Q: I want to take my local art brokerage online and need about $1 million. One of my clients is
willing to put up $250,000. How should I prepare for an initial meeting with venture-capital
A: Experts say that at this stage, you should approach angel investors, not venture-capital
firms. Angels are private individuals who invest their own money, mainly in startups. VCs generally
invest pools of institutional money. "Venture capitalists seek investments that require in excess of
$5 million and sometimes $10 million. They simply cannot justify the management costs in smaller
investments," says Lori King, CEO of email@example.com, a financing consultant based in Bellevue,
Wash. "Angel investors make individual investments of $25,000 or more each and will often invest in
earlier stage companies that only need $1 million to $5 million." Don't be discouraged. You have a
"lead angel" the much-sought-after first investor. That's a great start.
Once that first investor signs on, others will find it easier to follow suit. The fact that your
lead angel is a client lends credibility to your capital-raising. From here, see if you can raise
enough additional money from other clients or from contacts of your first investor to take your
concept to the Web. "If one client is willing to back you, why not go to other clients and make
strategic alliances? With these groups you invariably get better valuations and more value-added, and
there is less intensive and time-sapping due diligence," says Peter Cowen, a strategic planner and
investment banker whose firm, Peter Cowen & Associates, is based in Westwood, Calif. If you can
get started this way, you'll be in a better position for your next round of capital-raising which
you'll likely start in about six months, Cowen says.
Before you present your business plan to investors whether clients or professional angels be
sure that they qualify as accredited investors as required by Securities & Exchange Commission
rules. They must have incomes of more than $200,000 and $1 million in assets, not including their
residence, King says. When you meet with potential investors, plan a 30-minute presentation, followed
by a discussion. Rehearse your presentation with friends and colleagues first. Tell investors how your
online venture will make money, how they will be repaid, and about the qualifications of the
management team. Expect a grilling. Since you're asking them to take considerable risk, they'll also
demand a very high return on their investment. Obvious as it may sound, ask expressly for the money.
"Angel investors have commented that entrepreneurs typically don't follow up and don't ask for the
money," King says.
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