Crash! NYC Angel/Seed Funding Down 25% in 2017

2017 was a down year for angel/seed funding in NYC!  Despite the continued growth in NYC’s startup ecosystem, particularly from eager first-time entrepreneurs, the number of seed deal funded in 2017 declined to 235 from 328 in 2016, a decline of 28%, according to AlleyWatch.







Seed stage funding in NYC declined to $361 million in 2017, from $483 million in 2016, a decline of 25%.

While the data from other markets has not been assembled, I don’t expect NYC is an outlier:  2017 was the year of me-too startups, with companies piling on and overhyping areas like AI and Big Data.  Investors saw through the clutter to be more selective in 2017.  Median round size increased to $1.25 million, up 25% from $1 million, a sign that investors were more confident concentrating more money in fewer deals.

Top 15 New York-Based Venture Capital-Backed Exits 2012 – 2017

The Top 15 New York-Based Venture Capital-Backed Exits 2012 – 2017

As the NY early stage and VC community grow, so do the number of larger exits.  From CB Insights, here are the top 17 NY VC-backed exits for the past five years, with Yext at number five with its April 13, 2017, IPO.



The 6 Do’s and Don’ts of Presenting to Angel Investors

By Anthony Gellert

Pitching to investors is scary, and your deck isn’t the only thing that will make or break your pitch. Getting an angel investment can be the difference between your company failing and getting the money it needs to become a big success. Presenting to investors is, obviously, the make it or break it moment for you and your company. That’s a lot of pressure. But don’t worry! Here are the 6 do’s and 6 don’ts that will make sure you make the most out of your precious seconds in front of the people that can make your business explode.

6 Do’s

1. Pick your angels carefully

You need money, of course, and the thought of limiting your pitches to certain angels probably seems counter-intuitive. However, you don’t have unlimited time. In addition to fundraising, you are still running a business and you can’t afford to miss a step. After all, part of the value of your new company is its head start on the competition, and you don’t want to lose that head start by wasting your time on angel pitches that won’t get you any money.

choose angel investor nyc article

Your biggest risk with picking the wrong angel targets is a lengthy due diligence process with only a small amount of money at the end of the rainbow. That is why angel clubs offer a better alternative. You pitch once to a large audience. You answer each question once. And, if all goes well, multiple cheques come in. That’s the type of efficiency that you want.

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2. Make sure the product/site works

Embarrassing moments regarding the quality of a product or website has happened more than you might think. The product has even failed directly in front of our audience. Please don’t pitch until the product works. You will make the most out of your pitch if your product is fully functional and can impress us.

angel investor

If your product is internet-based, make sure that your website is running. If it’s a travel site for example, we’re all going to boot up your site and type in “New York City” while we watch your pitch. Make sure the results make sense and support the image that you’re painting in your presentation. Giving a strong impression of you and your company will greatly improve your chances of getting an investment.


3. Start with the pain point

The pain point that your business is solving is the most important thing for us to know, because it shows us that you understand that people want what your business has to offer, and you’re not grasping at straws.

“We have developed a platform to commoditize the aggregate on demand car service capacity of any given city by geolocated ten block regions.”

Bad. We see a lot of pitches and digest a lot of buzz words. Keep it simple! This sentence tells me nothing outside of you memorizing the buzz words that you want associated with your business.

“Don’t you hate when you can’t get a cab right when you really, really need one? Our app solves this problem.”

Good! This tells me exactly what your app is trying to do and what pain point it’s trying to solve, because most people have had exactly that problem. By starting with the pain point that you’re solving, the rest of your pitch will follow one cohesive message, and we will better understand your business.


4. Practice setting up your equipment

I am a member of two of the most active angel groups in New York City, HBS Angels of Greater New York and NY Angels. In both cases, for our entrepreneur meetings, we borrow a conference room from a law firm (big thanks to each of them). The IT support is uncertain since we are not a paying tenant and we are there after hours in some cases.

Plugging In Hdmi Cable To Laptop

Wherever you pitch, make sure you have all the different cords and dongles that you could possibly need to connect your computer to a TV monitor. Your chances of getting an investment once your presentation looks unprofessional to the investors is very low. If we all have to crowd around a laptop to see your presentation, it’s over.


5. Leave a lot of time for questions

Every angel has their own opinion as to the key qualities or key issues that define whether or not you and your business are a good investment. Such, you should expect that the question and answer sessions with the angel groups will go on longer than you may think, while each angel follows their own favorite line of questioning. It will take time and occasionally feel redundant, but leaving enough time and answering each series of questions will broaden your potential horizons and give you the best chance of getting an investment from an angel investor.

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6. Solidify a long term plan

I know that you are focused on a ton of near term issues (like keeping the lights on), but take a little time before your angel pitches to map out your future, beyond just the hockey stick revenue projections. What products or features or upgrades get rolled out, and when? Which hires are proactive (needed before some big fund raise or rollout) and reactive (likely come after some big fund raise or revenue milestone)?

long term plan

We ask because rolling everything out and hiring everyone now is fiscal suicide and growing organically off of only your net income will take forever. Showing a long term plan demonstrates to the angel investors that your business has long term growth potential and that you will spend their money wisely.

6 Don’ts

1. Don’t treat us like a nuisance

Yes, we take up your time, ask follow up questions, ask for information that isn’t already included in your prepared information packet. Yes, it’s time consuming. I know. But others down the line will likely ask for the same information. And a great angel, once they invest in you, can advise you, introduce you to VCs, and help you grow. An angel investor can be the turning point in your business.

angel investor

But you will never get an angel investment in the first place if you treat angels like nuisances! A mix of respect for the investors and passion for your business is the ideal combination, but one without the other and that angel investment will never come.


2. Don’t lead with the org chart

We’ve all heard it. “I invest in the jockey, not the horse.” But that’s bunk. Ron Turcotte couldn’t have ridden my neighbor’s horse, Pocco, to the Triple Crown. Secretariat had major a role. After all, it’s the jockey that lifts the trophy, but the horse that won it. Your business is more important than the people behind it, and we want to know about it first.

angel investor presentation org chart advice nyc

The resume of you and your team is important and should of course be included in your presentation, but it should not be the first slide. Prior stints at Apple or Google or Amazon are certainly impressive. We’re looking for experienced management, since the future is always rocky and uncertain no matter how good the idea. But, your business model matters more, and it should be your opener.


3. No S.A.F.E. notes

I can only speak for the two angel clubs in which I am a member, but S.A.F.E. Notes are a non­starter. So much so, that the moment they are mentioned in a presentation, the whole room starts ranting at the entrepreneur and stops listening to the presentation. Yes, really. I see it all the time.


4. Don’t puff your resume

We’re already taking a leap of faith in you. This is not a Goldman Sachs interview. Pedigree is not our first priority. We care far more about your business, your business model, and your future plans for the business should you get an investment. As I’ve mentioned before, having a good jockey is nice, but it’s the horse that wins the race.

angel investor pitch advice nyc

Exaggerating your credentials is not a way to stand out. It’s lying. Great angel clubs do their homework and they will likely find out. Don’t ruin your chances by cutting corners and being dishonest.


5. Don’t embed a video into your presentation

It never works. Maybe it’s the WiFi in our conference room. Maybe it’s the communal computer we make you use. Maybe it Murphy’s Law. But waiting for a blank slide to load and then watching it crash makes you look low tech, even if the slideshow went off without a hitch a hundred times before.

video powerpoint

The worst part is it’s not your fault, but think twice before embedding video into a presentation. The potential advantages it gives you in terms of illustrating what your company does doesn’t outweigh the disadvantage you put yourself at if your slideshow crashes. After all, we’d much rather hear you say what the video would than the video say it. You’re the person I’m investing in, not the people who are in the video.


6. Don’t give up on an angel group

A rejection by an angel investor or group of investors is not final. It just means that at the current iteration of the company, it’s not an investment fit for us. If you end up finding other angels to invest, great. They saw something we didn’t. Agree to disagree. But if you end up pivoting significantly, you should revisit all the angels that rejected you in the past.

angel investment

Burning bridges is never a good strategy when it comes to investors. Don’t take a rejection by an angel group to be a statement on you as a businessperson. In fact, they could like you a lot but think that an investment in your venture would be unwise at the moment.

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Keep these tips in mind as you look to bring on angel investment for your business, and you could be well on your way.

Contributed By

Anthony Gellert, Harvard College AB ’91, Harvard Business School MBA ’97 – Treasurer of HBS Alumni Angels of Greater New York

Anthony is the President and Founder of Livingston Capital Management, an investment partnership based in New York City. Prior to his founding of Livingston Capital, he covered healthcare services and industrial services at Cobalt Capital Management and before that was an analyst at Kingdon Capital Management. Anthony has participated in 13 angel investments over the past year.

The Knowledge LUMAscape

LUMA Partners debuts a useful map of the knowledge players in the digital world.  A helpful guide surely to be updated.2016-4-15-Knowledge-LUMAscape_v3


What I Look for in an Entrepreneur

scott_cookThere are books and research studies on the qualities of successful entrepreneurs. After you are done reading them, or if you are time pinched, here is my short list on the qualities I look for in an entrepreneur.  And the picture on the right is one entrepreneur I admire who embodied most, if not all, of these qualities when he started his company.

  • Uncanny drive in a clear direction. Conviction.
  • An entrepreneur is by definition comfortable with risk; but the best ones seek to minimize risk
  • Complete integrity.  His/her past decisions and actions should be evidence of this.
  • Knows his/her companies secret sauce and guards it, grows it.
  • Manages leanly.  Avoids waste.  Manages time and money well.
  • Builds and inspires his/her village: employees, investors, advisors
  • Of course all the usual qualities of successful business people are important
    • Intelligence
    • Decision making skills
    • Time management
    • Organization
    • Leadership
    • Motivating and managing people
    • Education (of note, First Round reviewed their 10 year history, and found that their portfolio companies with one or more founders with a degree from an Ivy League School, Stanford, MIT, or Caltech, performed 220% better than other teams).
 Red flags
  • A cavalier attitude to failure. Failure has no value and is the worst outcome for investors.
  • A lack of relevant experience and skills, especially without a “village” to compensate.

The Venture Capital One Pager

From VC John Bachus, here is the Venture Capital One Pager!  A great primer on how the various rounds of financing work together — at least according to the standard playbook.

Big Caveats:  There are other playbooks!  Like the “take no outside capital” playbook, and the “one round and done” playbook.


More info here.

QSBS: The Death Knell for Convertible Notes in Early Stage Investing?

no exit taxThe new tax bill contains a giant incentive for early stage tech investors.  Investment gains on exit, subject to certain conditions, are now exempt from capital gains tax and the investment tax.  This means a reduction in federal tax from 23.8% to zero.  Congress apparently feels that early stage investing in tech businesses is an engine of growth for the US economy and US jobs, and removing the 23.8% tax on gains will be a net positive for the country.  This Qualified Small Business Stock (QSBS) tax treatment has been on and off again for years, but is now a permanent part of the tax code since the Protecting America from Tax Hikes Act of 2015 was passed in December 2015.

So, what’s the catch?

  1. The exemption applies only to the first $10 million of gain (“bummer,” said the angel investor with a smirk)
  2. The stock must be held for at least five years (most successful angel exits take longer than 5 years)
  3. The stock must be purchased after September 27, 2010 directly from the company (investments made in 2016 certainly do qualify)
  4. The stock must be in a C Corporation
  5. The stock must be, well, stock. (It cannot be a convertible note!)

The company must be a qualified small business, as defined by Section 1202.  Some requirements are that it have gross assets of under $50 million, and not be in any traditional business categories like a local restaurant, motel, bank, farm, or doctor’s office.

Consult your tax adviser for more information, of course, but by making this tax incentive permanent, early stage investors and entrepreneur’s have a shared and vested stake in working to make sure their investment structure takes advantage of this, as well as aiming for big gains on an exit after 5 years.

Many angel groups and sophisticated angel investors avoid convertible notes and SAFEs since they typically do not afford the protections and advantages of investments in preferred stock.  This new legislation adds a considerable advantage to equity investment – the prospect of tax free gains on exit.

To begin to get equivalence for investors, the typical “discount” in a convertible note would need to increase from 20% to more than 40%.  And that just might be the death knell for convertible notes in early stage investing.

For more information, see Alan Patricof’s column for TechCrunch, this recent Forbes article, or wealthfront.  The Angels Capital Association has posted a very comprehensive 9 page memo on the details of how to qualify for Section 1202 from accountants Godfrey & Kahn written for Golden Angels.


Seed & Early Stage Returns Dominate VC Returns

Why invest in seed and early stage companies, with all the risk of picking winners early, and dilution down the road?  Because that’s where the money is, according to Cambridge Associates.  Seed and early stage investments have accounted for 75% of VC investment gains in recent years!  This is based on the top 100 investments in every year.  Seed and early stage investments have accounted for two-thirds or more of investment gains in every year where data is available.


seed returns




A path to market leadership.   I look for this in every investment I make.

“It’s a big industry…there will be many players…we just need a x% slice and we will be a success.”  What b.s.   That a prescription to be one of the 9 in 10 early stage companies that fail and fail soon.

A great idea is the first step, but  there are lots of smart people out there and their attention is often focused on the same problems at around the same time.  At the dawn of search, there was Infoseek, Alta Vista, Dogpile, Excite, Lycos and others.  Now google dominates.  When it comes to profitability, the winner takes it all, and the runner ups are burning cash trying to catch up.

number one“Winning isn’t everything; it’s the only thing.”  So said Vince Lombardi.*

Information and intelligence can spread like wildfire. Network effects are an accelerant.  The biggest network quickly becomes the most useful and shortly the only one needed.  Market share and profitability correlate.  The premium to being #1 is increasing all the time.

Sure, there exceptions, like when the relevant market is just your local neighborhood, and there is a dry cleaner on every block.  But the most attractive markets are national and global.


What does this mean to an early stage investor?  That is a full topic for another day, but I’d rather hear “We want to be #1 and here’s how” instead of seeing an entrepreneur wave a giant red flag with “We just need our share.”


*And UCLA’s Red Sanders…read “What it takes to be Number One” if you are interested.

Home Runs are NOT the driver of VC returns since 2000

Some new insights from Greycroft:

According to Cambridge Associates, since 2000, DSC_0058 33rd Street from the Hudson wide cropover 60% of the industry returns on average came from investments that were outside of the 10 largest outcomes. This is a significant departure from the pre-1999 era when the top 10 investments were a much larger percentage of the total pie.

Plus, over the same period, managers with less than $500 million have accounted for a majority of the industry’s returns

Get the full story here.