Entrepreneurs need not wonder what angel investors want

19 Aug Entrepreneurs need not wonder what angel investors want

Kelly Fitzsimmons admitted something that she probably wouldn’t have said to her company’s investors. Fitzsimmons, co-founder and CEO of the Wisconsin-based Comic Wonder, a web site dedicated to the fine art of joke telling, sheepishly confessed that she’s a rotten joke teller.
Fortunately, she’s a state-of-the-art entrepreneur, and that’s why the likes of the Phenomenelle Angels, Wisconsin Women Angels, and Wisconsin Investment Partners have committed so much to a company that produces nothing but grins.
Fitzsimmons, who spoke at the recent Wisconsin Innovation Network luncheon in Brookfield, is resigned to play “straight-woman” to her more comical husband, Jeff, but the lessons that can be taken from the early progress of their start-up business are no laughing matter.
Those lessons start with how to make a compelling pitch to would-be investors, which is just what they did at the 2007 Wisconsin Early-Stage Symposium in Madison. Not long after their rather succinct presentation, the Fitzsimmons were well on their way to securing $750,000 in capital, about a quarter of a million dollars more than they were looking for.
Although their elevator pitch to financiers took only a few minutes, Fitzsimmons probably can write an entire book about what investors want.
“We got seven minutes to convince investors that we were credible,” she said. “You need a compelling reason for them to invest.”
The compelling reason was simple, but it resonated: people love to laugh. The company offers content – namely, jokes – to client partners like radio stations, which use the content to drive traffic to their websites through joke-telling contests and other promotions.
Convincing skeptical investors that you’re going to change the world through audio jokes is not an easy sell, but the Fitzsimmons had gained some “cred” long before they told the story of their new venture in bits and pieces. Those bits and pieces included the following:

• Comic Wonder is the only audio joke-telling site on the Internet, giving it first-to-market advantage.
• Its key demographic is the highly coveted 18-to-34-year-old age group.
• The business helps solve a problem for the medium of radio, an industry under siege from several directions (streaming video, iPods, and cell phones), and one that is having difficulty monetizing its online operations.
• The company is shooting for a fast play of three to five years in the “mega-niche” of online comedy, now a $500 million market that’s expected to grow to $1 billion by 2010.

It didn’t hurt that Kelly Fitzsimmons had been there and done that. Tom Still, president of the Wisconsin Technology Council, introduced her as a “serial entrepreneur,” the kind that has launched, grown, and sold several companies. Her two successful exits, including the sale of a computer security company, are a testimony to her entrepreneurial track record.
Thanks to this success rate, the Fitzsimmons had the advantage of applying $450,000 of their own money upfront, which told investors they had a stake in the business.
They also avoided a very common mistake among entrepreneurs seeking capital – instead of a shoot-for-the-moon estimate, they attached a realistic valuation ($1.5 million) to their business. The temptation is to establish a high valuation, but that’s detrimental in several ways, not the least of which is that it can badly damage your exit, Fitzsimmons explained.
Comic Wonder also happens to have a clear exit strategy of acquisition in a space, online comedy, where acquisition activity is accelerating. In 2006, M&A deals in this space reached as high as $20 million to $25 million. In fact, by the time the Fitzsimmons made their investor pitch at the Early Stage Symposium, they already knew of an interested buyer.
“Within a month, we got our first tap on the shoulder from someone who said, ‘Hey, we’re interested,’” Kelly said.
The start-up company also could point to having highly respected fans in the technology world. To impress investors, Fitzsimmons used a quote from friend, author, and venture capitalist Guy Kawasaki, one of founders of Apple Computer’s Macintosh Division. Kawasaki, whose 10, 20, 30 rule – 10 slides, 20 minutes, and 30-point fonts – is considered a guide for such presentations, provided the following endorsement:
“Comic Wonder is like finding a $20 bill in your jeans. How can your day not be brightened?”
That’s not to say there were no worries. Comic Wonder has tackled several challenges along the way. Being able to scale up the website to handle the “killer joke” was one such example.
Comic Wonder, which wants to sell online advertising space, also had to acknowledge a hard truth about this potential source of revenue. According to Kelly Fitzsimmons, the large advertising agencies want websites to be at one million hits per month before they will take the site seriously, and 93 percent of the dollars in online ad revenue go to the top 50 sites.
At the moment, Comic Wonder can point to an impressive 600,000 page views a month, but there is more work to do.
Nonetheless, its best days are clearly ahead as new opportunities emerge. Not only has Comic Wonder established a model to create a turnkey, cross-platform service to help radio stations drive more people to their websites, the company is part of a web telephony industry that is just starting to gain traction.
Not every entrepreneur can be this alluring, but the key thing to remember is that from the investor’s point of view, it’s not so much about technology. It’s about the problem it solves, the size of the market opportunity, and the ability of management to deliver.