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General Thoughts

Fund: New York Angels

Posted by Lionel on 2009-04-03

PUBLIC:

I am the founder of a tech startup and have bootstrapped to profitability. By no means are we on a rocket ship ride to growth right now, instead we are taking slow steps to prove our business and ensure profitability today. We would be classified a "lifestyle business" right now.

I just heard David Rose talk at the Web2.0 conference and was underwhelmed so poked around the web to get more insight; here is what I found on his "Pitch Coach" site:

"Described as "the Father of Angel Investing in New York" by Crain's New York Business and a "world conquering entrepreneur" by BusinessWeek, David S. Rose is a serial entrepreneur and Inc 500 CEO who is Chairman of New York Angels, one of the most active and fastest-growing angel investment groups in the country.”

My thoughts:
If he is the father of angel investing [in NY] and go to pitch coach, consider the following:

1) He says don't talk to him unless you can give him 30x on his money...based on his comments today, 10x is the best he has done so far.

2) He harped on "dumb money" however he raised "$20 million in the late 90's for a product that no one wanted so it went under". $20m for a product that in his own words "no one wanted"...

3) When discussing deal terms he said be careful about early stage valuations because of the risk of setting it to low or to high...the follow on was how about convertible notes; he implied they are for less sophisticated investors (my comment: more of an east coast mentality; you see a lot of sophisticated West Coast investors use the convertible note extremely effectively and efficiently)...so back to valuation and how the conversation goes, he said "It's a short conversation" and implied you either agree with his valuation or walk.

4) He also blasted angel networks that charge entrepreneurs to submit plans...no clue if they still charge today but based on other posts here you can see that the NY Angels certainly charged in the past!

This is not a post to blast David Rose; he just got me to my boiling point. This is merely a post to help open the eyes of eager entrepreneurs that think raising money is the end game, the "we've made it" benchmark; it's not.

I'm tired of hearing "money" pat themselves on the back for their genius; the "I can pick the next big thing because I know how business is done". The biggest issue with VC and now angels is a sense of infallibility and a lack of humility. I was born into a middle class family and was well cared for, that was luck. I was also born with looks that some consider to be good; I get more dates than most because of that, lucky in my book. Ask a VC or Angel the luckiest deal they've ever been in and you get a blank stare. If you find "money" that actually admits they've been lucky and gives you an honest story to back it up that may be money to consider.

Entrepreneurs, be smart about your business! If it is in fact the "next big thing", grow intelligently and build cash. Get an SBA loan (headache in its own right I know, I know) so you don't have to deal with equity partners. Feeling like your growth is being hampered because you don't have cash can be frustrating, getting money from someone who expects huge returns but can't help you get there will be even more frustrating.

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