Attracting an Angel

The 10 essentials of attracting an angel.

By CHRISTOPHER J. GULOTTA
and ALAN M. TARTER

Silicon Alley in New York City and the Info River Valley (a growing cluster of emerging high-tech information technology companies in the Hudson Valley region) are the venues of downstate New York's fast-growing new media industry. The combination of emerging computing, telecommunications and information technologies have provided businesses and consumers with an exponentially broad choice of products and services employing these technologies.

For IT entrepreneurs, however, securing financing for their new media startup is often one of their threshold obstacles. Attracting the first significant investor(s) ("angels") to fund the initial phase of development is typically the most challenging aspect of the financing process. Below are 10 key components in attracting such an investor:

The five-minute business plan: You must be able to present your entire business plan in no more than five minutes. While an interactive slide show may be helpful, it must be simple and visually useful. The plan must describe:

	the product or service
	the potential for sales
	the capital needed to reach operative thresholds
	how the capital will be allocated
	who the members of the team are
	a demonstration of the business or consumer need for the product or service
	the key strategic alliances/distribution partners. A chief executive officer with a track record of success is also essential.

Competition:

You must demonstrate:

who the competition is

what it is doing

how you are going to compete.

Diversity and depth

The team: The diversity and depth of the team (including employees, strategic partners, independent contractors, advisory board, officers, directors and technicians), as well as their track record, must all demonstrate that you have the infrastructure to carry out your mission. Angels are notorious for betting on the jockey, not just the horse.

Critical mass: Be able to articulate and back up precisely what constitutes the critical mass point in terms of time to market, capital, strategic alliances, generating quality content and market share.

Risk factors: Identify the key risk factors, not the least of which is time to market. Angels want to know that you will beat your competitors to market, not only in terms of having your new media product up and running, but also that your advertising and strategic alliances are in place to fully promote the site.

Value: How do you value the company for purposes of angel financing? You should have different valuations for each round of financing, demonstrating to angels that their valuation is, in recognition of the higher degree of risk at this point, more favorable.

Consumer base: Angels want to see the broadest possible business and/or consumer base.

Growth of consumer base: You must be able to demonstrate that the subject business and/or consumer base has been, and is likely to continue to be, one of growth.

Beauty contest: You must be able to establish that the company has the ability to attract key employees, strategic partners, board members, etc.

Use of proceeds: You must flesh out precisely what the capital contributed by the angel will be used for and convince such angel that the uses are based upon assumptions that are logically conceived, prudent and likely to meet the goals you have set forth.