the largest angel investment community in the world. They have already raised $300 million for startups in the US and across the world. A caveat is that this network doesn’t offer a personal touch, as it only facilitates the exchange of contact information, so the matchmaking is left up to you.
The reach is very broad, with a network has 30 branches extending to 80 different countries. They have over 785,000 registered members with 140,000 investors and 650,000 entrepreneurs.
Angel Capital Association (ACA). The ACA is the angel industry alliance, which now includes a directory to more than 240 angel groups and 13,000 individual angels across North America. ACA member angel groups represent more than 10,000 accredited investors and are funding approximately 800 new companies each year, and managing an ongoing portfolio of more than 5,000 companies throughout North America. Here are some facts about angels:
- Angels are still predominantly men, but the number of women angels has been increasing – 22 percent of angels are women and 30 percent of new angels are women;
- Angels are based everywhere, not just in the Silicon Valley, Boston and New York;
- Most angels are experienced entrepreneurs;
- Median investment size is $25,000; and
- A typical angel has a portfolio of 11 companies, with large variation depending on how long the angel has been investing.
- Remember angels beget angels. That means that once you get the first one, he or she becomes your best advocate for finding more. Investment angels don’t like to travel alone, so they will bring in others if they can (it’s called share the risk).
- Don’t forget passive angels. These are angel investors who are private, meaning they don’t go to meetings, but will invest if someone they trust brings them an attractive opportunity. Find the right investment advisor, or member of your advisory board, and the “match-making” will happen.
The VIC Investor Network helps develop and commercialize biomedical technologies that originate in academic research centers and government labs.
Apply for an SBIR/STTR grant for non-equity diluting funding. If you are successful, then apply for matching grants if they are offered in your state.
Apply to be part of an iCorps team.
Be sure you have a financial model is credible
Here are some ways to be sure you are ready for fundraising prime time.
Finding seed funding for your idea is as much about when and if as where and how. It takes planning, preparation and practice and having realistic expectations about how few companies actually are funded by VCs, angels and crowd funding platforms. Be sure you have done your homework, crafted, and validated your business model canvas and done some experiments before giving up control to investors. Good luck with your venture.
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