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We would suggest the entrepreneur approach the question of valuation from a balance standpoint. Too low a valuation and the entrepreneur may risk being unfair to her/his self by giving away too much of the company. Additionally, significant founder dilution after multiple successive lower valuation rounds, may result in the entrepreneur having too little skin in the game for late investors to want to “join the party”. You don’t want to fizzle out due to a lack of investor interest because of their belief that the key parties, (the founders) are not incentivized. On the other hand, high unreasonable valuations are likely to cause many investors to just ignore the opportunity. It reveals a naive entrepreneur, one who may not possess the experience to execute. If the investors are naive and invest at too high a valuation, the next round may be a down round, which may result in the initial investors becoming unhappy investors in the intermediate term.
The differences between incubators and accelerators have blurred in recent years as both provide mentoring and support services. However, in general, incubators provide reduced cost or free office space to startups and provide focused training and connections to mentoring. Accelerators, on the other hand, provide comprehensive programs to support the entire team in their journey to develop a prototype, validate the market, grow the team and establish the infrastructure upon which the startup will grow. These programs typically take an intensive effort from the founders and mentors from the accelerator over a 12-16 week period.

A few do. However, it is generally the exception as most angel groups are seeking companies that are beyond the concept stage. Typically, angel groups are looking for experienced management teams with concepts that have been validated in the market. Consider screening the angel groups to determine if they are interested in concept plays. If they are, it will be indicated on their website. You might also consider applying for an accelerator program. Accelerators are designed to grow seedling concepts and will support your efforts to succeed. Here again, we would suggest you do your homework and identify which accelerators are the best mutual fit to increase your probability of acceptance.

As a policy, we do not endorse accelerators.  However, the reality is that like anything else, there are accelerator companies that are not so good and those that are great.  The trick is doing your homework in an effort to understand what the different accelerators offer and if their offering is a match to your needs.  Accelerator Options, a TurboFunderSM   tool, can help you with this task and potentially reduce your research time and effort significantly as it identifies accelerator companies which have been ranked highly in independent studies over the past few years.

Angel groups typically desire to invest their monies into scalable opportunities which also bring a transaction event allowing them to cash out in 3-5 years. Family lifestyle businesses don’t generally facilitate either of these actions.

The numbers vary but as an order of magnitude, for every 100 opportunities submitted to angel groups, 15-20 are screened by the screening teams with 4-6 accepted for presentation to the members. Due diligence and term sheet negotiations reduce those further to 2-4 opportunities which actually receive an investment. The best path for the entrepreneur is to use the “rifle approach” as opposed to the “shotgun approach”. Entrepreneurs may be best served to do their own due diligence and submit only to angel groups to which their opportunity is a match with the groups’ criteria.

The investors actively participate in networks, supporting the identification, screening and due diligence of opportunities and generally make their own independent investment decisions related to each project. Investors are less active in funds where the identification, screening and due diligence, as well as investment decisions are made by a small group and the monies the investor committed to the angel fund is invested on their behalf by this group. Investment into a fund results in the investor participating in all investments of the fund.

Most angel groups list their investment criteria on their website. If you are a startup company in Miami and the midwestern angel group indicates they invest only in companies from within the Midwest, you are likely wasting your time submitting your opportunity for consideration. It is important to carefully review the criteria of each angel group to determine if there is a mutual fit. By doing so, you can focus your submissions toward angel groups which might have a legitimate interest.

Most startups with submissions to angel groups simply do not meet the criteria of the group. Had the entrepreneur done their homework up front, they would have known this in most cases. Regardless, numerous opportunities cross over the desks of these angel groups. They simply don’t have the time to respond in detail to all of those submitted which are not a good fit.

Following are six lessons I’ve learned from mistakes in previous ventures over time:

  1. Product market fit is to the startup what location is to real estate.
  2. A team of passionate, coachable “villagers” is required to to scale a startup.
  3. Ideas are worthless without execution.
  4. Seek balance in your valuation and terms, not perfection.
  5. Select your co-founders carefully; make sure you are diverse in culture, background and experience and compatible in objective.
  6. Keep thou Balance Sheet clean!
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