Since the very beginning, MetroStart (formerly Metro Startup Launcher) has worked to make it easier for startup companies in our area to raise capital and get started. With a lot of trial and error, we believe we have figured out a much easier way for startups to raise capital. The same method allows investors to invest smaller amounts and spread their risk, which statistically produces huge returns compared to typical stock market returns.
As we have worked to build the audience for MetroStart over the last couple years, we’ve heard a lot of common themes:
◾ It’s REALLY difficult to raise the first $25,000 to $50,000 for startups that need a small amount of cash to get started.
◾ NO ONE wants to be the first investor to help me get my concept off the ground.
◾ After raising my initial chunk of capital (sometimes even hundreds of thousands of dollars), we just can’t seem to find any additional investors.
◾ All the serious angel investors say they are tapped out.
And, from the investor side, we’ve heard similar things:
◾ I don’t want to be the first investor on someone’s idea.
◾ Come back after you have proven your concept.
◾ Come back after you have traction in the marketplace.
◾ Come back after you’re profitable.
◾ I invested $25,000 in a startup one time, and I lost all my money. I’m not doing that again.
Not only does this lack of very early stage capital lead to less startups, this means that the MAJORITY of ideas for companies never get started at all. I’m not saying that ALL ideas deserve to be funded or should even get started. However, there are many great ideas and great companies that never get started and/or eventually fold because they can’t raise the capital they need to maintain momentum.
From the investor side, it makes sense for us to launch a lot more startups and for investors to invest in a lot more startups. If you download MetroStart’s ebook, Little Angels, Big Profits, and look at the information contained in multiple studies of angel investors, there’s an important statistic. Angel investors MUST invest in multiple startups in order to be profitable. Here’s the stats:
◾ If you invest in one startup company, you’re likely to lose all your money.
◾ Invest in 6 or more startups, and you’ll probably reach break-even.
◾ Invest in 12 or more startups in a 5 year period, and you’ll start to approach a 27% annual return on your investments.
I think this leads to a pretty obvious plan for our area:
◾ Teach startups how to set up their company, file with the SEC, and raise capital in small chunks (as small as $1,000 per investor).
◾ Make it easy for investors to invest small amounts ($1,000 or so) in multiple startups.
◾ Help the best startups get the funding they need to get started and grow.
◾ Help angel investors actually make money over time through DIVERSIFICATION.
What have we learned:
After assisting with several local capital raises, we believe we found a formula that works:
1 – Create your company as an LLC so that you can write off all early losses.
2 – Write a short business plan that is polished enough to get investors to write you a check.
3 – Create a SAFE agreement, which investors will sign to invest as little as $1,000 in your company.
4 – Submit a Regulation D 506(b) SEC filing, which allows you to take investments (privately) from any number of accredited investors and up to 35 non-accredited investors per year.
5 – Raise capital from family and friends (including non-accredited).
6 – Switch to a Regulation D 506(c) SEC filing, which allows you to ADVERTISE as much as you want and take investments from accredited investors only.
7 – Advertise on LinkedIn, Facebook, and social media to find investors that have interests in your product or service.
So what are we doing to help:
1 – We’re in the process of creating an online course that will provide complete step-by-step details on how to perform all the steps above.
2 – We’re creating a Louisville SAFE agreement that has been vetted by local attorneys and angel investors, which EVERYONE can use.
3 – We’re building a team of “Lead Angels” that will perform due diligence on startups, invest and/or earn equity in startups, help the startups raise capital, and help the startups grow. If you’re interested (CLICK HERE).
4 – We’re continuing to build a database of “Micro-Angel” investors that will invest as little as $1,000 in lots of startups, helping them shoot for the 27% annual return.
We’re currently working with multiple startups in the regional area (Louisville, Lexington, and Evansville) , lots of local Lead Angels, and the whole startup community to make it happen.