GUEST BLOG BY FRED VON GRAF, PMP, SENIOR VENTURE MANAGER AT ASU VENTURE CATALYST
So you have an amazing startup that you’ve put your blood, sweat and tears into, and now you’re finally starting to see some traction. Maybe you got some investment, or have revenues that put you in the black. You might even find yourself being approached by a lot more people wanting to advise you, connect you to people, help you succeed, or find some way to associate with you / your startup. Well, it’s time to proceed with caution.
On a weekly basis I see people trying all kinds of ways to engage with our ASU Venture Catalyst companies, especially the student startups thinking they are less experienced and easier targets. Fortunately we have good processes, an amazing team, great mentors and a “first mentor” assigned to each startup so they can always engage with a more experienced person to help in these situations. We ensure our companies are well advised, provided with the right resources as needed and know where they can go if they have questions. I can only imagine what it would be like for a startup that’s on their own and runs into these “impressive” individuals that can help their startups.
It is frustrating to see these high potential early stage startups that have founders with limited experience getting infested by purported “angel investors” that latch on to these companies yet they don’t seem to ever actually invest any capital in the startup.
You may have seen them; they look for their prey at meetups, hackathons, dinners, conferences, and by stalking accelerators, incubators, co-working spaces, and on social channels. They look for the highest potential startups with any resources (money, stock, talent, connections, really anything they don’t have / want) and try to find ways to look valuable to the startup in exchange for these resources.
These nefarious little roaches will try to associate with any brand / company / person that makes them more legitimate, putting out press releases exalting their amazing service of the week, writing for any blogs or magazines, and claiming partnerships and relationships with strong brands.
Any real diligence work should reveal who’s behind the curtain. So when that person falls into your lap and the opportunity sounds too good to be true, go to your trusted advisor(s) / mentors, community and do some research on these new opportunities. See what they have really done and what experience and contributions they made to the last company they worked with.
Some warning signs include:
- Lots of name dropping
- Self proclaimed connectors
- They are not listed on AngelList
- Their last company is not in Cruchbase
- Their LinkedIn titles may have: Angel investor / consultant / serial entrepreneur
- Doesn’t understand what a warrant means
- Can’t explain the difference between a convertible note and EverNote
- Doesn’t understand what it means to be an accredited investor
- Telling you their consulting business offers the best services to startups “just like yours”
- They encourage you to compete for cash prizes at their program and then pressure you to turn around and spend the money on services provided by their program
Here are a few questions that may help you filter out the roaches from the legitimate investors:
- Who have you invested in during the past 12 months?
- What companies have you worked with and who can I talk with from that company about your involvement?
- What exit strategy did you use for your last deal(s)?
- Have you done anything significant since the dot-com boom?
- What Angel Groups are you active in and how?
- See how they react when you share that you have no equity left in your current option pool and that your cash will run out in the next 45 days.
When you’re ready for an Angel in your life, there are amazing angel groups in Arizona such as ATIF, Desert Angels, Thunderbird Angel Network and Biltmore Angels that are all legitimate organizations with accredited investors. Make sure that you only let your baby (yes your startup) work with people that will provide real benefit, and those service providers that you do engage are up front about being a service provider and don’t try to hide behind an Angel Investor title.
Fred von Graf is a Senior Venture Manager with ASU Venture Catalyst. He works with startups daily helping them succeed with an amazing team of professionals, mentors, service providers, partner organizations and investors. You can connect with Fred at: Google+ @fvongraf and ASUVentureCatalyst.org.
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