|
Entrepreneurs and investors, both venture capitalists and
angel (private)
investors sometimes have
very different
perspectives. And while
the dot.com mania of
last year
has faded, there are
venture capital funds
that must be invested,
angel investors that
want to invest and
entrepreneurs looking
for capital. But are
they looking
for the same things in
the right places?
Over 100 entrepreneurs that were actively trying to find
capital were surveyed
and their results
compared to the results
of a series of surveys
of 250 venture capital
firms
and a survey of 40 angel
investors also known as
private investors.
Entrepreneurs were asked
two questions and their
results compared to the
summarized answers of
angel investors and
venture capitalists.
1. What do you think is
the most common way
angel investors
find the companies they
actually invest in?
2. What do you think is
the most common way
venture
capitalists find the
companies they actually
invest in?
The venture capital
information is the
result of three years of
surveying a total of
over 250 venture capital
firms. The last survey
was completed in June
2000. Complete results
of those surveys are
available in my book,
"Inside Secrets to
Venture
Capital" published
by John Wiley & Sons
May 2001. The
entrepreneur and angel
surveys were conducted
in April, May and June
2001.
How entrepreneurs think
angels find deals -
Referrals by:
Another angel 24%
Direct contact
entrepreneur 20%
Finder/intermediary 19%
Angel network 17%
Attorney 8%
Accountant 5%
Venture capital
conference 3%
Venture capital firm 2%
Matching making service
2%
It is clear that the
entrepreneurs who
responded to the survey
understood that angels
rely on a number of
different sources for
deals. The first four
sources were ranked
fairly closely with only
a variance of seven
percentage points
between them. They
correctly saw that
angels give a lot of
credence to deals
referred to them by
their angel colleagues.
The second choice, direct contact by the entrepreneur was
ranked higher by the
entrepreneurs than by
many angels we
interviewed, some of
whom stated that they
much prefer to have a
deal referred to them by
someone they know and
trust. It was
interesting that
entrepreneurs ranked
intermediaries as more
important sources of
deals than attorneys or
accountants. Again, if
the attorney or
accountant knows the
angel well it tends to
cause the angel investor
to give the deal more
attention.
Angel networks were the
next most popular
choice. Many angels do
not yet belong to formal
networks, and in some
metro areas angel
networks are
non-existent or not very
active. Angels who do
participate in networks,
however, tend to use
them as preferred
sources of deals rather
than deals sent directly
to them as individual
investors. Many angels
will invest both as an
individual or as part of
a group.
In the opinion of these
entrepreneurs, match
making services have not
caught on as important
tools for angels to use
to find deals. This
agrees with what many of
the angels interviewed
as well.
How entrepreneurs think
venture capitalists
actually find deals
(Second percentage from
survey of VCs)
Direct contact
by the entrepreneur 20%
- 30%
Referrals by
Finder/intermediary 64%
- 17%
Attorney 13% - 7%
Accountant 9% - 7%
Venture capital
conferences 10% - 7%
Referral by
Venture capital firm 18%
- 34%
(Percentages don't add
to 100% since some
entrepreneurs and VCs
designated more than one
way)
How entrepreneurs think venture capitalists find the deals
Referral by a paid
intermediary is the
overwhelmingly first
choice by entrepreneurs,
which is curious when
compared to the fourth
place ranking they give
intermediaries for
angels.
Since angels are much
more difficult to locate
than venture
capitalists, one would
think it would be the
opposite. Only 17% of
the VCs said that
referrals by
intermediaries was the
most common way they
found the deals they
actually invested in.
Many VCs told us
informally that they
considered the use of an
intermediary an
indication that the
company wasn't
attractive as an
investment opportunity.
Direct contact by the
entrepreneur is very
underrated by the
entrepreneurs themselves
and yet it is cited by
the VCs as the second
most common way they
find the deals, in fact,
it is only one
percentage point less
than the next three
categories
combined.
Referral by another
venture capital firm was
ranked in third place by
entrepreneurs at 18%,
which is actually the
most common way VCs find
the deals.
So where does the
entrepreneur look for
investors?
Look where the investors
are, not where the light
is shining. Use every
method. Expand your
network. Find someone
that can introduce you
to an investor. Don't
rely just on an
intermediary or finder.
It's difficult to cope
with rejection, but
remember
you only need one yes.
Dee Power is Co-author
with Brian E. Hill of
"Inside Secrets To
Venture Capital"
published by John Wiley
& Sons May 2001 and
“Attracting Capital
From Angels,” January
2002 by John Wiley &
Sons.
|
