Angel Investing: The Inside Scoop

Angel Investing: the Inside Scoop
Ted McCluskey, President of Sand Hill Angels

Wednesday, September 7th, 2011

Agenda for Tonight
• Introductions
• The Angel Process
• Panel Discussion

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Introductions
• Ted McCluskey
• Mason Ng
• Rick Lazansky
• Don Ross


Ted McCluskey
• Sand Hill Angels – 5 years, President
• BS – Chemistry - Stanford
• MD/PhD – Washington Univ.
• Cardiology – UCSF, CCF
• Genentech (8), Scios/JNJ (4)
• CMO – Aviir, Inc. (Stanford Startup)
Diagnostic test for Cardiac Disease
• UCSF QB3 - Incubator program
• Stanford BioDesign – Medical Device startups
• Stanford ‘SPARK’ – Medical Therapeutics startups


Mason Ng
• Mason Ng has over 20 years of Internet
and enterprise software experience. Mr.
Ng spent over 15 years at Oracle and held
product management positions in
middleware, mobile and multimedia
groups. While in the multimedia group, he
helped launch some of the world’s ﬁrst
video-on-demand systems with British
Telecom, Bell Atlantic (Verizon) and
Oracle’s Information Superhighway at
Disney Epcot Innovention. At Yahoo!, Mr.
Ng led engineering M&A integration,
commercial and open source software
architecture. Mr. Ng has a B.S. in Electrical
Computer Engineering from University of
California Davis


Rick Lazansky
• Sand Hill Angels, Board Director
• Vantage Analysis, Founder
• Denali Software, Founder
• Standard MEMS, Founder
• RedSpark, Founder
• 9 startups as founder, exec

• Focus: Software (SaaS, consumer, EDA)
Semi/Electronics

• Active Angel investor
• Mentor to many startups, formal and
informal
• Entrepreneur, looking for the next
challenge


Don Ross
• Sand Hill Angels, Board Director
• HealthTech Capital, Founder/Director
• Life Science Angels, Member

• Figure 8 Surgical, Board Director
• OncoHealth, Board Director

• Active in Angel/VC syndications
• Investor and mentor
• Entrepreneur - Cofounded, built, sold
life science publishing company


Good Angels Add Value
• The Angel investment process
• How Angels help the company move forward
• Journey to exit

• What investors look for in a company
• The company pitch
• Valuations


Investment Process
New deals
Entering Angelsoft

Screening
Call
Screening
Meeting Dinner
Meeting

Angelsoft
1-2 deals
Due diligence

6-8 deals 2-3 deals

20 deals

~6-8 deals
~60 deals per month Funded/year

What we do:
Investor 1 Company 1

Investor 2


Investor 4


Investor 6


What we do:

Investor 2


Investor 4


Investor 6


What we do:

Investor 2

VC Fund
Investor 4


Investor 6


The Company Pitch
• What the company does
– Why it is great, What is the Unmet need
• How we will make money
• What is our sustainable competitive barrier
• Who we are (The Team)
• Why we need money now
– How we plan on using the money, Deal Terms
• Exit – Acquisition (most likely) or IPO


How Angels help move
the company forward
• Lead the Priced Round term sheet
• Introductions to other Angel groups &
VCs
– Syndication
• Contacts for vendors & customers
• Publicity
• Angels may need to invest more $$$$


What investors look for in a
company
• Great Idea (with tight patents/IP)
• Experienced Team
• Strong “Go-to-Market” Plan
• Low capital demands
• Likely additional funding
• Near-term Exit


Valuation
• “1M on a 2M pre”
– Company is currently “worth” $2M
• “Pre-Money” Valuation
– Investors put in $1M
– “Post-Money” Valuation = 1M + 2M =
$3M
– Investors own 1M/3M or 33% of company


Current Trends in Valuation
• $100K – Idea on a napkin and great team
• $500K – Patented idea, some feasibility
• $1M – Great idea, prototype, great team
• $2M – Idea, team, customers, SALES
• $5M – Rapidly Growing Sales, Issued Patents
• $10M – Phase 1-2 Clinical Data

In overheated sectors, this goes out the window.


Typical Forms of Financing
• Priced Round
– Angels give company e.g. $1M for 33% of
company stock. “1M on a 2M pre”
• Convertible Note (less desirable)
– Angels loan company $1M today, interest
accrues at __% annually. Angels also
receives __% incentive discount.
– Note “converts” to stock in next priced
round


Bay Area Angel Groups
• Sand Hill Angels • North Bay Angels
• Life Science Angels • Tech Coast Angels
• Health Tech Capital • Angel Capital
Network
• Band of Angels
• Golden Gate Angels
• The Angels Forum • Angel Investor Forum
• Golden Seed Angels • Acorn Angels
• US Angels • Silicom Ventures
• Harvard Angels
• Keiretsu Forum • AngelList.com


Angelsoft


The Angel Process
• Intro
• Pitch
• Diligence
• Investment
• Wait…………………………………………
• (Re-invest)
• Exit


How investors negotiate
• Economics
– Price
– Employee Option Pool
– Liquidation Preference
– Participation, pay-to-play, vesting, anti-dilution
• Control
– Board composition
– Protective provisions
– Drag along, conversion, information rights


Summary
• The Angel Process
• What investors look for in a company
• How investors negotiate
• How Angels help the company move
forward


The Sand Hill Angel Process
• Intro
• Angelsoft
– Pitch Deck, (Video), Business Plan, Financials
• Screening Meeting (6), Dinner Meeting (3)
• Diligence
• Priced Round (vs Convertible Note)
• LLC formation, Syndication with other Angels
• Quarterly updates, Annual 510-K
• Exit


Angel Investing: The Inside Scoop

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