Friday January 12, 2018 0 comments
By Steve Porter
FORT COLLINS – Pioneer angel investor DuWayne Peterson doesn’t worry too much about the startup companies he’s invested in over the years.
That’s because Peterson, co-founder of the Pasadena Angels – one of the nation’s first and most successful angel investment groups – knows they won’t all pay off big.
But some will, and that’s the main thing for an angel investor, Peterson told an audience at the Innosphere tech incubator in Fort Collins on Thursday.
“I’ve invested in 42 startups, 11 of which had positive exits that tripled my money,” Peterson said.
Bottom line: Successful angel investors know they are taking a risk with their own money, but with proper due diligence they can back enough big winners to not worry about those that flush out.
Peterson explained that angel investors are “accredited,” meaning they have a net worth of at least $1 million or an annual salary of at least $200,000.
So why do they invest in risky, unproven startups? Of course, potentially doubling or tripling their investment -- or better -- is one pretty sweet reason.
But Peterson said there are usually other impulses.
“We’re here to support entrepreneurism,” he said. “You want to help your local community, and you can diversify your investment portfolio.”
But such investment should not be done lightly, he noted.
“This is scary stuff, and you really have to know what you’re doing,” he said.
Peterson said entrepreneurs in search of funding -- after they’ve tapped their families, friends and their own savings -- can turn to angel investors to try to get that initial outside seed money to set their business wheels in motion.
To improve their chances of scoring some angel money, Peterson said entrepreneurs must have a fast, to-the-point ‘elevator pitch.’
“Angels have a very short attention span,” he said. “You’ve got to have a lot of sizzle from the very beginning to get things going.”
And that elevator pitch should quickly focus on what problem the entrepreneur’s product or service will solve.
“The first thing is you’re solving a problem,” said Peterson. “Without a validated problem and a market need, you have nothing.”
Then there’s approaching an angel investor with a reasonable estimate of the long-term value of the business. That will likely involve a bit of compromise, Peterson noted.
“Every entrepreneur has an inflated view of their (business) value, and every investor usually has just the opposite idea,” he said.
Another essential element when approaching an angel investor is to have a dynamic, well-oiled team assembled.
“You need a strong executive team,” Peterson said. “The key to the whole thing is execution.”
Peterson said some angel investors invest on their own instincts, others join investment clubs and still others simply invest in a managed fund.
For those who like to call their own investment shots like Peterson, finding good startup companies is like mining for diamonds.
“I probably went to 300 to 400 presentations to make my 42 investments,” he said. “But I love serial entrepreneurs, people who are coachable and people I just like.
“Angel investing is really a lot of fun, and you’re constantly hearing about new things.”
Peterson offered advice for potential angel investors:
- Take it slow
- Learn as much as you can about the company
- Look for an experienced mentor
- If you can’t do the due diligence, consider joining a fund
For entrepreneurs seeking angel seed money, he offered this advice:
- Network with local angel groups
- Determine the kinds of investments they’ve made
- Talk to the companies they’ve already invested in
- Practice, practice, practice your pitch
Thursday’s Innovation After Hours theme was “Access to Capital,” and Mike Freeman, Innosphere CEO, said finding money to transform a business idea into reality is a top priority.
“Of all the things we do at the Innosphere, the thing most people ask is how do we raise money,” he said.
Freeman said Innosphere is actively working to establish investment funds and opportunities, an effort that got traction in 2017 and that will be a focus for the tech incubator in 2018.
“The big push for this year is to create the Innosphere Investor Network,” he said.
The Network already has 150 investors, partnering with established investment groups such as Rockies Venture Club, and holding 12 investor events across the Front Range in 2017.
“Our focus for 2018 is to expand on what worked last year, and that’s to partner and leverage with investor groups,” Freeman said.
One new effort, called Business Angels, will offer pitch events that bring together corporate partners with relevant startups.
“We’re pretty confident we can add about 100 new investors from that,” Freeman said.