Investors and startups came together to attend an event that took place Monday evening for K5 Ventures and Tech Coast Angels’ Face 2 Face event. When asked about the motivation for putting this event together, Ray Chan, Managing Director and Founder of K5 Ventures stated, “we wanted to provide an event covering something different and not done before. Often, we find events focused on investor perspectives, or there will be events focused on entrepreneurs and investors meeting up separately. Given the multitude of these opportunities, we created something where these groups could get together, rub elbows, and engage with each other.”
The event began with a presentation by Mari Bower of Kitterly; a startup focused on packages that provide an all-in-one solution for those looking to create unique, handmade crafts. Bower shared various anecdotes of dealing with rejection from potential investors. As a result of her experience, Bower, and her team persevered and pushed forward, eventually selling her home to fund the startup. Repeat buyers eventually grew to 40% with additional figures showing the company showing scalable growth. Bower then reconnected with Chan of K5, whom she had met previously a couple of years ago, and was eventually able to secure funding from K5 Ventures, followed by Pasadena Angels and the TCA ACE Fund, of which Chan is also a member. Chan also encouraged entrepreneurs not to give up and that sometimes investors may not be driven to invest on the first engagement. However, if a startup can show progress and continues to develop and grow, they can change minds.
Next, a panel on seed funding featuring, Stijn Vanoreek, Venture Partner of K5 Ventures, Sergio Gurrieri, Partner of the ACE Fund, and President of Tech Coast Angels SD, Francis Duhay, Angel investor and ex-CMO of Edwards Lifesciences, and Pete DeAngelis, Tech Coast Angels member, took place. Popular questions included when a company was ready for seed stage funding. Panelists responded that when a company has a strong sense of product market fit, and the seed money can take it to the next stage, that is when it is the right time. Additionally, if a full-time job funds the startup, panelists stated when the CEO is ready to quit their full-time job, then they might also be ready as investors expect to see a real, all-in commitment. Given the competitive landscape, they suggested that startups look at the competition not only within their vertical but who the active players are in the investment space and learn about what they have been funding the past few months. Since the investment is a long-term commitment, investors want to get to know who they are giving their money to and have a sense of trust. Though there is an expectation that startups prepare when they engage with investors, they also expect to hear about the challenges a startup faces to understand why they need capital and how the investor can help. Finally, on the topic of due diligence, investors expect a company to know where revenue is coming from, their value proposition, an in-depth knowledge of their market, growth potential, and the competitive landscape.
Following the topic of seed funding was a panel on how to secure a Series A round. Panelists included Grant Van Cleve, President of Tech Coast Angels OC, Michael Coffman, Partner of Toba Capital, and John Harbison, Chairman of Tech Coast Angels. According to the panelists, if you can grow a company without outside investment, they would advise that as the first choice. Though funding can be helpful, it is not an end in and of itself if there aren’t other drivers that will move the company and product forward. For those seeking funding, traction, a clear message that is crisp so a layperson can understand, and having a founding team that can sell and build product are crucial. During lean investment years such as the early 2000’s, VCs set a higher bar which resulted in angels also setting a higher bar. Though startups will have challenges at the first part of the funding cycle, they will also have a higher likelihood of going further. Some of the most successful companies such as Google came out of these lean years.
Questions from the audience included differentiating between different funding vehicles such as convertible note and preferred equity. Panelists responded that in general, the Angel community in Southern California is not fond of convertible notes other than as a bridge when a startup is already talking to VCs. The financial model for this vehicle does not work out as well as opposed to other options. Additionally, they prefaced that some companies never end up going to VCs and may instead work with Angels to build a sizeable return for investors and the company alike.
The event concluded with roundtable sessions broken out by industry in rooms throughout the Cove. Investors specialized in areas such as VR, IoT, Hardware, Healthcare and Biotech, Fin Tech, Software, Consumer Goods, and eCommerce gave startups each a chance to pitch their startup and engage in a discussion to get feedback and perspective on their companies.
When asked about investor feedback after the event, Chan responded that it went so well that many roundtable discussions went over time. He hopes to see more events like this becoming more common in the future.