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The Why and How Of Updating Your Angel Investors

Posted by Dharmesh Shah on Mon, May 20, 2013


There’s a massive amount available on the interwebs on how to improve the odds for success in new ventures. But almost nothing concrete is available on the care and feeding of your investors. You can do all of the Lean Startup experimentation you want, but we’re here to tell you that one of the the easiest and most underrated skills that a startup CEO needs is knowing how to keep your investors updated, excited and engaged.good news bad news small

The reason is:  The CEO is the investor's  user interface into the business.  It's how investors see what's going on, and in some minimal ways, interact with the business.

We polled several early stage investors (including ourselves) that have 30+ investments each under their belts, and asked them their advice for entrepreneurs on how best to communicate with them and update them on the business. Here are the results.

1) Write your investors consistently. probably every 1-2 months (if you're early stage), and every 2-3 months if you're a bit further along. If you have a regular advisory board or board of directors meetings, that's a good time to send out an update. This is preferable to phone calls, both for you and for them. If you’re smart, you’ll send this letter out, in more or less similar form, not only to your investors but also to mentors, advisors and staff. And if you do ever follow up with calls, they’ll be up to speed and more productive.

2) Keep it short. 2 pages, max. Your investors want to know what’s going on, but they don’t need to hear every detail.

3) Use a template. We like the TechStars one. Katie Rae and Reed Sturtevant of TechStars Boston teach their companies to communicate with mentors in a way such that each letter builds on the previous one. Typically, the letter gives both highlights and low-lights since the previous communication, sets some short term goals, and then reviews the progress—or lack thereof—on the goals set earlier. Just knowing that you will be producing a report card helps focus you on the important stuff and ensures that things don’t get forgotten. Check out the investor update template for a sample.

4) Remind them what you're doing (now).  I know this is going to sound strange, but often your investors are not doing as good a job as they could keeping up with all your activities, news, tweets and pivots.  Always include a one sentence description of what you're doing (now) just as a friendly reminder.  A side benefit to this is that it forces you to write (and read) your one sentence description.  This is one of the hardest tasks in startup-land.

5) Tell them the one or two strategic problems you are wrestling with. Got a few hard decisions? You’d be surprised how quickly an investor will respond. And odds are pretty good that they’ve seen this movie before and can help you come to a better decision. If it’s personnel-related, though, you may wish to be more circumspect.

6) Keep it honest, but don’t tell your secrets. Would you be comfortable if this email ended up in public, or in the hands of your competitors? If not, consider editing it down.

7) Always have 1-3 direct asks. Looking for some specific introductions? Ask. Need to source some key personnel? Ask. Want them to share some important news on their social media networks?  Don’t be proud, don’t be shy, just ask. 90% of the time, the investor will probably not be able to help, but in the 10% of the time they can help, it's often pure gold.

8) Cast a wide net, but bcc. The more people you can keep up on your company, the more likely it is someone will be able to help you out, and the more you can leverage your network. But respect your investors’ privacy, and make sure you are not revealing any confidences in the letter. (I still screw this up—when in doubt, leave it out.) One idea would be to setup a simple mailing list so you're not trying to type in email addresses manually every time.

9) ARCHIVE all correspondence in a shared folder. Your investors will be grateful that they don’t have to be organized. This tip is so simple, yet almost no one does this. Your investors have more on their plate than just you. Make it easy on them by putting everything they need to see into one folder which they can reference. Send each letter by email (don’t make them have to hit links or print out attachments,) but include a link to the shared folder with the full archive. Inside, have all of your historic correspondence, and perhaps even your latest pitch deck, any financials you want them to see, etc. You might consider having two separate folders—one complete one, for the inner circle, and one that’s been redacted down for the broader crowd.

Startups fail for lots of reasons— but one of the most common one is that they run out of money. Informed investors are generally happier investors—and at a minimum more capable of helping. And, if you're out raising another round sometime, chances are, your angel investors are the one's that can help make intros. It's easier for them to do that if they hear from you more often than once every 12-18 months when you need some paperwork signed.

Remember, this exercise is as much for you as it is for them.  

This entire process should take you less than an hour or two a month and it's worth it. Besides, if you do it right, you'll actually find that it helps you to write these updates -- and it's not a complete waste of time.  

This article was a collaboration between Ty Danco and Dharmesh Shah. Ty is CEO/co-founder of BuysideFX and an angel investor/mentor (you should be reading his blog). Dharmesh is founder/CTO of HubSpot, runs and is an angel investor in over 40 companies (you can follow him on twitter @dharmesh).

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Why The Value Of The Fund-Raising Process Is Not Just The Funds

Posted by Dharmesh Shah on Thu, Sep 29, 2011


The following is a guest post by Rene Reinsberg (@followrene). Rene is a recent MIT Sloan graduate and the CEO and co-founder of
Locu, a company that helps close the gap between offline and online by building a real-time, structured repository for small business offerings data such as restaurant menus. Disclosure: I'm an angel investor in Locu. -Dharmesh

Raising Money Isn't About Raising Money

Our company has raised more than $600k in seed money over the summer. In a matter of a few months we transformed from a group of students working on what one notable Silicon Valley investor called a “class project” in early April 2011 to an eight-person company, with a unique technology, a clear value proposition and strong customer interest for our product. I'd like to share some highlights and lessons learned from our journey.

Back in April, we had been bootstrapping for about half a year, building our first prototype and some interesting back-end technology and learning a lot about our market. We also realized we had been working well together as a team and were all ready to commit full-time.describe the image

Testing the waters

One of our early inflection points was a team trip to the Bay area for a week in late May. We had been selected to present at a startup showcase and had also set up a few meetings with investors while out there. The four of us shared a double room at the cheapest hotel we could find, the Ramada Silicon Valley in Sunnyvale. It worked out perfectly: free WiFi, a good enough breakfast buffet and an In-N-Out down the street.

We went to almost all pitches that week as the whole team. While this is not sustainable for the whole fundraising process, I highly recommend it early on. It helped us grow stronger as a team and develop a common lens for feedback. Also, rather than insisting that our approach was the right one, we explored all possible directions to make sure we were not missing the bigger picture. After our daily debrief by the hotel pool, we would prepare for the next day. One night, Marek, one of my co-founders, built a prototype to test an idea that had come up during the day and that has now become an integral part of our product.


That brings me to learning. Looking back, these early meetings were invaluable. One thing that became clear really fast was that investors were much more interested in learning about the menu acquisition and data curation technologies we had been building than about our recommendation application. We had stumbled upon a potential solution to a big problem the local search industry had been battling with for years. Going forward, we built our pitch more around the technology and how it could enable a data platform for local business data and had much more success.


A lot of people have asked me how many investors I spoke to and met with in order to close the round. You might have seen the Anatomy of a Seed deck by Brendan Baker who analyzes AppMakrs $1m seed round, involving 173 people and taking 130 rejections to get to 14 commitments. Our round was a bit smaller and we were fortunate to hit a few super nodes early on, but I still ended up talking to around 100 people in the process.

While I prefer meetings that lead to investments, there is thing to be said about the ones that don't. Raising money is about building a network. A lot of people might be interested or intrigued by your idea but not end up investing for one reason or another. However, they might end up introducing you to potential business partners, clients or other investors. I talked to one potential investor and even though he did not end up investing, a month later, he emailed me and introduced me to a potential client.


At an early stage, it is important to surround your startup with people that can support you and extend you network in the areas you most need it. For us, we were targeting investors with backgrounds in data platforms, local, small business marketing, and the restaurant industry. AngelList turned out to be invaluable in the process of filtering. As Scott Kirsner from the Boston Globe recently put it, they are a true matchmaker between investors and startups.

A few words on due diligence: You probably expect your investors to do due diligence before investing. You should do the same. In a world of LinkedIn and AngelList, it is relatively easy to find people in your (extended) network that have worked with or can vouch for an investor. Even if it means delaying the closing of your round, don't take money from investors you don't think have the best interest of your business in mind or from whom you get a bad vibe.

Looking back, raising money was much more than just getting money in the bank. The process helped us to grow as a team, significantly refine our product and business model and most important of all, bring on investors on board that understand our technology, support our (ambitious) vision and will help us build a better company.

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5 Reasons An Angel Investor Will Walk From Your Deal

Posted by Dharmesh Shah on Mon, Jul 25, 2011


The following is a guest post by Ty Danco. Ty is an angel investor and startup mentor. Read more of his thoughts at

You’ve got a killer idea, a good prototype, a terrific market opportunity, and maybe even some funding already. But you still may lose potential investors that have nothing to do with your deal, and everything to do with you. Here are 5 of my non-negotiable hot buttons that will make me turn down an investment, no matter how good the financial prospects appear.hand stop

1. You knowingly mislead people. If you’re not trustworthy, it’s over. Full stop. It can be as simple as pretending to know answers when you don’t, implying that you have investors or contracts that aren’t real, or giving half answers to questions that conveniently leave out non-flattering but significant information. Note that I’m not going to dump you simply for painting the rosiest plausible picture and showing hockey stick revenue numbers that seem ridiculously ambitious. Investors expect some amount of hype, and we can put up with that. But you have to be honest.

Worst is a coverup: An entrepreneur presenting to an angel group was discussing his record as a "successful repeat entrepreneur", but didn’t give particulars other than "the last company he founded went IPO." When upon questioning he told us the name of that company, it only took a few minutes on Google to discover that 1) the company was now defunct, having been in the middle of a penny-stock trading scam, with multiple lawsuits still ongoing; and 2) that the founder/CEO had a different name than the man presenting. He responded to the first fact that he had been the victim of those scams, and to the second that he had decided to change his name. Needless to say, no checks were written to that company. His new company actually had acquired rights to some interesting technology, but the integrity question made it a total no-brainer pass.

2. You haven’t done your homework. Unfortunately it’s not the norm that an angel will have deep knowledge of the sector you are in, so we’re going to ask questions, and lots of them. But imagine what our reaction will be if you don’t know the answers to our basic questions about your own markets, your competitors, or worse, haven’t even considered an obvious question. At best you’re too green to invest in, shown by your chase of angel investments before you are ready. The good news is that this is easily correctible. Do your homework before you pitch angels; when you practice your pitch dozens of times before mentors and other entrepreneurs, chances are you will have had a chance to think about and respond to almost all of the obvious questions. But until you get to that point, don’t burn your bridges pitching to investors too early. Work on your business model and your pitch until they are shining jewels.

3. Your projected expenses are unreasonable. As mentioned above, I don’t really mind—and come to expect—entrepreneurs showing revenue projections that go straight to the moon. However, I will scrutinize projected expenses, hard. If they are unreasonably low—for instance, having a model that depends on external sales without any meaningful salaries or commissions, not budgeting in legal expenses, etc.--that marks you as a greenhorn that needs to go back to school. Worse than the greenhorn is the greedy entrepreneur who is looking to raise money to immediately go back into his or her pocket. This is especially true when the entrepreneur has been on the beach, or an "independent consultant" for a period of time. It’s no sin to need or get a paycheck, but if you are looking to angels to fund your six-figure package, that’s a telltale sign of greed. Down the road, a me-first priority will manifest itself in losing employees, creating lousy margins, and other bad scenarios. The CEO needs to take the lead in all aspects—including demonstrated hunger, commitment, and sacrifice. If you’re focused on the short-term rewards, there won’t be any long-term rewards around for us investors.

4. You don’t follow through. This is another "tell", as poker players say. This won’t be evident at a first meeting, but in the follow-up. Dharmesh and many other angels are correct in saying that diligence can be quick, given that startups will change directions. I too believe due diligence needn’t take more than a week or two, but I still think that in most cases there needs to be several interactions between entrepreneur and potential investors. Why? With the biggest risk for startups being execution risk, we need to assess whether you will do what you say you’ll do. If you call us when you say you will, if you follow-up on our questions quickly and efficiently, those are all positive indicators that you are accountable and will deliver on promises. There’s no shame in putting a reasonable but later date on some deliverable because you’re busy—I hope and want you to be busy, and maybe even you’ll earn bonus points if you turn something around earlier than promised.

5. You’re dogmatic. It’s easy to say no to someone who is a jerk. But assuming that you’re not arrogant, full of yourself, and "getting high on your own supply", you can still turn us off by not considering alternative viewpoints. When you answer questions before we finish asking them, when you don’t take the time to really listen to what people are talking about, when you assume you know every answer cold even before it’s clear where a comment is coming from, that’s another telltale sign of too much hubris and not enough coachability. There are plenty of people who are uncompromising—Steve Jobs is just one example—but Steve Jobs are few and far between, and I’m willing to bet that he listens before he rules.

This is not to say that the investor is going to be right or that you are wrong. I especially like it when an entrepreneur has considered an option I just proposed and educates me why they have decided not to go down that route…as long as they have taken the time to listen. But an absolute black and white dogmatic approach that leaves an impression of "my way or the highway" raises the likelihood of an inflexibility that will most likely doom your company. Pivots happen…and you have to be open-minded along the way as you build your company.

For a good entrepreneur, it shouldn’t be hard to avoid these potholes: you do your homework, you don’t lie, you follow through, you’re not short-sightedly greedy, and you’re open to hear what others think about your strategy and prospects. Miss any of those, and you become a bad bet—low odds that can’t be papered over by any amount of experience, social proof, traction or the other building blocks that attract an angel’s attention. When our due diligence shows that you’re not going to let us down in those five areas—now you’re a whole lot closer to being bankable.

What do you think?  What else should entrepreneurs keep in mind to keep angels from walking from their deal?

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Startup Financing: Questions and Answers From A Recent MIT Panel

Posted by Dharmesh Shah on Fri, Apr 13, 2007


This past week, I was on a panel discussion at MIT on the topic of raising funding for an early stage startup.
Also on the panel was Michael Greeley from IDG Ventures.  Michael was representing the VC perspective whereas I was there speaking primarily from an angel perspective (and alternative sources of capital like friends, family and fools).
Here are some of the questions that came up in the panel.  Since I didn't take notes during the panel myself, this is my best recollection from the two hour session.  Please note that this is not legal advice and if you are raising funding, you should consult counsel on all legal matters.
1.  If I raise capital from friends and family, do they have to be accredited investors?
Generally, yes.  Though there are ways for pool together interests from non-accredited investors, it's usually not advisable as it can get tricky and complicated.
2.  To raise VC funding, do I need to have a complete management team assembled?
Not necessarily.  Many VCs do not mind considering startups that have an incomplete management team.  Some will actually see gaps in the management team as a positive as that is an area that they can help with and bring value to the startup.
3.  How do I negotiate the highest pre-money value for my startup?
Entrepreneurs are often overly obsesssed with the pre-money valuation of their startups.  Though this is an important factor in the negotiations, it is by no means the only one.  Often, non-valuation factors like corporate governance, control and preference issues end up being much more important than the valuation.  Entrepreneurs should look at the deal as a whole and understand the details.
4.  Do investors read business plans?
For the most part, no.  A great business plan will not guarantee funding (or for that matter, even a meeting).  If you find the crafting of the business plan helpful, then you should do it.  But, investors do not generally require a detailed, written business plan. 
5.  Do I need to have formed a legal entity before approaching investors?
It's not required for investors prior to approaching them for funding, but is often a good idea because it is relatively simple and inexpensive to do. 
6.  How do VCs value companies?
This is an imperfect science.  A common approach is that VCs will determine what the company could be worth at the time of an exit (IPO or acquisition).  They then work backwards from there, determining what percentage of equity they need to own to generate the desired returns for their limited partners.  Of course, they apply this approach across a portfolio of investments expecting that a small percentage will generate significant returns.
7.  How do I find angel investors for my startup?
There's no single answer to this.  In major markets like Boston and San Francisco, many angel investors are members of angel groups.  These groups pool together expertise and resources in order to make better investment decisions.  Of course, there are also private investors acting independently.  Generally, you'll want to find investors that have a background in the particular idea you are pursuing -- or, an affinity for it.  Angel investors often invest for reasons beyond just pure financial return.  One common reason is to stay involved in the entrepreneurial process and help entrepreneurs build great companies. 
8.  How do I pick the "right" VC?
There are a number of considerations.  First, you should verify that the VC makes investment in the stage and type of company you are building.  Also, it is important to remember that you are not just picking a firm, you are picking a partner within that firm.  Ideally, you'll find a partner that has made similar investments in the past and has knowledge of your market. 
If you have any other questions, leave a comment and I'll do my best to answer.  Please remember that I'm not a VC, and don't play one on TV.  For content that is much better than this, I strongly recommend Ask The VC by Brad Feld.  It's a great source for information on the VC industry and the process of raising money.

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4 Quick Tips on Raising Startup Funding Without A Plan Or A PowerPoint

Posted by Dharmesh Shah on Wed, Mar 14, 2007


Before we get too deep into this, let me clarify two things.  When I say without a “plan”, I mean without a formally written business plan – not that you should be clueless about what you want to do.  And, when I say startup funding, I’m talking more about early stage seed funding via angels (though most of these tips should apply to VCs as well).

As a member of the local Boston entrepreneurial community and a part-time angel investor, I come into contact with lots of new startups at various stages of the process.  It continually amazes me how much time some entrepreneurs spend time writing (and rewriting) a business plan.  Though the planning process can often be very useful, the degree of efficiency is often very low because taking your set of thoughts, ideas, brainstorming and research and trying to “capture” it in an externally consumable document is really hard and takes time.  For every 10 minutes you spend “thinking” about things (and actually planning the business), you might spend an hour trying to get it into a form that might make sense to the reader of the document.  And, the real irony is that very few people will ever read the full document.

One of the main reasons I’m not a big fan of business plans is that things change.  Instead of spending time writing a business plan and continually refining it, I’d much rather see an entrepreneur testing the market and refining the approach.  Josh Kopelman posted a great article on his recently titled “Failing Cheaper”.  It’s worth a read.


In any case, here are some thoughts I have on how you can increase your chances of getting funding without going through the misery of writing a formal business plan.  I’m assuming here that you have the ability to at least get an audience with a potential investor or investor group.  If not, then you have a different problem (and a business plan is probably not going to help with that).


Quick Tips On Raising Startup Funding Without A Plan Or A PowerPoint


  1. Have A Story:  People like stories.  Stories are exciting.  They have characters, they have a plot (even a small one).  Your story can be about a use-case (i.e. how will your product be used to solve a problem).  The story can be a description of how you uncovered the opportunity:  “There I was sitting in my office at a big company and we needed a way to do [X].  We were losing customers, hiring consultants and otherwise frustrated because we just couldn’t find a way to get [X] done.  Then I thought, here’s a simple way to solve part of the problem…”.  The story can be about some anticipated “future state”.  Example:  “In 2 years, we believe that those that grew up with the Internet will no longer accept the inefficiency that exists in most doctor’s offices today.”


  1. Demonstrate Leverage:  Different people call this different things (a common phrase is the “unfair advantage”).  Basically, what you need to do is communicate what kind of leverage you have (or are likely to get).  Some of my favorite points of leverage that few early entrepreneurs talk about is their capital efficiency.  Example:  “We’re two college students that have come across this really exciting market opportunity.  We think we can get build this with less than $25,000 while living on red beans and rice and working out of a shared apartment…”  This leverage point basically says you’re going to learn your lessons cheaper than others that may be doing the same or similar things.  [Note:  Everyone is going to have to learn some lessons, the question is how much money are you going to spend learning them?].  Other favorite leverage points of mine are:  access to a group of customers (from a prior job/life), access to a potential partner or distribution channel, access to unique “talent” that can build the product, pre-written IP (you’ve already got a lot of the code you need from a side project you’ve been working on), etc.  Basically, the idea here is to try and explain why you will have a disproportionate chance of not screwing this up completely.  


  1. Accept That Your Baby Is Ugly:  Just like most parents think they have beautiful babies, most entrepreneurs think they have beautiful startups.  In reality, just about all startups are ugly in the early days.  Don’t spend time trying to explain to others why your startup baby is beautiful.  It’s not.  Instead, spend energy explaining why your baby is going to grow up  into something that’s beautiful.  Describe how you’re going to tackle the problem of building the product, finding customers, dealing with support, etc.  


  1. Dream Big, But Plan Small:  In the early stage process, entrepreneurs that can get things done cheaply and efficiently are more likely to get funded.  The reason for this is simple.   Too much cash allows you to delude yourself into a false sense of what the market really wants and how you might deliver it.  The less cash you have, the more quickly you have to deal with the really hard things (like figuring out a way to get people to part with their money and buy your offering).  Most early-stage investors know this.  Even though I know an idea is likely going to take more cash than the entrepreneur things, I prefer backing people that believe they can do it with little cash and try to do so.  As Josh said, learn to fail cheaper.


If you’re new to the early-stage fund-raising game, it is easy to fall into the trap of thinking that the only thing standing between you and some angel funding is a pristine business plan with sparkling financial projections and prose that is so compelling that the checkbook practically leaps out of the investor’s pocket.  I’m here to tell you that this is simply not the case.  Most startups today simply don’t know enough about what they’re actually going to eventually become in order to get it down in the form of a business plan. 

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