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Angel Funding: Sometimes Even Pretty Girls Don’t Get Asked to Dance


I’m a Dingman Angel, which is an angel network sponsored by the University of Maryland’s Dingman Center for Entrepreneurship.  As a member of the group, I recently encountered a disgruntled entrepreneur who was incredulous that his startup was eliminated during the screening process – before having a chance to present to the group.  He couldn’t understand why he was told he wasn’t an “Angel Deal.”   I wasn’t the person who eliminated him so I could only give a few theories.

Now, to be clear, this angel group is one of the DC area’s most active angel investment groups. Our members recently invested in MeMeMe, Seva Call, YouEye, KidSafe, 410 Labs, Nexercise, Gold Lasso and Brazen Careerist. So it’s not like this is a “do nothing” investor group.

So I responded to the disgruntled entrepreneur…

Me: The best company for an angel investment is capital efficient and will require limited follow-on rounds of institutional financing that tend to squash the angel’s share.

Without seeing your plan, the need to build hundreds of capital-intensive facilities sounds like it will eat up cash with little realistic hope of quickly reaching a cash flow positive state.

There are several reasons why angels don’t invest, and capital inefficiency is one of the reasons a company is better suited for venture capital.

Angels and VCs won’t invest if they don’t have a belief in the team; the company has not met any major product or customer acquisition milestones; the use of proceeds are directed too heavily towards salaries, overhead, and R&D; not enough of the investment will be used to take your product to market; and the business is not scalable.

Most of the deals that get funded by angels have reached major milestones.  They have a product, satisfied beta customers, a proven team or business model, and are at or near revenue. Founders build the company prior to angel funding by bootstrapping, using their own funds, or hitting up family and friends.

There are great companies that aren’t suited for angel investors or VCs, and your company may be one of those.

Without being there, one can only speculate.

Paraphrased Entrepreneur’s Response: I want to make 2 basic points. 1) That your definition of an angel does not match the Wikipedia Definition which among other things says:

“Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. Angel capital fills the gap in start-up financing between “friends and family” (sometimes humorously given the acronym FFF, which stands for “friends, family and fools”) who provide seed funding, and venture capital.”

 and 2) I presented a plan that showed I would be cash flow positive in Q4 of year 1.

To Which I Replied: My definition of an angel investor appears to be different than yours. Perhaps some of that involves a shift in the market. In the past 3 or 4 years, as VCs have been less active, angels are seeing more and more good deals that use to be reserved for VCs. This means that angels have the luxury of being more selective. The effect is that angels are moving up the food chain, and what once got funded now gets bootstrapped…or whithers.

Also, technology advances like cloud computing, open source software, and crowdsourcing have lowered the cost of a starting a company –  meaning that companies require less capital to reach a liquidity event.  The result of these advances make angels a viable funding source for companies that 10 years ago required more capital than angels could provide. So many entrepreneurs are seeking angel investors who are typically more forgiving and offer cash at less onerous terms than institutional venture capitalists.

Angel investors ultimately invest to make money.  They have a certain amount of cash to invest.  They don’t invest in every deal.  They invest in the best deals they are offered, and it is likely that the group that you met with compared your company against other deals presenting that day and found that there were more attractive alternatives.

This doesn’t necessarily mean that your company is the ugly girl at the dance. It’s just that the competition for angel money has gotten more intense. In this environment even pretty girls are left standing against the wall.

Lastly, I have been involved with more than 50 startups as a principal, employee or investor, and the next startup I see that meets its financial plan will also be the first one.

You may have shown a quick path to cash flow positive, but without knowing you, or your team, without being your friend or family, most rational people are not willing to take a big leap of faith. The gap between where you are now and where you say you will be is only allowed to be as wide as the faith, belief, and trust in your team, your strategic plan and a judgement call on your ability to execute the plan.

The ugly truth is that investments to investors are like buses. If we miss the bus, there will be another one by in 15 minutes. See: Driving Investors on The Bus.

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About the Author'

Glen Hellman (@glehel), is an angel investor, serial entrepreneur, and works for venture capitalists as a turn-around specialist. He is the Chief Entrepreneureator at Driven Forward LLC, frequently muses on his blog, Forward Thinking, and works with entrepreneurs to help them figure out what to do and get them to do it.


7 Responses to “Angel Funding: Sometimes Even Pretty Girls Don’t Get Asked to Dance”



    Great post. It's pretty clear why a company like that wouldn't find angel investors at Dingman, and your explanations make good sense.

    That said, I understand the entrepreneur's frustration, as it's been a lesson I've had to learn (painfully) over the past two years. Basically, there are not very many true "angel investors" in the DC area, by the traditional definition of the word. There are quite a few active "angel" groups and individuals, but almost all of these function much more like small VC firms than true angels.

    Once upon a time, angel investors were the kinds of people who helped a smart team turn a great idea into a great product and then a great company. They did it because they believed in the power of entrepreneurship, they loved the people and the idea, and they hoped to make some money, too. Back in 1999 my first company had an investor like that, and thanks to him we built a company that was profitable in the first year, and he made his money back plus interest. That made everyone happy.

    Nowadays the people who call themselves angel investors don't seem to care about much beyond making lots of money. I've had far too many local "angels" tell me that a great idea doesn't matter, a great team isn't that hard to find, and hard work is just a nice bonus – they won't invest a dime if they aren't convinced they can get a 10x return on their investment, and that's all that really matters.

    This isn't a complaint – it's the world in which we live. Entrepreneurs in the DC area, especially those with early stage startups, need to understand from the start that the Wikipedia definition of "angel investor" is out-of-date. If you can't get your company to the point of being revenue positive without angel investment, your company is probably doomed (unless of course you head to California as fast as possible).




      Understand what you're saying. Times change, the bar moves up and down. There is no evil bad guy here with the possible exception of reality. If you evaluated two companies, with team, upside, higher purpose, all being equal… and one had an 80% chance of hitting their numbers, the other 20%. You only have enough capital to fund one of the companies. In which do you invest?

      The economic downturn has incented many displaced workers to become startup entrpreneurs. Advances in technology have reduced the cost of starting a company resulting in more companies seeking capital. Institutional VCs are finding it harder to raise money, are closing shop, and have less money to invest. All resulting in more great companies seeking fewer investors.

      Investors have not changed, the market has shifted from a sellers market to a buyers market. Bad timing for many entrepreneurs and little comfort although the market will shift back to the entrepreneur some day.



        I completely agree with you: There is no bad guy here.

        I disagree, however, with the assertion that investors have not changed. Of course they have. Whenever the environment changes you evolve or you die. That goes for both entrepreneurs and investors.

        The environment changed, and what we call an "angel investor" evolved. Just look at AngelList, 500 Startups and others to see that evolution first hand.

        The environment changed, and how entrepreneurs like me evolve will determine our success or failure. Investment is hard to come by, so we either find a way to generate more revenue faster or we bury the idea and move on, perhaps waiting until the environment becomes more amenable to our idea. (FYI, I'm focused on the former.)

        My point is, this is business. I've been just as frustrated with the current financing environment as your example entrepreneur, but I know my options are to grow fangs and hunt, or dig deep to stay safe. If he can't figure that out he would never have succeeded anyway, because the environment changes constantly and those who don't evolve – fast – die. That's business.



    So now I think we're on the same page Richard. You adapt or you die. If in reality it's raining outside, you can get angry at the weather and whine about it or you can get an umbrella, put on a rain coat and galoshes and go out and make it happen in the rain.

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