Tips on Raising Funds from Angel Investors at CTAN Workshop

Rick Timmins, chairman of the Central Texas Angel Network, speaking to a packed house at its workshop during Austin Startup Week.

Rick Timmins, chairman of the Central Texas Angel Network, speaking to a packed house at its workshop during Austin Startup Week.

By LAURA LOREK
Reporter with Silicon Hills News

Raising money is really, really hard, said Bob Baughman, co-founder of HUVRData.

“I thought it was hard enough just to develop some great new idea and get the business case, but funding is really hard,” Baughman said.

HUVRData closed in August on $2 million in a Series A funding round from the Central Texas Angel Network, the Houston Angel Network and the Texas HALO Fund. Baughman spoke Tuesday afternoon to a packed house at CTAN’s Entrepreneurs Workshop, a featured event during Austin Startup Week. The event was held at Techstars in downtown Austin.

HUVRData is a data and analytics company that has a fleet of drones with cameras to inspect wind turbines and other commercial properties in the wind, solar and oil and gas industries. It has six employees and is hiring. Its offices are on State Highway 71 on 100 acres.

During his presentation, Baughman joked that he met with investors in coffee shops and the ones who wore flip-flops, T-Shirts and shorts had made a ton of money and were very astute. The interaction level with angels is very different than VCs, Baughman said. The angel investors are actively involved in their investments and they also expect the entrepreneur to know their business and industry and have done a ton of research, he said. The worst thing to do is to try to B.S. the investor during a meeting, he said.

“If you don’t know the answer to something, don’t guess,” Baughman said.

He also advised entrepreneurs to have patience and persistence.

CTAN is one of the most active angel networks in the country, said Rick Timmins, CTAN’s board chairman. CTAN members have invested more than $62 million in 110 companies since 2006. The organization has an angel network with more than 130 members who are accredited investors. CTAN investments are primarily in technology, life sciences and consumer products, food and beverage companies. But the organization will look at deals in any industry.

Last year, CTAN invested $14.6 million in 33 companies with 16 of those new companies and the rest follow on investments in existing portfolio companies, Timmins said. This year, CTAN has invested $10 million so far, he said. The average investment is $450,000, he said. Angel investors do a lot of mentoring and coaching and often take a board seat on the company they invest in, Timmins said.

CTAN has a vetting process to become a portfolio company. The organization recommends entrepreneurs start off attending a meet the angel investors office hours event at Abel’s on the Lake. From there, the entrepreneur can decide whether to apply to CTAN for funding. It costs $250 to apply. CTAN selects approximately ten companies during each funding cycle to pitch to its members. The group then further narrows the companies down to three finalists.

It generally takes ten weeks to raise funds from angel investors, Timmins said. CTAN does extensive due diligence on the company and its founders, he said.

Angel investing is a risky business, Timmins said. But it can be rewarding, he said. Twenty percent of Timmins investments will produce all of the returns on his investment and another 30 percent will give some kind of return and the others will provide no returns, he said. Most of the angel investors invest in companies because they enjoy giving back and helping others, he said.

And most venture capital funds do not invest in seed stage companies, Timmins said. The funding amounts are too small for them, he said. Overall, venture capital funds are shrinking today with less than 500 VC firms nationwide, Timmins said. Meanwhile, the number of angel investors has grown in the last few years, he said.

So what does CTAN like to see in a startup?

Timmins likes to see companies that have revenue and can demonstrate a path to profitability. He also wants the entrepreneurs to show him how they can successfully scale the operations. He looks for great teams, disruptive technology, paying customers and a solid business plan.

John Paulos, a board member with CTAN, also gave a presentation on what he likes to invest in. So far, he has invested in 25 companies and he currently serves on seven boards.

Angel investors like to invest in solid teams, big opportunities that are scalable, products and services that are unique with a plan to sell the product, reasonable valuations and a quality business plan, Paulos said.

“It’s less a plan in the traditional business plan sense, than it is a vision not just of here and there but the milestones and steps in between,” Paulos said.

The entrepreneurs need to be coachable and to listen to advice, Paulos said. The two most important things an entrepreneur has to do are to get funding and hire good people, he said. An entrepreneur needs to communicate and be inspirational, he said.

To be a great entrepreneur, the person has to have a focus and a drive that most people don’t have, Paulos said.

CTAN also doesn’t invest in lifestyle businesses, Paulos said. The startup has to have an exit strategy so investors can get a return on their investment, he said.

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