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Top 10 tips for funding a start-up company

By Ron Wiener, CEO, Earth Class Mail Corporation

Ron Wiener, who has launched five start-up companies, is a member of Keiretsu Forum – the world’s largest formally organized group of angel investors – and has been active in non-profit entrepreneurial support organizations and a frequent speaker and writer on subjects relating to entrepreneurship and venture capital since 1991. The first episode of “Start-Up Junkies” follows Ron as he makes key presentations to angel and venture-capital investors, so we thought it would be especially appropriate for his blog this week to provide advice on raising investment funding.

Raising money for a startup can take an inordinate amount of the founders’ time and limited capital, so leveraging angel networks is a great way to go to make the process go quicker so you can get back to running your company. I’ve raised angel and venture capital for 10 ventures now, including five that I founded and ran as the first CEO (i.e., the one who needed to bring in the most difficult and expensive money the company will ever raise). After pitching deals to literally thousands of angel and institutional investors over the years, I’ve found that you can often do best by combining the momentum from angel groups with the momentum from unaffiliated angel investors to get the job done quickest. Here are a few tips that might help you as you undertake this task.

1. Get to know the community, and the process, from the inside. If a member of your management team, a board member or even a close-in investor is an accredited investor, have them join the one or more angel groups as an investor-member, as early before you pitch your deal as possible. Once inside it won’t take long to find out who the thought leaders are in the group. Sell them on your company before you get to the screening committee, or at the very least, before you pitch the full audience. No matter how many times you practice your pitch you will naturally flub a few details or you may need to leave some details out due to the limited time you’ll get to present. So when you’re asked to leave the room so that investors can have their private “mind share” session, these people can stand up for you in your absence and fill in blank spots that might otherwise become as suspect as the 18 minutes on Nixon’s tape recordings.

2. Drive around the track a few times to get familiar with it before race day. Get some seasoned pitch coaches to work with you before you get to the screening committee. Hire one if you have to; there are plenty of really good ones out there. Follow their published guidance – get your pitch down to exactly the number of minutes you are given, make sure your slide shows are as good as they can be, bring visual props to help explain what your company does (if appropriate), and get plenty of sleep the night before.

3. Separate the generals from the corporals. Most angel groups have a volunteer “screening committee” to vet deals before all the members get to see them, and the better angel groups also formalize the due diligence process – again, with their own members volunteering to do the heavy lifting. Assuming you succeed with the screening committee, you should begin to identify which members will be willing to serve on the Due Diligence Committee for your deal. In particular, you’ll need to find the “lead” for the committee. This is extremely difficult because – let’s face it – these are busy people and it takes a LOT to get them to devote time to leading a team of other busy people, all volunteers. You will often find potential team leaders and team members at the screening committee (these are the real deal junkies), but keep in mind they can see as many as 120 deals a year. Your business plan – and you as a charismatic CEO – had better be compelling enough to get their attention.

4. Strike while the iron of interest is still red hot. Do not make the common mistake of waiting too long to make contact with your “gold sheet” members after pitching to an investor group. Get on the phone and send an email letting them know that you’re now soliciting members for the due diligence committee. Invite them to ask questions. Lay out a schedule for the next few weeks.

5. Don’t delay on the due diligence. Get your due diligence binder out as fast as possible. Ostensibly the committee leader will be in charge of this document’s production, but in all practicality it will be up to you to provide most of the fodder for this tome. Make sure that the leader has assigned every section of the binder to someone (you should have a minimum of three team members including the leader, but the more the merrier). If the leader is not able to ride the other team members to stay on schedule, then reach out to them yourself and beg, bribe or cajole them to turn around their due diligence work as quickly as possible. By the fifth or sixth week after your pitch you should have your binder ready to distribute.

6. Be a squeaky wheel. Send out weekly updates on your progress. Do whatever you can to keep interest and enthusiasm level high. Some ideas:

Offer a tour of your company facilities.

Offer a meeting with some key customers or partners

Announce any new key hires

Announce any new sales hurdles met, impressive customers

Announce product development milestones

Copy in links to press appearances on your company

As your round starts filling out, announce the percentage that is completed. Make sure everyone understands that stock in your company is a rapidly depleting resource.

Make clear the date you expect to close –- set a reasonable deadline. This will likely be somewhere between three and five months from when you pitched the first investor group.

7. Take your show on the road. Pitch at as many investor groups as possible. Some groups will share due diligence with other groups, so ask in advance if they have any relationships with other groups that you can leverage. Start with the smaller groups if you can, and work your way up to the bigger ones. The more groups you pitch, the more buzz you’ll generate about your company, the more due diligence committee members you’ll pick up, and the faster your deal will close.

8. Bring ‘em on board. If you find there’s a particular investor-group member that you really like — who really understands you, your deal, and your space — see if he or she would be willing to take a board seat as the representative of that group of angels. This is not a casual decision – for either of you! Only add a board member if that person is really appropriate for your company and your stage, will contribute the hours and the brain power you need, and is a respected member of the group whose participation will draw even more investors in. Check references as much as you would for any executive on your team, especially with CEOs of other companies whose boards they may have served on in the past.

9. Maximize your face time. If allowed come back to the investor-group meetings every month and give speed updates on your progress. There are often many group events you can participate in to increase your chances to talk with the members. Make yourself visible, and network with the other entrepreneurs to learn about who the real movers and shakers are in the group. Find out about the 10% you must win over — and the 3% to avoid at all costs. These people don’t come with labels – you have to network discretely to find out.

10. Don’t just take the money and run. Once you get your funding closed, stay in constant communication with your investors. I send out an “angel-gram” to them at least once a month. What I get in return are endless offers to assist with customer contacts, strategic partnerships, management recruiting, and advice on patents, marketing, and technology. The “returns” on the entrance fee are endless if you give your investors a ride in the front seat of the bus instead of the back where they have no view of the action.

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