Raising Angel Funds in NYC: 5 Lessons Learned

About halfway through KartMe‘s angel raise, I took a second to jot down some lessons learned.  This post originally appeared on KartMe.com’s blog. Without further ado, here are the lessons:

1. Angels want to see you making measurable progress.  To get to the next level, you’re going to need to show measurable results.  Whether it’s revenue per customer, user growth, or a viral coefficent, something measurable is required to either raise money or pay your bills. Start measuring something now.  It could be retention, content creation, unique visitors, bounce rates, something.  Should you get investors, they’ll be following progress in monthly updates…which will mostly include numbers.  So start measuring, and start showing improvements to investors.  Investors know your ideas are going to change, and all they’re going to have to judge success on is numbers, so you might as well start executing and improving based on more than just your gut.  A big mistake I made was showing investors new “designs”, thinking that qualified as measurable progress.  No one cared. In fact, they just wondered why the designs weren’t live and doubted my ability to execute quickly. To summarize, get to know angels a few months before you want to raise funds, and start showing measurable improvements.

2. Angels like simple ideas.  Investors are busy.  Angels are even busier as investing is often a side project for them.  They’re not all going to sign up for your product.  They’re not all going to read your business plan.  Give them a simple explanation that they can remember and explain to their colleagues, spouse and child.  When I explain KartMe now, it’s:  we help people share lists and we monetize with commissions.

3. Angels like teams.  Ideally, your team with have 2 technical co founders and one business person.  It seemed that every investor had a story about a technical person who became unintereseted in the company, leaving the business person floundering.  They like to see long standing relationships between teammates located in the same location, so flight is unlikely.  They like to see that the business person can “attract talent”.  They like the idea of 3 people working until midnight for what amounts to a very low hourly cash wage.

4. Angels are sophisticated investors. Nearly all angels I spoke to throughout the process knew everything I’d learned in business school about fundraising.  They all wanted price protections, participation opportunities, “caps” on convertible notes, etc.  Once you get beyond friends, family, and supportive entrepreneurs, assumes angels willl know more than you about investment terms.  The investors committed to KartMe have probably done over 100 deals as angels, VCs, and private equity investors.  They’ve gone through every term in our agreement, thinking about good and bad outcomes. They thought to set aside funds in case things go bad (and they can buy more of KartMe at a discounted price) or good (and they can preserve their share).  With the new  angel funds, like Founders Collective and IA Capital Partners, I’d assume the sophistication of angels is ever increasing.

5. Closing takes momentum, which you can generate. There were at least 5 different “mini-events” I’ve used during the last couple weeks to get commitments.  A PR hit let to an investor putting an offer a on the table.  One party putting an offer on the tabe gave me something to get another party in.  One resume of an investor got another investor excited.  One parties cash in the bank account helped me get another party to commit.  Getting over half the money I wanted committed enabled me to get another party to commit.  As you approach your fundraise, try to have as many exciting, momentum generating events as you can ready.

Fundraising has been a great experience.  I’ve been able to refine the marketing pitch and have a better sense of what metrics matter.  These are just 5 of the many lessons learned.  More about the experience of raising capital is coming.  Stay in the loop by following KartMe on Twitter.


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