A Snapshot Of Status and Trends Among Formal American Angel Groups October 8, 2007 Dr. Ian Patrick Sobieski Managing Director, Band of Angels Vice Chairman, Angel Capital Association

October 8, 2007

Dr. Ian Patrick Sobieski

Managing Director, Band of Angels

Vice Chairman, Angel Capital Association

Band of Angels Formed 1994, pioneer angel group, 130 Members today High Tech Background Only, ex-CEOs or founders of : Symantec, Logitech, National Semiconductor, Intel, Sun, Apple, etc. 60+ Media articles focused on Band; 3 Harvard Business School cases Meet monthly at Los Altos Country Club, Silicon Valley Track Record Invested $160M in 220 Startups; 9 IPOs, all listed on Nasdaq Digital Think 40:1 Keynote Systems 20:1 40 Positive M&A Exits Sandpiper Networks 30:1 53% IRR since inception! Average Deal Size: ~$500k 4,000 jobs created Ranked by PWC in top 10 of top 100 VCs in USA for 2002  2007 Pioneered Side Fund Model: $50M side fund with institutional investors including 2 major University endowments, TVM, and Siemens.

Formed 1994, pioneer angel group, 130 Members today

High Tech Background Only, ex-CEOs or founders of : Symantec, Logitech, National Semiconductor, Intel, Sun, Apple, etc.

60+ Media articles focused on Band; 3 Harvard Business School cases

Meet monthly at Los Altos Country Club, Silicon Valley

Track Record

Invested $160M in 220 Startups;

9 IPOs, all listed on Nasdaq

Digital Think 40:1

Keynote Systems 20:1

40 Positive M&A Exits

Sandpiper Networks 30:1

53% IRR since inception!

Average Deal Size: ~$500k

4,000 jobs created

Ranked by PWC in top 10 of top 100 VCs in USA for 2002  2007

Pioneered Side Fund Model: $50M side fund with institutional investors including 2 major University endowments, TVM, and Siemens.

130 pairs of eyes Reviewed by Pre-Screening Committee (~35 members) Reviewed by Screening Committee (~6 members) Dinner Meeting (~40 members) Follow up Luncheon And ad hoc diligence (>5 members) Individual Investment Decision but Coalition Negotiation; Board Assignment Fund Investment Decision ~50 deals/month 10 deals/month 3 deals/month ~1 deal/month Angel Groups Perform Sourcing and Screening in a New Way

Growth in North American Angel Organizations Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-06 data)

Summary of ACA Membership – August, 2007 Full Members 124 Provisional Members 11 Investors in Operating Groups 6,000 States & Provinces 43 Affiliate Organizations 17 International Partners 2

Investors Per Group Source: ACA Conf survey and membership applications - 116 groups reporting (2006-2007) Average = 44 Median = 38 Percent of Groups

Some of the Largest American Angel Groups Organization Accredited Investors TechCoast Angels ( Southern California ) 280 North Dallas Investment Group ( Dallas ) 250 Alberta Deal Generator ( Calgary/Edmonton ) 194 Investors’ Circle ( national ) 185 Ohio TechAngels ( Columbus ) 150 Band of Angels ( Silicon Valley ) 130 ZINO Society ( Seattle ) 125 Pasadena Angels ( Pasadena ) 114 Alliance of Angels ( Seattle ) 100 North Coast Angel Fund ( Cleveland ) 99

Organization Accredited Investors

TechCoast Angels ( Southern California ) 280

North Dallas Investment Group ( Dallas ) 250

Alberta Deal Generator ( Calgary/Edmonton ) 194

Investors’ Circle ( national ) 185

Ohio TechAngels ( Columbus ) 150

Band of Angels ( Silicon Valley ) 130

ZINO Society ( Seattle ) 125

Pasadena Angels ( Pasadena ) 114

Alliance of Angels ( Seattle ) 100

North Coast Angel Fund ( Cleveland ) 99

Affiliates Full Members Provisional Members Members and Affiliates – August, 2007

Source: 2007 ACA Angel Group Confidence Survey 2006 Group Investment Data 72% co-invested with venture capital firms 29% had distributions to investors Investment up 23% from 2005

72% co-invested with venture capital firms

29% had distributions to investors

Investment up 23% from 2005

Average Size Investment Per Round Percent of Groups Source: 2007 ACA Angel Group Confidence Survey

Investment Preference Source: ACA Conf Survey and Membership applications - 86 groups reporting (2006-2007) Percent of Groups

Revenue Sources for Group Operation Source: ACA Conf survey and membership applications – 105 groups reporting (2006-2007) Percent of Groups Ec dev – Group receives money from state or local government In-Kind – Group receives support from “parent” entity Other – Half supported by management fees for funds

Annual Member Fees Average = $1,135 Median = $1,000 Source: ACA Conf survey and membership applications – 116 groups reporting (2007)

2007 Prediction: How Many New Companies Will You Invest In? Source: 2007 ACA Angel Group Confidence Survey Percent of Groups Companies

New Trend: Raise a Side Fund Source: 2007 ACA Angel Group Confidence Survey Percent of Groups

Why? Sustainibility… External Threats Competition from Small VCs, individual angels, and other angel groups Internal Threats Members become inactive, members quit Leader becomes tired Incentives are misaligned No Liquidity to Members Answer to all these is to provide better services Web site, reputation, deal screening Better terms through pooled negotiation Collective due diligence Member Education Professional manager help Networking & social events Formalize relationship with VCs Institutional Support (memory, data) This is a lot of work! How to pay for it?

External Threats

Competition from Small VCs, individual angels, and other angel groups

Internal Threats

Members become inactive, members quit

Leader becomes tired

Incentives are misaligned

No Liquidity to Members

Answer to all these is to provide better services

Web site, reputation, deal screening

Better terms through pooled negotiation

Collective due diligence

Member Education

Professional manager help

Networking & social events

Formalize relationship with VCs

Institutional Support (memory, data)

This is a lot of work! How to pay for it?

Potential Sources of Cash Percentage of transactions Charge Companies to submit and/or present Membership Dues Sponsorship Management Fees on Fund

Percentage of transactions

Charge Companies to submit and/or present

Membership Dues

Sponsorship

Management Fees on Fund

Potential Sources of Cash Continued… Percentage of transactions (3->5%) Pros: $5M investment = $250,000 Cons: probably illegal Charge Companies to submit and/or present Filing fees ($50  $250), Presentation Fees ($100  $3000) Pro: 36 deals/year = $108,000/year Cons: Selection Bias Membership Dues TAM: $150,000 Sponsorship TAM: $150,000 Total TAM of all these approaches: $658,000

Percentage of transactions (3->5%)

Pros: $5M investment = $250,000

Cons: probably illegal

Charge Companies to submit and/or present

Filing fees ($50  $250), Presentation Fees ($100  $3000)

Pro: 36 deals/year = $108,000/year

Cons: Selection Bias

Membership Dues TAM: $150,000

Sponsorship TAM: $150,000

Total TAM of all these approaches: $658,000

Potential Sources of Cash Continued… Management Fee on $20M Fund: $500,000 Provides 10 year sustainable cash flow Use of fees can provide useful services to members Carried interest extra source of value Aligns Manager and Member interests Band of Angels great case study Manager led Side Fund Manger raises funds from others invests alongside angels, and subsidizes group Manager led Pooled Fund Network Members contribute to fund and deploy capital by majority vote

Management Fee on $20M Fund: $500,000

Provides 10 year sustainable cash flow

Use of fees can provide useful services to members

Carried interest extra source of value

Aligns Manager and Member interests

Band of Angels great case study

Manager led Side Fund

Manger raises funds from others invests alongside angels, and subsidizes group

Manager led Pooled Fund Network

Members contribute to fund and deploy capital by majority vote

May 2007 Source: Membership Applications, 2006-2007 Angel Networks Networks w/Sidecar Funds Angel Funds ACA Membership: Networks and Funds 99 12 17

Personal Predictions A “standard” business model will develop for angel groups Some mix of fee, fund, and sponsor Rise of a class of managers Some kind of economic sharing across entire group Hybrid angel groups that have many properties of angel groups as we know them but the stability, longevity, and upside economics of VC Funds When a model has been developed and is common and “standard”; when there is third party data to report IRR performance of groups; Angel Investing will be an Industry But then the last question: Will this still be fun? Do angels want to let this happen?

A “standard” business model will develop for angel groups

Some mix of fee, fund, and sponsor

Rise of a class of managers

Some kind of economic sharing across entire group

Hybrid angel groups that have many properties of angel groups as we know them but the stability, longevity, and upside economics of VC Funds

When a model has been developed and is common and “standard”; when there is third party data to report IRR performance of groups; Angel Investing will be an Industry

But then the last question: Will this still be fun? Do angels want to let this happen?

Potential Angels in the United States 4,200,000 3 study Estimates of Informal Investors Investors in angel groups Center for Venture Research - Active Angels (est.) U.S. Millionaires 1,000,000 225,000 10,000

Angel Capital Association Annual Summit – professional development May 7-9, 2008 in San Diego, CA Regional Meetings (co-investment, networking) 2007 Angel Group Confidence Report ( semi-annual ) SEC accreditation proposal feedback Weekly PR, speaking engagements Discounts on Power of Angel Investing programs Branding, membership directory, recruit recommendations Members’ Only Web site www.angelcapitalassociation.org

Annual Summit – professional development

May 7-9, 2008 in San Diego, CA

Regional Meetings (co-investment, networking)

2007 Angel Group Confidence Report ( semi-annual )

SEC accreditation proposal feedback

Weekly PR, speaking engagements

Discounts on Power of Angel Investing programs

Branding, membership directory, recruit recommendations

Members’ Only Web site

www.angelcapitalassociation.org

Need More Information? Ian Patrick Sobieski, Ph.D. Managing Director, Band of Angels Vice Chairman, Angel Capital Association 535 Middlefield Rd., Suite 190 Menlo Park, CA 94025 650.321.2221 [email_address] www.bandangels.com