By: Jay Duret
All writers know it is hard to make any money from a book. You have to get it noticed among thousands of other offerings. In that respect, a new book is something like a start-up company. But start up companies are getting funded all the time. It occurs to me that maybe writers could learn something important from the community of investors who bankroll start-ups. I ask my friend Zuni to take me to an angel investment club in Palo Alto.
Zuni is a cheerful soul. She made some money years ago rolling up floral distribution companies and has no need to go to the office. In the last several months she has fallen in love two times, climbed Mount Kilimanjaro, sat for the California bar, become the Chief Operating Officer for one start-up and bankrolled another. She agrees to take me to an angel investing conference, more or less in the same vein.
We drive down from San Francisco on Route 280, fend off the Wednesday morning traffic and exit onto Sand Hill Road. As we approach Palo Alto, I feel as if we are locked into a tractor beam and being pulled into Battlestar Silicon Valley, the epicenter of venture capitalism. If there is any place to be an angel investor in 2015, it is right here.
We are late. The angels have been at it for an hour before we arrive and every seat in the 300-seat auditorium is filled. The stage is now occupied by a broad-faced character named Tony Stevens who sports a tan as rich as an Allen Edmonds shoe. We get ourselves settled and flip open our program brochures to the salient points of the 13 companies that are presenting today. Stevens has endeared himself to me already because he looks startlingly like Fred Willard, the actor who played the color commentator at the dog show in the movie Best in Show. At first, I think they are the same person for Stevens is subject to the same wild fits of digression that Willard displayed in that mockumentary.
Stevens is wearing a white shirt and a gray cardigan sweater vest. He is in ruddy health and clearly loves to be in the center of the stage. He carries a microphone and struts like he owns the space. He yells out to one of his team – his team must have 20 people on it – to tee him up some music, and instantly Rod Stewart is playing Maggie May and Stevens is dancing, poorly and enthusiastically, across the stage.
I look around the auditorium to see how the angels are taking it. I’ve never been in a room filled with angels before, and the expressions are not nearly as beatific as you would think. The angels are a varied crew. There are plenty of 30 year old Asian men in baseball hats, an assortment of characters in suits like they just got off the plane from Baltimore, a variety of women, each of whom looks as if she could easily run a Fortune 500 company, but no one in the audience seems to be in the mood for dancing. Stevens realizes this, ruefully – what’s with you people anyway? – but signals for the music to fade.
He is not embarrassed. In a nanosecond he has regrouped, bounded across the stage, and called up the CEO of an emerging enterprise with a dyspeptic name that sounds something like ZipLock. ZipLock exists to accelerate Internet speeds in the Last Mile. Everyone here knows that the Last Mile is not the route that Christ traversed to Golgotha, but the distance from a telecommunications network into the homes of individual consumers. I am all for accelerating those speeds so I pay close attention to learn what this start-up’s secret sauce might be, but I am quickly lost in the jargon of the presenter. She speaks Siliconese, a kind of Spanglish – though not a mixture of English and Spanish – but of tech talk and finance talk all jumbled together. First mover advantage with an IP fortress in close juxtaposition to convertible notes and managed liquidity events. She explains that ZipLock’s solution will be delivered through the cloud via a USB dongle. Not only is it a global game changer, but, really good news, it won’t be threatened by the next big thing.
I lean over to Zuni. “Are you interested in funding this enterprise?” Zuni rolls her eyes and makes a cutting motion across her neck.
Each pitch is limited to 10 minutes except for a few companies that are seeking seed-level investments: they are given only three. After the pitch, the audience is given 10 minutes of questions and at the end encouraged to indicate their interest on a gold sheet, which Stevens tells us is the most important piece of paper that we will see today. The gold sheet tells the organizers what our level of interest is and will kick off the due diligence process that will lead to investment in those lucky companies that attract the most favorable attention.
I had anticipated that all the potential investments at this Expo would be in tech companies but I am completely wrong. Next up is a gentlemen with mutton chops – really, who wears mutton chops? Is that a thing? – who pitches an investment fund making short term real estate loans to developers in the Portland area. He has closed out an initial fund and says those investors have enjoyed a 20% return on equity. Mutton Chops has presented before at this club in the past and he enjoys a reservoir of goodwill but he doesn’t draw a smile from the angels – this is a sour group of angels or maybe all angels look sour when listening to pitches. MC is not fazed at all, actually he is slightly sour-faced too; he moves through his presentation easily, without hyperbole, letting his numbers do his talking. He exits to polite applause.
The stage is briefly taken over by a kid – I’m not kidding, he’s really a kid, he can’t be 20 years old – who startles us with the news that our pillowcases are as dirty as our toilets seats. From there it is a short step to convincing us that acne is pandemic among people who sleep on pillowcases. He and his merry band are poised to disrupt the pillowcase industry with a new material that can be infused – maybe he said suffused – with oils that repel the crap that ordinarily covers our pillowcases.
The kid is a big hit with the audience, but there is a question. He’s only looking for $1.2 million and it’s just to buy inventory. One investor points out that equity money – that’s the sort of money the angels are supplying: high risk, high return, money – is expensive money to use just to buy product; why doesn’t the kid get a bank loan? The kid says that the product is so hot they need to buy right away; they can’t wait for a bank to go through the painful tire-kicking it will require before doing a line of credit. That answer clearly resonates. These angels don’t have any love for bank lenders, with their methodical low risk, low return investments. Equity money may be expensive money, but it is smart money.
Stevens is back and he quickly shoos the kid off stage. He looks around the room – it is uncanny how much he looks like Willard – and makes another attempt to pump up the crowd. He fires up some rock and roll and he struts a bit – clearly he is convinced that he has moves – I wonder what he does in front of the mirror in his bedroom before he leaves for work. The latest pump up session proves no more successful than his last attempt but the lukewarm reception bothers him not a bit. If possible, I like him even more than I did before.
The holder of multiple patents for a bedwetting product anticipates $109 million in revenue in 2018. I pause over the projections – really? That seems a lot of bedwetters. But the materials explain that 2.2 billion folks suffer from nocturia, “the frequent need to urinate at night.” Nocturia is described as a deadly condition that is linked to “higher rates of heart disease, stroke, deadly hip fractures, brain damage and significantly higher death rates in all categories…” I confess that I have trouble with deadly hip fractures until I realize that nocturia afflicts the elderly among us in disproportionate amounts and these entrepreneurs are expecting plenty of midnight stumbles en route to the loo.
Zuni and I soak up the buoyant optimism of a few more presenters. I am amazed that there are so many ways to generate $50 or $100 million in annual revenue, but who am I to argue with the careful analysis that has been performed on the spending habits of unattended retail environments or the whizzing of those 2.2 billion nightstalkers with nocturia.
I am getting ready to leave when I sit bolt upright – there is an investment offered in the work of a writer! Amazing! This could be the keys to the kingdom. I have to stay and hear this. This could be a way to bypass the whole logjam in the publishing industry. Take it to the Angels!
The investment involves a “young writer/director” with a “buzzworthy, unique personal background” who owns a “powerful, original copyright protected screenplay”. His group seeks a million dollars from the assembled angels to produce and distribute a film from that copyright protected screenplay. Two Oscar-winning actors “have expressed interest from reading the script and have requested offers for the lead roles.” Based on “recent sales of films similar” to the anticipated film “in genre, theme, subject, budget, audience and target distributor,” the company anticipates investors will make a 64% return on their invested capital. I like that it is 64%, not 60% or 65%; precision in these matters is very important to me.
I am getting pretty excited. I have a unique personal background. I could be buzzworthy. I wonder what the script is about. Fortunately there is a synopsis available:
Nicolette is an ambitious journalist who does not love easily. Engaged to Eithan, a charming entrepreneur who struggles to launch his Silicon Valley start up, Nicolette is consumed with an investigative reporting she is conducting on a sex-trafficking ring.… But one night, she learns that Eithan made a bizarre commitment to Alexis McKenzie, a wealthy venture capitalist, in order to obtain seed funding for his tech startup. While Eithan admits his mistake and explains that his indiscretion was purely for business, Nicolette must make an urgent choice. Does she love him enough to forgive him? Or is she willing to sacrifice love in a dangerous revenge that benefits her investigation…
This is a powerful story all right. But could it really raise a million? I decide to do some real due diligence. I go look at Kickstarter and see what sort of film projects that they have up for crowd funding. Maybe I can find some guidance as to what the crowd wants to fund.
I go to the Kickstarter website and pick the Film and Video category. Wow, there are 35,151 projects looking for funding. I scroll through, looking for something that I can compare to Eithan’s epic. Almost immediately I come upon To The Flames, a film by Alex Webb. Alex is looking for $25,000 in funding of which he has only raised $650. That isn’t a great start but he has 27 days to go. His film is synopsized as follows:
Kyle, an aimless film student, becomes fascinated with a dark, disturbed couple while interviewing neighbors for class. Big mistake.
I watch the 5-minute trailer for the film – its a long 5 minutes but punctuated by frequent bursts of hilarity – and if I had to choose between this one and Eithan’s story, To The Flames would get the nod, for sure. Not only is the amount of funding so reasonable, but for a pledge as modest as $10,000 I can get myself credited as “Executive Producer” in the opening titles. I will also get a copy of the DVD, visit the set for a day and attend the premiere in New York as well as the wrap party.
As I look through the Kickstarter archives, the film I can most closely equate to Eithan’s venture is:
Goodbye Gauley Mountain: An Ecosexual Love Story, A Film
by Beth Stephens and Annie Sprinkle
Ecosexuals Annie Sprinkle & Beth Stephens fight mountain top removal coal mining and make environmental activism sexy, fun, & diverse.
GCM was fully funded; indeed it raised 134% of what was sought. But I am not sure that it is a good predictor of success for Eithan’s tale. First of Goodby Gauley Mountain only sought to raise $10,000. More importantly, ecosexualism is clearly hipper and more cutting edge than the run-of-the-mill sex-trafficking that Nicolette is investigating. And, by the way, Annie Sprinkle is a much better name than Eithan, in my humble opinion, and it has the additional benefit of being spelled correctly.
I can’t wait to see how Zuni will react to Eithan’s epic. If she is willing to fund this, maybe I can sell her the rights to my book – forget agents, forget the publishing industry; I’ll have Angels on my side! I watch Zuni fill out her Gold Sheet and when it comes time to describe her level of investment interest in Eithan’s movie, sadly she checks the box marked “low”. She whispers to me that the key to angel investing is that you have to be willing to say no.
– Jay Duret
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Jay Duret is a San Francisco based writer and illustrator who blogs at www.jayduret.com. His first novel, Nine Digits, was published by Second Wind Publishing. Jay welcomes feedback at email@example.com.