|
By Debra Lau
May 3, 2001
NEW YORK - After the crash of so many dot-coms, angel networks are a far more sober bunch. But that didn't stop CommonAngels, a group of 50 investors in Boston, from giving $2 million last month to Brandon Busteed for his company, OutsideTheClassroom.com.
In fact, Busteed, a 24-year-old graduate of Duke University, edged out two seasoned entrepreneurs developing communications software for Web sites. A year ago, those other guys would have likely walked away with a pile of money. Not today.
What gave Busteed the edge? Though he lacks the management experience that many investors now demand, Busteed made a convincing case for his online alcohol-education course targeting colleges and universities.
Busteed got 17 authors and health educators to develop an online curriculum, then he secured deposits or commitments from more than 130 universities that will use the course as a requirement for incoming freshmen or students who've committed alcohol-related offenses, says James Geshwiler, managing director of CommonAngels. Busteed accomplished that in less than one year of operation, and with only a $750,000 initial investment.
At this stage, Busteed's startup needed additional funds to roll out its product and help cover sales, marketing and other costs. That's when he decided to seek out CommonAngels, one of more than a handful of wealthy tech-savvy angel networks nationwide whose members provide between $100,000 and $2.5 million to early-stage companies. OutsideTheClassroom.com expects to be cash-flow positive by the end of this year.
CommonAngels must be doing something right. The alliance boasts only one failed investment out of 18 in the past three years. The dog? Espanol.com, which sold books and music to the Spanish-speaking market and received an investment of a few hundred thousand dollars.
It's certainly a lot harder for entrepreneurs to convince angel investors to provide the crucial pre-venture capital financing needed to get their startups off the ground. It took Busteed four months to secure his much needed capital, and he figures it would have taken half that time to raise twice as much last year.
Investment criteria vary from group to group, but angel alliances follow basic guidelines. The advice to entrepreneurs seeking early-stage money these days: Don't expect to get your foot in the door unless your company's valuation is in the $5 million range and there is a strong market need for your product. Furthermore, make sure it doesn't require too much capital to get off the ground and that revenue isn't too far off, Geshwiler says.
Also, seek counsel from as many company founders and fellow entrepreneurs as possible, and cast your net wide by pitching your startup to individual investors who can co-invest in the same transaction as the angel network. That way, Busteed says, no group or individual will have too much equity or control over the company.
"Network, make calls, schedule meetings and introduce yourself to people--any way you can get in front of them," Busteed says.
Still, he adds, "Angel networks are the way to go," because they are an invaluable resource that offers the prestige of a brand name and access to dozens of angels at one given time. Such a stamp of approval often paves the way for follow-on investments from venture capital firms.
And once it's time to pitch your company to an angel network, "Don't just stick to a generic, cookie-cutter presentation. Make your company stand out," Busteed says. "This market downturn is shaking out fake entrepreneurs and focusing on people with a real commitment to making a successful company."
Return to Media Coverage Listing
|
