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Five tips for securing angel investments

on October 05, 2011 Source:

Landing angel investment involves a little bit more than calling up a bunch of rich guys and hoping for the best.

Obtaining that initial investment is often a huge hurdle for startups, but once the cash comes in, it provides a critical source of early funding — lifeblood for young, hungry companies. And as the traditional model of venture capital increasingly appears to be broken, angels have often stepped up to fill the void in early stage funding.

In Ohio, in particular, angel funding has taken on an important role for startups. The state boasts two of the five-largest angel groups in the country — Ohio TechAngel Fund in Columbus and North Coast Angel Fund in Cleveland — plus numerous wealthy individual investors. But the thing about angels is that they generally don’t want anyone besides other insiders to know that they’re angels, so they aren’t easy to find. And finding them is only the beginning of the journey.

Three healthcare entrepreneurs have been among the most adept at raising angel funding in the state. Biomarker company Cleveland HeartLab, medical device firm Thermedx and health IT firm Within3 have done a nice job leveraging Ohio’s investment tax credit and have raised additional millions from high net-worth individuals.

Conversations with Jake Orville (CEO of Cleveland HeartLab), Mike Haritakis (executive vice president with Thermedx) and Lance Hill (CEO of Within3) yielded the following tips for healthcare startups on how to land angel funding.

Network, network, network. Angels aren’t going to take cold calls. The only way you’re going to get in front of them is through an introduction from a trusted colleague. A great place to start is by working your contacts in the professional services industry — lawyers, accountants, bankers and the like, Haritakis said.

Don’t focus on the money first. It’s a mistake to view angels simply as a source of funding, Hill said. Before you even think about the money, consider who could help your company the most — whether that help comes in the form of coaching, introductions to key contacts or business development advice. If you can get those people to contribute something besides money, that’ll make them more likely to take an interest in your company and eventually become investors.

Target first- and second-generation money. Of course it’s a broad statement, so of course it doesn’t always hold true, but it’s pretty safe to say that people who’ve acquired wealth through their own business ventures will probably have more appetite for the uncertainty that comes with early stage investing than those who came into it through their own bloodlines.

“People who earned [their] own money instead of inheriting it are more likely to embrace risk,” Hill said.

Realize that many angels won’t initially understand much about your business. Many angels who invest in medtech startups didn’t make their money in the healthcare industry. So you’ll need to be patient, slowly walk them through the landscape of the market you’re playing in, take them out to see your customers and find a way to relate your business to the success they’ve experienced in theirs.

“Overcommunicate,” Orville advised. “Understand they’re not experts in your business.”

Trust is the key to the whole process. Create trust with angels by meeting them through their own trusted colleagues, earn it by relating to them and seeking their advice, and keep it by frequently updating them on your company’s successes and challenges, Orville said.

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