How do founders communicate with investors in early and mid-stage companies? Traditionally, it has been with high friction and rarely. In This RABBIT Report we explore one company that has created a potential solution to this problem.
Sector: Trust & Transparency
Location: Austin, Texas
While it is common practice for public companies to report quarterly to investors, there is no mandate that private companies provide the same reporting at the same frequency. This changes for companies that are successful with Regulation Crowdfunding after May 16th. After then, companies will be required to file an annual report with the Securities & Exchange Commission (SEC) and provide it to investors no later than 120 days after the end of their fiscal year. Because the law doesn’t state what should be in an annual report, this creates questions, causes confusion and introduces a level of uncertainty. Enter AngelSpan, an investor relations tool that will assist issuers in preparing annual reports, facilitate communication with investors to keep them informed of company progress, and keep issuers compliant with the regulations.
What problem is AngelSpan solving?
Because of a lack of ongoing information, investors in private companies do not have the same degree of understanding about what is happening with their investment as investors in public companies. AngelSpan aims to solve this problem by providing consistent and proper transparency and communication from funded startups to investors and other stakeholders.
The few entrepreneurs that actually do provide any degree of transparency, “approximately 8-10%,” says AngelSpan CEO Joe Milam, do so via self-reporting tools and practices like email, dashboards or MailChimp. However, they are often wondering what to report and when to report it. For those that do report there is a lack of consistent information and insights among the reports and across companies within the same industries over time.A lack of clear, consisten reports leaves startups with many challenges, claims Milam. These include “inefficient access to financial and non-financial resources necessary to build their companies. A long and difficult funding process. Inconsistent mentoring and advise from investors. And possibly challenges with customer acquisition.”
AngelSpan assures entrepreneurs maintain 3 things with its technology – cadence, content and context:
- A proper Cadence of communication (monthly updates, timely quarterly reports, intra month/quarter milestone announcements),
- Reports that cover the proper operational Content as structured and informed by the Bell-Mason (startup) Diagnostic. [The Bell Mason Framework for Corporate Venture Development describes the 5 Phase process (concept – seed – alpha – beta – market calibration) for building incubated ventures. The framework describes best practice requirements by stage for the entire venture business. The framework has been used to evaluate, assist in due diligence, management and reporting of more than 2000 ventures.] and
- Reports that are presented in a Context that is easily consumed and understood by a diverse set of stakeholders and investors.
The result says Milam is, “funding is quicker, investors and stakeholders are more engaged in helping, and CEOs and founding teams can navigate the startup life cycle more efficiently.”
How does it work?
AngelSpan uses technology to efficiently accumulate operational and financial details on their clients. The information requests (and thus the monthly updates) are structured around the Bell Mason Diagnostic (mentioned above), so entrepreneurs are reporting on the right operational functions and milestones that not only inform and engage their investors and stakeholders but also provides a structure and roadmap to build the company more efficiently. “By engaging professional writers and editors, the context of the monthly updates and quarterly reports is very ‘reader-friendly’, thus facilitating deeper engagement and advocacy from investors & stakeholders,” says Milam.
Who are the founders?
Joe Milam is the founder of AngelSpan. During his tenure at 3000 Sand Hill Rd. in the early 1990’s he experienced the early angel investing/entrepreneurial boom triggered by the Internet. Both he and his clients experienced firsthand the ‘information gap’ that existed then (and exists today) on early stage companies. This lack of information – both pre and post investment – contributed substantially to the ‘funding gap’ for early stage companies. Joe attempted to solve this in 2000 with AngelLegacy, and intends to follow through now with AngelSpan. While not a founder, Bryan Menell is a key hire and as a successful serial entrepreneur (4 startups, 4 positive exits including 1 IPO) was committed to transparency & communication as a CEO. As an active angel, he experienced the ‘information gap’ from the companies he invested in. As a result, these companies wasted the opportunity to benefit from his experience and expertise, many of which have subsequently gone out of business.
What can you tell us about early traction/user experience?
AngelSpan has fee-paying clients all over the US, including alums of Y Combinator, Village Capital, Techstars, etc. One client was acquired by Under Armor, others have had substantial success in follow on financing rounds, while others are considering an IPO. AngelSpan was selected as a member of the Dell Founders 50 cohort for 2015/2016, along with firms such as Docusign. AngelSpan is an approved vendor for TechStars globally, as well as the Global Accelerator Network, venture capital firms, and Milam claims “is becoming a ‘should have/have to have solution’ around the country for other investors such as family offices.”
What are the risks to the company?
The competition to date for AngelSpan is entrepreneurs doing it themselves using email, spreadsheets, google docs, homegrown dashboard tools, MailChimp, etc. However this is a large problem in the market and one that will attract serious competition from serious players. The success of this team will be influenced by factors including their ability to automate their processes faster and better than any current/future competitor. Additionally, their ability to build and use benchmarking/comparative data across all of their companies could create a significant sustainable advantage…but while many people talk about data science/machine learning/information assets, these services/assets are very difficult to build and can be expensive given the price of the experts to do this work in highly differentiated ways. The company has experienced leaders that should have the backgrounds to navigate these challenges, but they are challenges indeed.
What is our perspective?
- Investor relations at any sized company is difficult….at a startup it is much harder for many obvious reasons listed above.
- Everyone talks about the need for “smart money” but if you are not communicating effectively/efficiently and in an engaging way with your “smart money” investors, you are wasting their smarts.
- AngelSpan is #1 in Google search results for ‘investor relations for startups’ allowing them to reach their audience.
- AngelSpan has a deep bench of Advisors from with experience from Reuters, Credit Suisse, the BellMason Group, Austin Ventures, etc., and the existing team is trained and delivering the service to customers all over the US.
- AngelSpan’s model is scalable today (the company states that it outsources the professional writing, editing and organization to 300 writers/editors all over the world (that can translate in multiple languages). Over time, they will also need to create technology-based scalability.
- AngelSpan also has a robust technology strategy to continue to save their customers (founders) time, improve the companies’ brand image in the eyes of the investor communities, and help investors in startups of all walks (VCs, angel groups, family offices, crowdfunding platforms, etc.) increase their activity, efficiency & effectiveness in funding startups globally.