As an entrepreneur, nothing comes easy. But, especially in the beginning, one of the most stressful and labor-intensive tasks on your to do list is raising capital. Your needs are always bigger than your means. And, you’re usually missing the market traction, and proof of concept that traditional investors require, to even get a meeting.
So, many early-stage entrepreneurs ask, “Who can you go to for the funding you need to get started?” Three of Connecticut’s most successful entrepreneurs recently came together to reflect on the critical role that angel investors play for an early-stage startup.
Perspective from 3 Connecticut Entrepreneurs
Chris Allen’s journey toward a $100M+ exit in 2017 started with googling his way through product development. He had an idea for a digital grilling thermometer that would connect to a phone. But, as a self-described college dropout, he had neither the learned, nor lived experience to make it happen. But, he pursued the idea anyway, eventually developing a product called the iGrill. That led to other digital products, developed under a company called iDevices, which Chris sold in pieces to Weber and Hubbel.
Mike Kalen’s path to entrepreneurship was a little different. He began his career in insurance, and worked his way all the way up to President of Hartford Life Insurance. When The Hartford sold that line of business to Prudential in 2012, Mike started working with a venture capital. His role was to serve as an industry expert, and help them them to vet potential investments.
That’s where he met the founders of Covr, a company that makes it easy for customers of financial institutions to buy life insurance. Since becoming CEO, he has helped Covr raise growth capital through Series A and B fundraising rounds from Citi Ventures, Sony Ventures, Stonepoint Capital, Connecticut Innovations, Fairview Capital, as well as other leading venture investors, and acquire customers like Morgan Stanley, US Bank, E*Trade, and Citibank.
Kevin Rocco founded Biorez, after the startup that he was working for failed a clinical study. Instead of giving up, he took insights from that experience to develop a biological implant that supports soft tissue healing. Kevin felt confident on the technical path to get there, but had nowhere near the amount of funding that he needed to get started. He turned to Angel Investors, Connecticut Innovations, and friends and family to provide him with the capital needed to grow the company to the point where he could sell it in 2022 to Conmed in a multi-staged deal worth up to $250M over four years.
““When you’re growing a business, smart money is more important than just money. Period.””
Looking back on their companies’ beginnings, Chris, Mike, and Kevin all credit their earliest investors, as their most important allies. “We were nothing.” Kevin says about the time when he decided to try to start Biorez. “We needed $1.5M to get started again. I was unemployed for three and a half months, trying to pull that money together, and if we didn’t get it, the company wouldn’t have happened.”
However, Kevin admits that getting that first investment wasn’t easy. He called Craig Mullett, who served on the Board of the Angel Investor Forum in Connecticut at the time, “and he told me all of the reasons why this company was not a smart investment.” Kevin says. Even though, it was tough criticism to take, Kevin chose to use it constructively. He admits, “They were good reasons, and I wrote them all down.” He used Craig’s feedback as a checklist of things to address within the structure and strategy for Biorez. This led to a breakthrough. “When I circled back and told him how we had addressed his concerns, and he ended up investing.”, Kevin says.
Chris’ path to raising his first capital was also challenging. He reached out to a friend who had recently sold a successful business, and asked for $50,000 to build an initial prototype. Fortunately, his friend said yes. But, he also offered something unexpected. Chris remembers, “He said sure, I’ll throw it in, but hire my son.” Suddenly, Chris had the money that he needed to build his first prototype, and also a freshly-minted college grad serving as his CFO, who Chris paid with more money provided by his father.
After he developed the prototype, and pitched it to Apple, he faced his next big challenge. Chris says, “Apple said, ‘We love it!’ And they told me that they wanted to carry it in all of their stores.” But, Chris didn’t have any money to start production, or deliver the product. So, he networked his way to an opportunity to pitch to a group of successful Hartford business leaders. Collectively, they contributed $800,000, which Chris says was especially significant, as it was in the midst of the 2008 financial crisis. “These folks believed in me and allowed me to really build a company.”
When Mike Kalen joined Covr, the company was facing a different type of challenge. It had already raised some initial capital, it had the technology that they needed to deliver their product in place, and it had already secured revenue from two customers. But, it was struggling to balance growth with the preservation of critical first capital. Mike says, “You think capital goes a long way, but you have to be very careful to invest in the right people and right ideas. You need to pick things you can execute with a high degree of certainty and people you can count on to innovate and deliver.”
““When an expert in the space is willing to invest their own money – that’s validation.””
More Than Money
In each of these three stories, cash was critical to getting the business off the ground. But, beyond cash, Kevin, Chris, and Mike all agreed that Angel Investors also offer a second type of critical support to early-stage companies.
Chris says, “When I started with iGrill, there was no IoT market. That wasn’t even a word. So, I invented a category by starting that company, and I relied on other people to help me figure out accounting, sales, distribution, and everything else. I literally had zero clue of how to do these things. So, I learned on the job. And I learned by listening to my angel investors.”
An interaction with one of these investors particularly stands out for Chris. “I had a billionaire fly in for a meeting from California. And he rattled off a list of things that we needed to do, in order to overcome the challenge we were facing. My head spun by the end of the meeting. I was literally nauseous. But what he said was, ‘We’re going to give you the $1.5M that you need, but we’re also going to help you do these other things.’ And, Chris says, “He was always there to take a call when I needed more help. So, I think smart money is more important than just money. Period.”
Kevin had a similar experience. Through his relationship with Angel Investor Forum, he connected with John Owen, the founding CFO of JetBlue Airlines. John became an investor in Biorez, and Kevin recalls, “I’m a young engineer, and John brings this whole wealth of knowledge that I knew nothing about. I couldn’t pay John enough money to provide the help that I needed, for it to be worth it to him. But, after investing, he wanted to help me because he was motivated to help make his own investment succeed.”
““If you engage, and you listen, you’ll gain a lot of value from your investors.””
Investors as Partners
However, Mike Kalen pointed out that not all entrepreneurs are able to develop the rapport with their investors required for that type of mentoring. He says, “Investors evaluate the strength of the management team first. You have to believe in the management team. And, one of the characteristics of a good manager is an ability to engage advisors.” He’s seen the value of making the time and effort to engage advisors, and keep them invested in his own company’s success, first-hand.
Mike says, “The model that I use is that we gave a lot of smart, well-known Wall Street people equity in our company early on, in exchange for serving on our 10-person advisory board.” But keeping a group like this engaged also takes a significant amount of intentional and sustained effort. Mike says, “We have a meeting every year. We provide quarterly updates and offer opportunities to connect with us for more detail.”
But, Mike says that making this effort, is perhaps one of the most important investments that an early-stage company can make. “When we want to get Citibank as a client, my relationship with our advisors means that I can call one of them up, and say, ‘I need you to call this person.’ And when they call that person, they’re motivated to help me get me a meeting. They’re not going to make the sale for me. But, they’re going to get me the meeting.”
When asked for advice by early-stage entrepreneurs, Mike encourages everyone to prioritize building relationships with investors, alongside all of the other work it takes to build a company. He says, “If you give to your investors, if you go to their meetings when invited, and you listen, and you engage, and you educate them, they will find ways of helping you grow your business. So, engage, keep your ears open and you’ll find a lot of value in your investor group.”
Kevin also pointed out that beyond both the immediate benefit of securing some much-needed capital, and the potential for mentorship, angel investors provide one more essential type of support for early-stage companies: credibility. He says, “If you have someone who has built a successful company invest in yours, that’s powerful validation of your potential.”
That’s because receiving an investment from an Angel is different than other types of capital. Angel Investors are betting with their own money, not allocating money from a fund that they have raised from other sources. So, Kevin says, “When someone who has been successful is willing to risk their own money, that sends a powerful signal to others. It helps you get more money, and better money, which is the momentum that entrepreneurs need.”