I recently blogged about the book Angel Investing, which I think every entrepreneur should read. The book, written by two Harvard Business School professors in 2000, claims that thirty to forty times more ventures get funded each year by “angel investors” than by venture capital firms.
I don’t think entrepreneurs get this.
I’m testing a new search engine optimization service from one of my companies called Searchability(TM). It helps me select keywords that I can easily get a top 10 ranking for in major search engines and then helps me build pages and recruit links until my ranking is high enough.
One of its features is to calculate how many total queries are performed on the internet for any keyword that I’m interested in.
I typed in “venture capital” and “venture capital firm” and found that about 150,000 searches are performed each month on these two terms combined.
I then typed in “angel investor” and found that only about 10,000 queries per month are performed on this phrase.
I’m sure people besides entrepreneurs are using search engines for these particular search terms, but the ratio here is interesting. Does this mean that entrepreneurs are 15 times more likely to look for venture capital firms to fund them than angel investors? If so, they’re “looking for love in all the wrong places.”
My advice to first-time entrepreneurs: find angel investors to back you. It’s easier, it’s faster, you’ll get a better valuation, and more help from your investors. Start with an “advisory board” of 6-8 seasoned business people who are well connected and willing to help you find investors and build your company. Give them some equity in return for their help. (I think 1% equity for 2-3 years of assistance is good for an early stage company). Some of them may end up investing in your company; others will open doors for you that lead to capital.
Later on you can graduate to venture capital, but only after you have a track record and a team and a clear exit strategy that can be accelerated by the largest investments VCs make.