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It's a Network Not a Fund: Must Know How to Work the Network to Get Funded

Fund: Tech Coast Angels

Posted by David Saad on 2007-11-19

PUBLIC:

Let me start with a disclaimer: My company called Clupedia is a portfolio company of Tech Coast Angels. In fact, we raised one of the largest, if not the largest round in TCA's history. I also won the Most Promising Investment Award during the 2006 Fast Pitch competition.

In response to other postings, here's my take on TCA, their process, their people, and their Fast Pitch competition. I shall be as objective as possible by listing the pros and cons to benefit future entrepreneurs as well as give feedback to TCA's executives who might be peeking in.

Pros:
They do fund. In fact, they are the largest network of angels on all fronts - numbers of angels in their network, number of deals they made, the total amount of investments made, number of companies in their portfolio which attracted VC funding, etc. From that perspective, their track record is very respectable.

They do enjoy a good reputation among the VC community. Many of the local VCs sponsor their event. In fact, almost all local VCs treat TCA as an excellent source of deals. For VCs, TCA is really nothing but a screening process. Thus, any company that gets funded by TCA and does well, is likely to attract VC funding. Therefore, TCA is essentially doing the early due diligence work for VCs, and VCs like that.

They do have some smart, experienced, and well-connected angels that can make critical contributions to a start-up. More than just the money that they bring to the table, they can give you great advices, recruit executives, attract customers, establish strategic alliances, and open doors with VCs.

Even though their process is long and rigorous, it does indeed weed out weak companies that are not quite ready for angel investment. In fact, I know of at least three local companies who got turned down but benefited from the process by getting great advices, references, referrals, etc. So essentially, if they like you, but not enough to invest in you, they will still help you by getting you more ready to pitch again. Therefore, if you have a good attitude, open minded, listen to their feedback, there is a good chance that you will get a lot out of them, for FREE, even though you don't get funded. Therefore, you have everything to gain and not much to loose, other than your time which is very understandably valuable, to pitch to them.

Cons:
Angels at TCA come from many different backgrounds. Chances are that the majority of the people listening to your pitch won't really understand your business. They typically rely on few of their peers who do. Thus, there is a "herding" effect that takes place. The key to your success at raising funding at TCA is to have one of the influencers who knows your space become your evangelist. Without that influencer, your chances to raise any money are very slim. As a result, you need to think about TCA as a network to be lobbied, and your sales strategy in terms of raising the funding, is actually to work the network. You must start by discovering the influencers, work them, and get them to spread their influence on others to gather as many signatures as possible. There is a tipping point. Once you reach that tipping point, you start to see other investors signing up, just because others did.

Micromanagement can be a major issue that can lead to your failure if you do not watch out. Typically, the board of directors of a startup is far more involved in the operation of the company compared to a later stage company where the board restricts itself to monitoring and just strategic matters. Furthermore, angels tend to want to get involved more so than VCs. They are passionate about your company. The problem is that if they get too passionate, then they start to want to run your company. That's when the problems start. What distinguishes the men from the boys as entrepreneurs, a good entrepreneur needs to find a good balance between embracing the involvement of board members yet at the same time keep an arm-length as far as operational issues. In essence, once your board starts to get involved in the operation of your company, you will likely end up on a very slippery slop. The fact is that everybody has an opinion, but since you're the one who is running the company and since the buck stops at your desk, your opinion is what counts. On the other hand, if you take the attitude that you know it all and ignore some of their advices, chances are that you will be wrong at one point or another, and when you're wrong, you won't get the support of your board. That could be the kiss of death, unless you have prepared for an alternative.

Fast Pitch
At first I was skeptical. I also agree with one of the users who made a comment about the fact that there are some clowns who pitch. Very true. On the other hand, those clowns are weeded out during coaching sessions. The 12 companies who get selected to compete in the event are good companies. Of course, that doesn't mean that they are fundable. Nonetheless, the event does give you exposure, it does force you to articulate your thoughts about your company, and it does help you manage the butter fly effect. So, jump in and compete. There are those who dream about it, those who talk about it, those who complain about it, those who do it, and those who win it. Which one are you"!!! It's up to you.

My Advice
If you have a venture that could bring 5 to 10 times returns within 3 to 5 years, you should pitch to TCA. Follow religiously their process even if you don't like it, do your homework, and work the network as explained above. As far as your attitude is concerned, you need to demonstrate leadership and be assertive, yet at the same time be open minded and a good listener. It's a balance that you must strike. In addition, diplomacy is the order of the day. You can bet that you will have disagreements with them. You can also bet that there will be different opinions and politics will start to crawl in. Be passionate, listen, yet follow your intuition. When you reject an advice, do it diplomatically. Your job would be to maintain order and consensus. However, that is much easier said than done. On the other hand, nobody said that startups are easy. It comes with the territory. So if you can't take the heat, don't even bother to enter the kitchen.

Overall Score
My opinion might be bias because my company is a poster child of TCA. We had a very good experience with them. On the other hand, I must admit that I also had my issues with them, especially after the funding. So, I think I am being very fair and objective. I give them a 4.5 out of 5 and I encourage every entrepreneur to consider them. And that's my 2 cents.

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