Mike and I stated working on crowdSPRING in the summer of 2006. We incorporated the company in May 2007 and launched the crowdSPRING marketplace in May 2008. We’ve learned many important lessons along the way. In some ways, our experience is typical of other start-ups. In other ways, it is not. I want to share some of our adventures (and mis-adventures) in the hope that it’ll help others looking to start a company or those who’ve already launched a start-up. So, once or twice every week for the next few months, I’ll post a new tip, based on our experience with crowdSPRING  over the past two years (and my experience advising technology start-ups over my 13 year career as an attorney).

Start-up Tip 4: Ten Suggestions For Raising Start-up Capital From Angels

It’s not enough to have a great idea. Almost all entrepreneurs will need to find a way to fund that idea. Some entrepreneurs are fortunate to self-fund. Others could bootstrap their start-up (at least for some period of time). But most entrepreneurs need outside funding very early during their start-up’s life.

This article focuses solely on our own experience, in the hope that sharing our strategy and what worked/didn’t work will help others.

Two things worked in our favor when we began raising capital. First, we had absolutely no preconceived notions about how difficult it would be. Second, we didn’t start raising capital until we could answer as many difficult questions from investors as we could reasonably anticipate.

We spent over six months researching (including competitor analysis) and refining our business idea before we started raising capital. During that time, we attended a few meetings of angel investor groups (as observers) to listen to pitches from other start-ups. We also did some light reading about raising capital. But we mostly focused on our idea because we understood very early that raising capital would consume a great amount of time and we wanted to refine our idea as much as possible before we started meeting with investors.

We started working on crowdSPRING in the summer of 2006 and crystalized our initial thoughts in the Fall of 2006. We wanted to wake up January 1, 2007, grab a cup of coffee, and read a draft of our business plan. And we did.

We wrote a detailed business plan mostly for ourselves (and for our wives. Let’s face it – we had to persuade them too that it made sense for us to pursue crowdSPRING as a business). It was over 80 pages long, and we spent a good 2-3 weeks putting it together. The plan included financial projections based on a very detailed financial model that we (mostly Mike) developed in the Fall of 2006. We didn’t yet know whether we would pursue crowdSPRING full time or whether anyone would agree to invest. But for us, this was an important first step. On January 1, 2007, we both were able to sit down with a cup of coffee and read a draft of our plan.

In the hope that our experience will help others, what follows are ten suggestions for raising start-up capital from angel investors (based on our experience). Here we go:

1. Build a business plan. Many people will tell you that you shouldn’t waste time on a business plan (they might be right). We weren’t asked for a copy of our business plan until we met with our fifth investor. But a business plan (whether a formal plan similar to what we put together, a PowerPoint or Keynote version, or something different) has value. The act of writing a plan forced us to crystalize our thoughts in ways that we had not yet done. It forced us to make sure that we could articulate our ideas succinctly, accurately, and with sufficient detail. It also forced us to thoroughly research the market and our competitors. Because much of our research was original research (we literally monitored activity by some potential competitors over a two week period and reduced that activity to analytical data in Excel), we were able to build a financial model that either supported or questioned some of the publicly available data provided by others.

We started with a one page summary. This was a good exercise because it forced us to explain our entire business on a single page.

One piece of advice: if you haven’t ever written a business plan, find someone who has. Mike and I were fortunate because we had either written or reviewed many business plans. But even though we had a good amount of experience with business plans, we found three smart friends and asked them to review our draft plan and to provide feedback. If you need some help to get started, email me (ross at crowdspring dot com) and I’ll be happy to email you the table of contents to our plan.

Whether you write a full blown business plan (like we did) or a shortened version, your should consider incorporating a good description of your business, financial projections, and a competitive market analysis.

2. Research. Research. Research. Know your business. Know your market. Know your competitors. Most investors are smart people. They’ll want to know about your idea, the potential market, the competitors, the pitfalls,etc. While it’s impossible to prepare to answer every single question, you should try to learn as much as you possible can so that you are ready. Potential investors will quickly tune you out if you can’t answer questions about your business. When we attended the meetings of angel investor groups in the Fall of 2006 – we saw many examples of this – some start-ups couldn’t answer very basic questions about their market and revenue models. Investors lost interest.

As I mentioned, we spent six months researching. While many might find that to be excessive, we learned an incredible amount during that time and we are confident that crowdSPRING would be very different (and not nearly as good) had we not spent the time researching. When we could not find published data, we conducted original research and analytics. We read every article we could find about some of our potential competitors (including elance.com and guru.com). Thousands of articles. We were fortunate to buy a subscription to Lexis/Nexis that gave us access to over 20,000 periodicals (including major newspapers and magazines).

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