What is an angel investor? Anyone who makes a private investment in a company, typically a start-up Typically, but not necessarily, accredited: $1 million in investable assets (not including value of primary residence) OR $200K in income ($300K joint) Often are entrepreneurs themselves
How many potential accredited angel investors are there? Only ~7,000 members of angel groups (2009)Source: http://money.cnn.com/2011/05/05/pf/millionaire_rise/index.htm,Angel Capital Association, Cap Gemini/Merrill Lynch World Wealth Report 2001
Change in angel investing has a lot todo with advancing technology 10 years ago Now Buy your own servers, in Rent virtual servers by the hour advance Software distributed online Software distributed in boxes Broadband internet access Dial-up internet access common Need $1M+ to start a business Can start a business for <$100K Capital intensive Low cost prototypes & offshore manufacturing Effect on angel investing mfg Founder, friends & family investment is expected FIRST Greater importance placed on market validation Lower entry point for angel investment Led to the rise of angel groups as specialized social networks
About TCA 5 TCA Networks Largest angel investing group Invests in Southern California companies (mostly) Group negotiation, individual investment 12-20 deals per year Invests in more than tech Hardware/Software Life Science Digital Media Consumer Products/Services CleanTech/Industrial Financial Services
TCA Investing Process • Networking Events • Quick Pitch Competitions • Industry Group Meetings Find • Mentoring • Funding Application • Pre-Screen (Vertical & Virtual) • Screen (Local x5) Filter • Dinner Meeting (Local x5) • Due Diligence • Write Check Fund • Board Participation • Personal Networking Follow • Plan for Next Round
Why (and why not) pursue angelcapital? Good Bad and/or Ugly More fundraising options Process takes time Common term sheet Requires more patience More tolerant of pitch Usually rational, but not flaws always Decision-making More sensitive to priorities: valuation 1. Heart 2. Head 3. Wallet Brings more than money to the deal
A good pitch covers all of these… The problem you solve Market size Company & products Business model (how you make money & grow) Team Competition (and why you win) Barriers to entry Financial projections: sales, gross margins & EBITDA, 5 years Raise amount & use of funds Valuation Exits
If you only have one chance topitch, bring your best stuff… 15 minutes long, followed by 15 minutes of Q&A. Greatest contributor to the investment decision. As much a sales pitch as an investment pitch. Needs to be rehearsed, memorized and internalized. One presenter is best. Put a lot of thought into your valuation.
When you pitch to an angelgroup, you’re really looking for oneperson. Awesome! Awesome! That person loves the Pitc h pitch, clearly sees the value proposition, is willing to invest, and will be your advocate inside the angel group. We call this person the Deal Lead.
It’s always about friends & family Why? What matters most? Friends & family invest Reputation because they know and Trust trust you. Who you know Angels rely on their What you know “friends & family” to decide if they should trust Passion you. Then they invest. Once they trust you, angels open up their networks.
If you first meet a Tech Coast Angel atyour screening, then you waited toolong. Entrepreneurs & Small Businesses need a network to thrive. You don’t have to succeed first to start giving back. Local networking groups 805startups: http://www.meetup.com/805-Startups SBStartups: http://www.meetup.com/startupsb TCA-sponsored events Quick Pitch (San Diego) & Fast Pitch (LA & OC) Meetup Group (OC): http://www.meetup.com/techcoastangels Mentoring opportunities Small Business Development Center (SBDC): http://edcsbdc.org UCSB Technology Management Program (TMP), New Venture Competition (NVC): http://www.tmp.ucsb.edu
TCA initiatives Syndication Cooperation among angel groups Shared due diligence speeds investment decisions Angel Capital for Entrepreneurs (ACE) Fund Invests where TCA members invest Don’t have to be a TCA member to invest Seed Track For early stage companies with a missing piece 10 minute pitch Investors commit up to $100K on the spot 30 day close
The changing business and investinglandscape for angels Business Investing Sustainable business AngelList Entrepreneurship as an early ~1,800 accredited angels career choice 400 investments in 18 Incubators, accelerators et. al. months Rediscovering the Still need local groups manufacturing sector CrowdFunding Mass applied research (e.g. Expands the investor pool hackerspaces) Spreads risk Self-governance is key Need more angels!
How the Feds can help Remove Barriers Add Value Effect on Fund cutting edge research Big Company Small Subsidize infrastructureLegislation Misbehavior Business H.R. 2930: Entrepreneur CreativeSarbanes Difficult to Access to Capital Act paperOxley IPO (Crowdfunding) shredding Limits Greatly increases pool ofDodd potential angel investors Too big to fail accreditedFrank investors Passed the House, 407-17 Favors firstPatent Patents as a to file overReform profit center first to invent