Days later you waited patiently by the phone for a follow-up call, but the phone didn’t ring. You checked your e-mail, your instant messenger, and your text messages – nothing. The days soon turned into weeks and somehow you never heard a peep from those highly interested private angel investors.

What went wrong?

The short answer is that nothing went wrong – that’s the way private angel investors work. You see, private angel investors speak a very different language that most entrepreneurs have a hard time translating. They tell entrepreneurs that they are excited about a business opportunity which entrepreneurs of course take to mean they are ready to invest.

What they really mean is that they have no interest in investing in your company, but they want to leave the relationship on a positive note in case they ever change their mind. It’s like going on a date in high school with someone and not officially telling them you’re not interested – just in case one day they turn into Brad Pitt or Angelina Jolie.

Why Private Angel Investors Can’t Say “NO” Directly

The truth is that private angel investors can’t afford to say “no” to any opportunity in a direct manner. Most opportunities that pass through their door might sound terrible today, but tomorrow they could be the next MySpace or Google. Smart private angel investors know that there’s no value in ruining a relationship with an entrepreneur just because the deal doesn’t make sense today.

This is of course completely maddening to the entrepreneur. In life we’re used to hearing “no” when someone means “no”. To make matters worse, entrepreneurs are so excited to get their deals funded that they often perceive anything that isn’t a “heck no” to mean “yes.”

The Art of the “LONG NO”

Private angel investors have made what I call the “long no” into an art form. They’ve found dozens of ways to avoid saying “no” while meaning “no way”. The result is a long, roundabout way to tell you “no” without actually saying it. To help you understand this process a little bit more, let me give you some examples of what the “long no” sounds like.

The “long no” often involves some iteration of the phrase “interesting.” You’ll hear something like “sounds interesting” or “this could be real interesting” which of course sounds like a positive response. In reality, it’s the equivalent of describing your not-so-attractive date as having “a really good personality.” You don’t want to offend them, but you don’t want to tell them what you really think either.

Although it may sound counter-intuitive, you don’t want to be “interesting.” You want to be invested in, which means you need to get as quickly past “sounds interesting” as possible and get right on to “we really want to get this deal done today.”

You’ll also get a fair amount of “let us think about it” or “let us get back to you.” These are also telltale signs of the “long no”. Private angel investors run across very few deals that are exciting enough to invest in, so you can imagine the ones that they like get their immediate attention. They didn’t forget to call you back – they are just ignoring you.

Entrepreneurs often think of pitch meetings with private angel investors they way they think about sales meetings with customers. Sales meetings usually involve follow-ups with an eventual close after the decision-maker has had time to decide.

Private angel investors on the other hand are more likely to have made their decision before you even walk out of the room, whether they express it or not. Therefore you can imagine if they are not following back up with you right away, your deal probably isn’t going to get done.

The Answer Is NO Until the Check Clears

Instead of driving yourself crazy listening to private angel investor double-speak and corporate euphemisms, perhaps you should try this piece of advice – assume the answer is “no” until the private angel investor’s check clears.

That may sound overly pessimistic but you’ll probably find after spending enough time with private angel investors that’s it’s a far more pragmatic approach. It’s typical for an entrepreneur to spend 6 – 9 months trying to raise capital (if they raise any at all) and most of this time is spent being misled by private angel investor reactions.

Assume everything an private angel investor says that doesn’t involve writing a check is as good as hearing the word “no”. Even if you are fortunate enough to get into the nitty gritty of a deal where you begin to talk through specific deal terms don’t assume the answer is “yes”. Assume the answer is absolutely “no” until the private angel investor has written the check and handed it to you. And then assume its “no” until it clears.

Author: Will Schroter
Article Source: EzineArticles.com
Provided by: Make PCB Assembly

Venture capital firms have hardly been exempt from the demolition derby known as our economy the last few years. Mergers and failures have happened and they will continue. This is because venture capital firms are looking for funding from investors to fund, well, your business. 2009 was a year when even a great idea like Google would have been hard pressed to get a cash infusion. Credit markets are tied up and banks aren’t loaning a red penny.

Unfortunately, 2010 appears like it will be more of the same. The credit markets will have to loosen up at some point, but most believe it will be later in the year if not in to 2011. The concerns about housing and employment that are making financial markets nervous are not going away. Real estate looks particularly troubling as any momentum in residential will be threatened when the first-time homebuyers tax credit expires in the second quarter. At the same time, the commercial real estate market is going from bad to worse. With even the most optimistic expecting unemployment to remain a major issue through the year, 2010 is shaping up to be tough. I hope I am wrong, but venture capital will be impacted by what happens regardless.

The good news is all venture capital firms want to invest. This is because investing in startups and small businesses is what they do. The only question is if they will have the funds to do so. Some will. The key is to find them. This must be done by finding the venture capitalist that is in harmony with your business.

Your first step is to research, research and research. You want to approach only firms and angels that have shown a keen interest in the exact niche you are mining. You might have the greatest smart phone program in the world, but approaching a VC fund that is interested in hardware technologies isn’t gong to get you anywhere. Be as specific as you can because “worried money” is going to stick to what it knows.

If you have a successful history with investors, emphasize that. Everyone is very risk sensitive. If you’ve shown you’re a successful bet in the past, make sure that those you are approaching are full aware of that. This is one market where what you’ve done lately is almost matched by what you did in the past.

Finally, consider cutting your program back and funding amount requested. This is a tough market. There is not a lot of optimism. Asking for smaller funding amounts is, again, a method for limiting the risk that is being faced by the venture capital fund and its investors. You can then map out a plan where things speed up in two to three years when markets are positive and funding is much more readily available.

I would love to tell you things will be wonderful in the venture capital market in 2010. Maybe the will, but I really doubt it. That doesn’t mean you can’t get funding. It is just going to be more of a challenge.

Author: Thomas Ajava
Article Source: EzineArticles.com
Provided by: Make PCB Assembly

photo credit: oneVillage Initiative

If you are an entrepreneur with a small technology based company looking to take it to the next level, this article should be of particular interest to you. Your natural inclination may be to seek venture capital or private equity to fund your growth. According to Jim Casparie, founder and CEO of the Venture Alliance, the odds of getting Venture funding remain below 3%. Given those odds, the six to nine month process, the heavy, often punishing valuations, the expense of the process, this might not be the best path for you to take. We have created a hybrid M&A model designed to bring the appropriate capital resources to you entrepreneurs. It allows the entrepreneur to bring in smart money and to maintain control. We have taken the experiences of several technology entrepreneurs and combined that with our traditional investment banker Merger and Acquisition approach and crafted a model that both large industry players and the high tech business owners are embracing.

Our experiences in the technology space led us to the conclusion that new product introductions were most efficiently and cost effectively the purview of the smaller, nimble, low overhead companies and not the technology giants. Most of the recent blockbuster products have been the result of an entrepreneurial effort from an early stage company bootstrapping its growth in a very cost conscious lean environment. The big companies, with all their seeming advantages experienced a high failure rate in new product introductions and the losses resulting from this art of capturing the next hot technology were substantial. Don’t get us wrong. There were hundreds of failures from the start-ups as well. However, the failure for the edgy little start-up resulted in losses in the $1 – $5 million range. The same result from an industry giant was often in the $100 million to $250 million range.

For every Google, Ebay, or Salesforce.com, there are literally hundreds of companies that either flame out or never reach a critical mass beyond a loyal early adapter market. It seems like the mentality of these smaller business owners is, using the example of the popular TV show, Deal or No Deal, to hold out for the $1 million briefcase. What about that logical contestant that objectively weighs the facts and the odds and cashes out for $280,000?

As we discussed the dynamics of this market, we were drawn to a merger and acquisition model commonly used by technology bell weather, Cisco Systems, that we felt could also be applied to a broad cross section of companies in the high tech niche. Cisco Systems is a serial acquirer of companies. They do a tremendous amount of R&D and organic product development. They recognize, however, that they cannot possibly capture all the new developments in this rapidly changing field through internal development alone.

Cisco seeks out investments in promising, small, technology companies and this approach has been a key element in their market dominance. They bring what we refer to as smart money to the high tech entrepreneur. They purchase a minority stake in the early stage company with a call option on acquiring the remainder at a later date with an agreed-upon valuation multiple. This structure is a brilliantly elegant method to dramatically enhance the risk reward profile of new product introduction. Here is why:

For the Entrepreneur: (Just substitute in your technology industry giant’s name that is in your category for Cisco below)

1. The involvement of Cisco – resources, market presence, brand, distribution capability is a self fulfilling prophecy to your product’s success.

2. For the same level of dilution that an entrepreneur would get from a VC, angel investor or private equity group, the entrepreneur gets the performance leverage of “smart money.” See #1.

3. The entrepreneur gets to grow his business with Cisco’s support at a far more rapid pace than he could alone. He is more likely to establish the critical mass needed for market leadership within his industry’s brief window of opportunity.

4. He gets an exit strategy with an established valuation metric while the buyer helps him make his exit much more lucrative.

5. As an old Wharton professor used to ask, “What would you rather have, all of a grape or part of a watermelon?” That sums it up pretty well. The involvement of Cisco gives the product a much better probability of growing significantly. The entrepreneur will own a meaningful portion of a far bigger asset.

For the Large Company Investor:

1. Create access to a large funnel of developing technology and products.

2. Creates a very nimble, market sensitive, product development or R&D arm.

3. Minor resource allocation to the autonomous operator during his “skunk works” market proving development stage.

4. Diversify their product development portfolio – because this approach provides for a relatively small investment in a greater number of opportunities fueled by the entrepreneurial spirit, they greatly improve the probability of creating a winner.

5. By investing early and getting an equity position in a small company and favorable valuation metrics on the call option, they pay a fraction of the market price to what they would have to pay if they acquired the company once the product had proven successful.

Let’s use two hypothetical companies to demonstrate this model, Big Green Technologies, and Mobile CRM Systems. Big Green Technologies utilized this model successfully with their investment in Mobile CRM Systems. Big Green Technologies acquired a 25% equity stake in Mobile CRM Systems in 1999 for $4 million. While allowing this entrepreneurial firm to operate autonomously, they backed them with leverage and a modest level of capital resources. Sales exploded and Big Green Technologies exercised their call option on the remaining 75% equity in Mobile CRM Systems in 2004 for $224 million. Sales for Mobile CRM Systems were projected to hit $420 million in 2005.

Given today’s valuation metrics for a company with Mobile CRM Systems’ growth rate and profitability, their market cap is about $1.26 Billion, or 3 times trailing 12 months revenue. Big Green Technologies invested $5 million initially, gave them access to their leverage, and exercised their call option for $224 million. Their effective acquisition price totaling $229 million represents an 82% discount to Mobile CRM Systems’ 2005 market cap.

Big Green Technologies is reaping additional benefits. This acquisition was the catalyst for several additional investments in the mobile computing and content end of the tech industry. These acquisitions have transformed Big Green Technologies from a low growth legacy provider into a Wall Street standout with a growing stable of high margin, high growth brands.

Big Green Technologies’ profits have tripled in four years and the stock price has doubled since 2000, far outpacing the tech industry average. This success has triggered the aggressive introduction of new products and new markets. Not bad for a $5 million bet on a new product in 1999. Wait, let’s not forget about our entrepreneur. His total proceeds of $229 million are a fantastic 5- year result for a little company with 1999 sales of under $20 million.

MidMarket Capital has borrowed this model combining the Cisco hybrid acquisition experience with our investment banking experience to offer this unique Investment Banking service. MMC can either represent the small entrepreneurial firm looking for the “smart money” investment with the appropriate growth partner or the large industry player looking to enhance their new product strategy with this creative approach. This model has successfully served the technology industry through periods of outstanding growth and market value creation. Many of the same dynamics are present today in the high tech industry and these same transaction strutctures can be similarly employed to create value.

Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of privately held businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

photo credit: Mdrewe

Nowadays entrepreneurial ventures are constantly making headlines and featuring on television shows both in the US and abroad, which is pushing more and more people to make that change and start their own business. Some use their previous experience to provide a refined version of an existing business model that they believe can be improved, while some people lean towards the innovative side with a new idea or concept they’ve come up with.

While their ideas may cover a vast range of areas, there tends to be one thing that they all have in common: the entrepreneur is ready, but all he/she needs is capital (whether it is thousands or hundreds of thousands) in order to get their new idea off the ground. The next obstacle is being discovered in the first place, and this is where the concept of “angel investment” comes into play.

With little or no capital, let alone an established brand name, most entrepreneurs cannot get their company approved for loans, as they have no credit record or financial history. In this case, the most common sources of funding are individual investors, known as “business angels” or “angel investors”. They are high-net-worth individuals, who will invest seed capital in your company in exchange for equity in the company and a percentage of the company’s profit.

It is up to you the entrepreneur to decide whether he/she wants them to act as a silent partner or play an active role in the running of the company. Most will offer the investor an active role, as one of the additional advantages of obtaining funding via angel investors is that they bring their experience and know-how to the partnership as well as their money.

Many of the biggest start-ups in the online world (such as Amazon and Google) started up from angel investment, but even offline companies, such as the Body Shop and Starbucks were all started thanks to the help of angel investors.

Nowadays, thanks to technology, you don’t even have to live in one of the major cities in order to generate interest from potential investors. Communities such as the Midwest Investment Network provide a platform for entrepreneurs to find capital and for investors to find investment opportunities. This particular network operates in the Midwest US states (Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin) but is also part of a national and international network. Most of the communication is done online which gives investors the chance to invest in US or foreign businesses and allows entrepreneurs to raise funding not just in the US but internationally.

Mike Lebus works with entrepreneurs seeking investments, via the Angel Investment Network, which has since expanded into a worldwide network of websites that help angel investors connect to business entrepreneurs around the world.