St. Louis-based entrepreneur Seth Burgett recently secured $2.3 million in startup funding from angel investors for his company, Yurtopia, which makes customized earphone enhancers to improve comfort for athletes who train with iPods.
"I was working out as a weekend warrior and my earbuds were so painful that I literally couldn't take it," said Burgett, 40, a self-described serial entrepreneur and tri-athlete who came up with the idea for his Yurbuds in 2008. "I found a lot of people had the same problem. At that point I knew I could raise private equity around this venture."
A former R&D manager with Bausch & Lomb, Burgett cautions that no fundraising effort can be successful without first identifying a clear need in the market. Then it comes down to intensive networking. He knows a little something about the process: Burgett led the development of a surgical robot used to navigate catheters through the heart; it eventually went public under the name Stereotaxis in 2004.
Burgett spent $150,000 of his own money to build a prototype for Yurbuds, which retail for $20 to $30 on the Internet and stores like Best Buy. To find potential investors, he leveraged personal connections and also turned to Washington University's Skandalaris Center for Entrepreneurship Studies, winning a business plan competition that helped to raise his company's visibility within the investment community.
He also participated in an entrepreneurship-mentoring program, boosting exposure to high net-worth individuals and their peers. He also pounded the pavement at industry events such as the Consumer Electronics Show (CES) in Las Vegas.
"An entrepreneur's life is really building a network of rock-star advisors and folks who want to help the venture move forward," said Burgett, who seeks only experienced investors and steers clear of friends and family.
After initially contacting investors by e-mail, Burgett and Rich Daniels, the company's co-founder and COO, delivered the pitch, which consisted of just 10 slides - primarily graphics. The presentations typically occurred in an informal setting such as a local coffee shop, leaving plenty of time for one-on-one discussion.
"I really want to create a personal connection," said Burgett, whose investments ranged from $25,000 to $600,000 with what he said was an 80% closing rate. "We keep things really, really simple. We try to say it in as few words as possible."
Short and Sweet
In a market flooded with investment proposals and at a time when traditional bank financing remains scarce, committing to a lengthy process is the first step, according to small business advisors and angels.
"I like to tell small business owners it's going to be much more difficult and much more time-consuming than they ever imaged," said Ted Scofield, a New York attorney who advises startups on behalf of the law firm Furnari Scher LLP. "Recognize that it's a massive time commitment."
The rigors of pitching and follow-up can create a distraction from the day-to-day struggles of keeping the venture afloat, he said. That's why it's important to keep some top members of the team free from the fundraising responsibility, he said.
Scofield also noted that it's best to limit the pitch to accredited investors because they have a higher degree of financial acumen. Even so, he pushes all his clients to spend the money developing a subscription agreement for investors to sign, providing protection for the entrepreneur if the venture is unsuccessful.
"I joke and call it the small business owners' get-out-of-jail-free card," he said.
Angels will often discount a concept before it gets out of the gate if someone other than a founder delivers the presentation, said Richard Lucash, founder of Launchpad Venture Group, a Boston-based angel network with about 60 members. It can be a signal the approach is less than serious, he said.
"The team is very important," said Lucash, an attorney specializing in technology ventures. "It's an old cliché that people invest in the team before they (invest) in anything else. It doesn't mean they have to be people who have done it before; but they have to be credible."
These days, Launchpad tends to stay away from so-called ‘me-too' ventures and those that have low investment barriers to entry because copycats could pose a threat. Another big deterrent is a startup trying to offer a solution for multiple targets in the market.
"That's a great route to failure because you're trying to do too many things at once," he said.
Check the Ego
Enthusiasm is important, but it's best to check the attitude at the door, according to Harry Tucker, a New York-based consultant who has worked with clients on both sides of the table.
"Ego is like speed - ego kills," he said. "I need to see your market analysis, how big your opportunity is. I want to know who your competitors are, why you're better."
If you don't think you can deliver the goods clearly and succinctly, it might be a good idea to brush up on presentation skills, said Kevin Blanchette, a Calgary, Alberta-based advisor to technology startups serving the oil and gas industries. He likes his clients to limit formal presentations to no more than 25 minutes.
"Go to a venture forum or innovation center or somewhere where they're doing stump pitches," he said. "You're going to see very strong ones and some painfully weak ones."
And above all, be prepared for a commitment that doesn't end when the checks start flowing in.
"I spend my time raising capital," said Yurtopia's Burgett. "You have to beat the drum for a long time."