Deal Screening, Part Deux
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Deal screening for an event of this nature is always problematic. For VC's, it's relatively straight forward. They've a profile they're looking for and companies outside the profile generally aren't contacted. They hire smart, experienced and educated people that are subject matter experts within the profile area they want to work within.
However, as much as they distribute information about their 'sweet spot' - their ideal profile - it's generally for naught. They get bombed with business plans anyway. So for VC's - and the entrepreneurs that want their attention - it's a numbers game. And the numbers are that about 38 out of 100,000 business plans VC's see get funded. (Yes, that's 0.38%.)
Pity the poor VC's. Bifocals are too often the reward for their efforts.
To complicate this scenario a bit note that VC's have FOCUS - but they also have deal pressure. People put money into their funds, and they're expecting these funds to get invested so that they can make money. This means that - because of the deal pressure - sometimes the VC focus is pretty tight, and sometimes it can loosen up.
Conversely, angels and angel networks generally have broader interests. There are those that are focused - nanotech angels, biotech angels, etc. - and those that are not. Most are not. But unlike VC's, they generally don't have deal pressure, they don't have to invest a set amount of money in a set amount of time. This can make them more complicated to work with than VC's, but these 'complications' generally work FOR the entrepreneur in that there are more points of contact available to them w/ angels and thus more opportunities to learn and be successful.
So the ACS is an event for angel investors. So what? How does this impact deal screening?
Consider the ACS applicant tag cloud. (Go ahead. I'll wait...)
Think of this as a 'map' of the entrepreneurial landscape at this moment in CO entrepreneurial history. Now note the distribution of Keywords in the tag cloud. If you were to plot these on a bell curve the distribution would be pretty flat. This means that we've applications in the ACS database from an incredible variety of companies, and not just a few industry clusters.
So how do we screen this broad a variety of deals fairly and effectively?
Without this 'map', we wouldn't know where the opportunities - or the challenges - were. Our solution on the front end of the process, before we had this 'map' available, was simply to get a very large number of talented people involved in the deal screening process. This we did. There are currently 39 members of the ACS Exec. Committee. About 80% of them are C level business professionals that have pitched their businesses in forums like this in the past AND have evaluated said pitches in said forums. About a third of them are angels or VC's.
We've a broad enough variety of skills on the ACS Exec. Committee to insure that most every business that's applied gets properly reviewed. Where we were short, we recruited. We've 39 members right now. A month ago we had 25.
Now we're in the 'many hands make light work' phase of our deal screening. (Remember that the ACS deal flow management system is web based.) This means that the deal screening is done on a desktop, and can be done at anytime anywhere - and it has. We've deals being screened in all the continental U.S. time zones and in Europe at all hours of the day.
Busy we are. :-)
But - remember my post from yesterday - we're working within a standardized framework that allows comparisons. This speeds things up a bunch. Figure it takes us 10-20 minutes to review a file to the point where we know enough about it so that we can confidently move it forward or hold it back. That's about 10X LESS time than it takes to digest a business plan.
(Note that I've attached a sample ESF Benchmark Report for your review. You'll find it at the bottom of this post. It's graphic nature allows us to rapidly grasp how 'connected the entrepreneur is to their market and whether or not they've the skills & experience necessary to do what they're planning. And it also helps us organize our talking points for our due diligence conversations with the entrepreneurs.)
So because of this the average file in the ACS applicant database has been screened over 7 times by people who know what they're looking at with scores ranging from 1.0 to 7.86 on a scale of 0 to 9. Each score comes with comments from the deal screener as to why they scored them the way they did. All these comments will be given to the applicants after the ACS event on Nov. 13th.
What a concept...
Better information about the capital formation process + information about the interests of the investors currently active within it = better new businesses developing faster.
That's what we're all about.
