At least I didn't get trashed this time. And "swayed by Anne's good looks"! I like that!

In Angel Investor Video Pitch Trashed, I shared a comment left by David Rose, angel investor and founder of Angelsoft.  He pointed out in detail the shortcomings of my angel investor video pitch.  To quote comedian Dom Irrera, I'm sure he meant it in the nicest way.

Although I called it a "trashation," David Rose's comment actually included an expert guide to creating an angel investor video pitch.

David Rose has done it again.  Becoming an Angel Investor describes what's required to become an accredited investor.  In a comment he left, Rose shares reasons for the requirements.  With thanks to Rose for his time and expertise, I share the whole of his comment here:

The reason that most angel groups require their members to be Accredited Investors is for the sake of the company, not the group itself.

Here's why: The SEC was set up in the aftermath of the Great Depression to protect people from being scammed with wild and crazy schemes floating their shares on the stock market and promising the moon. The result was a requirement that anyone selling equity (shares of a company) had to register with the Securities and Exchange Commission, and file a whole lot of detailed paperwork on the actual historic earnings of the company, the risk factors, background on the company management and owners, etc. etc. etc. That's what being a 'public company' is all about, and why your widowed Aunt Martha and your simpleton cousin Ferdinand are able to call up their stock broker and buy two shares of Google, for example.

BUT...the SEC realized that there were certain times when all that filing and paperwork wasn't necessarily required, so they established certain exemptions to the registration requirements. The exemptions are detailed, and cover several different categories (you can sell stock in Handshake 2.0 to Goldman Sachs, for example, or Kleiner Perkins), but the exemption that will typically be most appropriate for most entrepreneurs, as Ken [Maready] pointed out, is the asset/income test for individuals. The thinking is that someone who has that kind of money in the bank and/or continuous earning power, should be able to absorb the loss of the entire investment in your startup company if things go bad.

One of the other things about being an Accredited Investor is that you need to have business experience, so you can make a good case that you're not just throwing darts at a dartboard, or being swayed by Anne's good looks but that you really have made a considered decision to invest on the merits. (The test for "knowledgeable investor" is a bit more nebulous than the hard asset/income numbers, but get to the same point.)

SOOO...the bottom line here is that a company such as yours is exempt from all the public registration and filings when you sell your equity, but ONLY if everyone to whom you're selling falls under one of the specific exemptions laid out by the SEC. What happens, I hear you ask, if you fudge a little and sell to people who aren't accredited? Well, at some point in the future, when things get into trouble, they can turn around and accuse you of taking advantage of their poor, innocent, naivete, causing them to lose their hearth and home. And if a court upholds that claim, then not just THEIR purchase, but the entire ROUND in which they purchased equity can be unwound, with you having to give all the money back, with penalties. This is NOT something you want to do! And it's therefore why you, as the entrepreneur, want to make sure that you ONLY sell equity to Accredited Investors.

It is for THAT reason, to reassure you about taking their money, that angel groups require their members to meet those qualifications. All that said, the burden for ascertaining their investor status is, and remains on, the company. So part of the closing paperwork in every deal in which I've invested as an angel is what's called the Investor Questionnaire, often a six or seven page document wherein I tell the company exactly WHY selling to me is exempted from the SEC filing regs. This is something you keep with your closing documents, so that if things ever hit the fan, and I accuse you of taking advantage of me, you can whip out my signature and say "But David TOLD me that...and I relied on his representations."

In Becoming an Angel Investor, I wrote, "I want to be an angel investor.  At least I want to know how an angel investor thinks."  Thanks, David, for helping this happen.  The more company founders understand about angel investing, the better deals we all can do.

I want to be an angel investor.  At least I want to know how an angel investor thinks, given that I'll be pitching to a group of angel investors at the VT KnowledgeWorks Entrepreneurship Summit on April 7, 2010, and given the culture of entrepreneurship and angel investor funding developing in our region.

Many angel investment groups require their members to be accredited investors.

I started my research on accredited investors with the U.S. Securities and Exchange Commission:

An "accredited investor" is:

• a bank, insurance company, registered investment company, business development company, or small business investment company;
• an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
• a charitable organization, corporation or partnership with assets exceeding $5 million;
• a director, executive officer, or general partner of the company selling the securities;
• a business in which all the equity owners are accredited investors;
• a natural person with a net worth of at least $1 million;
• a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
• a trust with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person.

Expecting an online application similar to that for an Employer Identification Number (EIN), I looked for the button to click to view the online application.  No button.

Sometimes Google won't do, but one still needs a Google-like source.  When searching for answers about all things legal, I ask Ken Maready of Hutchison Law Group.

I asked, "How does one become an accredited investor? How does a company founder know he/she is talking with one?"

Because he is, as I term him, an entrepreneur's entrepreneur, Ken replied right away:

Although the term "accredited investor" makes it sound like there's some kind of registration process or certification with some third party, it's really much more simple than that - they just have to meet one of the tests below, and there's no filing or other process for them to become "accredited."

The most common accredited investors you'd be speaking with (outside of venture funds) would be individuals who meet either the net worth test ($1,000,000) or the annual income test ($200,000 per year - or $300,00 per year combined with spouse - for the last 2 years with an expectation of earning that again this year).

Net worth of a $1 million or $200K per year, eh? Not for this start-up's founder.  Not yet.

Especially given this caution from Tracy Wilkins, quoted in the Blue Ridge Business Journal:

"A lot of us are entrepreneurs who have made it ourselves and love the game, like to help and we love building companies," said Tracy Wilkins, an angel investor and president of TechLab, a medical diagnostics firm in Blacksburg. "Angel investing is very hard to make money out of, to be honest with you. Unless you can afford to lose it, you shouldn't do it. It's gambling."

Good to know a little more about with whom I may be dealing, though. Thanks, Ken.

"A chicken in every pot and a car in every garage."
- Presidential campaign slogan attributed to Herbert Hoover

Allen J. Fuller, III asked me via Twitter, "You have talked about regional development in the past.  What would the NRV [New River Valley of Virginia] look like if your vision were realized?" 

Yes, I certainly have talked about regional economic development. A vision of the awesome power of social media to contribute to a regional economic revolution is fundamental to Handshake 2.0's business model.  We walk the talk of economic development through social media and Regional Economic Development on Handshake 2.0 certainly has its own category on the site.

If realized, what would regional economic development look like to me?

An entrepreneur in every garage. 

Or in every basement, coffee shop, dorm room, home office, bedroom or established corporation - wherever computer power and tools and materials could exist for a creative mind to invent.  And then for that mind to think, "This could be a business."

That's part of my vision.  It's only part because of this:

“When I started my company, I had to find my own mentors and scrape together capital in an ad hoc manner - and also do all the work required to make the enterprise succeed operationally.  I’m excited about helping the next generation of entrepreneurs by systematizing those critical tasks.  And Blacksburg [Virginia] is a great place to live and work.”
- Pat Matthews, DayOne Ventures Mentor

That's a hard way to go.  For my vision, which is impatient, I want new companies now, funded now.  That can happen when a culture of entrepreneurship is born of consciousness rather than opportunism.

I see our region creating a culture in which entrepreneurs are valued as individuals, as creators and inventors, as potential world-changers and as potential generators of profits, enriching their companies, their investors, and their communities.

Just look at these recent entrepreneurship launches, some within the past few days:

• Access to Capital, NewVa Corridor Technology Council, NCTC
• VT KnowledgeWorks Entrepreneurship Summit - In its second year, designed to bring together entrepreneurs and the partners and investors they need to succeed.
• DayOne Ventures

Allen, thank you for asking about my vision for regional economic development in the New River Valley of Virginia.  It's already taking shape.

BTW, Allen, are you an entrepreneur?  Got a garage?  Around here, it's a good time to be an entrepreneur.

***

Handshake Media, Incorporated, the parent company of Handshake 2.0, is part of the culture of entrepreneurship through membership in business acceleration center VT KnowledgeWorks. VT KnowledgeWorks is a client of Handshake Media.

“Hundreds of technology entrepreneurs are alive and well and thriving in Blacksburg, Virginia.  But this town is one of the best kept secrets in the start-up world.  DayOne Ventures aims to change that by inviting the brightest and best from anywhere to come here and join the party.”

- A founder of DayOneVentures @ VT KnowledgeWorks

According to David Catalano, a DayOne Ventures mentor, applications are open!

***

DayOne Ventures is an invitation-only seed stage investment and mentorship program for technology-based startups. It is housed at the VT KnowledgeWorks Business Acceleration Center, located in the Virginia Tech Corporate Research Center in Blacksburg, Virginia. Each spring DayOne engages with up to three early stage startups through a competitive evaluation process. Winning teams can receive up to $16,000 to cover personal and business expenses related to participation in the summer mentorship program, plus class A office space and high-speed internet access during their stay. Throughout the summer, each team receives regular mentoring by successful entrepreneurs who have built and sold technology businesses. The program typically begins in late May and concludes in late August. At the end of the summer, each firm has the opportunity to present to potential investors via a demo day event.

You're invited to read more about DayOne Ventures on Handshake 2.0 and to follow DayOne Ventures on Twitter @dayoneventures.

***

VT KnowledgeWorks is a client of Handshake Media, Incorporated, the parent company of Handshake 2.0.

DayOne Ventures at VT KnowledgeWorks is an invitation-only seed stage investment and mentoring program for technology-based startups, funded and operated by experienced, successful entrepreneurs who are also angel investors. 

DayOneVentures @ VT KnowledgeWorks is housed at the VT KnowledgeWorks Business Acceleration Center, located in the Virginia Tech Corporate Research Center in Blacksburg, Virginia, home of Virginia Tech. 

Each spring, DayOne engages with up to three early stage enterprises through a competitive evaluation process.  Winning teams receive a generous stipend to cover personal and business expenses related to participation in the summer mentoring program, plus class A office space and high-speed internet access during their stay. 

Throughout the summer, each team receives regular mentoring by successful entrepreneurs who have built and sold technology businesses.  The program typically begins in late May and concludes in late August.  At the end of the summer, each firm has the opportunity to present to potential investors via a demo day event.

Up to three teams will be invited to spend the summer in Blacksburg.  Winning teams will receive a cash award related to team size.   Teams live and work in Blacksburg from late May to August.  In exchange for the package of cash, office services, and mentoring, DayOne receives an equity stake in the emerging enterprise. 

At DayOneVentures @ VT KnowledgeWorks, we roll up our sleeves and help you to build and grow your business.  We act as a member of your team with the same motivation, risk, and reward.

Simple Rules

• Proposed businesses should have a relatively low capital requirement and the ability to generate revenue within one year. Examples: web apps, software, ready-to-go widgets.
• The minimum team size is two persons. The maximum is four persons.
• The team must be willing to move to Blacksburg, Virginia and work on the business from late May until late August.
• A business plan is not necessary, just a clear and concise description of the concept, business model, and value proposition.
• Team experience is not as important as team passion.
• Demo day: At the conclusion of the summer, each team will be afforded the opportunity to showcase their company, concept, and team at a private forum attended by local entrepreneurs, local angel investors and venture capital funds.

For more information, please contact VT KnowledgeWorks.

DayOneVentures @ VT KnowledgeWorks launched on March 12, 2010.

***

VT KnowledgeWorks is a client of Handshake Media, Incorporated, the parent company of Handshake 2.0.

"...the video completely fails as an angel investor pitch!"
- David Rose

In The Age of Transparency Akin to Nudity, Someone Might Tell Us Our Pecs Sag or Our Thighs Are Fat, I wrote that David Rose, a venture capitalist and founder of Angelsoft, took the time to leave a comment on Video Yourself about my angel investor video pitch. I mentioned a variety of reasons why I didn't enjoy qualifying for the Fail Blog.

Still. Take a look at the value in this comprehensive trashing.  It is ultimately a brief, direct, expert guide to creating an angel investor video pitch.

Feel free to follow the trashation along in my video. 

Anne, Good post. Would you like some feedback on your angel investor pitch video? (I hope so, because I'm about to give you some!)

While you come across as completely sincere and enthusiastic about Handshake 2.0, the video completely fails as an angel investor pitch! Why? Because in your 1:10 of video, not ONCE do you tell me anything about the business!

You spend the first half telling me how wonderful it is to go looking there as a viewer, and the second half telling me why you'd want to participate as a vendor. Both of these are sales pitches for the product. But you don't spend a single second discussing anything related to the venture in which I'm investing: the market size, the market need, the business model, the target customers, the market entry strategy, your unique advantage(s), the financials, the management team, the exit strategy, etc. etc. etc.

Remember that investors are NOT investing in the product. I can't tell you how many wonderful products that I've been pitched, that I loved, and might even purchase myself...but I'd never invest in the business because it didn't make sense (at least for me as an investor). What investors ARE investing in, fall into the following categories (more or less roughly in the following order):

1. YOU, the entrepreneur
2. The Market
3. The Business Model
4. The ability to execute
5. The product
6. The financials
7. The deal

The first one (YOU) involves communicating a lot of things to a potential investor, starting off with Integrity and Passion (both of which come across in the video). But, unfortunately, without the rest of #1 (such as your background, abilities, experience, etc.) and absolutely nothing of anything else (even after watching the video, I still don't know what Handshake 2.0 actually does), there's just not a lot to help an investor make the decision to invest.

Rose concludes his comment with, "I'd love to see a re-shoot of your video after you've watched mine [TED], and taken the lessons [Angelsoft Blog]!"

I'll take that as both an invitation and a challenge.

What does Handshake 2.0 do, David Rose? Attracts commentary by experts, for starters. So, for my comprehensive "completely fails" - and for the gift of your ideas to our site's audience - thank you.

"...the video completely fails as an angel investor pitch!"
- David Rose

Ah, 2010 has arrived, the year we all practice full frontal personal and corporate transparency for the sake of engendering trust through disclosure.

In Nudity is the New Transparency, I wrote, "What I hear fellow CEOs struggle with is nudity of the heart, mind and spirit. I hear their concerns about the consequences of dismantling privacy fences, of secrets revealed, of that deepest fear - of not being accepted for who we truly are."

In other words:  If we put ourselves out there online, people could tell us we stink.

Judgment, evaluation, feedback, "constructive criticism"?  Not my favorite.  And yet...

What if we take the risk of putting ourselves out there and someone with expertise and experience cares enough about the topic to take the time to give us feedback?

Sure, it stings. But what an opportunity to grow.

I got lucky. Yay. I get to grow.

David Rose took the time to leave a comment on Video Yourself about my angel investor video pitch.

Who is David Rose?

Only a venture capitalist, a TED speaker, the founder of Angelsoft - considered the industry standard for online application for angel and venture funding which I filled out so carefully to apply for my company to pitch at the VT KnowledgeWorks Entrepreneurial Summit - and a panelist at the Summit, with whom I had a brief online dialogue via comments. My company was not selected to pitch.

Okay, fine, so maybe more than a sting.

Rose concludes his comment, "I'd love to see a re-shoot of your video after you've watched mine, and taken the lessons!"

So investors invest in the entrepreneur first, eh? In an age of transparency akin to nudity? A video?

My, my.