If you’re a startup in the Bay Area looking for a guardian angel to guide you through the venture capitalist world, look no further than the Berkeley Angel Network, a group of UC Berkeley-affiliated investors who seek to bolster the next big company.
Berkeley Angel Network, or BAN, aims not only to provide budding startups with seed funding to pursue their ventures, but also serve as a mentoring and coaching space for first-time entrepreneurs. Compared to some of the other 16 angel investing groups in the Bay Area, BAN is on the informal side, with all members being volunteers. The only hard-and-fast criteria to be a BAN angel are that one meet the SEC requirements for being an accredited investor, and that one has a UC Berkeley affiliation of some kind.
Fred Drinkwater, an angel investor with BAN, said that although angel investing takes a significant amount of time and has a very high risk factor — 1 in 10 deals turn out successful — there is a culture in Silicon Valley of giving back to the next generation of entrepreneurs through mentoring and coaching. For angel investors, it’s not so much about the money as it is about sharing a lifetime’s worth of experience with up and coming companies.
“I never think about the possibility that I might be investing in the next Google,” Drinkwater said. “I look for deals that have some plausible chance of making some returns.”
Every quarter, BAN holds a pitch meeting for entrepreneurs to meet the angels and drum up interest in their company. Making it to the pitch meeting is no easy feat, however; about 60 companies apply quarterly and go through a rigorous pre-screening process, from which only 4 companies are selected to give a 5 to 10 minute pitch in front of the angels.
Ark.one, a healthcare predictive analytics company, was one of the few that made it to the pitch meeting. The company was founded about 2 years ago, according to co-founder and CEO Shawn Dastmalchi, and essentially works to help health systems identify sources of waste and provides scenario modeling for lowering costs using machine learning.
As a serial investor himself, Dastmalchi said that he stresses the importance of fostering a learning culture within companies. He noted that many of the top technology companies — Facebook, Uber, etc. — have all gone through a lot of changes in their thinking, and none had immediate success after their first pitch.
“If you’re an entrepreneur in front of the first investor, it’s not about the money, it’s about the learning opportunity,” Dastmalchi said. “Listen well, then eventually you’ll understand what it is that investors look for.”
BAN founder Cathy Chiu likened fundraising to approaching a customer and selling a product, noting that both are essentially sales propositions. Both the customer and the investor need to feel like they’re getting value, which requires understanding the perspective of an angel investor. Chiu said when she works with CEOs, she teaches them that it’s important to show the investor how your company is a good investment opportunity.
“Investors are presented with opportunities all day long, and are always weighing to see how they want to spend their time,” Chiu said. “It’s never ‘I’m a startup, invest in me,’ it’s always ‘I have an opportunity and you need to spend time with me.’”
Contrary to popular belief, demonstrating a finished product is actually not the first thing to put forward in a pitch to an investor. Talking about the market profile and size, then presenting a sizable opportunity to the investor is more likely to build a solid foundation for a mutually beneficial relationship, according to Chiu.
“They want to know, is there something sustainable about the solution, the team, and the proposition, so that as the market and competitive landscape evolve, is the company the one that is left standing?” Chiu said.
Engaging early with an angel investor is a smart strategy for an entrepreneur — not only to understand the investor’s mindset, but also to get good advice. Chiu said that angel investors want to be there with the entrepreneur and contribute if they can, which is why they engage so early on in the process.
Additionally, even for those who don’t plan on becoming entrepreneurs, it doesn’t hurt to learn about investing. Not everyone is going to be an angel investor, but as an engineer, for example, it helps to broaden one’s field of vision to study a situation from a business perspective.
“Learn from people’s mistakes as well as their successes. Get smarter and wiser all the time,” Chiu said. “That’s what the essence of angel investing is. It feeds your soul and feeds their success. Hopefully it’s a virtuous cycle.”