There’s one place you should send your business plan if you want to get angel investor funding: the garbage.
So says John Ason, an angel investor who has spent the last 17 years in the venture capital field. He has funded 40 startups and is happy to tell entrepreneurs what they need to do to consider being funded by his company. Ason, whose investments include Xlibris, LiveLOOK.com, and Diapers.com, speaks at the New Jersey Entrepreneurial Network’s “Message from the Archangel” event on Wednesday, September 17, at noon at the Princeton Marriott. Tickets are $50. For more information, visit www.njen.com.
Ason says he receives about 3,000 pitches for funding a year, of which he funds five or six. He invests in startup tech companies that are looking to create new markets or disrupt existing ones, which is why he is disdainful of the full-fledged business plan, complete with market analysis. “If the market doesn’t exist, how do you know how big it’s going to be?” he says. “You don’t know what kind of market will develop. What I really want to see is the logic of why you think the market is big. Early seed stage people like me do not invest in niche markets.”
“Business plans are long and full of irrelevant information,” he says. Instead of a business plan, Ason wants to see what a company does in the form of a one-page executive summary. “Tell me something that impresses me,” he says. “Tell me how much you are raising and at what pre-market valuation.”
Ason was born in Germany to Polish parents and grew up in Chicago. His father worked in furniture factories and his mother was a cleaning lady.
Ason graduated from the Illinois Institute of Technology with a bachelor’s in mathematics and worked at AT&T for 25 years. He left in 1996 to pursue investing. His investment company is now based in Newark.
What exactly do you do? “One of the most important things is to explicitly state what you do,” Ason says. “About 40 percent of the summaries I receive do not have that. They have a list of features or benefits or what it enables customers to do.” For example, he says, he recently received a proposal from a company that was making “a program that enables great composers to write music.” For Ason, that was much too vague of a description. “It could be a consultancy, a music notation program, a music generating program, or it could be a pencil,” he says. “All of those things could enable a great composer to write music. I want to know if it is a pencil, or if it’s a fast program that generates music, or something else.”
Buzzkill: There are certain buzzwords that will doom your proposal before Ason reads any further. Any mention of “enable,” “promote,” and “encourage” will cause Ason to send a proposal to oblivion. “Everything that says, `This is what the customer does,’ are all no-nos,” he says. “These are all kisses of death. Those will automatically kick you out. I’m fussy about what gets through the filter, and I uses filters to pick people off.”
Plans have their place: Ason doesn’t hate business plans; he just believes they have no place in a venture pitch. He says it’s good to develop a business plan once a company becomes more mature, once it defines its market and knows its margins. Other kinds of venture capitalists — those that invest in growth-stage companies, such as Edison Partners (U.S. 1, August 27) — definitely want to see one.
Go north, young company: Ason says he doesn’t recommend a high-tech startup to locate its office in the U.S. 1 corridor. “What I recommend to a lot of companies is to go to New York,” Ason says. “You need to understand what else is happening in your area. If you are in Princeton or Freehold, you’re probably a little bit out of date.”
Ason is particularly enamored of the cluster of tech startups on the E-train line south of 42nd Street. The advantage of being close to other tech companies, he says, is the sharing of ideas. You can also network with peers to find good professional services. “If you want to find a good accountant, or find people, just talk to the company next to you. You get a free sharing of advice and information. The startup community is a very sharing type of environment. For example, Silicon Valley is only one square mile. It’s very concentrated.”
New Jersey has been left behind somewhat when it comes to technology startup companies. “Everything in the Fort Lee area gets sucked into New York,” Ason says. “And everything around Philly gets sucked into Philly. Princeton is ambivalent to startups because there is no center of excellence that companies can rally around. There isn’t a center where you can have large numbers of startups gather to form a critical mass.”
Ason says New Jersey could do several things to make itself more of a haven for tech companies. He says Newark, where there are already several shared workspaces and an incubator, would be a good place to start because the commute to New York is trivial. Princeton could rise to the top by developing better ties between the university and the business community. He noted the engineering departments of the school are keen on becoming involved with startups, but the rest of the school is not.
Ason’s speech at the Gathering of Angels will focus on the current angel investing ecosystem, which he says is rapidly changing because of two major developments: Firstly, the Angel List, online at angel.co. The site has about 100,000 companies, and 30,000 to 40,000 investors. “That’s the biggest online resource, and the biggest social network for the startup community,” Ason says. The second is the rise of startup culture overseas. Ason has been to Mexico, South Korea, Spain, Ukraine, Belarus, and Lithuania over the past few years. Companies in all these places are competing against American companies for investment dollars. “They’re having some difficulty, but they are competing,” Ason says.
The number one piece of advice Ason offers is this: “Get out there and do a startup,” he says. “If you fail, try again. There are a lot of great ideas, whether you get angel funding or VC funding,or just friends and family. The opportunities are wide open.”