How to Win the Hearts of Investors

To me investing in early stage entrepreneurs is kind of like dating with the hopes of finding the girl you are going to marry.  Like a marriage, there is no turning back once you put money into a deal and while it can be very rewarding, it also requires a long-term commitment of working with the person you invest in.

Like my dating philosophy (when I was younger of course) my goal is to 1) Take a quick look at as many options as manageable 2) Spend time with the options that catch my eye 3) Marry the investment that win my heart.

So how do you win mine and other angel investors’ hearts?  Friday I closed a seed round, alongside Gabriel Weinberg and a handful of other investors, which clearly demonstrates what I and other angel investors are looking to marry.

The company is a modern Indian dating site called myZamana.  It was founded by Ashish Kundra.  I fell in love with myZamana because of the entrepreneur.  What I saw in Ashish was 1) someone who was adaptable, 2) approached entrepreneurship in a very methodical and calculated manner, 3) had a clear understanding of the core assumptions the business model and 4) of the right time to raise money

Adaptability – Too often entrepreneurs fall in love with an idea and due to human nature cannot let go of that idea.  However, rarely is an idea perfect from the start and sometimes it is just a bad idea. Ashish had originally founded a company called Mobibolt, which was funded by Launchbox Digital in 2008.  After leaving Launchbox Digital he raised a small amount of Angel funding. After several launches and multiple iterations on Mobibolt, however, he saw for himself that there was no path to success. Rather than running down a dead end, he chose to change course entirely and, with the support of the original investors, used the remainder of the money to build and test a new concept entirely. This open-mindedness and willingness to change paths is critical for successful entrepreneurs.

Methodology – More and more I am starting to see a difference in first time entrepreneurs that come out of the accelerators versus other first time entrepreneurs.  These accelerators force entrepreneurs to focus and attack entrepreneurship in a very methodical and unemotional way. In addition because they are surrounded by a dozen or so other companies that are doing the same thing, this process becomes human nature.  Over time it becomes like breathing. They do not even know they are doing it, but it is what is keeping them alive. 1) They test their ideas and look for customers and market feedback that is quantifiable. This allows entrepreneurs to remove themselves from their products and look at them objectively.  This is a key ingredient to good decision-making. 2) They tend to better understand the importance of maximizing their limited resources. Simply put, they learn not to waste money because the accelerators do not give them much money.  Ashish clearly was frugal. On top of his very modest personal standard of living, he prioritized his spending to effectively test his idea. To me this also shows commitment and a willingness to sacrifice in order to increase the likelihood of success.

Core Financial Assumptions – Ashish did not present a 20-page business plan.  He had a small pitch deck and more importantly, had a financial model that clearly defined the core assumptions of the financial model.  He had defined and understood each of these variables.  Just as importantly, he understood where he was and where he needed to be regarding these variables. This provided me confidence that he was focused and knew what he needed to do to be successful.  The alternative to this, which I usually get, is a P&L statement and hockey stick revenue forecast based on one or two customers (if any).  More importantly, the key variables are usually buried in the model and I cannot tell what is important and what is not.  Which means I assume the entrepreneur cannot tell what is important and not.  With Ashish, I asked him, what if you only reach a conversion rate of X. With one keystroke he knew the impact.

Timing – Ashish did not go out and raise money as soon as he developed the idea.  He waited.  He validated his core assumptions–not completely–but with enough certainty that he reduced the risk of the business dramatically, which meant less risk for investors.  Less risk for investors leads to high valuation, which leads to more ownership for the founders.  Good entrepreneurs maximize their own returns by raising money at the right time.  I respect this understanding and am more willing to invest when I see this in entrepreneurs. 

Angel and Venture Capitalist often say they invest in entrepreneurs, not ideas.  This is confusing and little misleading to entrepreneurs.  What is really being said is that good entrepreneurs are adaptable, use a methodology and financial modeling to develop and perfect ideas and because of this process, these same entrepreneurs leave the bad ideas behind. Coupling this process with the right time to raise money maximizes the investors and entrepreneur’s returns. 

That is what makes investors fall in love.

Steve Welch

Entrepreneur & Angel Investor

Check on my new book on Entrepreneurship

Angel investors and entrepreneurs are not Wall Street bankers.  This distinction is obvious to you and me, but apparently not to Washington. The new Senate Financial Reform Bill, which is likely to be voted on this week, lumps the two together as one group. If allowed to pass in its current form, this bill will destroy the way in which our society helps entrepreneurs turn their crazy innovative ideas into viable job creating businesses.

Angel investors are individuals that invest in early stage businesses that often consist of not much more than a folding table, a couple of computers and lofty aspirations. However, it is these early stage investors that often invest in companies five years or younger and help get high growth business off the ground.  Apple, Google, Facebook and a thousand other high growth businesses you have never heard of, all got their start because angel investors took a risk along side entrepreneurs.

It is these types of business that lead in both innovation and job creation.  In fact a recent Kauffman foundation study found that between 1980 and 2005 every single net new job created in the United States came from a company 5 years old or less.  It  is clear that one of the keys to job creation in our country is to ensure that early stage entrepreneurs have access to capital.  This is why many of our political leaders and candidates are trying to craft policies that support angel investors.  In fact, gubernatorial candidate Tom Corbett is proposing an angel tax credit for Pennsylvania angel investors.

With such clear understanding that entrepreneurs and angel investing are critical to economic growth and job creation, you would think our leaders in Washington would be doing everything possible to promote this type of bottom up economic development.  Unfortunately, we are seeing another example of top down Washington economic policy.

In its current state, Senator Dodd’s Financial Reform Bill would make two sweeping changes to the way in which angel investors and entrepreneurs can operate.  First, the bill would redefine who would be qualified to be an angel investor.  Currently individuals with either $1 million in investable assets or $250,000 in income qualify as accredited investors.  The new bill would change this to individuals with $2.3 million in assets or $450,000 in income.  According to the Kauffman Foundation, this would eliminate 77% of accredited investors.  This single handedly would reduce the amount of capital available to early stage businesses and stunt our much needed job creation.

In addition, the new bill would require any company attempting to raise angel investment to seek SEC approval, which would take up to 4 months.  As an active angel investor myself, I can say with certain that companies in this stage can rarely wait four months for funding. They will simply be forced to close up shop. Yet again this is another example of government bureaucracies getting in the way of the thriving entrepreneurs that this country needs to unleash, not restrict.

Angel investors and entrepreneurs had absolutely nothing to do with the financial meltdown of 2008, and no one believes they pose a systemic risk, so why are they being lumped together with Wall Street Bankers?  Proponents of the bill say that Washington is trying to protect people from risky investments.

Yes, angel investing is risky, and starting a business from scratch is even more risky.  However, it is this calculated risk taking that has allowed the United States to be the most innovative society in the world and has provided us a standard of living the world has never seen before.  If Washington insists on completely eliminating risk from the marketplace they will also eliminate entrepreneurship and innovation and this, in turn, will eliminate job creation in the process.

As a society we need to be looking for ways to increase capital to early stage businesses.  We need to be trying to find ways to lower the bureaucratic burdens place on our entrepreneurs.  The Financial Reform Bill goes against both of these principals, and punishes us all by restricting our entrepreneurial spirit as a society.

Steve Welch

Entrepreneur & Angel Investor

Author of “We are all Born Entrepreneurs”

“The time has come to elect people from outside the political system with proven track records to serve in Congress, candidate Steven Welch said.

He is seeking the Republican nomination for the 6th District in 2010, a seat currently held by Republican gubernatorial candidate Jim Gerlach.

‘We’re facing real challenges,’ Welch said. ‘We’re in two wars. We have unemployment approaching 10 percent. We have a dollar that hit new lows. We have debt approaching $12 trillion.’

“The time has come for people who have skills to get involved, who know how to create a system where we can have economic growth. I believe I have that skill set.”

Welch backed up his claim with his resume, which includes founding and eventually selling a biotechnology firm to a Fortune 500 company.

Then he cofounded a company that provides money and free services to help entrepreneurs start their own businesses.

Given his background, finding economic development at the top of his priorities is no surprise.”   -  Reading Eagle

To read the article in it’s entirety, please click here.

After 18 months (3 months ahead of schedule) the Gay St (Rt 113) bridge in Phoenixville is open and operational. Despite the lousy weather, a die hard group came out to witness the dedication by state officials, including County Commissioner Terence Farrell.

In an increasingly complex world, it can become difficult to determine where we as a nation should focus our energies, resources and political capital. Just recently we received another important reminder why Iran deserves our full attention and remains a focus of our foreign policy. Priorities may shift over time, but the safety and security of the United States and its allies are forever paramount.

While Iran continues to threaten our allies in the Middle East, we now know it also concealed the fact that it possesses a second uranium enrichment facility. This alarming information brings to light several important points:

1) Iran is clearly not disclosing all required information to the IAEA and is violating three separate UN Security Council resolutions. This blatant violation of international authority is only surpassed by the concern of what we still do not know. Exactly how far along is Iran’s nuclear weapons program?

2) The size and configuration of this new 3,000 centrifuge facility is inconsistent with what Iran describes as a “peaceful” nuclear program. While the facility does not produce enough nuclear fuel to power a reactor, U.S. officials have said that it could produce enough weapons-grade uranium to make a few nuclear weapons every year.

3) Most importantly, the current sanctions against Iran are an insufficient deterrent. They continue to pursue nuclear weapons capabilities, apparently unaffected by current United Nations’ efforts to stop them.

Let us be clear – a nuclear-armed Iran will not only destabilize the Middle East, but the international community as well, and provide a direct and serious threat to the safety of American citizens. There are a number of different scenarios that can be played out with a nuclear-armed Iran, none of which are acceptable.

The Iranian government is willfully violating international law. It is becoming increasingly clear that the only path to a peaceful solution is to implement strong and far reaching international sanctions immediately which will force Iran and its people to realize that life isolated from the rest of the world is not worth the ability to possess nuclear weapons. These sanctions should include:

1) Prohibiting the exportation of refined petroleum products to Iran. Iran currently imports 40% of its gasoline products. This type of sanction would affect the strength of the Iranian government immediately.

2) A complete and total sanction on the Central Bank of Iran. This would cripple the nation’s ability to conduct business throughout the world and likely bring a troubled economy to a halt.

3) Penalties for any foreign entity that continues to do business with Iran. This would include companies doing business with Iranian shipping companies, which would immobilize their oil exports, consisting of 80% of their national GDP.

Time is of the essence, and strong sanctions must be a part of our diplomacy. As each day passes our bargaining position deteriorates as Iran marches closer to becoming a nuclear power. Swift implementation of strong and direct sanctions will slow Iran’s progress and demonstrate to the Iranian leadership and its people that the world will not tolerate a nation that sponsors terrorism to become a nuclear power. This is the only way to achieve a peaceful outcome.

A nuclear-armed Iran is perhaps the greatest risk to peace throughout the world, and the United States must prioritize the use of its political capital to ensure that the international community is united in its dealings with Iran.