7 TIPS FOR RAISING $39M FROM 350 ANGEL INVESTORS BY ROB NEVILLE OF SAVARA
Rob Neville, CEO of Savara Pharmaceuticals raised over $39M from 350 Angel investors, representing 30 Angel groups from around the world. Neville believes that there are hordes of wealthy individuals looking to invest their money in promising startups. Most startups generally reach out to venture capitalists (VCs) for later stage funding, so it was unusual and historic to raise this level of financing from Angel investors. Savara never specifically eliminated VCs as a potential source of financing, but the momentum within the Angel community simply carried them further than expected. Neville shares his experience with raising Angel funding.
1. Scale from Angels to Groups to Networks
Raising meaningful amounts of capital from individual Angel investors is time consuming, and simply does not scale. At some point Angel groups become an essential part of fundraising, where 20-50 angels meet on a regular basis to collectively evaluate deals. Even Angel groups have their limitations, and Angel networks are the next logical step. Angel networks contain many affiliated Angel groups often spread around the globe sharing deal flow. In most cases, candidates will pass screening and diligence only once for the first group within the network. For the follow on presentations, the screening and diligence details are shared throughout the network. Essentially, the candidate can skip the screening and due diligence process and access more investors quickly. Examples of Angel networks include the Keiretsu Forum and Tech Coast Angels.
It’s important to have a healthy pipeline of Angels, groups and networks, considering it takes two to three months to move through their respective processes, and even the best companies will face rejection.
Key influencers exist within each Angel group; opinion leaders that are active and well respected by their peers. This is somewhat akin to influencer marketing in social media, whereby individuals are targeted given their influence over potential buyers. CEO’s should work hard to identify and establish ongoing relationships with these key influencers within each Angel group. In more than one case, key influencers became evangelists for Savara, raising millions from their respective networks.
2. Tell a Compelling Story
Raising money from Angel groups is competitive, and the companies that win are those that tell the most compelling story. Plan to focus less on the details and data – this will surface during the due diligence process. Neville suggests following a Ted Talk format and encourages CEO to practice their pitch over and over until it is perfected. In this regard he refers to Steve Jobs who would practice his story for two full days before keynote presentation, asking for feedback from product managers in the room. For 48 hours, all of his energy was directed at making the presentation the perfect embodiment of Apple’s messages. Practicing the pitch is paramount so that the flow is seamless and the story takes a meaningful form. Ideally the presentation should be graphically appealing, without the use of bullets.
3. Be mindful of non-Economic Motivating Factors
“Do a little Good, make a little Money, have a little Fun.” Neville uses this to describe the drive behind Angel investors. While the economic return is an important motivator for Angel investors, it represents only one facet of attractiveness. CEO’s must be aware of the non-economic motivating factors that drive Angel investors decisions, often referred to as altruistic and hedonistic motivations. Altruistic Angels have a concern for the well-being of others, and wish to feel good about their allocation of funds. They will invest in stories that resonate emotionally, that help society in one way or another. Hedonistic Angels wish to get involved and be a part of an exciting growth story – leveraging their hard earned wisdom. They will invest in companies that are open to their input and participation. A compelling story must address economic, altruistic as well as hedonistic interests.
4. Align Management with Angels
Neville stresses the importance of the alignment of Angels’ interests with those of the executive management, so that they all rise or fall together. He opens his presentations by mentioning that he has been part of successful exits that raised Angel funds and returned money to the shareholders. He then makes it clear that he and his team and board have invested meaningful capital into Savara. Alignment is influential because it shows the Angels that you will treat their investment as your own. Angles appreciate a team that sacrifice and operate frugally maximizing value creation with each dollar.
5. Get ahead of the Due Diligence
Angel investors are accomplished and extremely busy people. Successful fundraisers keep the investment process simple and as straightforward for investors as possible.
Typically, a CEO will present twice to any one Angel group before receiving funds – the first time to motivate and assemble a due diligence team, the second time to communicate the results of the due diligence and hopefully collect investments. Candidates can alleviate work required by the due diligence team by completing a draft of the diligence document ahead of time. If a company relies on preparation of the diligence report from scratch by the Angels, it will take two to three months. Some companies with great stories never get a final due diligence report – often due to competing commitments of the due diligence team members. Even when the Angels are actually doing the work, the majority of the information comes from the company anyways – organizing it beforehand takes out most of the work for the Angels leaving them to validate the report and augmenting it as needed. Ideally, having one or more existing or prospect investors own the draft diligence report as their own adds credibility.
6. Communicate Often
Given Savara’s large investor base, investor relations is critical. A large investor base is often perceived as a liability or overhead, however, Neville views his investors as an asset. By communicating proactively and often, the Angels will be more likely to participate in follow-on rounds. Savara generates a detailed quarterly report, and holds quarterly shareholder meetings. All email correspondence is personalized. A positive and consistent flow of news generates excitement and confidence in the team’s ability to execute.
In Savara’s $10M Series C round, a DocuSign was sent to shareholders asking for their electronic consent (a necessary step before a round of investment can begin). Within this electronic consent, shareholders were given the option to participate in the round (by simply clicking a radio button and entering the desired amount). Within a few weeks, $6M was committed electronically from existing shareholders.
7. Close Prospects as Expediently as Possible
The closing process from presenting your story to an Angel group to money in the bank must be as streamlined as possible. Angels have many investment opportunities, and their enthusiasm is likely to fade quickly after hearing your story, however compelling. Leveraging the sales funnel metaphor, prospect investors (those that express interest) must be converted into shareholders in a well-defined and expedient sales process.
To be effective, Neville found that the sales process needs some form of closing pressure (or possibility of loss pressure). This is naturally created when most of the funds have already been committed and the round is about to end. Breaking a larger round into smaller rounds (or tranches) creates multiple points of closing pressure. One additional technique is to offer warrant coverage for early investors. For example, in Savara’s Series B round, the initial investors received 12% warrant coverage – this warrant coverage declined by 2% every month thereafter. Without some form of closing pressure, Angels will not feel any sense of urgency to commit.
Assuming some form of closing pressure has been created, prospects should be encouraged early to “reserve” a place in the offering while they complete their due diligence (without any obligation). Neville will ask early for a verbal range of interest. Once a number or range has been provided, these prospects become “soft commitments”. Accumulating soft commitments quickly helps create additional closing pressure.
As soon as a “soft commitment” has been made, attention moves towards getting signed documents and converting prospects into “hard commitments”. It must be emphasized that a “hard commitment” does not come with the expectation of funds transfer – this will happen later. Neville makes it easy for the investor to sign the documents by using pre-filled DocuSign forms.
After receiving a “hard commitment”, a funds transfer email is sent. Collecting funds should also be as simple as possible, with various funding options being made available. In the early days, Savara team members would literally collect checks by hand. Upon receipt of the funds, the prospect is officially welcomed as a shareholder.