Computer Dating: A Cautionary Tale about AngelList and Crowdfunding Sites

A novel dating app, just incubated and angel funded, reminds us to caution you before  listing your best new investment prospects on AngelList or on equity Crowdfunding sites.

From today’s edition of the always informative peHUB First Read:

“London-based startup Dattch is a dating app with a difference. I don’t mean the fact that it’s exclusively for lesbians, bisexual and/or bi-curious women — though that certainly makes it stand out from the ranks of straight dating apps. What really sets it apart is its mostly female team who set out to design a dating app specifically for gay women.

"Dattch is currently one of 17 startups in the Wayra London incubator cohort, and has just closed a £100,000/$160,000 angel/small seed round, with three angel investors — including Yannick Pons and Andy Phillips. That investment bolsters the €40,000 invested by Wayra as part of its incubator program, where Dattch will remain until January."

The first computer dating application we learned of was started by our classmate Dave Dewan, MIT ’65, although we later learned that a competitor, Operation Match, had been founded by Harvard undergraduates Jeff Tarr and Vaughn Morrill slightly earlier.

“I started Contact Computer Dating in April 1965.  It was a huge fad for two years (we had a cover story in Look magazine; I did What's My Line on TV etc.)  Then it died out, only to reappear decades later as a huge business,” says retired executive and angel investor  Dewan.

With Dave’s app, you filled out a questionnaire describing yourself and your interests.  Lots of other singles did the same. Dave would take the answers and key them onto punch cards.   His program would then find the best matches.  A guy would get phone numbers for five women he could call.

How did it work out? Not so well for Dave.  As a test, he and his girlfriend signed up.  She met a nice guy from Amherst and started going with him.  Dave, ever the tech guy, says “that was sad, but it proved the system works; it found her a more compatible guy.”

Our advice: remember Dave Dewan’s girlfriend before you list prospective deals on public sites, lest they find a more compatible angel.


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Rep. Schweikert Speaks on the ‘JOBS’ Act at the ACA Summit; Golden Seeds Jean Peters tells congress about Angels

During his keynote address at last week’s ACA Summit, Congressman David Schweikert (R-AZ), Chairman of the Small Business Subcommittee on Investigations, Oversight, and Regulations, spoke passionately of the importance of creating an ecosystem conducive to entrepreneurial investment. 

“Capital formation is the future of job creation, and therefore our economy,” says Schweikert.  “I believe that by the end of the decade the way we finance will look very different than it did when we grew up, and it is our responsibility to ensure that legislation supports present day needs.”

In the 112th Congress, Schweikert was the leading author of investment legislation which became part of the ‘JOBS’ Act, signed into law by President Obama.  In Congress, Schweikert is a prominent voice in driving the Securities and Exchange Commission (SEC) to promulgate rules on the ‘JOBS’ Act.  The ‘JOBS’ Act, passed more than a year ago, includes a number of initiatives aimed at increasing access to capital for startups and high growth firms, and requires the SEC to publish detailed rules before activities such as equity crowdfunding may begin.

“We were honored to have Congressman Schweikert join us at the Summit,” says ACA Chairman David Verrill.  “He is a leading voice for angel investors and a tenacious advocate for driving the SEC rulings related to the ‘JOBS’ Act.  We also appreciate his advocacy for an expanded Regulation A and IPO onramp, the two pieces of the JOBS Act he spearheaded and which are leading to exit opportunities for investors and to growth for entrepreneurial companies.”

Just a week prior to the Summit, Jean Peters, ACA Board Member and Managing Director of Golden Seeds, testified before the subcommittee chaired by Mr. Schweikert to advocate on behalf of angel investors and entrepreneurs. The “JOBS Act Implementation Update” hearing was hosted by the House Small Business Subcommittee on Investigations, Oversight, and Regulations and witnesses included representatives of the SEC, entrepreneurs, investors, and academics. 

“Angels fund the majority of early stage deals," Peters told the subcommittee. 

“Let me briefly describe angel investing: Angels are accredited investors whose capital comes from our personal pocketbooks. Most are former entrepreneurs, or were successful in business – and want to help others up that ladder. We invest at the most primal point of capital formation -- small startups with high growth potential.

“These companies come out of university research, local business incubators and economic development efforts. They reflect the entrepreneurism that is addressing the business, education and health care challenges we face as a nation today.

“Angels are the only source of capital for most startups, and supply up to 90% of outside equity raised by seed-stage companies after they exhaust any resources from friend and family, according to Kauffman Foundation estimates. 

“In fact, angel investors fund 20 times the number of seed-stage companies than venture capital. In 2011, angels invested $23 billion dollars in 66,000 early-stage companies, while VCs put a few billion into 1,800 startups, plus $20 billion in 2,000 later stage companies. 

“Angel-funded companies are in every state and industry sector. They are crucial for job growth. According to Census Bureau data, startups comprise less than 1% of companies, but generate 10% of new jobs in any given year. 

“Without angel funding, these businesses would simply never get off the ground.”

Of Peters’ involvement in the hearings, Congressman Schweikert comments: “We greatly appreciate Jean coming to DC to help tell this important story and further drive the SEC rules forward.   ACA plays an important role in providing a voice for public policy makers on the critical needs of angel investors and our mandate to do no harm in furthering our vision for economic growth of start-up enterprises.”

The 2013 ACA Summit, held last week in San Francisco, was the largest ever worldwide professional gathering of angel investors, with over 650 attendees.

How long will it take you to get in front of 600 investors in Texas? A new angel-oriented crowdfunding platform says 90 days

Hall T. Martin, an Austin based entrepreneur with strong angel credentials, has established a new crowdfunding platform via his firm, the Texas Entrepreneur Network (TEN).  Martin serves as the Vice-Chair of the Baylor Angel Network and as the Director of the Wilco Angel Network.  Previously he served as the Director of the Central Texas Angel Network where he established the network and grew the membership to 50+ members with $5M invested in over 20 deals. Mr. Martin leads a program at the University of Texas in Austin on transferring university technology into successful startup companies.  He is also the Founder and Director of the Texas Open Angel Network, a 501c3 non-profit dedicated to the education of angel investors.

“There are two trends in the angel world that come together on crowdfunding,” says Martin.  “The first is that there are more deals than can fit into the funding forum model that angel groups use, so they have to start using the web to screen through the deals and determine investor interest.  The second trend is that investors don't want to pay fees up front but rather after they decide to invest in a deal.” 

Crowdfunding. 

What is crowdfunding? “It is finding investors through a web portal,” says Hall.  “There are four kinds of crowdfunding: equity, prepayment, loans, and donations.   TEN is offering equity-based or revenue-based funding deals to accredited investors.” 

We are doing this to close the distance gap in the state of Texas.  It’s a big state with many entrepreneurs and investors and we’re networking them together through the web.  It’s for Texas entrepreneurs and Texas investors although we may broaden it in the future.  We have over 600 accredited investors in the state of Texas in our database.  They are mostly in Austin, Dallas, and Houston, but cover the state. They include angel investors, angel groups, family offices, venture capitalists, private equity firms and more.  They look for a wide range of deals including early stage, growth stage, and revenue-based deals. 

So how does it work?  Investors login as “accredited” investors to see the deals.  If they want to learn more about a deal, they select the “I’m interested” button and we’ll line up a follow up call or meeting. Entrepreneurs who want their deal on the website to find investors submit an application.  Deals that we believe are fundable are accepted into the site. 

  

“We are not a broker/dealer so we don’t take commissions, success fees, or equity,” says Martin. We charge a flat fee to post on our site each month. For entrepreneurs it is $500/month (for at least 3 months).  It takes time to meet investors and build a relationship. For investors it costs nothing.

We help the entrepreneur with their documents (executive summary, pitch deck, and five year financials).  We mail to our investors on a regular basis about your deal. Investors interested in your deal will click the “interest” button and we’ll line up a conference call, webinar, or in person meeting.  If you stay in the program for more than 3 months, you are invited to join a funded cocktail reception or funding forum.

Benefits for Entrepreneurs.

So how long would it take  to get in front of 600 investors in Texas? The better question is that if you had access to over 600 investors, could you get your deal funded?

"But let's face the facts  - only 15% of entrepreneurs seeking Angel funding ever raise a single dime," says Martin. "Or, to put it another way, 85% of the folks who try to raise capital from Angel Investors fail."

In the past 3 years, we've helped Texas entrepreneurs  raise over 60 million dollars in Angel Capital ($60,000,000) through physical funding forums, personal introductions, profile promotions and more.


And now, through our crowdfunding platform, we're going to be able to spread the word about deals to more investors at one time and bridge the distance gap around the state.

To get the most out of this program,

• First, entrepreneurs need to prepare for the raise.
• Second, they need to give it some attention. They need to prioritize follow up meetings with investors.
• Third, they need to be patient. It takes 3 to 6 months to find an investor, build a relationship, and close some funding.

About TEN.

The Texas Entrepreneur Network (TEN) is a for-profit that seeks to promote entrepreneurship through supporting entrepreneurs in the state of Texas.  We currently focus on helping entrepreneurs raise funding and find mentorship through the development of accelerators.  We have been helping entrepreneurs raise funding through physical funding forums over the past three years throughout the state of Texas.  In these events, 10 entrepreneurs pitch to a panel of 10 investors.  We are now extending our program to include crowdfunding.

We’ve helped entrepreneurs raise funding for the past three years in which our entrepreneurs have raised over $65M.  We run webinars on these topics on a regular basis. Readers of the Angel Investing News can find these sessions on the TEN website.

Martin, who makes his own wine, is also a member of the Wine Society of Texas
 

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