How to catch the eye of a Nebraska Angel
Scaring up money for a business is never easy. Family members and trusted friends might be able to help out early on, but entrepreneurs with big dreams often need big money to turn those dreams into reality. That’s where the Nebraska Angels come into play.
“Bootstraps can only get you so far, and then there is this huge area of maybe a couple of hundred thousand to a million or $1.5 million that’s that next level of investors,” said Randy G. Nitz, executive director of the Nebraska Angels. “Venture capital won’t move down into the area under $2 million and in many cases under $5 million of an investment.”
That area between $100,000 and $2 million is where the Nebraska Angels dare to tread. The Nebraska Angels isn’t a single fund; instead it’s a non-profit mutual benefit corporation designed to share information with the individual angel investors who comprise the group as a whole. In other words, though the members of the group collaborate in due diligence in an attempt to minimize the inherently risky business of angel investing, members invest in companies as individuals and not on behalf of the Nebraska Angels.
Any entrepreneur who has been through the process of courting investment from angels has learned the hard way that attracting their attention isn’t easy. As states go, Nebraska doesn’t have a lot of angel investors, and those that do exist aren’t there for charity. There is a lot of competition for the Nebraska Angels’ dollars.
“We have deals that are coming into us from entrepreneurs all across the country,” Nitz said. “We are more inclined to invest in Nebraska-based deals because that’s why we exist, but at the same time we will look at deals in the region.”
Any entrepreneur who wants Nebraska Angels backing first needs to impress the Angels’ seven-member screening committee. If the entrepreneur impresses the committee, he’ll then be invited to a dinner meeting where he will get to pitch his business idea to the Nebraska Angels’ full membership.
“We’re constantly doing that screening process,” Nitz said. “The screening committee is meeting twice a month and the members are coming in and seeing either one or two deals pitched to them at once a month dinner meetings.”
The Nebraska Angels were founded five years ago and have invested in roughly two companies a year ever since. Companies that have received funding from the Nebraska Angels include Lincoln-based MRail and Virtual Incision and Omaha-based SkyVu Entertainment. The group last invested in Wichita, Kan.-based startup Nitride Solutions in July 2011. Nitride Solutions plans to produce aluminum nitrite substrates for use in manufacturing commercial and consumer electronics. The Nebraska Angels coordinated with two other angel investment groups to raise $1.8 million for the deal.
So how can Nebraska’s aspiring entrepreneurs impress the Angels and get an opportunity to raise that kind of money for their own companies?
“In my opinion,” Nitz said, “it’s very much about the entrepreneur and the management team that the entrepreneur has been able to put together.”
An entrepreneur’s attitude and the way he presents himself and his team in front of the angels is almost as important as the idea he has. The name of the game is confidence and competence, as in, can an entrepreneur inspire an angel’s confidence in his or her competence?
Tim Berry, an author and entrepreneur who has been recognized by both Business Week and The New York Times as one of the top entrepreneurs to follow on Twitter, has a video that gives advice on how to pitch angel investors linked to the Nebraska Angels’ website. He refers to pitching to angel investors as “show business,” saying aspiring entrepreneurs need to leave their bullet points, frumpy graphs and charts at home. If entrepreneurs want to catch an angel’s eye, they need to “sizzle.”
Berry’s video is one of nine different tabs in the Entrepreneur FAQ drop-down box on the Nebraska Angels’ home page. The drop-down box has all sorts of tips and advice for entrepreneurs who hope to garner angel investment. It’s a good place to start for entrepreneurs who’ve never been through the process before.
“The Nebraska Angels website really does lay down a good checklist of things you need to bring to the table,” Sky Vu Entertainment President and co-founder Benjamin Vu said.
A great stage presence and a well-organized pitch is a must for entrepreneurs trying to attract angel capital, but most important of all, according to Nitz, is taking care of all the tedious work and details in advance so that when an entrepreneur is pitching, he knows all of the important details that could make or break the presentation. A dream cooked up one night in a coffee shop and written on the back of a napkin just isn’t going to cut it. Entrepreneurs need to show more if they expect to draw the eyes of angels.
“They really need to do their homework and think through their business model,” Nitz said. “You’ve got to have a well thought-out business model; you’ve got to be going into a market that shows some opportunity for you to get a small percent of that big market. A niche is OK if you can grab that niche, (but) you’ve got to have a business plan that makes some sense. You’ve got to have some idea of the financials and you need to be able to prove to the investors that what you’re going to do with their money will build the value you say it will.”
While a couple of million dollars in investment money never hurt anybody, for those who make the cut and get the support of the Nebraska Angels there’s a lot more than money that comes along with it. The connections that angels can provide combined with the experience that they bring to the table is almost as important as the capital they invest in the company.
“What the Angels bring to the table is decades upon decades of business building experience. A lot of those traditional skills underlie everything we do in the media business. It’s paid off in so many ways,” Vu said.
Angel investors are typically less predatory than regular venture capitalists. Accepting funding on the scale of hundreds of thousands to millions of dollars is inevitably going to mean giving up some control of the company, but angels are generally not trying to take over the businesses they invest in. Angel investors usually look for a scenario where they can eventually exit the business and take nice chunk of cash with them.
According to Nitz, the Nebraska Angels are ready to invest again. The group’s members are just waiting for the right opportunity to invest in another promising Nebraska startup.
“We’re out there working hard to get companies to apply,” Nitz said. “Our investors are all about trying to fund and help grow Nebraska-based companies.”