Seed and Angel Capital Strategies for Atlanta
Crossposted from my blog. I haven’t been doing a good job of crossposting. Man, we really need to sit down and write a plugin (or find one) that will just pull in posts from our feeds. This crossposting crap is for the birds. 
I’ve gotten into this same conversation with 3 or 4 people this week, and it is one that comes up quite often during my discussions with early-stage technology CEOs here in Atlanta. How do I find seed or angel angel capital in Atlanta so that I can fund my high-tech widget or software company?
Raising money is rarely easy. It is even harder in Atlanta. The good news is that software/IT is a sector in which Atlanta is very strong. There are a lot of people in this city that get information technology.
Whenever the “panels” and “luminaries” are asked this question, they usually throw out the two stock answers: the 3F’s and Sig Mosley. The 3F’s being friends, family, and fools, and Sig Mosley being the unwitting godfather of early-stage technology investing in Atlanta.
What they fail to tell you, however, is how you should actually go about approaching these angels, and in what order.
For the purposes of this discussion, I’m using the phrase “seed” capital to generally refer to the cash it takes to get a prototype together, and “angel” capital to refer to the cash it takes to get the sales process going and begin building the business. There is obviously some crossover, and nothing is ever black and white in venture.
Your Own Backyard
If you are personally sitting on a pile of cash, the answer here is obvious. However, that isn’t a luxury for most young entrepreneurs. I do see this quite a bit, though, with older first-time entrepreneurs (i.e. the person who took the package from the corporate exit.) In any event, if you don’t have tons of cash lying around, don’t despair. Hopefully, the reason you are an entrepreneur to begin with is because you are resourceful, innovative, and can think out of the box.
Do you have equity in your home? If you hve a home equity line of credit with a checkbook, this gets even easier - no need to even go to the bank and get a home equity loan, just start writing checks off your house. If you are contemplating buying a new home, make sure you work with your lender to establish a home equity line of credit up front - I hear they can be more difficult to establish once you’ve already bought the house.
Do you have stuff you can (and are willing to) sell? Seriously. I know one guy who sold his collection of baseball cards to finance his business. That 1952 Mickey Mantle rookie card looks great up on the wall in the shadow box, but if it can put $250K+ into your business, it may start to look better on someone else’s wall.
Can you find a soul mate? If you are a young technology type, it may make sense to find your better half in an experienced CEO who can also fund your deal. There are plenty of these types of folks wandering around Atlanta right now. And many of them are looking for young bucks with bright ideas.
Can you bootstrap the business with initial sales? I see this a lot when the entrepreneur is a hands-on technical person. They pay $0 for software development, and can build the prototype on their own, and just start bootstrapping the business with those first sales.
I have some other bootstrapping tips here.
Friends, Family, & Fools
Everyone likes to think that they have lots and lots of friends. You really see who your friends are when you are trying to shake them down for cash. In the end, most of them will let you down. But that’s ok.
The next stop should definitely be your friends and family. Don’t get discouraged if they (a) don’t have the capital to invest in your venture, (b) refuse to do it because they don’t believe in your abilities or your idea, or (c) are simply scared of venturing forth into the unknown. This is the low-hanging fruit - if you can scrape up a few seed dollars from your friends and family, do it - and move on to the next group (the fools.)
My advice here? Don’t just show up on their door step and be completely half-assed prepared. Put together a presentation, demo, one-pager, etc. and walk them through it. Show them that you’re serious. At this stage, don’t waste time with a business plan, though. You’ll spend more time on that than you will in building the actual product or business. Just do a 1-3 page executive summary and a 10-15 slide presentation and go with it.
High-Net Worth Individuals
These people aren’t “literally” fools - they didn’t get to become high-net worth individuals by making silly decisions. Rather, they are fools in the figurative sense (”anyone investing money in Jimmy’s new venture is surely a fool.”)
How do you find these individuals? For most young entrepreneurs, it isn’t easy, as they have not yet amassed a large professional network against which to tap. In any event, the only way to really get to these individuals is through good old fashioned networking. Get out to every local professional event you can find. Throw out your pitch to anyone who will listen, and start following up. Soon, you’ll have built a pretty sizable list of contacts that you can leverage to try and raise the cash you need.
If you are here in Atlanta, there are networking events almost every night (MIT Enterprise Forum, Technology Association of Georgia, TechLINKS, etc.) But be aware that most of these events are rife with service providers, many of whom are not angel candidates (although there is the occasional exception.) For many reasons I prefer our Capital Connections event (via StartupLounge.com), which is free of service providers (by design.)
I should also point out that if you are just randomly trying to pitch to people, you are probably not going to secure funding (unless you’ve managed to cobble up the cure for cancer in your basement.) Target your search! For example, if your idea involves a software product that solves a big problem for insurance agents, go hang out with insurance agents. Find out where they have their events and go. Don’t waste your time at the big free-for-all networking events. This is perhaps one of the biggest reasons that people fail to meet angel investors, despite trying their best to network.
Oh, and don’t bother trying to find an angel at events that cater solely to entrepreneurs. They likely aren’t there.
You should also befriend the CEOs of other startup companies. Find out who their angels were, and establish a relationship with them. One angel can often lead to introductions to 5 or 10 others … always ask for a referral!
I would recommend pitching to at least 5 or 10 qualified, individual angels before moving to the next step. Ideally, you will begin to get some traction/interest from some of them.
Atlanta Technology Angels
The ATA is a membership organization comprised of high-net worth individuals. They meet once a month, and have a few companies come in and pitch to the group. That’s the good news. The bad news is that since they only allow a couple of companies to pitch each month, coupled with the fact that a good bit of their deal flow comes from the ATDC and/or Georgia Tech (simply due to proximity), your chances of getting selected to participate are probably mathematically lower.
Also, they are an “angel group” - a bunch of angels that pool their funds together - this buying power can lead lead to a skewing towards where a traditional venture firm would invest (the ATA doesn’t invest in great ideas alone, although they do look at pre-or-early revenue prototype companies.) This is a macro venture trend that has been documented by plenty of other folks.
Also of note is the fact that according to their portfolio page, they only make a few investments per year - so keep that in mind. Of course, this doesn’t mean that a single individual member couldn’t invest on his/her own.
I recently attended one of their meetings, and shared some of my thoughts here.
The Communications Group
Attorney Martin Tilson runs a group called the Communications Group. Martin used to be with Kilpatrick Stockton, but is now with Burr & Forman. The group meets monthly and they have 2-3 entrepreneurs come in to pitch. This group has been around a long time, and as a result, the members skew to the “wizened” end of the age spectrum (fancy way of saying “populated by a bunch of grey-haired guys”.) Nothing wrong with that, just keep it in mind. They will likely get more excited about traditional types of companies such as telecom, enterprise software, and hardware.
Unlike the ATA, this group doesn’t invest as a group - but rather each member is free to follow up with the entrepreneur on their own. Note: the audience will range from high-net worth individuals to traditional venture-capitalists, and everything in between. Keep that in mind - many of those investors may not necessarily be looking for a true angel-level opportunity, but rather, something later stage.
My advice? Don’t pitch this group with cleantech, online communities, Web 2.0, social networks, and plays in other emerging industries, but if you have a more conventional play, give them a look.
Sig Mosley/Imlay Investments
Sig is a nice, unassuming type of guy. I don’t know him all that well, but I’ve met him several times. I’ve pitched to him before as well. Sig has a very strong reputation here in Atlanta. He’s made some good picks over the years and as a result, many others here often use Sig as an investment “compass.”
Many angels, VCs, attorneys, and accountants here in Atlanta, when approached by an entrepreneur seeking to raise outside capital, will simply ask “have you pitched to Sig yet?” If you have indeed pitched to Sig, and he passed on your deal (or didn’t get all excited about it,) the effort required to convince those other investors to take you seriously just went way up.
My advice? Pitch Sig last - not first. Maybe I’ve just coined a new buzzword here: “Sig’d: the tainting of the pool of local investors that occurs when you prematurely pitch your deal to the biggest angel in town only to have him pass on it.”
I would provide a link to the Imlay Investments web site, but they don’t have one (even though they own “imlay.net”, which they use for email.) Yes - the biggest early-stage technology investor in Atlanta doesn’t even have a web site. I’ll leave you to ponder the meaning and impact of that on your own. Sig/Imlay has had a ton of successes over the years. A web site promoting those successes would go a long way towards putting a spotlight on the good deals that have gotten done here. My two cents.
Note: You may run into Sig at either the ATA or Communications Group meetings. So you may end up pitching to him without realizing it. FWiW. I would still recommend pitching to these groups as a whole first.
Capital Brokers
I define a “capital broker” as simply “a person who charges you a fee to find capital.” There are a ton of these folks out there. I am not a fan of this model, for reasons I’ve written about in the past (and ranted on in our podcast.) Entrepreneurs shouldn’t have to pay to find capital. Period. This is a sign of an unhealthy market for early-stage capital.
And how much do these brokers charge? They vary, but I know some that want a piece of your company (5-8%), a finder’s fee (5-8%), and a monthly retainer fee ($3-5K.) Nonsense.
This type of service is typically used by uninitiated entrepreneurs or those who have explored every other option and have come up empty. My advice? Use these groups as a last resort, or hopefully, never at all. If you are struggling to find capital, perhaps your idea really does stink. Or, perhaps you just need a tune-up or makeover on your presentation. Ask someone for help, but please don’t perpetuate the problem by paying through the nose for it.
Pay-to-Pitch Groups
Another model I don’t particularly care for are the models where someone charges an entrepreneur to put them in a room full of alleged angels. See above. An entrepreneur should not have to pay to pitch their deal. Period. Again, last resort, or never at all. In a healthy market, these types of entities are out of business. Sadly, in Atlanta, they’ve been able to carvee out a place for themselves.
Note: I was having a conversation recently with a non-Georgia VC who actually laughed when I told him about the proliferation of capital brokers and pay-to-pitch outfits here. He thought I was joking. Then he realized I was serious, and just shook his head in disbelief.
Traditional Venture Capital Firms
Noro-Moseley, H.I.G., Kinetic Ventures, EGL, etc. Don’t bother - they aren’t interested in making seed or angel investments, nor should they be. However, I would encourage you to make these connections and begin building those relationships for later use. You may occasionally find a venture capitalist that is an individual angel, or perhaps one that will become emotionally attached to you or your deal, and refer you to an angel. But by and large, it isn’t going to be worth your time (or theirs) to try and sell them on your seed/angel-level deal.
The “Optimum” Order
YOU!, friends, family, high-net worth individuals, ATA, Sig Mosley. Communications Group, capital brokers, pay-to-pitch. If all else fails, you could also consider debt financing. If after all of this, you still don’t have any interest, it could very well be that your idea stinks. Been known to happen. It could also be that your idea is tracking a few years ahead of the innovation curve here in the Southeast. Been known to happen as well.
Hope this helps those of you seeking to raise seed or angel capital for your new venture. If you have a question, I’m happy to try and answer it (or find someone who can answer it for you.) Or, you can post it in the forums over at StartupLounge.com. Good luck!
Cheers.
Scott
