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How do I raise angel funding in Silicon Valley as a foreign startup?

How do I raise angel funding in Silicon Valley as a foreign startup?

The Hacker Exchange connects Australian early growth stage startup to Silicon Valley through its HEX Immersion Programs and University Study Tours. We recently caught up with a Valley veteran, Sarosh Kumana, a seasoned entrepreneur, angel investor and a Board Advisor to Sand Hill Angels – a group of over 100 active investors made of successful Silicon Valley executives and accredited investors.

You’re an aspiring entrepreneur. You’re a hotshot startup heading for unicorn status (whatever that means). You have the next best thing that will change the world. Regardless of where you sit on the spectrum, or what your motivations are, be it the promises of riches and fortune, or driving sweeping social changes, we are all drawn by the allure of this mystical land, Silicon Valley.

However, the romantic notion of this place being awash with cash, and you landing in SFO to score that golden ticket could not be further removed from the truth when faced with the reality of the competition and hustle. Just think, the world’s innovation citizens all come here chasing that same dream. As another foreign startup, what must you do in order to survive and be noticed?

I was privileged enough to recently speak with Sarosh Kumana, a fine gentleman who is passionate about the world of disruptive technologies and empathetic to the challenges faced by budding startups. He’s also a tennis enthusiast, visiting Australia earlier this year to watch the Australian Open and spoke of his fondness for Australians and Australian culture. Our conversation was around the theme of how a foreign startup can seek funding in Silicon Valley.

As a foreign startup with no local connections, what is the best way to get in front of angel investors?

There are a huge number of startups in the Valley, with a similarly large number of angel investors. The reality is that most angel investors will not take any emails or calls without an introduction from someone they know, and whose judgement they respect. It’s a filtering mechanism.

“I’m part of several angel groups. One receives 200 submissions per month for filtering; another  curates submissions down to 25 for the selection committee; and another receives 70-80 deals, which go through a screening committee of 10 people; Each of these groups whittles down submissions to 2-3 startups presentations per month to the larger angel group..”

Evidently, the volume of deal flow is monstrous, and naturally, without the appropriate introductions, there is simply no bandwidth to respond to every random contact. As Sarosh puts it, “I’d like to be a nice guy, but there’s no time for the luxury to be a nice guy to everyone.”

Building your network is a gradual process, and getting the introductions to the right people will not come easily either. Don’t be surprised if it takes a bit of time. But luck can also be your friend.

In order to be fundable, what traction and presence do I need in the U.S.?

“We don’t invest in non-US startups. Most angels want to be close to and be available to their investments.”

Sarosh makes three pointed suggestions to be considered for funding:

  1. Demonstrate traction in the U.S. market. Sales, profits and a defined path forward profitability always helps.
  2. Have a US-domiciled corporation – consider selling your entire business and assets to, for example, a Delaware corporation
  3. Join an accelerator or incubator like The Batchery, 500-startups, YC , Plug and Play etc. This would give startups access to investors and their syndicate partners, distribution partners and other ecosystem partners. For example, The Batchery consists of 50 angel investors, and is owned by these angels looking to “invest and grow their own.” By being involved with the startup team from the outset, the familiarity would make introductions to other investors easier. The small amount of equity you give up is worth the price.

What are your views on investor appetite investing in foreign startups?

“Appetite to investing in exclusively overseas startups is significantly low,” as investors like to “keep an eye on their investments.”

As perspective, Silicon Valley investors are also unlikely to invest in interstate startups. An exception would be a syndicated investment with an out-of-state angel group sponsoring the startup, with whom Valley investors have a good relationship. In this instance, the local angel group would be relied upon to keep their eyes on the investment. A syndication referral would come through if they felt that Sand Hill Angels had something particular to offer in the form of execution, mentorship, contacts, expertise etc. – it needs to be more than just money alone.  “If someone thinks that it’s just raising money that’ll make them succeed, it’s so far from reality that they should not be in this business at all.”

As a foreign startup seeking funding in Silicon Valley, what are the most common mistakes?

“They come here without much of an understanding of the environment.”

It is crucial to “educate yourself, develop friends, allies and mentors.” Admittedly, it takes time to build a network of support people who are interested and willing to help. There are startups that have been operating in Silicon Valley for years, they too started off with a small network and gradually built it out from one introduction to another.

Unfortunately, for some foreign startups, as Sarosh points out, after some period of time of building these networks, they run out of money, “Do not down play how hard it will be.” Hence, the best advice he gives is to “get into one of the accelerators or incubators.” It will provide you with a mentor network, visibility to investors, and a sense of camaraderie with your peers to learn from each other’s successes and failures.

Once in, match yourself to the competition in your cohort; be amongst the top 10-20%. Of this group, if you make the next round and A-round of funding, you’re doing pretty well.

The next steps are to “make sure you have better traction, better product market fit, a better monetisation strategy, a better distribution strategy and a good network of mentors and advisors to help make introductions that allow you to get distribution through channel partners.” All these in place are a minimum standard; without it, “you’re not even in the running and you may have a tough hill to climb.”

Sound overwhelming? Well, working an 80-100 hour week in Silicon Valley culture is no big deal. Bottom line, if you don’t move quickly enough, you will run out of money.

What are the three most important things an investor would immediately look for?

Market

Is there a market for the problem you’re trying to solve? How big is it? Too often, startups start with a solution and then look for a problem to solve.

Solution

Does the product or service solve the problem with a good profit margin?  Is the IP protectable? How to get sales at an acceptable cost? What’s the competition?

Team

Does the founder have the team and capability to pull it off? Is this the right team to access and find the path to market? “A lot of people have good ideas, but making it all work is tough.”

 And at the end of it all, if your startup is not a good idea, your product is not good enough, the market is not big enough, or your path to monetisation or distribution is not good enough, “lick your wounds, assimilate the experience, and move forward. You’ll be that much smarter than when you started. That’s okay. Live on to fight another day.”

And always, ALWAYS, stay committed to the hustle.

Bevis Cheng | August 17, 2016

 

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