GETTING READY TO GROW YOUR COMPANY TechBA ACCELERATION PLAN <ul><li>Angel Investors and Angel Groups: </li></ul><ul><li>An...
Overview of Session <ul><ul><li>Financing Statistics </li></ul></ul><ul><ul><li>Reasons for Establishing an Angel Group </...
Financing Life Cycle Financing Idea Pre-seed Funding Seed Funding Expansion/Mezzanine Operating Cap. Friends   and   Famil...
National Venture Capital Investments 2000 – 2003   Source: National Venture Capital Association
Venture Capital: Seed and Early Stage Financing 6.1% 2.0% 166 deals $354 Million 2003 5.1% 1.7% 155 deals $352 Million 200...
U.S. Investment Statistics <ul><li>Venture capital invested a total of $18.3 billion in 2003 </li></ul><ul><ul><li>Only $3...
U.S. Investment Statistics <ul><li>Angels invested approximately $18.1 billion in 2003 (basically the same as venture capi...
Attributes of Angel Investors <ul><li>Often successful entrepreneurs </li></ul><ul><li>“ Accredited Investor” – regulatory...
Angel Investing Preferences <ul><li>Sector Preference Deals </li></ul><ul><li>Manufacturing   8.6%   8.1% </li></ul><ul><l...
Reasons For An Angel Organization <ul><li>Quality deal flow </li></ul><ul><li>Greater investment clout from combined dolla...
What Are Angel Organizations? <ul><li>Groups of individual investors   </li></ul><ul><ul><li>May also have venture capital...
 
 
 
 
 
Angel Organizations: The Fundamentals <ul><li>Accredited investors: </li></ul><ul><ul><li>Attract quality deal flow </li><...
Legal Structures <ul><li>Statistics </li></ul><ul><ul><li>44% are nonprofit and/or 501(c) organizations </li></ul></ul><ul...
Investment Structure <ul><li>Investment Vehicles :  Two essential forms: </li></ul><ul><ul><li>Group Investment Individual...
Investment Structure <ul><li>Company Investment Vehicles :  Two essential forms and view from the company: </li></ul><ul><...
Membership <ul><li>Selection: </li></ul><ul><ul><li>Number of members (5 to 125) </li></ul></ul><ul><ul><li>Increased numb...
Investment Evaluation and Process <ul><li>Deal Sourcing </li></ul><ul><li>Deal Screening </li></ul><ul><li>Coaching </li><...
Investment Evaluation and Process (continued) <ul><li>Investment Statistics: </li></ul><ul><ul><li>70% of angel groups lea...
Meeting Structure <ul><li>Time and Location: </li></ul><ul><ul><li>Regularity, seasonal issues </li></ul></ul><ul><ul><li>...
Public Relations and Promotions <ul><li>Not Glossy Ads </li></ul><ul><li>Knowledge of Group and Activities: </li></ul><ul>...
Summary <ul><li>Angel investors fill critical need beyond seed but before institutional investment </li></ul><ul><li>Find ...
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Angel Groups and Angel Investors Presentation - Jan 05.PPT

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Angel Groups and Angel Investors Presentation - Jan 05.PPT

  1. 1. GETTING READY TO GROW YOUR COMPANY TechBA ACCELERATION PLAN <ul><li>Angel Investors and Angel Groups: </li></ul><ul><li>An Introduction and Analysis </li></ul><ul><li>1-27-05 </li></ul><ul><li>Tom Cervantez </li></ul><ul><li>Partner, Davis Wright Tremaine LLP </li></ul><ul><li>[email_address] </li></ul><ul><li>415-276-6508 </li></ul><ul><li>Susan Preston </li></ul><ul><li>Entrepreneur-in-Residence </li></ul><ul><li>Ewing Marion Kauffman Foundation </li></ul>
  2. 2. Overview of Session <ul><ul><li>Financing Statistics </li></ul></ul><ul><ul><li>Reasons for Establishing an Angel Group </li></ul></ul><ul><ul><li>Community Assessment </li></ul></ul><ul><ul><li>Decision Matrix </li></ul></ul><ul><ul><ul><li>Legal Structure </li></ul></ul></ul><ul><ul><ul><li>Investment Evaluation and Process </li></ul></ul></ul><ul><ul><ul><li>Angel group investing and deal structures </li></ul></ul></ul><ul><ul><ul><li>Meeting Structure </li></ul></ul></ul><ul><ul><ul><li>Public Relations and Promotions </li></ul></ul></ul>
  3. 3. Financing Life Cycle Financing Idea Pre-seed Funding Seed Funding Expansion/Mezzanine Operating Cap. Friends and Family Angels Seed Funds Venture Funds Founder Institutional Equity Loans / Bonds Product Dev Angel Groups Start-up Funding Discovery Proof-of Concept Product Design Product Development Manufacturing/ Delivery
  4. 4. National Venture Capital Investments 2000 – 2003 Source: National Venture Capital Association
  5. 5. Venture Capital: Seed and Early Stage Financing 6.1% 2.0% 166 deals $354 Million 2003 5.1% 1.7% 155 deals $352 Million 2002 5.4% 1.9% 251 deals $767 Million 2001 8.3% 2.9% 672 deals $3.0 Billion 2000 14.4% 6.1% 809 deals $3.3 Billion 1999
  6. 6. U.S. Investment Statistics <ul><li>Venture capital invested a total of $18.3 billion in 2003 </li></ul><ul><ul><li>Only $354 million in seed and start-up </li></ul></ul><ul><ul><li>Only 2% of total investments in seed and start-up </li></ul></ul><ul><ul><li>Only 166 deals in seed and start-up </li></ul></ul><ul><ul><li>In US, only 1/3 rd of Fortune 500 companies ever received venture capital funds </li></ul></ul>Source: National Venture Capital Association
  7. 7. U.S. Investment Statistics <ul><li>Angels invested approximately $18.1 billion in 2003 (basically the same as venture capitalists) </li></ul><ul><ul><li>In 42,000 ventures </li></ul></ul><ul><ul><li>Primarily in seed and start-up rounds </li></ul></ul><ul><li>Historically: angels annually invested $30 billion in 50,000 ventures </li></ul><ul><li>7 to 1 nascent to active angel investor ratio </li></ul>Source: University of New Hampshire, Center for Venture Research
  8. 8. Attributes of Angel Investors <ul><li>Often successful entrepreneurs </li></ul><ul><li>“ Accredited Investor” – regulatory assumption of financial sophistication and risk tolerance </li></ul><ul><li>Expectation of financial reward </li></ul><ul><li>Role in entrepreneurial process </li></ul><ul><li>Involvement in entrepreneurial company: wisdom and expertise </li></ul><ul><li>Community involvement; regional investment </li></ul><ul><li>Social responsibility </li></ul>
  9. 9. Angel Investing Preferences <ul><li>Sector Preference Deals </li></ul><ul><li>Manufacturing 8.6% 8.1% </li></ul><ul><li>Software 34.2% 39.8% </li></ul><ul><li>Telecommunications 8.0% 2.6% </li></ul><ul><li>Electronics/Hardware 9.5% 4.8% </li></ul><ul><li>Life Sciences 10.6% 14.0% </li></ul><ul><li>Biotechnology 10.8% 5.5% </li></ul><ul><li>Other High-Tech 10.8% 15.8% </li></ul><ul><li>Retail 4.6% 5.4% </li></ul><ul><li>Other 4.6% 3.9% </li></ul>Source: University of New Hampshire: Center for Venture Research
  10. 10. Reasons For An Angel Organization <ul><li>Quality deal flow </li></ul><ul><li>Greater investment clout from combined dollars </li></ul><ul><li>Collective due diligence </li></ul><ul><li>Education: formal and informal </li></ul><ul><li>Group social benefits </li></ul><ul><li>(Also the attributes to attract members) </li></ul>
  11. 11. What Are Angel Organizations? <ul><li>Groups of individual investors </li></ul><ul><ul><li>May also have venture capital fund and corporate sponsorship representatives </li></ul></ul><ul><li>Active investors, directly involved in the investment process </li></ul><ul><ul><li>Not passive; Not a broker/dealer </li></ul></ul><ul><li>Individuals with common interest </li></ul><ul><ul><li>Typically invest locally and value group dynamics </li></ul></ul>
  12. 17. Angel Organizations: The Fundamentals <ul><li>Accredited investors: </li></ul><ul><ul><li>Attract quality deal flow </li></ul></ul><ul><ul><li>Generally have a uniform interest in group mission of investment </li></ul></ul><ul><ul><li>Keeps meetings focused on investing </li></ul></ul><ul><li>Sophisticated Investors: No hard and fast definition </li></ul><ul><li>A Champion </li></ul><ul><ul><li>Absolutely necessary (as individual or group) </li></ul></ul><ul><ul><li>Significant time commitment </li></ul></ul><ul><ul><li>Will influence ultimate organizational structure </li></ul></ul><ul><ul><li>Ability to promote desired membership </li></ul></ul>
  13. 18. Legal Structures <ul><li>Statistics </li></ul><ul><ul><li>44% are nonprofit and/or 501(c) organizations </li></ul></ul><ul><ul><li>38% are limited liability corporations </li></ul></ul><ul><ul><li>9% are corporations </li></ul></ul><ul><ul><li>7% are informal groups or affiliations </li></ul></ul><ul><ul><li>General and limited partnerships were not favored legal structures </li></ul></ul><ul><li>Source: Center for Venture Research, University of New Hampshire 2003 Angel Organization Survey </li></ul>
  14. 19. Investment Structure <ul><li>Investment Vehicles : Two essential forms: </li></ul><ul><ul><li>Group Investment Individual Investment </li></ul></ul><ul><ul><li>Pooled funds Group due diligence </li></ul></ul><ul><ul><li>Pledged or committed funds Individual assessment </li></ul></ul><ul><ul><li>Also, fund investment with side individual investments or vise versa </li></ul></ul>
  15. 20. Investment Structure <ul><li>Company Investment Vehicles : Two essential forms and view from the company: </li></ul><ul><ul><li>Convertible Notes Preferred Stock </li></ul></ul><ul><ul><li>Flexibility on valuations Set terms/valuation </li></ul></ul><ul><ul><li>Normally have warrants No warrants </li></ul></ul><ul><ul><li>The recommended path from a company perspective is to take angel/seed in convertible note investments </li></ul></ul>
  16. 21. Membership <ul><li>Selection: </li></ul><ul><ul><li>Number of members (5 to 125) </li></ul></ul><ul><ul><li>Increased number of members (over 15) argues against informal structure </li></ul></ul><ul><ul><li>Set number of members? </li></ul></ul><ul><ul><ul><li>For management purposes </li></ul></ul></ul><ul><ul><ul><li>Exclusiveness </li></ul></ul></ul><ul><ul><ul><li>Fund structure </li></ul></ul></ul><ul><ul><li>Invitation only </li></ul></ul><ul><ul><li>Annual renewal of membership </li></ul></ul>
  17. 22. Investment Evaluation and Process <ul><li>Deal Sourcing </li></ul><ul><li>Deal Screening </li></ul><ul><li>Coaching </li></ul><ul><li>Company Presentations </li></ul><ul><li>Due Diligence </li></ul><ul><li>Investment Vehicles </li></ul><ul><li>Investment Terms and Negotiation </li></ul><ul><li>Follow-On Relationships </li></ul><ul><li>Meeting Structure </li></ul>
  18. 23. Investment Evaluation and Process (continued) <ul><li>Investment Statistics: </li></ul><ul><ul><li>70% of angel groups leave investment decisions up to the individual members </li></ul></ul><ul><ul><li>23% of the angel groups invest by majority group decision </li></ul></ul><ul><ul><ul><li>Of those that invest by majority decision, 90% are structured as LLCs, supporting previous discussions that the LLC legal structure appears to be the preferred group investment vehicle </li></ul></ul></ul><ul><ul><li>  7% of angel groups invest through investment committee decision </li></ul></ul><ul><ul><li>No responding angel group required unanimous decision for investment </li></ul></ul><ul><li>Source: Center for Venture Research, University of New Hampshire 2003 Angel Organization Survey </li></ul>
  19. 24. Meeting Structure <ul><li>Time and Location: </li></ul><ul><ul><li>Regularity, seasonal issues </li></ul></ul><ul><ul><li>Convenient location and time of day </li></ul></ul><ul><li>Format: </li></ul><ul><ul><li>Length of meeting; goals for each meeting </li></ul></ul><ul><ul><li>Networking needs </li></ul></ul><ul><ul><li>Company presentations </li></ul></ul><ul><ul><li>Timing of company submissions, screening mtg; coaching and actual presentations </li></ul></ul><ul><li>Education: </li></ul><ul><ul><li>Regular with meeting and/or separate, intensive programs </li></ul></ul><ul><li>Who Does What? </li></ul>
  20. 25. Public Relations and Promotions <ul><li>Not Glossy Ads </li></ul><ul><li>Knowledge of Group and Activities: </li></ul><ul><ul><li>Promotes deal flow </li></ul></ul><ul><ul><li>Promotes membership </li></ul></ul><ul><li>Confidentiality of Members </li></ul>
  21. 26. Summary <ul><li>Angel investors fill critical need beyond seed but before institutional investment </li></ul><ul><li>Find the right connection in the angel group to help improve your odds of presenting </li></ul><ul><li>Angel investors often invest in convertible note and warrant rounds or Series A rounds </li></ul><ul><li>Do your due diligence on the angels and the group you are thinking of presenting to </li></ul>

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