Ruth and Gideon Eden demonstrated their commitment to BioLumix by investing their own money first. This commitment along with a compelling story and proven track record from a previous start up helped them convince angel investors to provide funding to bring BioLumix's products to market.
For Ruth and Gideon Eden, BioLumix is their second startup. They began their careers as employees. As they found their jobs buffeted by corporate takeovers, they decided to launch their own businesses in industrial biology. The first business succeeded well helping them establish a track record in the venture community.
In this segment, we continue our Financing Innovation series by focusing on how they used angel investments to fund their current startup. Angel investors are individuals who typically contribute less than $1M to a company's capital. Highlights include:
- An important motivation for Gideon and Ruth was maintaining control of their company. Because angel investors put up less capital, they are willing to accept a smaller ownership stake.
- Angels also look for less risky investments than venture capitalists who can spread risk over a larger investment portfolio. As a result, angels are less likely to push a company take business risks that might lead to very high payoffs but also carry a significant chance of failure.
- In Gideon and Ruth's perception, angels value the following items when considering whether to invest: a compelling story, a good track record for the management team, commitment from the management team often signaled by the team investing their own money first.
- BioLumix has signaled to its investors that it expects to sell itself in five years to a larger company.
The Edens are a great example of the leverage that can be gained with solid planning. A departure from employment to entrepreneurship could have proved disastrous, but clearly they evaluated the market and came at it head on.
Their use of layered financing is especially intriguing. Personal financing of a venture can sometimes seem like an unfortunate risk necessary to get off the ground. However, this risk became a real opportunity in the case of the Edens, who were able to gain the trust and respect of angel investors because they put their money on the line. I would be interested to know how they originally connected with these investors. Through contacts at their previous company? Recommendations through friends and colleagues? I would also be interested to learn the backgrounds of the investors; particularly if they are involved in the field and understand the demands or had to learn about the microbiology market before being convinced of the venture's profitability.
The Eden's emphasis on the "compelling story" was also of note. For all the research and documentation of projected sales, industry analysis and the like, there will always exist the necessity of a captivating idea. It is not so different from the classic, "elevator speech." Such a brief presentation cannot bring to life all the facts and figures that support the business proposal, but it has that "hook." The Eden's expertise in the area surely helped validate that idea in presentations as well.