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ABCs of-angel-investing

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ABC's of angel investing; basic terms and phrases

ABC's of angel investing; basic terms and phrases

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  • 1. “ABC’s of Angel Investing”The following presentation offers the ABC’s of angelinvesting, a dictionary of early stage investing termsand phrases.This presentation is a starting point for describingsome of the basic terms that form the commonlanguage between entrepreneurs and early stageinvestors. “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 2. A is for Angel An “angel” investor is typically a wealthy private investor whoinvests their own money in private companies called “start-ups”. (“A” is also for: Advisors, Alignment, Anti dilution…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 3. B is for BootstrapTo “Bootstrap” or “bootstrapping”: company owners or founders self financing operations, no outside capital has been raised. (“B” is also for: Bankrupt, Board of directors, Bubble, Business plan…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 4. C is for Cap Table A “cap table” or “capitalization table” is usually in spreadsheetform and lists all stock holders and ownership in a private company.(“C” is also for: Co-investing, Conversion rights, Convertible debt, Cram down…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 5. D is for Dilution “Dilution” is the decrease in the proportional size of one’s stock ownership in a company usuallyresulting from additional follow on financing rounds of investment. (“D” is also for: Demand rights, Diligence or Due diligence…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 6. E is for Equity “Equity”, usually in the form of stock, represents the percentageownership of a stake holder’s share of a company . (“E” is also for: Early stage firm, Early-exit, Entrepreneur, Exit…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 7. F is for FounderA “Founder” or “Founders” are the principals that have created a private company.(“F” is also for: Financing, Founder-Friends-and-Family (FFF) investment round…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 8. G is for Growth “Growth” or “High Growth”: a company that delivers a successful product to a quickly expanding market segment(s) withcorresponding high revenue growth. (“G” is for nothing else!) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 9. H is for Harvesting “Harvesting” is the collection of capital gains from a prior investment usually by companyexit to acquisition, merger or IPO. (“H” is also for: Headache(!), High growth, Holding period…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 10. I is for IP“IP” or “Intellectual Property” are acompany’s intellectual assets which could include patents, trademarks etc. (“I” is also for: IPO (Initial Public Offering), IRR (Internal Rate of Return)…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 11. J is for Jerk “Jerk”: angel investors andentrepreneurs – don’t be one! (“J” is also for: Jobs - successful start-ups create many…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 12. K is for Killer productA “Killer” product will decimatecompetition, spurn high growth and yield a highly successful company. “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 13. L is for Liquidity “Liquidity” is a measure of access to capital: early stage companyinvestments are typically “illiquid” until “harvesting”. (“L” is also for: Lead investor, Lifestyle business, Liquidation, Living dead…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 14. M is for Mentor A “Mentor” is a person withdomain experience that would be able to help guide a start-up management team. (“M” is also for: Management, Minority shareholder, Murphy’s law…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 15. N is for NDAA “NDA” or “Non-Disclosure Agreement”:an agreement to keep private information discussed between parties. Angels and Venture Capitalists generally don’t sign NDAs with perspective companies. (“N” is also for: Net present value, Non-compete clause…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 16. O is for Offering“Offering”: usually a stock offering which describes the financial transaction allowing investors to purchase company stock. (“O” is also for: Options, Over subscribed…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 17. P is for Preferred“Preferred” or “Preferred Stock” isa stock instrument that has specialrights attached to it, a class above “common stock”. (“P” is also for: Piggyback rights, Pre-Money, Post-Money…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 18. Q is for Q&A “Q&A” or “Question and Answer”:always take advantage of your Q&Atime to obtain detailed information from perspective companies. (“Q” is also for: Quality deal…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 19. R is for ROI “ROI” or “Return On Investment”: usually represented as the annual return on investment based oninvestment value and capital returned calculated over time period held. (“R” is also for: Ratchet, Reserve, Rounds (Seed, Series A, Series B, etc.)…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 20. S is for Start-up“Start-up”: early stage companythat may be looking for seed or early stage investment. (“S” is also for: Seed, Serial entrepreneur, Sweat equity…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 21. T is for Team The start-up company “team” is the most important component of the start-up forpotential investors to consider: arguably more important than the product idea or market it will serve. (“T” is also for: Term sheet) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 22. U is for Unknowns"There are known knowns; there are things we know we know.We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we dont know we dont know." --Former United States Secretary of Defense Donald Rumsfeld Angel investing is full of “Unknown Unknowns”. “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 23. V is for Valuation The “Valuation” is one’s opinion of the total value of a private company. The valuation istypically expressed as “pre-money” and “post-money”, the value of the company both before and after a particular round of investment. (“V” is also for: Venture capital, Venture capitalist…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 24. W is for WarrantA financial agreement to typicallypurchase a fixed number of sharesof stock, at a fixed price, any time during a fixed time period. (“W” is also for: Working capital…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 25. X is for X-ray Investors, in hindsight, may sometimeswonder whether they should get an X-ray to have their head examined as to why they made a particular investment. Of course, hindsight is always 20/20. “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 26. Y is for Yahoo!“Yahoo!” is the sound angel investorsmake on successful exits from earlier investments. “Yahoo!” isn’t heard as often as one would like…(“Y” is also for: Yeti (probably seen more frequently than a 100x return)…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 27. Z is for Zilch “Zilch” (nothing, nada): slang for what investors receive from a failed investment. At least “Zilch” returns are deductible as acapital loss and are also valuable lessons for both angel investors and entrepreneurs. (“Z” is also for: Zombie company…) “ABC’s of Angel Investing” ©2011 Tech Coast Angels
  • 28. Who are the Tech Coast Angels?Tech Coast Angels, www.techcoastangels.com, the largest angel investornetwork in the United States, provides funding and guidance to moreearly‐stage, high‐growth companies in Southern California than any otherinvestment group. Since its inception in 1997, TCA members have focused onbuilding valuable companies, personally invested more than $100M, andhelped portfolio companies attract more than $1B in additional capital, mostlyfrom venture capital firms.TCA members give companies more than just capital; they also providecounsel, mentoring and access to an extensive network of potential investors,customers, strategic partners and management talent.TCA has more than 300 members, including its venture capital affiliates, in fivenetworks in Los Angeles, Orange County, San Diego, Westlake/Santa Barbaraand the Inland Empire. “ABC’s of Angel Investing” ©2011 Tech Coast Angels