By Francis Moran and Leo Valiquette
Lessons learned by Lemelin on how to dance with angel investors are worthwhile steps that many Canadian tech startups could learn to adapt.
A year ago he made the mistake of letting his fundraising efforts lose steam after he secured a short-term investor. But those funds quickly ran out and he found himself scrambling without any fresh prospects in the pipeline. In our last post, we also talked about how Genevolve’s plans for a big launch at the annual meeting of the American Academy for Pediatric Ophthalmology and Strabismus in March had been derailed by delays in the lab.
A shortage of funds and delays in getting a product ready for commercial launch can be a conspiracy of circumstances that doom a startup. However, since we last touched base, Genevolve has scored the first sale of its Eyedox Genetic Test for Color Vision, and a strong likelihood of follow-on orders, with a multi-billion-dollar Japanese company that is commercializing its own colour vision research. It has also had expressions of interest from the U.S. Federal Aviation Administration — as we have discussed before, accurate diagnosis of colour vision deficiency is a pressing issue for the global aviation industry. This also applies to military aviation and Genevolve has developed a military-grade test that it will launch at the Aerospace Medical Association’s annual meeting taking place in Atlanta from May 10 to 13.
Filling your dance card
But infusions of fresh capital are critical to capitalizing on this momentum. In recent months, Lemelin has learned that wooing angel investors is an exhausting exercise in dogged persistence and constant learning to understand what makes the perfect pitch. As he points out, there is little resemblance between the real world of entrepreneurs and angel investors and television shows such as Dragon’s Den.
“We presented to the Maverick Angels’ top-level investors and received excellent feedback,” Lemelin said. “They said our valuation was too low, they validated our huge market and said our idea is brilliant, among other positives. They were instrumental in improving our presentation tools and deal structure.”
Genevolve will follow this up with a presentation to the Texas Entrepreneur Networks’ Funding Forum in Dallas on May 10.
“It’s an honor to present to angel groups and it should never be taken lightly,” Lemelin said. “Generally speaking, most angel groups have a stringent screening process which can take time and most (proposals) are rejected.”
Most angel groups are looking for evidence of market traction, a strong IP position, a strong management team, potential to sell globally, and an exit by means of acquisition or IPO that will provide them with a strong ROI.
“The IPO market has been brutal for startups over the last few years and although it may have improved slightly, the most likely exit angels want is through acquisition,” said Lemelin. But, despite the fact that Genevolve has all of the ingredients which investors are looking for “retaining sophisticated investors in this climate has been extremely challenging.”
The principles of courtship
What lessons has Lemelin learned through all of this?
1. Get to “no” fast. Do not get strung along by hem-hawing investors. “This is critical and can be very frustrating for entrepreneurs and investors,” he said. “Investors hate to be pestered; on the other hand, the clock is ticking for the entrepreneur. Investors take their time on due diligence and one bad move could wreck the entire deal.”
2. Raising money can be costly. Many groups charge fees, sometimes steep ones. “Most people do not factor the cost of raising money,” Lemelin said. “The general rule is figure out what you think you need and multiply that number by 2.5. You could easily spend $50,000 on a $500,000 funding round.”
3. Be the last to leave. “If travelling to a presentation, stick around for a day or two and schedule breakfast and lunch meetings with potential investors,” he said. “Once you leave they can cool down fast.”
4. More eggs, more baskets. “It can be very frustrating when interested investors take one to two months to perform due diligence. Keep talking to as many investors as possible while others are chewing on it … It can take your CEO all of his time fundraising but keep going, never give up.”
5. Take advantage of other resources. “There are some great tools for both entrepreneurs and investors, like gust.com – an angel platform that lets entrepreneurs post their materials, track viewers and manage document flow and communications.”
6. Give’em what they want. “I have a business plan that is just amazing, it took me months to write, a year of tweaks, had it reviewed by some pros and they all say it falls into the top one percent of plans they have seen, Lemelin said. “I think I’m the only one who has read it – investors want it short and sweet: a two-page executive summary, a succinct and smart slide deck … show passion and hit the main points.”
Lemelin is also attempting to grease the wheel with a monthly investor email that he sends out to the contacts he has made, which provides an update of Genevolve’s progress and milestones that have been met.
“You never know, maybe a past investor candidate passed on the deal but would take another look if you meet a milestone,” he said. “This is another wise tool to add to the arsenal.”
Next time, we’ll see if Genevolve’s May travels bear any fruit.
This is the fifth article in a continuing monthly series chronicling the growth path of Genevolve Vision Diagnostics, a life sciences startup based in Albuquerque, NM that is commercializing cutting edge genetic research to develop new diagnostic tests and gene therapies for colour blindness.