"Magic 8-Ball" of angel investing.

1. The “Magic 8-Ball” of Angel Investing SIGNS
POINT
TO YES.
Entrepreneurs may sometimes think angel investors use a “Magic 8-Ball”[1] to
come to investment decisions based on which companies are, or are not,
ultimately subjects of investment. Angel investors may sometimes consider they
might as well use a “Magic 8-Ball” to make investment decisions based on the high
percentage of failures, versus successes, in early stage investing. Perspective is
everything!
The following presentation uses the mythical “Magic 8-Ball of Angel Investing “ to
answer common problems brought up in investor presentations and offers an
“inside the ball” perspective to entrepreneurs to help resolve these problems.
[1]http://en.wikipedia.org/wiki/Magic_8-ball
“Magic 8-Ball” of Angel Investing
©2010 Tech Coast Angels

2. HAVEN’T WE
SEEN 20
COMPANIES
LIKE THIS?
SIGNS POINT
TO
NO.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

3. BALL LOGIC: If “trendy”, at least be “unique”.
 Investors are looking for unique products or technology.
 If your product, service or technology is a “trendy
investment”: explain your uniqueness versus competitive
offerings.
 Expect lots of questions on competition when you have
lots of competition.
 Detail your product’s differentiation.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

4. MARKET IS
NEW.
PROCEED
WITH
CAUTION.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

5. BALL LOGIC: “Field may be green for a reason.”
 “Green field” or “Blue Ocean” opportunity? Why should
investors expect a future “harvest” or “catch”?
 Never mind will “dogs eat dog food”, where are the
dogs?
 Back claims with any available market data.
 Ideally: prototype and test market, to test thesis.
 Investors want to believe: help them with data.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

6. THERE IS NO
COMPETITION
-
VERY
DOUBTFUL.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

7. BALL LOGIC: “There’s ALWAYS competition!”
 There is competition, you just may not know it yet!
 No competition: is there a “substitute” for product?
 If potential customer using a “substitute”, how do you
change their behavior to use your product?
 Investors okay with competing product or “substitute”:
it is market validation - customers exist.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

8. HOCKEY STICK
GROWTH
PROJECTIONS.
DON’T COUNT
ON IT.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

9. BALL LOGIC: “Hockey sticks break.”
 “90 degree” changes in growth should have “90 degree”
underlying growth assumptions: show the data.
 Be realistic about assumptions, be realistic with growth
milestones.
 Remember gravity: what shoots straight up, eventually
comes backs down.
 Investors want to see reasonable growth with
reasonable underlying data assumptions.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

10. VALUATION IS
TOO HIGH.
TRY
AGAIN.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

11. BALL LOGIC: “Valuation is what it is, not what
you want it to be.”
 Again: back your assumptions with real data.
 If possible, show the “comps”: be industry or market
specific.
 Use business growth projections to back business
valuation projections.
 Investors see lots of deals, listen to their feedback and
be reasonable.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

12. INTERESTED
IN INVESTING?
MY SOURCES
SAY NO.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

13. BALL LOGIC: “Take feedback as feedback.”
 Investors give feedback, it isn’t gospel.
 Incorporate good feedback into presentation and
business planning.
 Most large successful businesses began with many
“No’s”.
 Investors aren’t the definitive judge and jury: they are
only data points.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels

14. Who are the Tech Coast Angels?
Tech Coast Angels, www.techcoastangels.com, the largest angel investor
network in the United States, provides funding and guidance to more
early‐stage, high‐growth companies in Southern California than any other
investment group. Since its inception in 1997, TCA members have focused
on building valuable companies, personally invested more than $100M,
and helped portfolio companies attract more than $1B in additional
capital, mostly from venture capital firms.
TCA members give companies more than just capital; they also provide
counsel, 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
five networks in Los Angeles, Orange County, San Diego, Westlake/Santa
Barbara and the Inland Empire.
“Magic 8-Ball” of Angel Investing
© 2010 Tech Coast Angels