By: Joseph W. Bartlett, Special Counsel, McCarter & English LLP; Chair Emeritus, ACA Public Policy Advisory Council

Entrepreneurs waste a lot of time soliciting professionally managed venture funds. Venture capitalists operate according to their own largely unwritten rules. In order to play the funding game, you must learn these rules. Below, I’ve listed some of the most-common mistakes. They won’t tell you everything you’ll need to know, but these simple rules should help you understand the VC process and avoid an enormous waste of time, energy, and opportunity.

Rule #1: Choose the Appropriate Audience

By: Elizabeth Usovicz, General Manager of Transaction Commons, as part of a series she writes for ACA aimed at entrepreneurs, "Your Pitch is Just the Beginning."

In films and on television, characters routinely breeze through sophisticated software, easily cracking codes and accessing just-in-time information. In Jurassic Park, for example, thirteen year-old Lex Murphy reboots the park’s sophisticated computer systems - just after surviving a velociraptor attack in the kitchen. 

In the real world, software applications are not as user-accepted and intuitive. As reported in Fortune, a 2014 a survey of failed startups found that that 42% self-identified the reason for failure as lack of market need for their product.

By: Marianne Hudson, ACA Executive Director

Yesterday I took a call from an accelerator managing partner who wanted to educate some of his investors on how to get started in angel investing.  As I put together a list of resources for him, it occurred to me that lots of angel investors and others are interested in this information, so let me share my list here!

This is also a chance to mention that the Angel Capital Association is now starting our new monthly “Best Practice” Webinar series aimed at providing education on the key things new investors need to know:  having a portfolio strategy to begin with, valuation, due diligence, term sheets, sourcing deals, etc.  If you like these, you can also download the decks from the main webinar page.  This program is in partnership with The Rising Tide Fund, Kauffman Foundation, Go Beyond Investing, Portfolia and Next Wave Ventures.  We’ll have more information about this exciting program soon.

By: Joseph W. Bartlett, Special Counsel, McCarter & English LLP; Chair Emeritus, ACA Public Policy Advisory Council

The appropriate legal domicile for the company’s organization and filings. In almost every case, Delaware is the appropriate choice. Despite media insinuations, Delaware is not a tax haven. State income taxes are levied on the basis of factors which are not influenced by a Delaware domicile. The reasons for Delaware are practical: The Delaware Secretary of State’s office is better organized and staffed so that the initial organization of a corporation or limited liability company is a matter of a few minutes.

This post originally appeared on Forbes.com

Editor’s Note:  ACA’s annual Fall workshop, now called the Angel Insights Exchange, will be in New Orleans on November 9-10.  We picked New Orleans not only for its iconic activities and food, but because it has a growing entrepreneurial vibrance.  Here’s a taste of the city’s growth in the form of the NO/LA Angel Network.

Despite the devastation Hurricane Katrina caused 10 years ago, the huge disaster that hit New Orleans brought a silver lining. With a giant microscope on the area, young people were drawn to New Orleans and the surrounding region to help.

In the years immediately following Katrina, young people turned out in droves. They came to volunteer, to rebuild and to educate children, but then something interesting happened. Many liked the area and stayed. Their friends came too. Over time all these new NO/LA (New Orleans/ Louisiana) residents perpetuated an explosion of entrepreneurial activity—something the area desperately needed.

By: Ed Cox, CEO of everyStory

The stages of funding, it is said over and over, go as follows: friends and family, then angels, then venture capitalists. It’s a familiar framework to any entrepreneur trying to launch a startup.

However, should every entrepreneur trying to raise money assume that oft-repeated path is actually the best path? Absolutely not. Entrepreneurs should not determine their companies’ sources of funding based on tradition or assumptions. Rather they should base them on the intention and goals of those companies.

In fact, entrepreneurs should stop thinking of funding in “stages” altogether. What’s listed above are funding “avenues” that should be considered simultaneously – and could also be pursued simultaneously. In a world of rapidly developing crowdfunding sources, the way to raise money has expanded well beyond those customary staples.

By: Marianne Hudson, ACA Executive Director

Today we send a special congratulations to our sister organization, the Angel Resource Institute, which is now the Angel Resource Institute at Willamette University.  ARI and Willamette University have developed this new joint venture, which should be a good result for ACA members, and angels and entrepreneurs in general.  More information about the joint venture is here.

As ARI Chairman, Michael Cain, said, “There is a natural fit between our two organizations. This partnership allows us to provide better service, enhance our research, and expand our training offering.”

By: Marianne Hudson, ACA Executive Director

ACA members are getting very good at working together to fund interesting deals.  The latest example:  six member groups from literally all corners of the US were part of a $12 million series B financing.  The investment in Cognition Therapeutics was led by Golden Seeds (New York and many cities), and included ACA members Cowtown Angels (Fort Worth), Maine Angels, PLSG Accelerator Fund (Pittsburgh), Tech Coast Angels (Southern California), and Ariel Southeast Angel Partners (Savannah), as well as additional life sciences investors.  Cognition Therapeutics (CogRx) is focused on discovering and developing disease-modifying therapies for Alzheimer’s and related neurodegenerative diseases. Read the full press release below for all the details.

By Krista Tuomi, Associate Professor, American University

European crowdfunding laws and experience provide some background on how crowdfunding might work in the US. One of my earlier blogs dealt with some implications of equity crowdfunding for angels, drawing on the experience of Sweden and the UK. It highlighted some concerns about crowdfunding, particularly the low success rates for complex products and those that require follow on financing.  Despite tax and co-funding sweeteners, repeat investment has been low.  Only 17% of Swedes crowdfunded more than once, slightly lower than the 24% reported by a Scottish Crowdcube survey.  Another oft-mentioned concern is that “naïve” investors will get burned, leading to regulatory backlash.  Recent events in Germany may be a test case of this.

By: Marianne Hudson, ACA Executive Director

This post originally appeared on Forbes.com

A new buzzword in entrepreneurship and equity investing is “inclusiveness.”  It is gaining traction with Venture Capitalists and angels alike, who see that building the diversity of the investor community and the entrepreneurs they invest in is not only a good societal goal, but it is also a way to build great deal flow, make better investment decisions, and grow returns.

What has many investors scratching their heads, though, is: how do we do become more inclusive?  Think about it.  Do you often go outside your social network to bring in co-investors or entrepreneurs who are different from you?  Most likely the answer is no.  You probably stick with the core people you know or are like you.  Research backs this up for most investors.  But “sticking to your knitting” may be limiting your options and leaving some money on the table.

Subscribe