128 Icg 10.2009


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128 Icg 10.2009

  1. 1. Raising Money from Angels! October 2009
  2. 2. Chris Sheehan 1997 - 2009 (US): •  Early stage investor: CommonAngels •  Consultant & venture partner: Industry Ventures •  Enterprise software: BEA Systems (Silicon Valley) •  Startup: Stax, central square 1986 – 1997 (Australia): •  Finance: Investment banking/stockbroking •  Founder: Northstate Partners CommonAngels: www.commonangels.com Blog: http://earlystageadventures.com/ Twitter: @c_sheehan 2
  3. 3. Overview 3
  4. 4. Angel investors: individuals & groups Individual Angel Groups ~ 260k 155 + in US; 7k angels ~ $19B/pa 55K deals ~ 45% seed & early stage Source: Center for Venture Research, UNH Source: Center for Venture Research, UNH; MoneyTree 4
  5. 5. Angel groups are easy to find www.angelcapitalassociation.org 5
  6. 6. With many in New England North Country Granite State Maine Angels eCoast Angels CommonAngels Mass Medical Angels Hub Angels Clean Energy Venture Group Boston Harbor Boynton Angels Angels Launchpad River Valley Walnut Beacon Angels Investors Circle Bay Angels Golden Seeds Cherrystone CT Angel Guild Angel Investor Forum Landmark Angels Est. ~ 700 – 1,000 angels 6
  7. 7. What sectors/businesses do angel groups like? •  Information technology: semiconductors, communications, HW, software, applications, digital media, consumer web, ad tech, financial tech, healthcare tech, mobile, ecommerce, video, games, …. •  Healthcare: Medical devices, life sciences, therapeutics, diagnostics,…. •  Other: Energy tech, material sciences, industrial/ manufacturing, …. Some groups specialize 7
  8. 8. When should I think about angel financing for my business? “ready for rapid Seed stage growth” “working on a b- Looking for $2M + plan” Seed/Early stage $25k - $200k “beta/prototype” need $200k to $2M + “I have an idea” t $5k - m arke $20k ly go to Venture capital on : ear iti Trans Incubation Angel groups Sweet equity, family, friends Individual angels 8
  9. 9. How much do angel groups like to invest?   A single angel group capacity for a new financing tends to be between $100k to $750k Syndication is common 9
  10. 10. 7 Practical Tips 10
  11. 11. Practical tips: #1 manage the process like a sales campaign   Build and manage a prospect pipeline of individual angels and groups   Materials needed (for groups, probably good for individuals as well)   Executive summary (.doc) ,   pitch deck (.ppt) 11
  12. 12. Practical tips: #2 what should go in a pitch deck (www.earlystageadventures.com) 12
  13. 13. Practical tips: #3 initially meet with anyone you can – network intensively. Build pipeline!   Begin even before you need money   “I’m bootstrapping my company for the next 6 months, but can I talk to you about it and get your perspective?”   Start with your closest network and work out – particularly for individual angels   “who else should I talk with?”   Look for angels who “will get it” and invested in your space before   When pitching   Take the feedback; don’t be discouraged   Will be some good advice (and bad)   Look for patterns in the advice, “Hmm why is everyone suggesting to me to consider inbound marketing as a way to generate leads?”   May not invest, but how can they be helpful? 13
  14. 14. For most of us this will take time away from running our business!   Nice to have a friendly super angel to underwrite us   But that is rare   Balance time fund raising vs likelihood of success in a reasonable time frame   Don’t let your business head south   Mid course adjustments – same as in any aspect of business   Plan B 14
  15. 15. Practical tips: #4 use an experienced attorney!   You do for estate planning, real estate, etc. Early stage financing is a specialized area   Should have local angel/VC contacts   Understands term sheets   Understands issues   Vesting, 83-B elections   Confidentiality agreements, stock agreements, IP, …   Some will work on reduced fee basis 15
  16. 16. Practical tips – #5 working with angel groups   Warm introductions help   For some, its absolutely necessary   Groups have different processes – ask!   some use online applications   pitching can be 15 min or 60 min   some very informal, others professionally managed, others vote as fund   Some meet regularly; others less frequently 16
  17. 17. Practical tips – #5 working with angel groups (cont.)   Understand who is in group, what they like to invest in, and what stage they prefer – ask!   Pre-seed “ideas” generally not a good fit   Look at what they have invested – does my business fit?   Businesses that groups generally shy away from: small markets, capital intensive, some consumer retail products, franchises, restaurants, low gross margins, hard to scale, lack of differentiation, lack of competitive barriers, no relevant experience in the group   Better to look for capital from F&F and angels who know you 17
  18. 18. CommonAngels process GENERAL PLANS SCREENING DILIGENCE & FUNDING MEETING ~ 350/ year ~ 60/ year ~ 20/ year ~ 5 new investments/ year Do we bring Follow up: this before the • Diligence Typical CA investment membership? • Term sheet •  $300k to $1M • Syndication •  12 to 20 members Light Diligence Active role •  Board seat •  Business assistance •  Next round 8 to 12 weeks 18
  19. 19. CommonAngels ideal investment profile Seed/Series A Financing between $500K - $5M   Passionate entrepreneur with CEO capabilities   New areas of information technology   Typically around early go-to-market   Current expertise within the membership   Capital efficient   Typically around the route 128 area, but will consider NE and NYC 19
  20. 20. Examples of our current portfolio Wireless Digital Media Internet/Business Services Software Semiconductor/EDA 20
  21. 21. Practical tips: #6 convertible notes (debt) or preferred stock (equity)?!   Depends on how much you are raising and from whom   Small amounts (eg < $300k) targeting individual angels tend to be with a note. Quicker, cheaper, no lead needed to set terms   Attorney can give you market terms for notes   But more sophisticated angels tend to prefer equity   So be flexible   Groups will likely prefer equity 21
  22. 22. Practical tips: #7 term sheet and valuation!   You want a term sheet to catalyze a round   Many angels sit on the fence until they know the terms. Keep them informed and “warm”   Can use your own if doing a note. If equity, need a lead sophisticated angel to negotiate terms   Angel groups: all comfortable doing term sheets   Angel group term sheets similar to VC term sheet   Aligns everyone's interest and helps on next round (assuming terms are in market)   Typical pre money ~ $1M to $3M for “seed to early stage”   But its more complicated…option pool, dollars raised, dividends, participation…….. 22