Raising money is the one constant among entrepreneurs that I meet. Every one of them is loosing sleep over how to find investment dollars for their start up ventures. There is a community of investors who make bets on early stage companies, the most recognizable group being “Venture Capitalists”. VCs are funds that make investments against a mandate and represent the largest pool of capital for early stage companies. There are also individuals who make investments in start ups who are know as “Angel” investors.

An Angel investor is an affluent individual, or group of individuals who invest their personal funds in entrepreneurial ventures. Following are Five things to consider if you are approaching Angel investors:

1) Angels invest their own money. They are not a fund or intermediary and when the transaction closes they will be funding an investment out of their own personal resources. This is important to consider as Angels can be very active in the ongoing development of a company because their own funds are at risk. This can be a major benefit when the Angel has relevant experience and contacts in your industry and can “add value” beyond just the dollars they invest.

2) Angels are high net worth, affluent and accredited investors, the majority of whom have created their wealth through entrepreneurship. They will most likely have a track record of creating and growing private ventures and understand how to build and extract value through a liquidity event. Therefore Angels have a real affinity for entrepreneurship and typically evaluate investments based on the founders abilities and the management team.

3) Angels typically create their own process for finding, vetting and structuring the investments that they make. This means that any entrepreneur that is talking with Angels needs to recognize that there may be a lot of flexibility in their process and be less structured when it comes to due diligence.

4) It is typical that Angels have experienced an exit through which they created wealth, which means they are driven by their desired lifestyle. The impact for the entrepreneur is that Angels are very location driven in the investments they make. Some statistics indicate that Angels on average invest within a 50 mile radius of their primary residence.

5) As we know that Angles are investing their own money, this also means that they are typically not making the decision alone. Do not underestimate the influence a spouse may have in the decision. Angels also like to co-invest with other Angels and it is very common that they will bring other expert friends or investors into the process to evaluate the risks of a startup.

For additional research I recommend that you identify the local angel investor groups or forums in your area and learn more about their process and membership. Many Angels participate in monthly meetings to look at new opportunities through structured groups. Engaging with these forums is an excellent way to start networking with your local Angel investor community.

Attention Entrepreneurs; your ideas are not important!  Well that might not be entirely true, they are most certainly of less value in the creation of your company than you might expect and here is why:

The single greatest risk to any business venture is “execution risk.”  This means that the key differentiator between the majority of companies that fail and the very few that survive (and fewer still that become bona fide successes) is the management team’s ability to execute their plan.

The conclusion that I have come to is that many classes on entrepreneurship, incubators and start up bootcamps overemphasize idea creation as a key element of a successful business.  There is no doubt that it is an entrepreneurial characteristic for founders to be unique thinkers and have a capacity to generate ideas.  It is also true that all companies need to drive innovation.  However, in order to be innovative a company needs to exist as an operating company and not just a thought in the founder’s head.  The issue lies in that idea generation is not in itself a useful discipline.

The old cliche in the Venture Capital world is to bet the “jockey” not the “horse.”  This means that investors would much rather put their money behind an exceptional management team with a mediocre idea, than am amazing idea with mediocre management.

To deemphasize idea creation in entrepreneurship may seem counter intuitive until you think about how many people have literally dozens of ideas that never become real companies.  Great entrepreneurs have the ability to move beyond the idea creation step and actually execute.  It is the management teams ability to mitigate against execution risk that results in real businesses generating real sales by creating real products or services that in turn build real value.

Therefore the value of the original idea is minute compared to the intrinsic value that is built when an idea becomes a real business.  The first step in executing is for the founder to quickly harness their ideas and get on with making them a reality.

Following is a first attempt at a Recommended Reading List for Entrepreneurs.  Please post any comments or add any additional recommended books:

• “The Founders Dilema”, Noam Wasserman
• “Do More Faster”, David Cohen & Brad Feld
• “The Lean Startup”, Eric Ries
• “The Startup Company Bible”, Michael Stathis
• “Mastering the VC Game”, Jeffery Bussgang
• “The Cure”, Geeta Anand
• “Think & Grow Rich”, Napoleon Hill
• “Raising Capital”, Andrew J. Sherman
• “Creative Capital”, Spencer E. Ante
• “Entrepreneurial Finance”, Steven Rogers
• “Execution”, Larry Bossidy & Ram Charan
• “Business Brilliant”, Lewis Schiff
• “Success Built to Last”, Jerry Porras, Stewart Emery, Mark Thompson
• “Steve Jobs”, Walter Isaacson
• “True North”, Bill George

Every business will face failure.  The company didn’t meet its projections or the competitive or regulatory environment changed.  Maybe you are being sued or your customers are upset with the quality of your product or service.  The reality is that businesses are under constant pressure and every day will present new challenges and threats to a company’s growth.

More often than not it is too late when the entrepreneur or management team finally face facts and tell their board and investors that they have a major problem.  Worst of all it is usually a surprise to the investors as it is common that the management team has reported nothing but good news up until this point.  It is a very bad business practice to surprise your investors with anything other than you WAY overshot your projected profits, and even that will raise questions. By this point you have likely missed an opportunity to leverage the experience of your board in enough time to manage through the issue.

Failure is only unacceptable if you don’t learn from it, or more importantly can’t manage through it to a better result.  And this is an important dynamic in communicating with your investors, in fact sometimes failure is the best thing that happens to a business.  So the point is not to avoid failure but rather be capable of recognizing it and willing to have a difficult conversation.

It is not only a mature business practice but an imperative in maintaining a good relationship with your investors to not just communicate what is going well but keep them informed of the potential points of failure that you are trying to manage through.

Great leaders don’t spend time extolling their greatness, especially in the early stages of a business, but rather have an unshakable fear of uncertainty and unforeseen threats to their business. 

As a best practice you should always communicate the bad news as soon as you are aware of it, an analysis of how this can potentially impact your business, then describe how you have addressed the situation and plan to manage through it. 

Finally you should always ask for feedback and advice, your investors should have seasoned business acumen (otherwise they would not be your board right?), so listen to how they would address the problems you are facing and be open to their criticisms of how you have decided to address the issues.  Not addressing a negative situation early enough will prevent you from having this very important discussion.

Never be afraid to face failure and to address the problems your business is facing.  Problems only lead to an opportunity to provide answers.  Problems without answers are systemic inefficiencies and an indication that a business may be fatally flawed, or at least its current management team is.

Historically a career in business required focusing on a specific discipline.  Education is designed to introduce students to a specific set of disciplines and once a graduate enters the corporate environment they were typically assigned to a specific group or division.  The typical career path would be based on developing expertise within a single area of focus.

This works within large corporations but entrepreneurship is quite different.  The founder or CEO (insert title here) needs to not just understand the core business concepts, but the survival of her business is dependent on being better than simply proficient at a variety of disciplines.

The founder needs to be able to negotiate complex financing terms with partners and investors and must be able to develop detailed financial models including P&L, Cash Flow and Balance Sheet projections.  She needs to be a product expert and an evangelist amongst the company’s customer set, be able to dissect the market and produce a marketing plan that will deliver results.  She needs to manage suppliers and negotiate contracts with third parties, have a detailed knowledge of the competition, understand and have current knowledge of relevant regulatory issues, and be able to attract and retain top talent.

This short generic list has covered, finance, accounting, sales, marketing, product development and project management, legal, regulatory and HR.

On top of this it is the intangibles that separate the successes from the failures.  The great founders do all this while providing leadership and managing the team to deliver on the business plan.  The great entrepreneurs take their business to the next level by continuing to develop leadership, negotiation and senior management acumen.

All of this is happening within the context of a start up which by definition is operating in an information poor, resource constrained environment.

The good news is there is are many precedents for success.  One characteristic of successful entrepreneurs is that they seek experience and education outside of their business.  To be great, you must study greatness.  Develop a list of other business leaders who you admire and contact them.  Ask them for advice, network with thought leaders and commit to spending at least 20% of your time going to educational events, reading about and seeking the experience you are lacking.  The fun part of this is that there isn’t a business book, seminar, or course you can take that won’t have something relevant that will be of value to your endeavor.

No business can succeed without a business plan.  No investor will consider investing in your business without analyzing your business plan.  The idea that a company can raise money without a business plan is fiction, there  aren’t any shortcuts in entrepreneurship and you, as a founder, owe it to yourself to do the work and prove out your business thesis.  Only then can you reasonably expect others to be a part of your vision.

Writing and publishing your business plan is one of the most important tasks of an entrepreneur.  A well-written business plan should show clearly:

• What your company does
• How it will do it
• What the market is
• How to enter or grow in your market
• How you make money
• Who is involved
• Where you are today
• Where you want to go tomorrow
• What the expected results are

Before undertaking the writing of your business plan consider the following strategies to help you along the process:

Audience – the business plan serves three audiences, (1) investors, (2) employees and internal resources, and (3) third parties such as suppliers, partners or banks.  Be sensitive to your audience, a well written business plan can not only help raise money, but can also attract talent, provide guidance to your employees and secure partnerships with companies who share your vision.  Consider the time that the reader needs to spend with the business plan in order to fully understand what you are communicating.  This means you should be succinct and direct and present the information in easily understandable language.

Building Blocks – the goal of the business plan should be to build on the key foundational aspects of the business.  Each section should serve as a component of the business that together create a clear picture as to the merits of the business.

Raising Money – no one will scrutinize your business as thoroughly as investors.  It is important to recognize that investors have limited time (short and clear is essential) and need to understand key areas of your business.

The investor will likely use what they learn from the business plan as a major part of their decision to invest or pass.

Facts vs. Selling – the business plan is not a sales tool.  Be disciplined about not using superlatives to describe all the great things your company will do in the future.  Phrases like “unlimited potential”, “huge opportunity” or that you are “confident” in your business have no place in a business plan.  Do not embellish, any statement should be based in fact and if you are using data from other sources, cite the source.

In conclusion, always present your business plan in the most professional format possible.  Yes grammar, font sizes, footnotes, page numbers, readable graphics and a professional look and feel are all very important.  The reality is that many business plans are not presented that way so why wouldn’t you want to at least stick out compared to them!

Always have fun, there is no greater reward in business than having the opportunity to pursue your dreams.