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Angel Groups and Angel Investors Presentation - Jan 05.PPT

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