I appreciate brutal honesty, especially in financial matters. Being direct and upfront helps to achieve progress and success without suffering unnecessary delays.
Which is why I thoroughly enjoyed listening to a TableCrowd [1] dinner presentation by Bill Morrow, the inimitable founder of Angels Den, now the world’s largest platform connecting angel investors to businesses that require funding.
Bill pulled no punches, and I scribbled down no less than six dense pages of notes; including many an actual quote (I wanted my readers to be able to join in on the fun!).
Are you ready for Bill’s no-holds-barred views of raising angel investment?
Fasten your seatbelt!
Most “investor networks” don’t deliver
The services now provided by Angels Den are closely related to Bill’s very own – negative – experiences as a start-up entrepreneur and investor.
After leaving an accountancy position at Virgin, Bill set up his own business and ended up (“purely through chance”) selling it to a Wall Street firm.
“They paid me a ridiculous amount of money.”
What happened next set the stage for the eventual creation of Angels Den.
“A lot of stupid people started writing to me to ask me to invest in their start-ups.”
Bill got involved with one start-up and then tried to help raise funds from other investors to broaden its shareholder base. In his search for Other Peoples’ Money for that particular start-up, he met with “many, many investors.” This included networks of investors, i.e., people who claimed they could open doors and help him get in front of a bigger audience of potential investors.
Six months later, the fundraising result from meeting with other investors and investor networks was Z-E-R-O.
Here is how Bill puts it on his LinkedIn profile [2]:
“After having failed to raise capital … through meeting 46 syndicates who pretended they had money or knew people who had money, who pretended they knew what they were doing and gave out bad advice on valuation or business planning” … he realised he had been ripped off. These existing investor networks just didn’t have the funds or the mechanisms to provide capital to businesses. (One of the peculiar reasons why so many of these bad actors even exist is something I’ll get back to later!)
Six months later, the fundraising result from meeting with other investors and investor networks was Z-E-R-O.
That was ten years ago. Bill subsequently set up Angels Den as “a mechanism that sits in the middle” between businesses looking for funding and angel investors.
A mere decade on, Angels Den:
- is represented in ten countries: the UK, Singapore, Qatar, Mexico, Germany, Hong Kong, Dubai, Malaysia, Abu Dhabi, and Kuwait.
- has more than 22,000 active investors, the most extensive network of its kind in Europe and Asia. His members have an average of GBP 660,000 in funds to spend.
- can claim that over 90% of the businesses backed through its members are still trading; an extraordinarily high rate.
Out of running Angels Den, Bill has gained some unique (and at times, shocking) insights into what it takes to get angel investors interested in putting their money into a business.
Throw out your preconception about angel investors
Like most anyone, Bill had assumed that angel investors were investing to make money.
But when he started to ask them about their motives for making angel investments instead of just putting their funds into the more comfortable and safer secondary market for more mature companies (e.g., by buying shares in companies listed on the stock market), it turned out that making money only came in at #3.
Motive #2 was a desire to help other people. Often combined with a feeling that after having made it themselves, they wanted to help others achieve success and favoured angel investing over charitable giving.
Motive #1 was boredom in life. Angel investors had made it already financially, and were looking for entertainment and having fun. They also liked taking a bath in the energy of younger founders and their teams.
As Bill put it: “They are not stupid enough to make the same mistake … as you and set up a business. People have no idea of the world of pain that is ahead of you if you set out as an entrepreneur.” So instead, angel investors let someone else take care of the hard parts while joining for the fun and excitement that being involved with a new venture provides. Which is also one of the reasons why so many angel investor networks exist. There are plenty of people out there who enjoy having young, ambitious founders parade in front of them and delivering their pitches and stories – it’s good entertainment and can make you feel important even if in reality you have sweet Fanny Adams to invest!
As a result of the common misunderstanding of angel investors’ motives, “the vast majority of companies that fail do so because they got the wrong investor onboard.”
Motive #1 was boredom in life. Angel investors had made it already financially, and were looking for entertainment and having fun. They also liked taking a bath in the energy of younger founders and their teams.
There are more misunderstandings and little-known aspects to all this, and whereas most of them I was already aware of myself, I had never previously encountered someone spelling them out in such brutal, but also engaging frankness. With a glass of wine in hand!
Apologies if some of the following paragraphs consist primarily of reciting quotes. But when you encounter someone who can describe a subject matter in terms that have been perfected over the years, why try to rewrite it in your own words?
What business founders need to ask for
“We see 110 business plans a day. Of those, 109 ask us for the wrong thing: money. Only one asks for the one thing we got: mentorship.”
Obviously, capital is the number one thing that entrepreneurs need. However, no funding round will succeed if the angel investors aren’t also bringing factor 2 and 3 to the table, i.e., mentorship for the entrepreneur, and a contact book that the investor is willing to put to use for the benefit of the business.
What do Angel Dens investors demand?
“The mental illness that is entrepreneurship dictates the belief that you are going to make it.”
Obviously, most any new venture fails. To achieve its incredibly high success rate of backing businesses of which >90% are still in business years after the initial funding decision, here are two factors that Bill described as absolute demands of his network’s angel investors:
- Sales: “If you don’t have any sales, you have an idea. We are business angels, not idea angels.”
- Passion and a purpose in life: “Do you absolutely love what you are doing? If you are not, you are dead. … If you think weekends will apply to you, you will not make it. Forget weekends.”
Obviously, an existing track record in generating actual sales is easy to evidence. That’s what accounting records are for.
As for the purpose and the passion: “At Angels Den, you have four minutes to make your pitch. Though they will have made up their mind as you walk up to them.”
Soft factors play an important role, e.g., “Why are you not making eye contact with the angel investors?”
Is it fair that personal energy and chemistry between the entrepreneur and the potential angel investor play such an important role? Bill has a simple answer: “Welcome to the real world. People want to invest in people that are like themselves. …. You are the daughter or son they never had.”
Which is one of the reasons why, as part of his talk, Bill also described Angels Den as a “psychological match-making service. A lead investor is someone who looks into your soul and gets you.”
“The essence of angel investing is not about getting the funding, but to get the right mentorship.”
Funding is just an extension of these soft factors.
As for business plans….
“Anyone who believes their own numbers is stupid. You cannot possibly work out what your three-year cash flow forecast is going to be. They (the angel investors) know your numbers are bullshit and nonsense.”
“I can value any business in three seconds. You are all way too high.”
“36% of entrepreneurs are genuinely incapable of explaining to a normal human being what their business is doing.”
Why women are better at it
“Every woman spends so, so much time on their baby. They spend 3-4 times longer to get their pitch deck right. …. A guy presenting to a 92% male audience will present a lot of BS. Women on the whole do not feel a need to BS. On the whole, women don’t tend to BS.”
“If you don’t have a woman on board, you are stupid.”
“12% of the deals we do are female-led. …. Women are 2.2 times more likely to get funding.”
“Women are more intelligent and more intuitive and look at the world in a different way.”
“If you don’t have a woman on board, you are stupid.”
Bill actually went on to repeat this last sentence to ensure it registered with the audience.
“The problem of women is that they don’t ask for enough money.”
Why you should pay attention to Bill’s advice
The dinner I took these notes from took place back in January. I’ve taken a writing hiatus for a few months but always kept my records from this particular event in a safe place, as I absolutely wanted to write it all down eventually. There was too much timeless wisdom to share.
Nowadays, there are many people who call themselves angel investors or experts for fundraising, but there is no one else who sold a significant business to a Wall Street firm and then went on to building one of the world’s most impressive and effective angel investor networks.
Bill, clearly, is someone you should listen to and follow (e.g., by connecting to his LinkedIn [2] profile).
As per the figures provided by Bill, Angels Den was signing up 600 new investors a month at the time I met him.
It has grown to its current impressive size with zero marketing costs.
Nine of ten companies that get to present at an Angels Den event find at least one interested business angel.
Then there is the incredibly high percentage of Angels Den backed businesses that are still operating. Whereas enterprises backed by Angels Den members have a 90%+ likelihood of still being in business years later, the reverse figure probably applies to the companies pitched on some of the lower-quality crowdfunding companies.
Evidently, the mechanism Bill developed to match entrepreneurs and angel investors is working.
He also had one final piece of advice: “If you just want the money, don’t come to Angels Den.”
A quick note about the source material for this particular article: If you live in London or visit frequently, you might want to check out the service provided by TableCrowd [3]. TableCrowd hosts dinners where a speaker is invited to elaborate about their experiences relating to fundraising, building a company, selling a company, etc. I am not affiliated with them, pay for my own dinner participation, and don’t get any commission for recommending them. But they do get my deep-from-the-heart recommendation for providing an insightful and quite affordable service to the London start-up scene. I get to meet people that otherwise, I would not have come across (including fellow diners), without having to pay a ridiculous joining fee or the kind of outrageous prices that some conferences attempt to charge. There are a whole number of articles on my website that trace back to attending one of their events. Bill sharing his insights with that audience was very generous!
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