I Was Denied Angel Investor Funding:

Now What?

Why I Wrote This Guide

I am the Client Services Manager at a technology-based business incubator in Indiana. I focus my attention on a number of common startup phase issues including:

• Business Planning• Raising Capital through Loans and Equity Investments• Business Strategy Development• Grant Writing Assistance

Through my time working with entrepreneurs, one of thebiggest common issues I have noticed is lack of access tostartup capital. It is no surprise that most small businessowners need capital, but it was surprising how difficult it canbe to secure this funding. According to the Angel CapitalEducation Foundation (ACEF) only 25% of angel investmentapplicants even make it past the initial pre-screeninground. I realized that I could write a guide on how to secureangel investment capital, but the overwhelming majority ofsmall business owners will never be qualified for angelinvestment. For this reason, I decided to write a guide forthe 95% of entrepreneurs that have been denied angelinvestment. What can you do now? Well I believe thefollowing guide provides some excellent, concrete steps forentrepreneurs to take after being denied funding.

I have provided this guide for free to the world through myblog/website www.theexecutiveplan.com. My blog is simplya hub of resources and tips for entrepreneurs as theynavigate through the difficult startup phase ofbusiness. Make sure to check out the blog for new updatesand feel free to connect with me through email atadam@theexecutiveplan.com. Thanks for taking the time tolearn more about the startup process.

Sincerely,

Adam Hoeksema

Founder - ExecutivePlanwww.theexecutiveplan.com

“According to the

Angel Capital

Education

Foundation (ACEF)

only 25% of angel

investment

applicants even

make it past the

initial pre-

screening round.”

What to do After Being Denied Funding by Angel

Investors

Odds are, if you are reading this, you are one of the thousands of entrepreneurs turneddown by angel investors and venture capitalists each year. Not to worry, you are notalone. According to a report distributed by the Angel Capital Education Foundation(ACEF) only between 1 and 4% of entrepreneurs that apply for angel investmentfunding will make it through the process to secure angel investment.

Just knowing that you are not alone probably doesn’t help too much if you need thiscapital to grow or sustain your business. What steps can you take after your denial tokeep your business alive? Do you really need angel investment? Are you ready for aninvestment right now? What are your options? How can you better prepare yourself fora second attempt at raising capital? These are just a few of the questions that I willattempt to answer in this comprehensive how-to guide.

Step # 1 - Do you Really Need Angel Investment?

The very first question to ask yourself after afailed attempt at raising angel investment is, “DoI really need angel investment?” You may noteven know the answer to this question which iswhy the second step is quite possibly the mostimportant thing you will ever do for yourfledgling business.

Step # 2 - Vision, Strategy, Tactics Plan

As you develop this plan consider the following example.

Let’s say that your vision is to become the world’s premier online retailer of coffee mugs. This is a great vision because it is big, but also specific at the same time.

You will have a number of strategies including:

• Utilizing Google Adwords to attract interested potential buyers to your website• Use search engine optimization to rank high in search engine results for relevant keywords• Collaborate with large coffee wholesalers and retailers to offer your products on their website

So now you have 3 strategies to accomplish your vision, but you will need day-to-day tactics to successfully implement your strategies. For instance, if you are trying to rank high in search results for “coffee mug” you might use the following tactics.

• Write articles about coffee or even coffee mugs• Create a blog and develop a loyal following that will tweet and retweet your blog posts to the masses• Post comments and links to your site on other coffee related blogs or websites

Now take this outline and expand.

To help identify the best type of investment, the amountof investment, and the timing of the investment in yourstartup, go back and develop a vision, strategy, andtactics plan to re-assess your situation. What is yourvision for this business? What handful of strategies areyou utilizing to reach your vision, and what day-to-daytactics are you using to best implement your strategy? Ifyou do this one of two things will happen, you mayrealize you don’t need the extra capital right now toaccomplish your vision, or you will determine what stepsyou need to take to prepare your business for successand a successful capital raising campaign.

Step # 3 - Other Funding Options

After completing a comprehensive vision, strategy,and tactics plan, you may realize that you don’t needangel investment funding to implement yourstrategies at this stage of your business. Believe it ornot there are other investors out there ready andwilling to back your business – your friends andfamily.

Friends and Family: A $60 Billion Investment Opportunity

Before you throw in the towel on your business because you can’t find investors you shouldconsider the following:

According to a report distributed by the Angel Capital Education Foundation#, total startupfunding from venture capital funds, state funds, and angel investors totals approximately $20.8billion annually. Surprisingly, friends and family contributed nearly 3 times the amount ofcapital to thousands of startups each year. With approximately $60 billion in startup fundingcoming from friends and family, entrepreneurs must consider this as an option as they seek tolaunch new businesses.

Money issues between friends and family can ruin relationships. Due to the risk involved withinvesting in a startup, if you are requesting investment from friends and family, be sure toconsider these 5 steps before you begin the capital raising process.

1. Prepare a Pitch - Just because you are requesting investment from your mom or a group ofyour college buddies doesn’t give you an excuse to be unprofessional. Take this opportunityand the potential risk taken by your investor seriously. Do your homework, and prepare aprofessional, persuasive and passionate presentation. You want your friends and family to buyinto your vision, not just hand over some cash because they feel obligated or pressured.

2. Have a Game Plan - When you are seeking angel investment or venture capital investment,you will need a strong business plan, but do you really need a business plan for your friends andfamily? Instead, you might consider a vision, strategy, and tactics plan. You will start bydeveloping a vision for the future of your business, then strategies to reach your vision, andfinally day-to-day tactics to accomplish your strategies. For example, assume that you have avision of becoming the leading online retailer of picture frames. One strategy may be to utilizesearch engine traffic to bring in customers. Finally, you will develop tactics such as buildingquality links to your website through social media and professional article writing to boost yourrankings in the search engines.

3. Have an Exit Strategy - Angel investors and venture capitalists want to know how youintend to grow their investment. They want to know when and how you intend to repaythem, with interest. Your friends and family should be no different. Although you want todisclose the fact that investing in a startup is risky, you should also outline a detailedstrategy for the investor to exit profitably. Maybe you will structure the capital as a highinterest loan, or maybe they will own a percentage of the business and be repaid throughthe profits. No matter the structure, you should have a detailed plan for repayment.

4. Consider Making it Official - Depending on the size of the investment you may considerhiring a lawyer to file the necessary paperwork to make everything official. Obviously thiswill give the investor peace of mind, and it should help you in the future as you seek angelinvestment. Making it official gives you credibility for future rounds ofinvestment. Remember to use judgment though, if your buddy is going to invest $10,000,and the legal fees amount to $2,500, you may want to resort to a firm handshake.

5. Follow Through - Again, investing in a startup is risky, and your friends and familyprobably know that, but they should expect to earn a return on their investment. Don’tview this capital as a gift, instead follow through with what you promised. If things don’tgo exactly as planned, be sure to communicate regularly so that they know what toexpect. If at all possible, follow through. If you fail to deliver as promised, you risk yourentire relationship and your ability to raise capital in the future.

As you seek capital for your startup don’t neglect the $60 billion opportunity representedby friends and family, but tread carefully as you risk something far greater than the failureof your business--your relationships….

Step # 4 - Develop a Killer Elevator Pitch

Because you never know who you mightmeet, you need to have an elevator pitchready to go at all times. The key ispractice! When someone asks you whatyou do they don’t want to be listening toyou rambling 17 minutes later. In oneminute you need to be able to explain theessence of your business.

An elevator pitch is just what it sounds like, if you stepped onto an elevator with a potential investor and knew that you had7 floors before he got off, what would you tell him about yourbusiness? These “elevator opportunities” happen everydaywhen someone asks, “So what do you do?” Obviously notevery person you speak with is a potential investor, so youmight tweak your pitch a little bit, but ultimately you need 200to 300 words that you can recite on command when theopportunity presents itself. Here are a few guidelines as youcreate your elevator pitch:

The Grab - Just like your executive summary needs somethingto immediately grab the attention of the reader, your elevatorpitch should start with a statement that intrigues youraudience. Maybe it is simply the name of a partner, customer,or team member that elicits interest by the name alone.

Big Problem - Creatively and quickly state the problem thatyour company seeks to address. For example, businesses hateto constantly replace the ink cartridge for their printer.

Unique Solution - Explain your unique solution to the bigproblem. Do this quickly. For example, if your companydeveloped a new chemistry based nano-technology inkcartridge, don’t worry about the details of the chemistry,simply explain the results. “You can print twice as much for thesame price as traditional ink cartridges.”

Vision - You explained your solution to the problem you areaddressing, now let them know your vision. Again keep itsimple. For example, “We seek to develop and commercializethe best products in the ink cartridge industry.” Letting youraudience know your vision is vital because they might be ableto help.

Request - Finally you need to request something. Don’t justsay, “nice to meet you.” Maybe you can ask for their businesscard, a time to meet with them again, or an introduction toanother VIP that you would like to network with.

So take these tips, write out an elevator pitch, and thenpractice, practice, practice. Don’t wait to develop your elevatorpitch because you never know when you might bump into theVice President of Hewlett Packard’s Ink Cartridge Division!

“You need 200 to 300 words that you can recite on command when the opportunity presents itself.”

Step # 5 - Generate Revenue

Step # 6 - Get Your House in Order

If you are lucky enough to make it past theprescreening round of the angel investmentprocess, you better be ready for questions – lotsof questions. Make sure you spend some timewith your accountant to get your tax informationand business financial statements in order.

You should also take the time and the smallinvestment to incorporate your business. Angelinvestors are going to expect stock ownership in acompany. Don’t walk in as a sole proprietorasking for angel investment. For $100 you canincorporate your business and set yourself up forfuture investment.

Unless you are a life sciences company developinga drug or a new medical device you need to begenerating revenue before you start to seek angelinvestment. Of course there are exceptions, buttypically an angel investor is going to want someassurance that you can sell even just 1 productbefore they make an investment.

Also according to the Angel Capital EducationFoundation, angels are looking for more than justrevenue they want a scalable business model. Ifyou can’t find a way to create $30 million inrevenue in 5 years you probably are not a good fitfor angel investment.

The executive summary is the first 2 pages of your business plan. This is typically used as aprescreening tool for angel investors. Only 25% of entrepreneurs will make it past theprescreening round so your executive summary is probably the most important 2 pagesyou will ever write! For an extensive guide on How to Write an Executive Summary makesure to visit:

You have 2 pages. Two pages to compel your readers to ask for more. If you aresuccessful, then the reader will absolutely need to dig into your business plan, loanapplication, or funding request to find out more. A successful Executive Summary is somuch more than a summary – in fact, if you are starting with the intent to summarize yourdocument you are setting yourself up for failure.

Step # 7 - Prepare a Powerful Executive Summary

Have you ever walked out of a movie saying,"Wow that was nothing like the moviepreview. I thought it would be muchdifferent."? Clearly the movie preview waseffective because you went to see themovie. A great movie trailer leaves youcurious. You want to know more. They don'tgive away all the secrets or all the twists inthe movie. In the same way, your executivesummary should do just enough to leave thereader curious. It should not be a"summary" of the entire business orproject. If a reader determines that in twopages they have a good understanding ofyour entire document, they have noincentive to read on or ask more questions.

There are dozens of reasons you may needto write an executive summary, but for thesake of simplicity this report will cover threeof the most common reasons for writing anexecutive summary. Loan applications.Attracting Investors. Business PlanCompetitions.

An Intriguing Executive Summary

Before I discuss the unique characteristics that your executive summary should possess foreach of these three cases, I want to borrow from famous author, speaker, and venturecapitalist Guy Kawasaki's blog article "The Art of the Executive Summary". The article iswritten by Kawasaki's colleague, Bill Reichert. He provides an incredible generic summaryand outline for your executive summary. Let me explain this outline in my ownwords. The main sections are as follows:

The GrabBig ProblemUnique SolutionMarket PotentialUnique Selling PropositionManagement TeamFinancial ProjectionsRequest

Executive Summary Outline and Description

The Grab - This section does not actually have a title, but it is probably the most importantpart of your entire executive summary. In two or three sentences you should tell thereader why your business is special. Maybe you have Michael Jordan as a customer andhe has promoted your product on twitter for free. Maybe you just signed a partnershipwith Google. Maybe you were just awarded a patent, or maybe you just made your firstbig sale. Whatever it may be, ask yourself "so what." If it sounds reasonable to say "sowhat," then you didn't do an adequate job. Obviously if you just signed a partnershipagreement with Google no one would say "so what" so grab their attention.

Big Problem - The first ingredient of a good business idea is a Big Problem, so explain theBig Problem that your product addresses. For instance, there is too much traffic in Chicagoand everyone hates traffic. Everyone in the room should be saying "yeah I hate that."

Unique Solution - The big problem is the easy part. Now you have to convince the readerthat you have come up with a unique solution to the big problem. If you have these twoingredients you have a good business idea. Maybe you developed a new traffic controlsystem that will save one minute for every person in Chicago each day during theircommute. One minute each day is valuable when you are talking about a couple millionpeople.

Market Potential - Elaborate on the big problem by providing stats for your industry. Howmuch is spent annually on similar products or services and how fast is it growing. Maybeyou operate an in-home health care company. With all of the health concerns broughtabout by aging Baby Boomers, you have a large market potential with a rapidly growingmarket.

Unique Selling Proposition - This is where you elaborate on yourunique solution. What specifically gives your product or servicean advantage over the competition? Maybe your home healthcare service actually sends doctors to the home instead of justnurse practitioners, or maybe you guarantee same day visits sothat you don't have to schedule ahead of time. Just point outwhy you are special.

Management Team - Depending on what industry you are in,this can be one of the most important parts of your executivesummary. Regardless, your investors or bankers are puttingtrust in the team, not the idea. Ideas are easy to come by, butexecuting on those ideas can only be accomplished through astrong team. Quickly show why your team has the experienceand knowledge to execute your business plan.

Financial Projections - Based on your market, your businessmodel, and your historical performance, you need to develop abottom-up financial forecast. If your plan is for a group ofinvestors, don't spend too much time on this section becausethey know that you have no idea how much money you mightmake. Investors typically won't make a go / no-go decisionbased on your financial projections. They will essentially maketheir own financial projections. That being said, you should havesome sort of graph or table with current sales and projectedsales going forward for at least three years.

Request - Now it is time to request either an investment, loan,grant or sales contract depending on the purpose of theexecutive summary. You should restate why your companyprovides value. Remind the reader of the big pain that you aresolving and your market potential. Finally reemphasize yourteam and its ability to get the job done. Ask for the dollaramount that you need to reach the next major milestone foryour business. Don't disclose how much equity you are willingto give up or what interest rate you are willing to pay. Thisshould be done later through face to face negotiation.

I recommend that you start by writing your executive summaryfollowing this exact outline. This will give you a great base tostart from each time you need to write an executive summaryfor a new audience. For each new audience, you will need toanalyze their specific needs and consider what they are lookingfor from your executive summary.

Step # 8 - Write Your Business Plan

If you are lucky enough to make it past the executive summary round you will probably be askedfor your full business plan. The Angel Capital Education Foundation strongly suggests writingyour own business plan. In fact, in their report titled, “Important Things for Entrepreneurs toKnow about Angel Investors” explicitly says, “Entrepreneur MUST write plan (no consultants).”

So how do you know if you have a winning business plan? I would suggest that you ask yourspouse.

If you are like me, you have a new "GREAT" idea every other day. How can you tell if yourbusiness plan is likely to be successful? Well, believe it or not, if your business plan can convinceyour spouse of your latest and greatest business idea, then you are well on your way. Here are 4ways to know you are on the right track:

1. Your Spouse Understands the Business - This sounds simple enough, but it is difficult toexplain your business in a way that anyone can understand. If your spouse can read yourbusiness plan and have an understanding of your business model, you have accomplished a lot.

2. Your Spouse Only Reads it Once - Typically, it is hard to write in a way that your readerunderstands the details of your plan, while keeping the plan short and sweet. If your spouseonly needs to read the plan once you probably succeeded in communicating a clear and directmessage.

3. Your Spouse Wants to Talk About the Business - You may often tell your spouse your ideas,and when you are done you hear silence. This is probably a sign that, either your idea stinks, oryou are not successfully communicating your ideas. It is a good sign if after your spouse readsyour business plan, he or she actually wants to talk about the business.

4. Your Spouse is Willing to Invest Family Resources in the Business - WOW! Now you aretalking. If your spouse is willing to discuss investing precious family resources into your businessidea, then you must have accomplished a great deal through your business plan. Your plan maynow be ready to bring to bankers or angel investors for additional funding.

Ok. Spousal consent is a great step, but it would still be a great idea to have a professionalreview the plan. I strongly recommend my friend Scott Pollov at www.bizplanit.com. His teamof professionals will be able to review your business plan and set you on the right track towardsecuring angel investment. You will also find great free resources and guides like this oneavailable for download at www.bizplanit.com.

Step # 9 - Network

Now it is time to network. Although you might be able to make it to the second round by simplysubmitting your executive summary to an angel investor group, your chances for success willskyrocket if you are introduced to the group by a reputable CPA, attorney, or anotherreferral. Now is the time to use the elevator pitch that you have been practicing. Tell othersyour story and look for ways to help them. If you help others be assured that they will look forways to help you.

How to Network and Actually Get Something Out of It

So often small business owners will attend a "networking event" in hopes of expanding their socalled network. Instead they simply pass out business cards that end up in the trash or in a pilewith all of the other business cards gathered at any given event. So what can you do tolegitimately build a network that you can utilize in the future? The key is in the relationship, andthere are a few ways to build relationships through networking events.

1. Be Prepared - When you go to a networking event to meet people you don't know there isessentially one way to start a conversation, "What do you do?" I hate to break it to you, but theyprobably don't care what you do. They are at a networking event for the same reason you are –to get something out of it personally. So when you are asked what you do, be prepared toanswer with how you provide value. That is really all they want to know, how can you providevalue to them, and in return they may be able to provide value to you. Just don't explain eachpainstaking activity that you do at work or in your business, instead stick with what value youprovide others.

2. How can you Help? - As previously mentioned, at the typical networking event everyone hascome to find out how they can benefit personally, not how they can benefit others. If you breakthat mold and ask others how you can help them, you will undoubtedly create a relationshipwith that person that will last beyond swapping business cards. Don't be afraid to give first. Ifyou help others you are building a network even if you haven’t seen any benefit from it just yet.

3. Follow Up - So you get back from a networking event and have a stack of business cards.Within the next two or three days you need to follow up with the people that you want to keepconnected with. A personal e-mail is alright, but a phone call is so much more memorable andmore likely to result in some sort of relationship. Maybe you thought you could help someonethat you met and you mentioned that to them, and gave them your business card. How greatwould it be for them if you actually contacted them to start helping out? They will rememberthat forever, and that is what you want in a network.

So focus on preparing a concise explanation of how you provide value to the world, determinehow you can help those you meet, and then follow up shortly thereafter. If you do these threethings you will surely grow your network in a way that may actually provide value to you in thefuture.

Grow Your Business

Now that you have all of these things in place you areready to apply for angel investor funding again. Don’tgive up after one more denial because many oftoday’s greatest companies were once denied angelinvestor funding as well.

As you move forward with your business ventureremember to stop by www.theexecutiveplan.comfrequently or sign up for our mailing list so that youhave access to more free guides, tips, and resourcesfor startup companies like yours. The ExecutivePlanis a startup business in its own right and as such wewant your feedback. Please email me atadam@theexecutiveplan.com if you have any ideas,partnership opportunities, feedback or even criticism.I look forward to serving you and your business nowand for a long time to come.

Sincerely,

Adam Hoeksema

Founder – ExecutivePlanwww.theexecutiveplan.com

Sources

Angel Capital Education Coundationhttp://www.angelcapitaleducation.org/data/Documents/Resources/AngelCapitalEducation/What_Ents_Should_Know_About_Angels.pdf

The ExecutivePlanhttp://www.theexecutiveplan.com