Editor’s note: Back in December, Adam had the chance to talk with Alan Brody, “the dean of digital startups” and the author of Are You Fundable? a book that delves into the deeper psychology of how entrepreneurs can raise money from angel investors.
Alan is also the founder of iBreakfast, one of the nation’s longest-running startup forums; Startupalooza, the national open pitching forum; and Angel Week NY.
We thought this conversation has a whole new context – for entrepreneurs and investors alike – given that equity crowdfunding has been live since the middle of May. Alan has seen a lot of startup pitches in his day and offers sage advice on what to look for.
Alan Brody is the dean of digital startups, helping entrepreneurs all over the U.S. raise millions. Brody was a columnist with Advertising Age Creativity and ADWEEK’s Marketing Computers, and has been called by the NY1 TV News Channel, “The Business Networking Guru.” He began his career as head of business development for The Computer Factory, one of the largest technology retail chains in the U.S.
For the past 10 years, Alan has been running the Capital Raising Workshop – a mastermind forum that taps the collective wisdom of entrepreneurs and investors to diagnose and guide their pitches. In many ways, his book is the product of those forums, where every issue, problem and possibility of startups and how investors perceive them have been laid bare for entrepreneurs and investors to examine.
In your book, Are You Fundable? you give entrepreneurs dozens of tips on how to market themselves to investors. What’s the most common mistake startups make when trying to raise funds?
The main mistake that startups make is they don’t realize that not only does their idea have to be clear, scalable and the market potential big, but they have to be uniquely qualified to deliver. When they fail to match their idea with credible likelihood to execute, investors lose interest. There is an old saying that investors bet the jockey over the horse. Horses come and go, but a really good jockey is a rare thing and lasts a lifetime.
After screening hundreds of companies, what common traits have you found in successful companies?
Successful companies are driven by successful entrepreneurs. You can tell when their story, background, motivation and team matches and it all gels.
Are there any “red flags” you’ve identified that investors should watch out for when meeting with startup founders?
Good entrepreneurs are always a little hungry. If they act complacent, that’s concerning. Too hungry and they might dine off you. If the deal is too cut and dried, it’s a sign that they have mastered the deal and not the business. If they are licensees, they are generally suspect. You always have to be on guard for code words that suggest they are not really going for it and instead want a “lifestyle business.” For investors, that’s arguably the worst thing they can call a startup.
Let’s flip that last question around; are there any “green light” signals you look for in startup founders?
The best ideas and entrepreneurs are “in the moment” of the idea. The idea looks right, the entrepreneur looks right and the timing looks right.
What tips would you give to entrepreneurs looking to raise money?
Entrepreneurs often get so caught up with their idea that they lose sight of how others see it. They bury their lead and tell you the most important thing last – like a partnership or contract with a big company – or they forget to tell you just what “pain” they are alleviating. They are often surprised to find out how they are really perceived, yet they need to embrace that and build upon it. Ideas that aren’t communicated well usually don’t sell.
Having said that, entrepreneurs need to understand that until they are accomplished or well-connected, they are highly unlikely to raise money right away. So they need to build credibility and momentum. Followings, traffic, being talked about and – best of all – sales are what gets attention.
By maintaining a warm relationship with investors, they have the ability to go back with updates, letting them know the idea is getting traction. If investors keep having meetings but never offer a term sheet, then entrepreneurs need to look for the one investor who actually cares about the business.
Most successful raises start with a champion, then the others follow.
Adam’s note: Thanks to Alan Brody for taking the time to answer my questions. Be sure to check out Alan’s book, Are You Fundable?
Invest early and well,
Founder, Early Investing