Angels and Venture Capitalists <ul><li>Presentation to  </li></ul><ul><li>LMU LA College of Business Administration </li><...
Background News <ul><li>Stock market reaches 2 yr highs in 2010 </li></ul><ul><li>Flat since 1998 despite corporate profit...
Markets Affect Venture Capital <ul><li>2008 Housing and mortgage crisis; stock market crashes; risk is rediscovered; cash ...
All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
Institutional Reaction Continues <ul><li>Pensions have “Denominator problem”; total portfolio market values falls, must re...
Market Corrections Impact Angels <ul><li>Reduced personal net worth leaves less money for angel investments </li></ul><ul>...
Situation Today <ul><li>With fewer exits Angels struggle; many members are leaving groups </li></ul><ul><li>VCs are less a...
VC funded companies <ul><li>VC need big winners for impactful exits </li></ul><ul><li>VC remains homerun game but fences a...
Startup Capital 101 <ul><li>Raised in stages </li></ul><ul><li>Investors buy preferred shares </li></ul><ul><li>Seed capit...
Different Goals and Objectives <ul><li>Build a great company </li></ul><ul><li>Retain control </li></ul><ul><li>Change the...
Different Goals and Objectives <ul><li>Invest on expertise </li></ul><ul><li>Put limited funds to work </li></ul><ul><li>C...
Angel Investors <ul><li>Invest own capital </li></ul><ul><li>2 types: Super angels or members of organized group </li></ul...
What do Early Stage Investors Look For? <ul><li>Qualified management </li></ul><ul><li>“ Big idea” vs. “lifestyle” busines...
Investors should add substantial value <ul><li>VCs and angels offer: </li></ul><ul><ul><li>Strategic guidance; Mentoring <...
<ul><li>Discussion </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
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Angel Investing Slides By Jmm For Lmu Dec 2010 V2

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Discussion of trends in VC and angel investing.

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Angel Investing Slides By Jmm For Lmu Dec 2010 V2

  1. 1. Angels and Venture Capitalists <ul><li>Presentation to </li></ul><ul><li>LMU LA College of Business Administration </li></ul><ul><li>John Morris </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  2. 2. Background News <ul><li>Stock market reaches 2 yr highs in 2010 </li></ul><ul><li>Flat since 1998 despite corporate profit growth </li></ul><ul><li>Fed is providing historical low rates with QE2 </li></ul><ul><li>Jobs, housing and deficit are slowing recovery </li></ul><ul><li>PIIGS represent huge risk factor for EU </li></ul><ul><li>IPO market improving </li></ul><ul><li>First TCA portfolio IPO is huge success in 2010 </li></ul><ul><li>TCA members celebrate five exits this year </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  3. 3. Markets Affect Venture Capital <ul><li>2008 Housing and mortgage crisis; stock market crashes; risk is rediscovered; cash is king; global crisis </li></ul><ul><li>Market correction triggers chain reaction: </li></ul><ul><ul><li>When stocks fall in value; IPOs vanish; M&A appetite dissipates; exit values plummet </li></ul></ul><ul><ul><li>Jobs losses mount, consumers stop buying </li></ul></ul><ul><ul><li>With longer holding periods, VC needs more reserves for portfolio </li></ul></ul><ul><ul><li>CEOs conserve cash, reduce burn rate with layoffs </li></ul></ul><ul><ul><li>Investors fear increases, money for startups falls sharply </li></ul></ul><ul><ul><li>Companies dependent on existing investors; with fewer funding options </li></ul></ul><ul><ul><li>Not enough money to go around; more companies fail </li></ul></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  4. 4. All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  5. 5. Institutional Reaction Continues <ul><li>Pensions have “Denominator problem”; total portfolio market values falls, must reduce allocation to alternative asset classes </li></ul><ul><li>VC asset allocation becomes excessive </li></ul><ul><ul><li>What might have been 10% is now 20% </li></ul></ul><ul><li>Institutions sell LP positions to raise cash </li></ul><ul><li>Existing funds reduce capital calls to avoid LP defaults </li></ul><ul><li>New funds are impossible to organize </li></ul><ul><li>VC industry facing massive contraction, 50% </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  6. 6. Market Corrections Impact Angels <ul><li>Reduced personal net worth leaves less money for angel investments </li></ul><ul><li>Fear rises; conserve cash </li></ul><ul><li>Angels fear longer holding period </li></ul><ul><li>Uncertain holding period and delayed exits </li></ul><ul><li>Smaller rounds take longer to organize </li></ul><ul><li>Companies running low on cash; “down” rounds </li></ul><ul><li>More follow-on capital required to build companies; less VC interest </li></ul><ul><li>Layoffs and closings </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  7. 7. Situation Today <ul><li>With fewer exits Angels struggle; many members are leaving groups </li></ul><ul><li>VCs are less active and funding smaller rounds </li></ul><ul><li>Super angels emerge, often working alone </li></ul><ul><li>VC/angel relationship is troubled </li></ul><ul><li>VCs making funds last longer </li></ul><ul><li>Seed stage hit hardest; back to mid 1990s </li></ul><ul><li>Lower costs to start but more competition </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  8. 8. VC funded companies <ul><li>VC need big winners for impactful exits </li></ul><ul><li>VC remains homerun game but fences are back, fewer IPO home runs now </li></ul><ul><li>VC is high risk capital; seeking 10x with 5 year exit; need 35%-60% IRRs </li></ul><ul><li>Goals not always compatible with angel investors </li></ul><ul><li>Warning: </li></ul><ul><ul><li>Average M&A exit is $40 Million </li></ul></ul><ul><ul><li>IPOs are the exception, much less frequent </li></ul></ul><ul><ul><li>Tough for larger funds to succeed </li></ul></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  9. 9. Startup Capital 101 <ul><li>Raised in stages </li></ul><ul><li>Investors buy preferred shares </li></ul><ul><li>Seed capital needs access to willing Angels and smaller VC funds </li></ul><ul><li>Larger funds and strategic investors appear later for growth capital </li></ul><ul><li>Less risk and more money per deal </li></ul><ul><li>Capital should always fund to next major business plan milestone </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  10. 10. Different Goals and Objectives <ul><li>Build a great company </li></ul><ul><li>Retain control </li></ul><ul><li>Change the world </li></ul><ul><li>Make money </li></ul><ul><li>Sell high </li></ul><ul><li>Build portfolio </li></ul><ul><li>Invest funds in sufficient amounts to buy slice of pie </li></ul><ul><li>Make money for fund </li></ul><ul><li>Hire CEO to grow company </li></ul><ul><li>Big exits needed to move the overall IRR </li></ul><ul><li>Exits helps next fund </li></ul><ul><li>Build a great company </li></ul><ul><li>Buy low </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists Entrepreneurs VC Investors
  11. 11. Different Goals and Objectives <ul><li>Invest on expertise </li></ul><ul><li>Put limited funds to work </li></ul><ul><li>Chaotic process </li></ul><ul><li>Coach entrepreneur </li></ul><ul><li>Serve as director </li></ul><ul><li>Smaller exit works </li></ul><ul><li>Limited financial assets </li></ul><ul><li>Little interest in follow-ons </li></ul><ul><li>Build portfolio with OPM </li></ul><ul><li>Put more money to work </li></ul><ul><li>Rigorous process </li></ul><ul><li>No coaching time </li></ul><ul><li>Serve as director </li></ul><ul><li>Need big exits for overall IRR </li></ul><ul><li>Fund provides capital </li></ul><ul><li>Participate in follow-ons </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists Angels VC Investors
  12. 12. Angel Investors <ul><li>Invest own capital </li></ul><ul><li>2 types: Super angels or members of organized group </li></ul><ul><li>Variety of backgrounds and experience </li></ul><ul><ul><li>CEOs, former founders, executives </li></ul></ul><ul><li>Angels are often active investors </li></ul><ul><ul><li>Have extensive networks </li></ul></ul><ul><ul><li>Know your business?? </li></ul></ul><ul><ul><li>Offer substantial value?? </li></ul></ul><ul><ul><li>Want to coach </li></ul></ul><ul><li>Not good at follow-on rounds </li></ul><ul><li>Limited financial resources, especially in weak markets </li></ul><ul><li>Organized networks are more common, such as TCA </li></ul><ul><li>TCA is similar to VC firm; term sheets and board seats </li></ul><ul><li>Angel Capital Association is national angel association </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  13. 13. What do Early Stage Investors Look For? <ul><li>Qualified management </li></ul><ul><li>“ Big idea” vs. “lifestyle” business </li></ul><ul><li>Elegant solution to complex problem </li></ul><ul><li>Clearly defined business model; scales </li></ul><ul><li>Sustainable competitive advantages </li></ul><ul><li>Third party validation to business model </li></ul><ul><li>Liquidity event potential in 4 - 6 years </li></ul><ul><li>Desire for advice and coaching </li></ul><ul><li>Valuation and exit </li></ul>More> All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  14. 14. Investors should add substantial value <ul><li>VCs and angels offer: </li></ul><ul><ul><li>Strategic guidance; Mentoring </li></ul></ul><ul><ul><li>Help in teambuilding </li></ul></ul><ul><ul><li>Introductions to partners, customers, service providers and new investors </li></ul></ul><ul><ul><li>Fund Raising </li></ul></ul><ul><li>Also a lot of headaches: </li></ul><ul><ul><li>Complicated deal structure </li></ul></ul><ul><ul><li>Excessive meddling </li></ul></ul><ul><ul><li>Turn off to future investors </li></ul></ul><ul><li>Choose your investors wisely! </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists
  15. 15. <ul><li>Discussion </li></ul>All Copyright Rights Reserved, December 2010 Angels vs. Venture Capitalists

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