Editor's note:
Be sure to check out the interview with Gerald Benjamin.

Guy Kawasaki, a long-time former "evangelist" for Apple Computer, founded and leads Garage.com.

The Web site seeks to bring entrepreneurs and angel investors together by evaluating startups in the "garage" section of the Web site. If they prove enticing, they get bumped up to "heaven," where angel investors can look them over. Garage, a registered broker-dealer, gets a small equity stake in the deals. The site--which also includes a public area with resources and discussion groups--was launched this fall.

Kawasaki's forthcoming book, Rules for Revolutionaries (HarperCollins), is a "capitalist manifesto for creating new products and services." He answered these questions by e-mail from his base in Silicon Valley.

What is the most common misconception entrepreneurs have about angel investors?

Guy Kawasaki: The most common misconception is that angel investors are easier to sign up than venture capitalists. In fact, they are harder because they're playing with their own money and they are probably industry experts.

By the way, the most dangerous misconception is that angel investors need to make private investments. They don't. Unlike venture capitalists who must put institutional investors' money to work, angel investors can just sit on their money or spend it in other ways.

What should be at the top of an entrepreneur's mind when seeking angel funding?

Guy Kawasaki: The entrepreneur should place tantamount value on the angel's background, expertise, and connections. All money is not created equal. Some money is better than others.

Can you elaborate on what an entrepreneur should look for in a angel's background?

Guy Kawasaki: Assuming the angel is a sophisticated investor, you should look for these kinds of qualities: First, he or she has experience and credibility in the same market you operate in. Federico Faggin, (a co-inventor of the computer chip at Intel) for example, can certainly help a semiconductor startup. Second, if they don't have expertise in your market, then they should have it in a needed function. For example, someone who evangelized a personal computer can probably help a startup evangelize a PDA (hand-held computer). Third, you should like the person. Don't dismiss this factor. No matter what the qualifications, if you don't like the person, it won't work out.

How much emphasis should the entrepreneur place on valuation?

Guy Kawasaki: Not too much. The key is to get the right kind of money, not the highest valuation. If someone with dumb, unconnected money offers a higher valuation than someone with smart, connected money, an entrepreneur should take the latter. In the long run, what matters is making the company a success. A smaller percentage of a winner is better than a larger percentage of a loser.

What is the biggest mistake angels make in investing in companies? What is the most important lesson you learned as an angel investor?

Guy Kawasaki: I think the biggest mistake that an angel can make is thinking there is a market for a product they themselves would not buy. I learned this the hard way: I've made four or five angel investments, and I lost money only once. It was a company that had a product that I would never use, but I convinced myself that there was a market for it. As I came to see, there wasn't a market.

What is the most important lesson you learned as an entrepreneur?

Guy Kawasaki: I learn something every day. At this point, what seems like the most important lesson is that things are never as good or as bad as they seem. You just have to keep plugging away, making a little bit of progress every day.

In a startup, what's most important to success: concept/product, market segment, or the team?

Guy Kawasaki: There's no right answer to this. If the market segment is big enough, you can have a so-so product and replace a lousy team. If you have a great product, you can build a market and replace a lousy team. If you have a great team, you can create great products and build a market.

Pick one. It doesn't matter WHY you succeeded.

What are the key things you look for in clearing companies for "heaven", the area of Garage.com in which angels can look over potential investments?

Guy Kawasaki: These three factors are the most important: Who referred the deal to us? How "earth shaking" is the product? What is the educational and work background of the entrepreneurs? Good answers to two of these three questions is all it takes.

Why does it matter who referred the deal to you?

Guy Kawasaki: Because lawyers at firms like Venture Law Group and Wilson, Sonsini in Silicon Valley see dozens of deals every year. If they recommend a deal to us, it means a lot. Some of our best deals came to us this way.

What message would you give to an entrepreneur who has talked to, pleaded with, cajoled, and button-holed investors all to no avail?

Guy Kawasaki: Maybe you're onto something! Some of the greatest companies couldn't get funded when they first started, so don't let the bozos get you down: Keep on plugging. Take little steps--business plan, prototype, first customer--make progress all the time. One day you'll wake up on a pot of gold.

Be sure to check out the interview with Gerald Benjamin.

Angels & Revolutionaries was presented by:



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