The Trouble with Angels

I welcomed small investors to my startup, Tiger Optics, but now see a problem. Too many small fry can complicate bigger deals later on

By Lisa Bergson

All money is green. That was one of the first rules I learned in my present capital-raising phase. Now, it turns out some money is greener than others. And here I thought I was doing really well in the "premoney" capital drive. Tiger Optics' so-called "friends, family, and fools" round has been gaining momentum, with our Asian independent sales reps and board members piling on. "I believe in Tiger, and my wife believes in me," as one board member put it, calling to let me know he had decided to commit.

Such support has gone a long way to close the proverbial gap that often occurs when a new business is postrevenue, but precapital. Until you're truly profitable, you need funds -- lots of funds -- to pay for inventory, staff, marketing, in a word, growth. Tiger, my new business, has attracted the interest of venture capitalists, but they're still flitting around.


  In the meantime, we've been offering convertible debentures to private investors, who are comfortable with the risk, the terms, and the opportunity. When we have our Series A initial round of financing, what is presently treated as an interest-bearing loan will convert into debt at a discount from the VC strike price. "You could make 18% on your money right up front," I told our Singaporean reps over dinner at Aqua in San Francisco, the night they pledged their support.

Along with MEECO's head of sales and marketing, Tom Mallon, I gave my first dog-and-pony in Asia last September. It was excruciatingly hot, and we were very green. Tom was so nervous, he kept referring to Tiger as its former parent, MEECO, and I had a hot flash so bad, I had to excuse myself to go towel off. Yet the rep's experience with our product, including ferrying it around China in a flimsy car along bumpy, dusty roads from customer to customer, provided the confidence to go forward.

Business associates are one thing, but asking friends and family for money is something else. Fundraising for other than charitable purposes is simply not something well-bred Philadelphia girls are raised to do. The only way I could overcome my fear of seeming crass was to convince myself that I owe my circle a chance to at least consider our opportunity.


  Thus, I attempted to communicate the opportunity with a mailer touting our latest achievements, replete with press releases and application notes. "If you or someone you know would like to invest…" it closed. (Be careful. If you adopt this tactic, you must limit your mailing to those you truly know or run afoul of the Securities & Exchange Commission.)

One recipient, an elderly widow of means, who has been almost a surrogate mother to me since I was seven, responded defensively. "Lisa, I must tell you, I am not in a position..." she chided after several weeks without calling.

"Marianna, don't even think about it," I quickly interjected. "Let's never talk about money again." Just as quickly, she changed the subject. Still, bad manners aside, the mailing did goad that latest board member to talk to his wife.

Today, when I arrive at the headquarters of a $5 billion-plus prospective strategic investor, my head is full of plans for a second mailer. I regale the manager of strategic planning with our success at attracting little angels. Her mouth twists ever so slightly as she peers at my PowerPoint depicting a nice layer cake of various funding sources, starting with MEECO. I sense something is amiss. Are the angel amounts too small, my little cherubim?

"I probably shouldn't tell you this," she says, with a sweet smile. I beam encouragement. "We really don't like to see a lot of small investors. It complicates things, especially when you get to the Series B round."

"I didn't know that," I reply, my cold hands now ice.

"Having to get all those signatures every time you want to do something, it's messy."


  I tilt my chin toward my list. "Is it too many?"

"No," she replies. "But if you get many more, you want to insure that they'll vote with you." I wonder why my lawyer or other advisers didn't mention this? Should I cut short the friends-family-and-fools round just when it's taking off?

It's rush hour by the time I leave her office. The long drive home gives me a chance to consider my options. We need money. Compounding the problem, Tiger has suffered from the semiconductor market slowdown, the impact of the war in Iraq, and the toll of SARS on Asian sales. Although orders are picking back up (fingers crossed), I believe it's too soon to shoo away prospective angels.

As a compromise, I decide to place a dollar minimum on contributions and to cap the number of angels we'll accept. Archangels are welcome. For everyone else, well, there's still the IPO.

Lisa Bergson is President and CEO of both MEECO and Tiger Optics. Before joining MEECO in 1983, Lisa Bergson worked as a business journalist at BusinessWeek and freelanced for many business publications. You can visit her companies' Web sites at and, or contact her at

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