26 Apr Where have all the angels gone?
Over the past month, I’ve seen a half dozen great products that may never see the light of the technology market. The products vary widely from unique hardware devices to much-needed vertical software applications to exciting new mobile services and beyond. Each concept is carefully conceived and well engineered. The market analysis has been done and each product meets a real and unfulfilled need in the marketplace. The entrepreneurs who designed these products are smart and determined.
So what’s wrong with this picture?
The early-stage investors are all but missing.
Traditional venture capitalists say they are looking for the next big thing. And they are. They talk about backing innovation and bright entrepreneurs. And they do. They say that investment levels are on the rise. And that appears to be true.
So why are so many new entrepreneurs so glum? For these institutional investors, it’s a numbers game. As I often remind the eager inventor, it’s not that an investor doesn’t like your technology; it’s that he or she likes someone else’s more.
Someone else who has a little more experience. (It’s tough for a first-time entrepreneur to get attention these days.) Best if that someone else has a track record with VCs, the theory being that if you made money for your investors before, you’re more likely to do it again.
Someone else who has is moving into a big, well-known market segment. (It’s hard to wrap a VC’s head around a new, unproven marketplace, even if it has huge potential.) Better yet if that someone else has early customers who implicitly, if not overtly, attest to the value of the product.
Someone else who has status and reputation in the industry. (It’s almost impossible to get traction as an outsider.) Ideally, someone else has also surrounded her- or himself with a strong management team and name-brand advisors.
When investors find someone like this, they take notice. The deal is less risky, and these days, there is a whole lot less risk in “risk capital” than there used to be. While no new venture is entirely safe, this someone’s numbers add up. So why take a flier on an unknown entrepreneur, moving into a new market segment? There’s just no need to spend time and money on a very early stage company, run by an unknown entrepreneur.
This is a tough time to be raising money, to be sure, and tougher still for first-time entrepreneurs who are pushing hard on the envelope of innovation.
These first-timers have a very difficult time capturing the attention of established venture firms, who have moved much of their focus to the relative security of later stage deals. Even VCs who package themselves as seed investors expect a start-up seed to be well sprouted before adding the fertilizer that first capital is.
Traditionally, nascent companies would turn to angel investors to provide the capital to get them rooted. But angels aren’t what they used to be. Many of the well-known angel networks simply aren’t making new investments right now. Individuals who lost significant net worth in the Internet crash are extremely cautious with what wealth they managed to hold on to. Friends and family just aren’t what they used to be.
Thank goodness, then, for low mortgage rates and the home equity loans that are supporting more than a few start-ups these days.
The irony, of course, is that a lot of very compelling new ideas are moving around the industry right now. And most of these ideas need very limited financing in order to bring them to early markets. Through sheer grit, some of these will break through.
Might it also be time for a new breed of angel investor to show some grit and break through as well? Certainly I’d like to find them and make the connection between investment dollars and the great new ideas I’ve seen these past few weeks.
End Notes
DEMO 2004 alum WholeSecurity is getting more than a moment in the spotlight. The security company announced it has shored up $10 million in Series B funding. Parker Price Venture Capital joined New Enterprise Associates, Venrock Associates and Trellis Partners as a backer of the company’s unique endpoint security offerings. WholeSecurity has developed what it calls “behavioral on-demand” offerings that thwart Trojan horses, keystroke loggers and worms on endpoint PCs. The company plans to use its now total investments of $200 to expand its business developments . . . Another DEMO 2004 veteran is garnering its own share of support. Mailblocks announced that it experienced a 700% increase in subscriptions in the first quarter of 2004. The start-up added that it is preparing for the release of DEMOgod award winner Maxwell, its calendar and contact automation tool. Mailblocks says to look for Maxwell in the third quarter of this year . . . Wireless networking start-up, Firetide, closed a healthy Series B round of financing. The company, which uses mesh networking to enable rapid deployment of wireless networks, brought in $13.6 million, led by investments from Menlo Ventures and HMS Ventures. This latest round brings the company’s total backing to $16.8 million.
Are you ready to launch at DEMOmobile 2004?
The search is under way to find the 50 products that will launch at DEMOmobile 2004, September 8-10, 2004, in La Jolla, California.
DEMOmobile is a high-visibility launch platform that will set your company on the path to success. It’s the best venue for positioning new mobile and wireless products and establishing strategic relationships with the players who will lead you to success. The conference’s stringent selection process and excellent reputation serves as an endorsement for your product as it comes to market. DEMO events have helped companies like Palm, Handspring, IBM Pervasive Computing, Logitech, Mirra, Tapwave, Macromedia – even Microsoft – launch their products, create critical business relationships, and sell to thought-leading early adopters.
DEMOmobile 2003 demonstrators benefited from more than 162 million media impressions before, during, and long after the event.
Visit: http://www.idgexecforums.com/demonstrate/tour/index-demo2.html to learn more and complete an online application.
DEMOmobile 2004 September 8-10, 2004 Hilton La Jolla Torrey Pines, La Jolla, CA http://www.demomobile.com/M4DL.