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Sept. 22, 2020

Angel groups VS Venture Capital - how to choose? By Ryan Whittemore.

Angel groups VS Venture Capital - how to choose? By Ryan Whittemore.

Ryan Whittemore, Chief Investment Officer at Florida Funders explains the major benefits of working with an angel group versus a venture capital. We also discussed what major factors should founders look into while making their decision.

Florida Funders: https://www.floridafunders.com/

Ryan Whittemore: https://www.linkedin.com/in/ryan-whittemore-91618410/

Fill out this form to get connected to investors and mentors: https://form.typeform.com/to/vT8gVQDG


And today as a guest speaker, we have Ryan, chief investment officer at Florida, funders, and based opposite. We'll talk about the differences between angel groups and vc's and why sometimes the top tier B. C. 

might be worse idea than the agile group. So, Ryan, unless he called by, you giving us some background on yourself and on Florida funders. Sure. Thanks. Constancy for having me on. And thank you for having Florida funders on. We're excited. 

So yeah, I'm a, I'm a chief investment officer for Florida. Thunders. We're a hybrid between a venture capital fund, and we have a fifteen hundred member credited investor network that acts as an angel network. 

So typically, our fund invest into a deal. And then we have the opportunity to open it up to our angel network, and they can invest side by side through into the same company. 

And my background is has been in investment analysis, and I'm actually also an attorney. So I was a general counsel for private equity groups. 

So cut my teeth doing deals for a long time from everything from early stage, venture to more turnaround and private equity. 

But I think the key thing is really then across multiple industries, and in our business, we see almost fifteen hundred to two thousand deals a year. 

So we have to kinda quickly get up to speed looking at new types of industries, new types of deals and learn them very quickly to decide whether,
or not they're that gives founders kind of an adequate,
you know, 

evaluation of what they've been working through our that's really? 

Cool. Two thousand deals per year. That's impressive. Good work there. But I wanted to start with the Pre simple question as a chief investment officer at Florida funders. What's your major role? 

So, I oversee our deal process. So, every founder that comes in, and some of those are organic, and some of them, we're trying to find founders either through participating and things like this and podcasts or panelists. 

We're always trying to meet founders agent look for new deals. And B, to help the community, I'm a big fans of working together and collaborative with the ecosystem. 

And so, my role is to oversee that process from those inbound applications and, and working through the analysis to figure out out of those fifteen hundred companies, which ones are going to end up being invested. 

So, we whittle that down through a series of meetings and get that down to maybe twenty That'll have twenty to thirty. That'll make it to investment committee and that we're gonna end up doing fifteen to twenty deals a year. 

So my role is really to oversee that whole process from start to finish making sure they get to investment committee. 

And then after investment committee, I'm the one that works on the, the documents afterwards to to negotiate those and then work to closing them. And then we transition them to someone else on my 
team, for kind of post investment support. 
Got it, and the second question that I really wanted to kind of follow up on what you just said is, how do you source the deals so how do you manage to get up to two thousand deals per year? Because that's a pretty impressive number. 

Thank you yeah, 

it's obviously changed a little bit with coven before this you know, 

we attended a lot of in person conferences that's obviously changed, 

but we, 

we go to as many virtual things as we can, 

and it's it's participating in the community. 

So, you know, we're really close with the universities in this state of Florida. We're really close to the incubators and accelerators. 

I think last account I heard was there's fifty seven of them in Florida and so we constantly are talking with them saying they're coming out and then we're on things like Florida, 

venture forum or venture Atlanta,
which is the largest venture conference in the Southeast. 

So, I'm on the selection committee there, so it's a number of those items and then we're recently named by pitch book and CB insights as the most active venture capital firm in Florida in the Southeast. 

So, you know, that that's creating a lot of inbound organic deals that we didn't really have to go out and and mine. 

That's awesome. 

Great word by the way I've personally never been to Atlanta, unfortunately, but hopefully, once the movie is over, I'll visit one of those conferences of yours, but anyways, let's move on and discuss the topic that pretty much any founder should ask first. 

What do you investing and to invest in. 

Let me expand on that last question too. Alright. There's two things that are really, kinda left out was part of it's our angel network, and I think anybody who's gotten names on network fifteen hundred, they source a lot of deals for us. 

But the best way we get thunder, we get deals is from founders themselves. Founders tend to typically know, like, who's the best? A lot of them are going through cohorts and they'll call us and say, hey, you really need to take a look at this company. 

And so that means a lot and it's really important for us to maintain good relationships with our founders. And because we can count on them for a great deal flow as well. 

Got it so back to my question would invest in.
So, we do seem to Series A in technology, although we are tech within tech. We're agnostic. We don't 
do hardware deals, but it's primarily software and kind of our sweet spot. Is that B to B, staff software? 

So, you know, anything from really early stage revenue up to maybe two hundred thousand a year is gonna fall into our steam category. And then we're looking at post see the Series A, somewhere in that. 

Plus two fifty to two, three million in annual recurring revenue that we're looking for typically evaluation somewhere in the five to fifteen million dollar Pre money range. 

That's where our sweet spot is, we're Florida funders. So, we do have an emphasis on Florida companies, but we also invest outside of Florida. And our hopeful goal is to really build an ecosystem here. 

So, a number of companies have relocated with our funds. But a lot of them use that capital to expand into Florida. And better the overall economy here in the startup ecosystem. 

Nice nice switch. By the way I love personally. B, two B but next question I want to talk about is the major subject of today's interview in general, which is there was angel groups versus BC. 

So, usually, the thing that I saw in especially early stage founders, is when they think about fundraising, they think about those top tier or fund funds. 

Founders Fund by the way. Sorry. So what do you think is the major difference between those, you know, top tier and angel groups like Florida funders? Yeah, for sure. 

I think, you know, I I think as a founder, you know, first, you have to ask yourself, do you have all those choices? Right? 

If you've got the coil and Andreasen that wants to invest in, you think, you know, it makes a lot of sense to engage in those conversations. I'm not every founder's ready for that. 

And it kinda depends on what's the demand for investment if only out of angels you take it, you take what you can get there. There's kind of a difference in that process. And so the funds are going to be structured. 

Vc is gonna be more elaborate in their diligence process, their time horizon and the fiduciary duty they own the, that different than an angel. 

So, you know, angel can sit down with you and have lunch and decide they want to invest and, you know, it can be a really easy way to gain investment. 

You need to understand whether or not they're able to do follow on if they leave around sometimes VC don't really take seriously the valuations because there's not a lot of thought behind it. In some cases. Some, it really depends on the credibility of that. Angel. 

An angel network, for example, you know, understanding what's the structure? Do they have to pass the hat? Is it a committed amount? What's their diligence process? 

But then there's also a return side of it, and a fund has to really mandate a certain return, or it doesn't work. 

There's a certain number of deals that are gonna obviously go to zero and there's other ones that aren't gonna make very much. So, vc's are typically structure to where most of the entire funds return is banks on a few successful deals. 
And so, therefore, in general, when when a VC is looking at a deal, they really wanna see the possibility 
of probability on the ten X return plus. And so that's kinda the floor that I'm looking at. 
So, you know, a major differences that an angel investor looking for a return, and they may still, also want that same, ten X return. But they're not mandated by sort of a fund structure. That builds the one off for them. And and whatever. 

The result is, is what it it doesn't impact the rest of their, or so to speak investment returns. Right? That's very important point. And I think a lot of founders just forget about those now. 

Preset stories were funds, basically fund managers, visually force the founders to sell just because they are personally running out of time because each, each fund is like, limited to ten years of operations. Plus. 

Roughly two years of extension so sometimes the farmers are literally forced by investors to sell. So, keep that in mind while choosing the VC versus the angel group. 

So, what do you think another another concern I've heard is that if I go with an angel group, I feel like, I have enough participation from each member. Like, each member has decent shared, but not big enough to be actively involved. 

Do you think that's natural case or not really? 

I think it obviously can be, it depends on the angel network. Some of them are structured where every number, you know, above a certain threshold, if they vote on it, they all have to participate. Right? 

And other ones for ours, we have fifteen hundred angels in our network. None are required none of them pay a membership fee, and you might get twenty in one deal, and a different forty in a different deal. And so it really depends. 

I think the big thing really is is the network effect of that group are they going to go to bat are they gonna open up their contacts? 

Are they gonna be able to help you when, you know, as a boundary hit those inevitable struggles or, you know, forks in the road? Are they gonna be there and able to help? 

And, you know, that's that's the depth of whatever angel group is. They're just passive. That's fine, but it may not be as helpful as a founder neat guides. 

And what do you think there are certain criteria? So, when a founder is thinking, just in the beginning of this decision, making process of choosing receive versus the agile group, what are the major factors that should be decisive? 

Is it the type of company that founders running or should be the revenue that he or she has or what's basically where the major factors that they should look at while deciding if they should look deeper into PCs or? 

It should look deeper into angel groups. 

Yeah, that's a great question. I think the first thing is always your investor, right? Whether it's an angel group or a PC learning about what they what they invest in what their parameters are and what the amounts that they seek do they lead? Do they follow that? 

Sort of thing, so you're better prepared and generally kind of a, you know, it's a little bit of a red flag when somebody comes to us and they never looked at our website and never understood what it is we do. 
And what we look at is a lot of it's out there, whether it be VC or angel group, and also understand the 
process and the timeline that those different groups take a lot of it. Some of the angel groups, you know, they'll just want to follow on a VC. 


in a vehicle view, 

to get a BC MBC interested first, 

and they can, 

then help you source data source investors, 

you know, 

we frequently, 

you know, 

not gonna fill out the entire around and we'll call some of the, 

you know, 

like Miami angels or the South Florida angel groups, 


some of the different angel groups, 

and we'll call them and say, 


we've got a really interesting deal. 

Here's our due diligence package. 

We suggest you guys take a look at helps cut down the timeframe. So, a lot of times, there's no reason to say, you have to go one or the other. You might be going down the path with both that help. 

Yep. That answers my question real well. So, thanks for that, and one more thing I wanted to ask about is angel groups as well. 

Probably not as a clickable to Andrew, but still with founder is talking to an investor one or two major qualities that he, or she should look into that specific investors. So, should there be some red flags that you would recommend to search? 

So, maybe, it's the how many I can come up with a good red flag for me. Okay. One of the good place for me. Red flags for me would be like, how many names does the investor reference. 

So I can here. She keeps saying, you know, all those big names and how they know each other for me. Personally. That would be a red flag. 

Because most of the time, that's not really it doesn't mean that they're like close friends, but yeah. Hopefully you got the point. I kind of did a good job for doing the question, but I hope you've got. 
Yeah, I, you know, I would kind of flip it back I think, you know, from a VC perspective, sometimes that 
deals that really stand out. 
You can tell the desperation and a founder, and when a founder comes to us and has multiple options, it's natural that there's a little bit more competitive Smith a little bit more intrigue about the deal. 

Then, when you realize, you're the only one there, you're kinda the last resort and everybody else's either pass on it or you're, you're solely dependent on their outcome, and they're running through cash and they don't really have any other choices left. 

You know, so so but to answer your question a little bit better. 

It's always good to talk to a founders, like, what other deals have you done, talk to them and get to understand their process and make sure fits within your timeframe what they're looking for both in the short run and as well as long run. 

And then, 

you know, 

obviously you can ask for references, 

you know, 

we had several times where we've been working on a deal and they want to speak with a couple of our other portfolio companies and we'll give them a a less, 


Here's a bunch of portfolio companies think you have to sometimes take it with a grain of salt if you just go to the community and and try to get a feel for the community because the reality of DC and even with the angel groups, 

there's a lot of those deals. 

You know, we do one out of every hundred deals it's just kind of the nature of the business and so, you know, the odds are out of those hundred people that ninety nine of them. We have to turn away. 

There's probably nine to ten really good deals in there that we, we unfortunately have to turn away. There's probably another ten to twenty that are pretty decent, 

but there's some plot and maybe we just want to revisit and then there's another seventy that's aren't a fit, 

but it's inevitable that there's gonna be some number in there that,
you know,
they're not happy with your decision they think you're an idiot for missing it and they don't think, you know what you're doing. 

They thought, maybe, maybe they'd go further in the diligence process at a quick know, sometimes a lot better than making it further through the process and then getting a no, and it's, you know, it's an unfortunate, but you have to under cover. 
Everything feel back all the layers, or you can understand it enough to move forward investments. So, you know, take it with a grain of salt. Sometimes you get a better bad review. 

I think the best thing you can get is somebody who went through a process didn't get an investment and still say something good about that VC or angel group. I think then you really are gonna know whether or not that's a good group. 

You know, you're not getting bias by somebody who they don't want to getting back to their investor that they said something bad and you're not getting bias from somebody who got turned away. And is that her about it? 

Right? But quick question here. How do you find those people that's the BC pass or the enter group best on should interest now go through the community of just sharing the message? Like, hey, I want to get funding by Florida funders. 

Is there someone here who applied to them? But didn't get funding or is there a better option to find those people who. 

Yeah, I, I think that's a great question. I mean, part of it's just networking and part of it, you know, call up the, a local incubator call up and accelerates. 

I probably inevitable that VC has done deals within their geographic market. Right? And somebody is gonna know,
maybe if,
you know, 

you can look up and see if they have any listed and, you know,
one of them,
you know, 

one of the other founders, 

I I've never heard any founder who would turn away another founder who got a reference check on somebody, 

you know,
it's not hard to go onto vc's website. 

They okay. They're in these thirty portfolio companies reach out to somebody on LinkedIn. Yeah. You know, founder of that portfolio company and just say, hey, you know, I'm going through the process wanted to pick your brain on that. I, I, I think most people are willing to help. 

A lot of times, if you're a CO founder, you know, sometimes one Co, founder has to work solely on the fundraising and the other ones run in the business. But unfortunately it is a full time job. 

And, you know, I think when founders come in, with that understanding and understanding of someone's process, it generally goes a lot smoother. 
And when they come in, you know, with all the signs of desperation, and it's maybe not being prepared 
and trying to set a timeline, say, well, you know, we're presenting, but we need to close this round by next week. 

If you're talking to a VC or even an angel network, it's highly unlikely. They're even gonna want to move forward any farther because their own due diligence. They're talking to an angel, an individual and two. 

It might work and they may be able to move much quicker. 

But, you know, from my perspective, as I have to do the proper due diligence, or it creates huge liability on me, I, I don't wanna find out later. 

There was some easy stone we could've uncovered and investor asked me a question about it. And, and I didn't do it because I was trying to rush and avoid some formal effect. The FOMO effect is, is, you know, it's it doesn't work very well. 

When you use that tactic. 

Absolutely really, really good point here. I think rushing investors, you know, some founders have this have some idea. Like, if I'm gonna create a sense of urgency that will work in my experience. 

Like, it never works. I've only seen like, a couple of pieces. I've only read about a couple of cases one that works, so think about twice before she to this, but very good point. Definitely. Do your homework. 

We're searching faster and keep them some time to do the know the, the birthright get. I guess it's not even for accuracy. 

Honestly, it's just something you have to do as ABC or as an investor in general, but anyways, let's move on and talk about the. 

And your advice to people right now, specifically so, as you mentioned, there was Co bids and what's your advice to founders who are trying to get over those times? 

Or, actually, founders were just trying to start their companies now during these times when the companies still not completely over. 

Kinda now help you navigate through some of those issues and so, you know, to they're gonna be there and help you prepare for the future you get more organized, but I'm having people to go to. It's just such a such a benefit. 

And don't ever be afraid to communicate with your investor, whether that's a DC or an angel group a, they can help, but be, they gain more confidence from you. 

And I don't mean just share the good news, bad news bear where your struggles are, because they may be able to help. It may be as simple as a, a contact or maybe like, hey, Here's another way to approach it. 

And, you know, the founders that communicate with us, the most I would say hands down are also largely the most successful in the portfolio, the ones that go silent. And then they come back when they only want money. 

It's a big red flag. And we don't know what's happening in the company, and they've got to kind of get us up to speed. They've generally kind of run out of time. And so it's kind of a fire drill. It makes it far less attractive to, you know, support the company. 

Some of them are gonna fail to let those go as a portfolio manager of a fund and it's a difficult decision but it's the reality of that business. There's only so much program you can go around. 
So, those companies that understand that and plan ahead and constantly communicate with our investors and aren't afraid to say, hey, I'm struggling here. We're gonna tidbit here. You know, there's not no shame in that. 

Very good point, you know, keep your investors update. That's super important, being super transparent and pretty much any aspect of your business, but sure. One to talk a little bit more about the communication part. 

So a lot of angel groups, 

what they do is when they receive an application, 

they will get back to the founder in any case, 

and actually specifically say why they did not accept him or her in the program or, 

you know, 

why they didn't even consider to review the company, 

do you do the same thing at Florida funders and do actual recommend any founders to do that? 

So, even if I know that my revenue is only five thousand per month, and I know those too low for you guys, should I still play just to hear that feedback? Or is it not not really nice? 

yeah i would say that 

You know, the the best thing is that a founder understands what a vc's going through. I think a lot of opinions are formed when you get a rejection and they don't understand, or they didn't really look at it or whatever else. 

And especially depending on how that response is given back, and how you're passing, we have found, we personally have Florida funders. 

We try to give more feedback even if sometimes it's critical it doesn't help to sugarcoat it for our founder. Because they made the only one one small correction away from fixing it and going to another VC and being successful. 

May just not be a fit for our portfolio. There's a lot of different reasons. And it doesn't have to necessarily be that. We don't like the company or the deal. It just maybe we already have a competitor in that space already over allocated in that area. 

The timing is not right, but there could be a lot of things, but if the founder ever asked me, like, hey, can you give me a little bit more feedback or explain something? I'm, I'm happy to. 

With feedback. Absolutely, absolutely. That's the thing about the PCs. They love keeping feedback secure. We're moving on to the last question of today's episode, which is a call to action so right. What's the one specific thing you want to looser to do? 

As soon as the episode? Is over. 

I'm sorry, can you repeat the question was the one thing you want to lose her to do as soon as the episode is over. So one call to action. 
Great question. 
you know. i think that. dc's. and angel groups. can really do. a better job without communication. and there needs to be 

More communication between founders and BC and fun settings, where you get to know them and and ask the questions and understand the process and, you know, understand, I think everybody's trying to help each other. 

It's there's just a volume game that makes it really hard to to basically, like, both invest in everybody, but also support them and to your last question, you know like, how do you respond back? I only had a few deals. 

I'd love to spend all day with a hundred and help work with them on the business. It's just not the reality. 

And I think the last people take take this personal in a business full of rejection and you take it more as as motivation or helpful advice. More successful founders are gonna be. 

Very good point by the way that part where you didn't quite yet. My question, I'll definitely cut it out and this as well. No worries. No worries. That's my fault. I kinda my computer is like a little bit. For some reason, I'm trying to set it up real quick. 

So, Emily just a tiny bit distracted, but yeah, great call to action. My cultivation is as, you know, as usually go to this group and this episode. I'll definitely leave a link to Florida funders. 

So each, your B, to B, you definitely should apply, even probably easier to early I'll take the risk of saying that so just see if you're in that field definitely apply, you know, you will at least hear some feedback. 

And I'll also leave a link to the application process of fundraising radio where I connect founders to the previous speakers, all fundraising media, which are successful founders, and actively investing investors. 

So, if you're looking for funding or mentorship definitely. Fill out the application below. And chances are, you'll get connected to someone really interesting. So do that and have a good day.