For all the risk you take as an early-stage investor, wouldn't you love a 2 for 1 match?

JumpStart Inc's CEO Ray Leach and Tech Coast Angel Dave Berkus discuss angel funds and in Ray's case, he enjoys great support from the state of Ohio where they've recognized the importance of angel investors in creating jobs. Dave and I groan with jealousy as Ray describes the $3.5M Ohio has granted to 2 native angel groups.

Dave has his own news: today he announces the new TCA sidecar fund, the Angel Capital Fund. No government matching, but it does have many well thought out features that your angel group will want to implement.

These new funds mean more money for entrepreneurs.

Get ready for some exceptionally good news!

Show #298 (45:16) Listen

What incentives does the UK offer angel investors? How do they encourage early-stage investment?

Warning: jealousy alert!

Let's ask Tony Clarke; he should know. He's the President Emeritus of the European Business Angel Network (EBAN), Chairman of the British Business Angels Association (BBAA) and co-chair of the World Business Angel Association (WBAA).

Looking to brush up on international early-stage investing approaches? Tony can cite how it's done in many parts of the world and why more countries are keen to learn the best way to encourage and promote business angels in their countries.

Show #297 (36:14) Listen

My pal JJ sent around this email:

"I know this is a controversial subject at TCA.  Based on the attached study from University of Chicago Graduate School of Business, National Bureau of Economic Research, University of Southern California, and the Swedish Institute for Financial Research, the answer is the 'horse.'"

Been shot down by angel investors?

Now I know how you feel. It stings and stays with you, I'm still smarting the day after, so I'll write this post to hopefully put the experience behind me.

I'd been working with a serial entrepreneur for almost 2 years. He's an accomplished serial entrepreneur. His prior startup built specialized semiconductor chips. He sold that company to another who was quickly acquired, too, then the combination was sold for over $100M. His piece of that pie was not great, but that is an impressive resume. And he continues to be an exceptional entrepreneur. He's built a gaming engine of his own design and has attracted several commercial customers as well as gamers to his site. Besides being in revenue, he's invested $700k of his own money into the deal; that's skin in the game!

He's coachable and well read. After reading Basil Peters' Early Exits, he formulated a fund raising plan that Basil would love: a small raise, maybe followed by another sometime, but no major VC raise. Accordingly, his revenue forecast was modest, rising to $20M in Year 5. But this is exactly what Basil suggests, that we fund companies like this and find an acquirer to buy the company in the $20-30M range; that's why it's called an early exit. We're not "strapping a rocket onto a small company" as Garage Venture's Bill Riechert laments that too many VCs do when they invest millions.

But all this preparation would be for naught, we left LA with "no material interest".

I've gotta be a big boy and take it on the chin. I can deal with the outcome, it's the rough and tumble of the Q&A that leaves me unsettled. Know this, very few new companies are getting funded, that's because so much is going to keep existing portfolio companies alive, a ratio of 8:2 locally, in terms of number of companies getting funding from angels. So money for new deals is scarce. We both knew this and we consulted extensively with fellow angel Ray Chan about the critical ingredients to his success with Vokle. They raised a modest amount in the form of a convertible note, capping each investor's investment to only $5K. We thought since that approach worked, we'd tweak the numbers a little and try to raise a little bit more, but copy what works. In a small raise there's little money available to pay attorneys for a complicated Series A Preferred agreement. Convertible notes are less costly, making them more appropriate for small deals.

So of course that's the first question. What's in the convertible note? What will be the conversion ratio? And... uh-oh, I forgot to update the online application, so on his laptop he can see our earlier thinking when we were going to propose a Series A with a $1M pre-money, so he has more questions about discrepancies between then and what we're proposing now. Maybe I should just admit that there is no way to recover from a situation like this and not still be wracking my brain with "I wish I had said this..." scenarios. But since I get the last word here, what I wish I had simply said is: "we haven't written the convertible note yet, we're here to see if there's any interest first", and finally, "I'm sure you'd find us flexible on terms." None of that occurred to me at the time.

Smelling blood in the water, the next questioner coolly suggests that if there's intransigence on conversion ratio issues, then that could bring the discussion to a close pretty quickly. How much do I bare my neck in response to this? And how did I get in such a deep hole so fast, I'm wondering. I'm negotiating terms in real time? I'm not that quick on my feet, you should see me writing this, I write a paragraph, reread it, make some edits then move on. No Clarence Darrow here, so I'm out of my league quickly, and I know it. Finally a few softballs, let the entrepreneur run the show, besides, I'm starting to look defensive, and I know this, too.

"If you've got a gaming possibility why don't you raise the money it would take to develop that and offer us a better investment opportunity?" He's never read Early Exits; he wants to strap a rocket on us. But it's the next question that still rankles, "if you've had such a successful prior exit why do you need any of our money?" I've heard this question raised before of course, by many angels, posed to many presenting entrepreneurs; I've always thought it poor sport. The answer is obvious; it's a way to humiliate the presenter. As the leader of an angel group I've voiced my disapproval, I've discouraged asking this question, but I'd never been on the receiving end. I wasn't happy with my friend's reply, and not just to this question of course. I've spent more than a few moments critiquing his performance in my mind, but the outcome is always the same, I realize I'm guilty of more missteps than he.

My friend has a sunny personality and the long ride home from Los Angeles to Newport Beach seemed to be all the time he needed to turn the page and move on. That's one of his great qualities, it's what makes him a great entrepreneur. All obstacles are only temporary to him. I guess I have to add that to the list of what I wish I had said yesterday...

Disclaimer: since I wrote his executive summary, have gone on sales calls to some pretty significant customers, designed marketing pieces, attended trade shows in CA and NV, and setup a meeting with a local VC, he granted me some shares of Founders stock. I don't even remember how much, but there you go, now you know. There is no payment for success in attracting funding.

Recently confirmed reports state that San Diego Police have opened a homicide investigation into the suspicious death of Tech Coast Angel member John G. Watson. His body was found in his home on June 8th. Early reports spoke only of the death of a happy bachelor with an enthusiasm for angel investing and his daily ocean swim regimen. Later reports state that Watson was "a victim of fraud and embezzlement. An individual who is suspected of those crimes has been arrested and is currently being held by the San Diego Police."

Steve Flaim, Tech Coast Angels' San Diego President, earlier wrote, "John had a distinguished career in the pharmaceutical industry at Johnson & Johnson, Wyeth Pharmaceuticals, Vestar, Inc., Galagen, Inc., Carbomed, Inc. and Ionian Technologies, Inc. He joined TCA in 2008 and quickly became an important part of the BioMed Track pre-screening committee here in San Diego. He was elected to the San Diego Board of Directors in 2009."

Thinking about joining an angel group?

Let's examine the pros and cons with Curtis Gunn, Chairman of Tucson's Desert Angels, Bruce MacCormack, founder of the Bellingham Angels, and Hall Martin, Vice Chairman of the Baylor Angel Network and member of the Central Texas Angel Network in Austin. Great geographic diversity, they cover quite a bit of territory!

And we close the session with reasons not to join an angel group. You'll enjoy hearing these points, too!

In Southern California? Meet me at UC Irvine June 17th where I'll speak on the current state of early investing, details.

Show #296 (58:23) Listen

Yesterday it was the Don'ts. Today let's balance the scales and end the week on a positive note. When you're crafting your pitch to angel investors there are several keys to getting your presentation right:

1. Click the first slide immediately. Make your introductory remarks on the next slide. By starting the presentation right away we know you know your time limits.
2. Do tell us about your prior startup, even if it wasn't successful. Practice makes perfect and we offer extra credit to you whether or not you succeeded. (Whether we should or not, is another question.)

3. Close with the ask. Tell us your pre-money valuation, how much you want and what you'll do with the money. If you've done the rest of you presentation right this is where you should reach climax.
4. Start with a quick description of what you do and who your customer is.
5. Introduce your team on the 3rd or 4th slide. Not too early, we won't care; not too late, we'll be wondering instead of listening.
6. Use photos that take up the entire slide. A single image for a singular idea.
7. Use trigger words as bullets, not whole sentences. For example, when you see the phrase MULTIPLE MARKETS, you'll know what to say.
8. Use a BIG FONT, like 44pt, so we can see something from the back of the room.
9. Bite size. Feed us one idea at a time. Put one idea on each slide. Yes you'll have more than the magical 12 slides, but you'll zip through them. Angels like fast moving presentations; we can keep up. Next slide.
10. Show financials we can see. Maybe only a couple of rows and a few columns, not that entire spreadsheet; this is our first meeting, if we want more detail we'll ask.
11. Read Garr Reynolds' Presentation Zen. You'll be doing us both a big favor.

You don't need to tell us everything about your product. What you hope for is that when you finish, every hand in the room goes up. Now you're selling! Good luck with your next presentation!

Download 25 Pitching Pointers.

It's about time, I know.

Here's the new iPhone applet to access the Frank Peters Show audio content. You'll find it a convenient way to listen while away from your desk.

Bookmark it to your iPhone, select "Add to Home Screen" and call it FP Mobile.

Speaking of your desktop, the app expects the iPhone's Safari browser, so spare me the bug reports that it won't load in Chrome or IE.

It was confession time at the recent meetup: I get angry easily. Bored, disappointed, but definitely angry when I have to sit through a lousy pitch. Here you are, with the opportunity you've been dreaming of, and instead of wooing us, you blow it. Who let you in? I want to lash out. Why aren't you prepared?

Before you pooch your next shot at stardom, consider these Don'ts of Pitching:

1. Don't do a demo. Even Steve Jobs can't always get it to work, so you think you will? Save it for later, after we're more interested.
2. Don't show a video. "Look, we've been on TV!" Just tell us, don't make us watch some CNN TV personality gush over your startup.
3. Don't clutter your slides with photos.
4. Don't put elaborate diagrams on your slides. I'm terrified that you'll explain every part of it!
5. Don't do an introduction. "Here's what I'm going to tell you..." No, please. Just get started. This isn't Toastmasters.

6. No summaries, either. I'm chomping at the bit with questions. Don't make me wait. Just stop when you're finished.
7. No timelines, please. I know Guy Kawasaki likes these, but what a waste of breath! Let me guess, you started here on the left, you created something here in the middle and now on the right, you need money! I get it. Next slide.
8. No paragraphs of text. Let's go further, no sentences either. Because when you fall behind or get nervous because we're all checking our Blackberries you'll start reading your slides.
9. Don't read your slides. We can read 6x faster than you can speak. Don't torture us.
10. Don't hand off the next part of your presentation to your partner. We assume he can talk, but there's a 50-50 chance we won't like him as much as you, so don't get fancy, keep going. Next slide.
11. Don't orate, narrate. We'll remember stories and tell them to our friends. Don't stand up there and deliver a memorized speech.
12. Don't show us detailed financials in microscopic font, this is a presentation.
13. Don't cram your slides with text. When I suggest, "if you had used a smaller font you could've squeezed even more text onto that slide", I'm not being helpful. That's sarcasm.

Tomorrow, the Do's.

There's a meetup nearby in Aliso Viejo; Jason Calacanis is tonight's host and he's encouraged entrepreneurs to gather in 169 cities around the world, simultaneously. That's right, he does a lot of things in a big way! Coincidentally, the Tech Coast Angels have been doing these meet-and-mingle events in Aliso Viejo, too; their next one: June 15th. (If you know Aliso Viejo then you know that this is their single claim to fame.)

Why should you care? People are getting funded from these events. But like everything else in life, there's a right way and a wrong way... let's consider ways to increase your odds of getting funded:

1. Sign up, RSVP. The first event TCA hosted had 100 entrepreneurs show up! This pissed off the venue because no one had any idea there would be such a response. There could've been more angel investors attending, too, and there would've been if we knew you all were coming. Tonight's event is limited to the first 30 to show up. Like they say about the lottery, you've got to play to win; don't get boxed out because you didn't RSVP.

2. Come prepared. There's an open mic tonight and if you're one of the best, you can pitch directly to Jason via the video link. So practice a 30 second pitch. Maybe you'll have more time, but it's good practice to be succinct. No mission statements; save the whales on your own time. Tell us what you're out to do and who your customer is.

3. Don't waste your time. In spite of what you see on Shark Tank, your food business isn't gonna get serious interest from a group of high tech investors. Cookies and ice cream, apparently they do get funded on TV. Personal services, too, are treated like a skunk at a lawn party, no pizza parlors or beauty parlors either. One exception, we do like alcoholic beverage deals, and not just for the free samples you'll have to pass around; we'd all like to be part of the next Grey Goose deal.

4. Know what's tired. Another social networking platform may be keeping you awake half the night, but it'll likely put us to sleep. Venture capital told us they didn't want to see any more of these deals 3 years ago. We have to listen because angels are just part of the early-stage funding food chain. If we fund you today and you need more money later, guess where that will come from? Likewise, clean, green, energy and water deals... Wow! Doesn't every investor want to cash in on the exciting opportunities in these areas? No. We know better. These deals need massive amounts of capital to affect change and create markets. Early-stage investors would get crushed (i.e. terribly diluted) with the enormous capital required to float these boats; go straight to venture capital instead.

5. $400K is the new million. You've heard it so many times it's become a cliche. What does it mean? The cost of creating and launching software and web-based applications has dropped dramatically. What used to take millions can now be deployed with free application tools, royalty-free databases and the cloud. Investors like software; it scales nicely: if your product gains favor some day, thousands or millions of users could download it the next. So if it doesn't cost that much to build it, don't ask for millions to market it, at least not at this stage. How much do you need to accomplish the next milestone? Ask for that amount. You can always come back for more. It's not easy, like a couple of years ago, to raise $500K or $1M from angels; times have changed. Ask for only what you need and plan to come back.

6. No betas. Are the dogs eating the dog food? Years ago I would fund an idea, but today you've got to get beyond your alpha and beta releases; we want to see customers. And we can set such a high threshold because demand exceeds supply when it comes to seed-stage funding. Venture capital has moved upstream creating a large gap in funding for seed and early-stage. If you were an investor you'd only invest in later stage deals, too. It's already risky enough. Remember, angels are investing their own money and in California it's half her's, so our wives are watching us invest our grandchildren's inheritance in your schemes, knowing more than half will fail. Ouch!

7. Know what the market will bear. You've been telling your professor, your spouse and your friends that your idea could be huge. It will make a lot of people rich, especially the early investors, so you've calculated the pre-money valuation 3 ways and come up with a "conservative" number, say $10M. What a rude awakening you're in for! There's only one formula for determining what your company is worth: what the market will bear. You don't know that formula and they don't teach it in Business School. Only we know it because we're in the thick of it everyday. Actually, we have a lot to learn here, too; venture capital loves to lecture us: "you paid too much". Valuations today are too high at $3M, and seed stage deals which are so risky often have valuations half this. Don't be offended, and no, we're not trying to negotiate a good deal (well, maybe a little).

8. Know lies. Guy Kawaski published his Top 10 Lies of Entrepreneurs; we've read them even if you haven't. That's why conservative is in quotes in the last paragraph. Making knuckle-headed comments, as Guy outlines, is a turnoff to investors. Do yourself a big favor and read these today. And once you've digested fibs from that perspective, check out my Top 10 Lies Angels Tell; it's only fair.

9. Trust. I'm at number 9, so it's time to get serious: trust is the most important ingredient here. Yes, you've got to be passionate, but you probably already are. It's trust that takes some introspection; consider this from my guest, Palomar's Randy Lunn: "never take advantage of an entrepreneur". That's our credo as investors. We know that anything short of this is bad business and will likely come back to haunt us. Remember, at the next financing round when venture capital's sitting down with you, we'll be on the same side of the table with you and you'll have a bigger stake than we will and, what a good time for payback that could be! So we're not out to steal your idea, or gouge you on the valuation; we were in your shoes once, too. We like working with exciting startups. We want to help you succeed. If you believe any of this then change your perspective and instead of feeling threatened by that overwhelmingly preference-heavy term sheet, understand that much of what's in there has been learned the hard way. I love the way Expedia founder, Charles Seybold puts it: "Angels are probably smarter than you, definitely wiser, sophisticated and in the driver's seat!" Use some patience, as my dad would say, "breath through your nose"; take the time to understand why we're asking for what we're asking; be flexible and trust.

10. Be coachable. If you learn to trust then we'll see you as coachable and nothing sells a deal like when the lead angel can say to his peers, "this guy is coachable!". No one wants to work with an arrogant jerk! And remember, we're all retired; we're doing this for fun and profit. We want to work with people we enjoy working with, someone who will listen to us. That doesn't mean you'll do everything we say, but it does mean you'll consider our advice. Investing in seed and early-stage deals is a long process; we used to think of it as 3-5 years, now it's looking more like 7-8-9, so we're even more concerned about who we want to be in a long term relationship with.

A lot of things have to go right to get funded in this economy, but I see angels increasingly interested in seed deals and the entrepreneurs who show up at these meetups. Do your homework, know what investors are looking for. Know the turn-offs. Show that passion and conviction, but take the time to learn to trust. We're looking at you and thinking, "is this someone I want to be in business with for the next many years?". A lot of business is still done because one party liked the other, yes a good product and a promising market are a must, but at the end of the day an angel will write a check because he likes the team and sees himself making a contribution.

It started with a meet-up, a shout out to entrepreneurs looking to meet local angel investors. The first one burdened the venue when 100 entrepreneurs arrived. Now there are bigger venues and LA's doing them, too. The format is simple: no program, just a mingle for networking. But out of the very first one, a small startup emerged and has been funded. Is that news? Yes, because it's one of only two new companies that Tech Coast Angels has funded so far in 2010.

Where's all the investors' money going? Into existing portfolio companies, to keep them going during a tough economy when any funding is hard to find.

So what was Vokle's pitch and how did TCA member Ray Chan brilliantly package it such that it was over-subscribed?

Want your shot at local investors? Come to the next meetups: June 8th hosted by Jason Calacanis and June 15th by the Tech Coast Angels, both in Orange County.

Show #295 (32:05) Listen

Why is new drug discovery is less attractive to angel investors?

There are exceptions to everything, as Steve Flaim describes. Steve's the President of the Tech Coast Angels' San Diego network where they operate a Life Science screening process separate from Software and IT. With all this experience, Steve sees 2 types of Life Science deals: new drugs and Bio-Tech. One will offer quicker exits for less investment.

This is part 1 of a 2 part series on Angel Investing 101 where you'll hear Steve debunk many rookie angel investing strategies.

Show #294 (33:55) Listen