By Kesav Dama
In the world of early-stage investing, few people have seen as many deals, or founders, as Alan Wink. As managing director of Capital Markets at EisnerAmper and an active member of multiple angel networks, Wink has helped evaluate hundreds of startup pitches, from raw concepts to revenue-generating businesses.
In this wide-ranging conversation with Kesav Dama for The American Bazaar, he pulls back the curtain on what founders often get wrong, how angel groups really work, and why some companies return 47x, while others never get past the pitch.
For entrepreneurs and investors alike, Wink offers a rare behind-the-scenes view into how funding decisions get made.
Kesav Dama: You have a background in angel investing and, and also you work with angel groups. What are the biggest mistakes you see that founders make when they’re trying to raise capital?
Alan Wink: I think that the biggest mistakes fall into two categories. The first is that I don’t think most founders understand the right amount of money they need to raise. Most founders raise what they want, not what they need. Founders need to understand that this capital, the first round or second round of money, is the most expensive capital they’re going to raise. If I raise half a million dollars and give away 10% of my business, and my business is worth a hundred million dollars, six years from now, that $500,000 cost me $10 million because I gave away 10% of my business.
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It’s really expensive capital. You should know how much you need. You don’t want to raise more than you need, how that money is going to be deployed, and what milestones would allow you to achieve.
The second one is also important. And that is why a person on the other side of the table says ‘No’ far more times than he says ‘Yes’; I don’t think very many founders understand the return dynamics that VCs need to see before they write a check.
I’d like to reference a point made by David Rose, often considered one of the godfathers of angel investing. In his book, he explains that out of every 10 startups in a portfolio, six will likely fail completely. For example, in a $100,000 portfolio with $10,000 invested in each company, the first six might return nothing. Two more may just return the original capital, leaving the investor with only $20,000. That means the entire return depends on the last two companies delivering outsized gains — 10x, 20x, or more.
Given that model, Rose says investors often pass on companies they don’t believe can generate that kind of exponential return — even if the business is solid — because they need to meet return expectations for their LPs.
Do you agree with that framework? And when you’re evaluating companies, how much weight do you place on the potential for a 10x or 20x return versus more modest but reliable growth?
Yes, I agree with David, but I look at the market a little bit differently. I think venture capital is a game of thirds. One-third of the deals you make, you’re going to get zero back — the company goes bust, nothing, no return of capital. One-third of the deals, if you invested a dollar, you’re going to get a dollar back, but it’s going to be seven or eight years later. So, if you look at the IRR on that, it’s not very good. The third category is the winners — the deals that are going to give the fund its return. Those are the ones that return 8x to infinity-x.
But the amazing thing is that VCs tend to be pretty smart people. They come out of the best business schools, many have worked in investment banking or commercial banking — they’re really bright. And the same amount of due diligence is done on every deal they pursue. But the reality is that only a small number of deals really pay off.
If you just look at the math, almost 70% of the deals either return nothing or just the capital you invested. You’re making your money on the remaining 30% — and those are the deals that make the fund. So, when you see a fund returning 10x, it’s basically because of that one-third of deals that delivered those outsized returns.
Thinking about some of the recent pitches you’ve seen, what are some glaring mistakes founders made — aside from the usual ones like asking for the wrong amount of capital? Mistakes they could easily correct?
Great question. There are a couple of things that are real pet peeves of mine. Usually, a founder has an ask — let’s say they’re looking to raise a million dollars — and they’ll explain how that capital will be deployed, how long it will last, and whether they’ll need to raise more money after this round.
The companies that scare me are the ones where most of that capital is going to pay the salaries of the management team. I always say: investors aren’t going to put money into a company so the founders can live a really nice life. Your return should come from the value of your equity, when there’s an exit. That’s what you’re working for. You own the majority of the company, and if things go well, it will be worth a lot someday. But no investor wants to fund high current salaries. We want to keep founders hungry, not complacent.
That’s pet peeve number one: too much capital going to management salaries.
Number two — and this one really bugs me — is around market sizing and projections. Founders will talk about their total addressable market and present five-year projections. And suddenly, by year five, they’ve gone from $0 to $300 million in revenue — in a market that’s only $350 million total. That’s just not realistic. It rarely, if ever, happens that you capture the majority of a market in such a short timeframe.
Investors want to see a large market opportunity because even if you get just a few percentage points, you can still build a really successful business. Founders need to have a sense of realism: you’re not going to grab most of the market right away. It takes time.
You’re part of two angel groups. If someone wanted to become an angel investor and join one of those groups, what are the requirements?
You come to a couple of meetings and make sure this is something you’d like to do. One of the groups has an annual membership fee to cover operating costs; the other does not. You also need to be comfortable risking your capital and working with other members of the group, since almost every deal involves multiple members. That said, it’s a great way to see startup companies in the region. Both of these groups are fairly active — investing several million dollars a year into a portfolio of companies.
For any angel investors out there, what is the annual membership fee?
Not a lot — a couple thousand dollars. It’s not a significant amount.
And what’s the minimum investment commitment?
There’s really no formal minimum. I don’t think people would keep coming to monthly meetings if they didn’t have an inclination to invest. One year you might invest in three deals, another year in just one, and the next in seven — it depends on the companies you see. In both groups, the process is the same: a company presents for 10 minutes, followed by 10 minutes of Q&A. If there’s interest around the table, a deal team is formed, and that team conducts cursory due diligence. It’s a pretty efficient process.
How do you initially vet the companies before they get to present?
Each group has a screening committee that reviews pitch decks from all the companies that apply. The committee selects which companies are worthy of presenting to the full group.
So these meetings — are they once a month? How long do they usually last?
Yes, they’re usually once a month and run about two to three hours. You typically see three to four companies per meeting.
Oh, so it’s not a short pitch event. Each company gets a good amount of time?
Not too long — about 20 minutes total. Ten minutes to present, ten minutes for Q&A, and sometimes another ten minutes of discussion among investors without the founders in the room.
If you were advising a young founder on how to get past the screening committee, what would you say they’re looking for?
They want to see interesting technologies that solve real problems and target large potential markets. Ideally, there should be some revenue — not millions in ARR, but at least some evidence that a customer has paid for the product or service.
Do any of the angel groups offer training for companies presenting?
Yes. Usually, someone in the group is assigned as a ‘champion’ for the presenting company. That person works with the founder ahead of time, reviews the deck, and provides feedback before the presentation. We want all the companies to do well. If three companies present and all three get funded, that’s a win. They’re not competing against one another — just for dollars around the table.
What size checks are we talking about?
Collectively, we’re talking about $200,000 to $500,000 or $600,000 per deal. Individual members write different-sized checks depending on their interest.
Doesn’t having so many investors mess up the cap table?
We’re not talking about that many. In any particular deal, you might have maybe seven or eight investors who chip in.
And what happens behind the scenes during the private meeting? Is it like “The Gong Show” — “That guy’s done!” — or “I love that guy!”?
Well, it’s interesting — in every group, there are usually a handful of people who, when they talk, others listen a little more closely. I think that’s just human nature. There are also investors who tend to follow the pack. If they see that someone like Kesav is investing, and they know his track record, they’ll think, ‘He must like this business — I’ll follow him.’
That 10-minute discussion after the presentation and Q&A isn’t for making an investment decision. It’s to assess whether there’s enough interest around the table to learn more about the business. If there is, then a deal team is formed. That team goes out, conducts cursory due diligence, reports back to the larger group, and then a decision on whether to invest is made.
Do you give feedback to the founder?
Absolutely. Usually within a day or two, the founder finds out whether there was interest — and if not, why.
Do any founders ever come back for a second time after correcting their mistakes?
It has happened, though it’s not common. When founders are invited back for a second pitch, it’s usually because the company has made substantial progress since the initial meeting.
In the last five years, have there been any notable success stories from the two angel groups?
Oh, yeah. The one I always refer back to is a great example of why angel groups are unique. Unlike traditional venture capital funds — which usually have a fixed life of seven to ten years — angel groups are made up of individual investors who can stay in as long as they want.
There was one company where the first round of capital came from the angel group. The company went through fits and starts over 11 years. At some point, most of the investors probably wrote it off. But the venture had what I thought was a really great CEO — a true visionary.
Long story short, 11 years after the first investment, the company was sold — and it returned 47 times the original investment.
What is the common denominator among successful founders you’ve worked with?
Number one — and I think this is really important — is when the founder came up with the idea through their day job. If they identified a gap in the market based on something they experienced in their own career or company, those startups tend to be more successful. They saw the problem firsthand and realized that many other companies likely face the same issue. That’s huge.
Number two is the founder’s work ethic. Being a founder — especially of a tech company — is not for the faint of heart. You have to put in a lot of time and give up an awful lot.
I’m going to read it to you, Kesav, real quickly. It is one of the best quotes I’ve ever come across about entrepreneurs. I actually wrote it down:
‘Entrepreneurship is living a few years of your life like most people won’t, so you can spend the rest of your life like most people can’t.’
I think that captures what it really means to be a founder better than anything else I’ve ever read.
A successful founder is constantly thinking about the business. I always say, there’s a trade-off between the founder and the investor. Yes, the investor is taking on significant risk — your company and your technology are unproven. But the founder also needs to be truly incentivized to work incredibly long hours and make serious sacrifices for the business. That’s what I mean when I say: you’re living your life for several years like most people won’t. Most people won’t make those sacrifices.
And when you hire people into your company, you have to expect — and cultivate — the same level of commitment that you bring as the founder.
But how do you really know what a founder’s work ethic is? Everyone says, “I’m the hardest worker.” Everyone. How can you tell? It’s not like you’re hiring a PI to find out.
Look, I think you start by looking at someone’s background — their educational achievements, what they’ve done in other organizations. I think it’s actually pretty easy to get a good read on people once you take that into account.