Sometimes it is hard to appreciate something until it gone; as I found recently in Serbia when I discovered how incomplete a startup community is without experienced private angels and private venture capital funds. It is not incomplete because of the missing private money; it is the missing practical experience, direct advice, and real world perspective on whether a founder is doing the right things, the right way.  It takes an experienced angel investor, that might pull out their personal savings to say, ‘you have great idea, but its not an investable business, yet!’ to really give a founder the feedback they must have. Early stage founders need that practical support more than another pat on the back and encouragement to be an entrepreneur.

Here is a summary of what I learned:

1. Founders, you must have private investors helping you, even if you don’t like what they say,  or that they don’t invest, listen to them and learn… and if they will not invest, consider whether you should move on to a new idea and work with what you have not, the investor you dream of finding.
2. Angels, if you want more high quality startups to invest in,  you have to be actively involved; providing your experience, connections and honest feedback on whether you will invest your own money in a venture… Angels invest – with their time, talent and money.
3. Community Builders, you have to bring the founders and private investors together, and after visiting Serbia, that means insuring that the mentors and judges you find for pitch competitions are people who have run their own startup business AND have put their own hard earned personal money in to other’s startups – if you are going to judge the investabilty of someone else’s business, you have to have invested your own money, including explaining to a spouse why it was a good idea!  It makes a difference…

I came to these conclusions during my trip this summer to Serbia to help their entrepreneurship ecosystem. At first, as I met with startups and “hub” program managers (a mash up of incubator, accelerator, and co working space) I didn’t notice anything missing. Then I started paying more attention to the familiar  refrain of early stage founders, that it is hard to find early stage investment. Well, I’m from Alaska and I’ve heard that too many times. But then I noticed that no one could tell me about who they were pitching to and why they were turned down, and then I realized that there was no visible angel or private venture capital investment community. Finally, as I searched for angels to meet with or private (let me repeat that, PRIVATE) equity investor fund managers and found there were none any one could connect me to, I started to appreciate the impact of not having private investors in a startup ecosystem.  I will explore why they are missing in a future post, and perhaps what angels I did finally find as well as a few funds, but in this post I’m going to focus on the impact of this missing private source of funding for early stage companies.

Forgive me for an aside… I’m from Alaska, population, about 700,000 (if you count rural communities that are not even connected by roads) and 1,500 miles, by air, away from the first nearest reasonable size commercial city.  Do you think I was very sympathetic to Serbian concerns about their location and having only 7,000,000 people in Serbia!?  Check out what 1500 miles looks like from Belgrade… 

Was that gloating or groaning? Back to my story.

During my visit I met with over 250 people and discussed different aspects of entrepreneurship in Serbia.  About half of my meetings were with entrepreneurs, most in early stages of company development.  With very rare exceptions, these entrepreneurs were working a regular job that allowed them to work on their startup as a “wanna-preneur” or as I started to call many of them, “hobby-preneurs“. (More on that in future post.)   Without access to experienced private angel investors, I found that these entrepreneurs were not getting the critical feedback of someone that has run a business, invested their own personal money, or who could provide “smart money” support in the form of contacts, vendors, market intelligence and mentoring. (And I couldn’t either, in Belgrade! Where were the people who could?)  These entrepreneurs were getting plenty of encouragement, but not the constructive and challenging feedback of someone who would say, ‘your idea is interesting, but your business is not investable, and here is why…’, or “… I now someone….”

I started my trip trying to be supportive and encouraging to everyone I met, but quickly figured out that no one was looking at the startups from a private investor perspective. While entrepreneurs lamented the lack of angels and private equity investing because they saw it as the missing ticket to success, I came to find out there was a good reason.  If I was going to make an impact on an ecosystem with too many (but not all) early stage startups going nowhere, I needed to shift my effort to helping people see what their businesses looked like to an investor, and how to find those angels that would be able to work with the startups.  That lead me to some fun workshops and one on one mentoring sessions and more work to do in the future.

But as you would expect, it is a “chicken or egg” problem in Serbia – what comes first, the investable business or the ready-to-invest angel?  That is, they have a challenge of how to develop both angels without good investment opportunities; and how to develop investable companies without access to angels.

That brings me back to Alaska. I’ve returned with a much different view of the importance and role of our angels and need for even more private venture capital engagement.   We are fortunate to have the members of the 49SAF funds and the Alaska Investors Network who are connecting “smart money” angels to promising startups that are ready to move past  early FFF (family, friends and founders) funding.  Our startup ecosystem would not exist without these investors. I knew that before from a finance perspective, but now I see it from a more human, business and community perspective.  Experienced private investors are as necessary to the ecosystem as the entrepreneurs and the ideas themselves.  Their time, effort; and, when it makes good business sense, their money; provides the  crucible that all businesses must be subjected to, and in it, tested and refined into a venture that is not only investable now, but also structured to take followon investment later and eventually offer a path for investors to get their money back out.

This approach to being “investable” was new to many of the hobby-preneurs I talked to in Serbia. They thought that angels and private equity just gave out money like the government economic stimulus funds did.  Oh I wish…

What would it look like without our active, smart-money, check writing private angels? It would look like Serbia, with 800 starving hobby-preneurs. Each with a good idea but no path past small pitch competition prizes or an opportunity to receive the critical feedback on investabily that might help, ( or even force!) them to collaborate and form stronger teams, and follow a path to being an investable business.  And I’m not talking about the good intentioned feedback and encouragement I heard at the competitions from those who have never been an entrepreneur or a personal angel investor but want the participants to think that their chair at the judges table makes them the expert on what the startup should think about or do next!  Sorry to be critical of those who struggle to find judges for pitch competitions; I know from experience it is hard; but, if someone has not run their own startup business (and that is not the same as a business), sweating payroll, bank balances and investors; and then invested their own money in someone else’s startup, I’m not sure they should be judging others efforts.  Private investors are not just a source of money, they are first and foremast the coach that knows the hard lessons of failure and success and who will give you the real feedback that you are on the right track or , that you need move on to something better.

Here in Alaska, we need to develop more angel and private venture investors if we want to grow the economic development impact of our entrepreneurship ecosystem.  The Angel Capital Association recently highlighted some efforts to develop the next generation of Angels.  Here in Alaska, the 49th State Angel Fund is facilitating discussions about starting an Alaska Angel Conference, patterned after the successful Seattle Angel Conference.  If you’d like more information on any of these groups, please contact me.

In the mean time, Thank You angels! Our startup community could not function without you. I’ve seen what a community without you looks like in Serbia, and I appreciate what we have in Alaska now more than I ever did before.

Ky