View "TALES FROM THE DEALS."

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View "TALES FROM THE DEALS."

  1. 1. ..to the San Diego Tech Coast Angels Charles Mathews Founding Member and Past President, San Diego Tech Coast Angels Member of the Board of Governors, Tech Coast Angels Welcome
  2. 2. San Diego Tech Coast Angels <ul><li>Originated in 1997 </li></ul><ul><ul><li>San Diego Band of Angels </li></ul></ul><ul><ul><ul><li>Same time as first local VC fund </li></ul></ul></ul><ul><ul><li>Informal networking group </li></ul></ul><ul><ul><ul><li>Few group deals </li></ul></ul></ul><ul><ul><ul><ul><li>Small “invest-with” groups </li></ul></ul></ul></ul><ul><ul><ul><ul><li>No structured process nor membership commitment </li></ul></ul></ul></ul><ul><li>Joined Tech Coast Angels in 2000 </li></ul><ul><ul><li>Grouping of Angel networks </li></ul></ul><ul><ul><li>Structured process with website </li></ul></ul><ul><ul><li>Membership commitment </li></ul></ul><ul><ul><li>Focus of Southern California not San Diego </li></ul></ul>
  3. 3. Tech Coast Angels <ul><li>Started in 1997 </li></ul><ul><li>Over 250 Individual Investors </li></ul><ul><ul><li>4 Networks </li></ul></ul><ul><ul><ul><li>Westlake/Santa Barbara - 35 </li></ul></ul></ul><ul><ul><ul><li>Los Angeles - 80 </li></ul></ul></ul><ul><ul><ul><li>Orange County - 75 </li></ul></ul></ul><ul><ul><ul><li>San Diego - 60 </li></ul></ul></ul><ul><li>Research Collectively </li></ul><ul><li>Invest Individually </li></ul>Los Angeles Orange County San Diego Westlake/ Santa Barbara
  4. 4. Some perspective on TCA <ul><li>Since 1997 invested </li></ul><ul><ul><li>About $80 million of members money </li></ul></ul><ul><ul><li>In >110 early stage companies </li></ul></ul><ul><ul><ul><li>Companies have raised additional $600 million </li></ul></ul></ul><ul><li>Typical investment </li></ul><ul><ul><li>$250K – $1.25M </li></ul></ul><ul><ul><li>Pre Money Typically $1-5M </li></ul></ul><ul><ul><ul><li>We really don’t care about “Control” </li></ul></ul></ul><ul><ul><li>Series A Preferred Stock </li></ul></ul><ul><li>Over 25% of all Southern California early-stage deals in in recent years </li></ul>
  5. 5.    Venture Capital Organization SOURCE: &quot;MoneyTree Survey&quot; -PWC, Thomson Venture Economics and the National Venture Capital Association <ul><li>Rankings based on the number of first-time funding to companies in the startup and </li></ul><ul><li>early stages of development stages in calendar year 2004 </li></ul>New York City, NY Venrock Associates 8 Laguna Hills, CA Tech Coast Angels 8 Boston, MA MPM Capital 8 La Jolla, CA Enterprise Partners Venture Capital 8 Chicago, IL Arch Venture Partners 8 Menlo Park, CA Versant Ventures 9 Palo Alto, CA Mobius Venture Capital 9 Austin, TX Austin Ventures 11 Bellevue, WA Ignition Partners 12 Menlo Park, CA Draper Fisher Jurvetson 12 Columbia, MD Maryland Technology Development Corporation 15 No. Deals in 2004*    Location
  6. 6. TCA :: Who we are <ul><li>Majority are retired entrepreneurs </li></ul><ul><li>Over 1/3 have been a CEO </li></ul><ul><li>Wide range of industry experience </li></ul><ul><li>Wide range of motivations </li></ul><ul><ul><li>Giving back more than dollars </li></ul></ul><ul><ul><li>Being involved but not committed </li></ul></ul><ul><li>Wide range of interests </li></ul><ul><ul><li>High technology </li></ul></ul><ul><ul><li>Lower technology or no direct technology </li></ul></ul><ul><ul><li>Life sciences </li></ul></ul>
  7. 7. TCA :: comprised of individuals <ul><li>Cooperating on deals </li></ul><ul><ul><ul><ul><li>Invest individually :: not a club nor a fund </li></ul></ul></ul></ul><ul><li>Committed to a disciplined process </li></ul><ul><ul><ul><ul><li>As rigorous as any VC </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Web enabled www.techcoastangels.com </li></ul></ul></ul></ul><ul><li>Paying an annual fee for services (no override) </li></ul><ul><ul><ul><ul><li>Support administration (1 administrator per Network) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Meeting costs </li></ul></ul></ul></ul><ul><li>Not charging companies for access </li></ul><ul><li>Having a commitment and fun </li></ul><ul><ul><ul><ul><li>$50,000 minimum investment per year </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Attend majority of meetings and work on deals </li></ul></ul></ul></ul><ul><ul><ul><ul><li>$1,300 - $1,500 annual dues </li></ul></ul></ul></ul>
  8. 8. The TCA Process <ul><li>Pipeline </li></ul>www.techcoastangels.com Application
  9. 9. <ul><li>~ 350 / Year </li></ul><ul><li>A few local members look over the application, talk with the company </li></ul><ul><li>Do we bring this deal before the TCA membership? </li></ul>The TCA process Pre Screening
  10. 10. <ul><ul><li>~ 100 / Year </li></ul></ul><ul><li>Fixed meetings 3-4 weeks </li></ul><ul><li>Company Presents to 20-30 Investors </li></ul><ul><li>Is there a Due Diligence Team? </li></ul>The TCA process Screening
  11. 11. <ul><li>Due Diligence </li></ul>The TCA process ~ 50 / Year Team 4-6 Members Elapsed time 4-8 weeks What are the knowable and unknowable risks?
  12. 12. <ul><li>Dinner Presentation </li></ul>The TCA process Fixed monthly meetings In order to present at a dinner at least 2 members of the due diligence team must be ready to write checks <ul><ul><li>~ 15-20 a year </li></ul></ul>
  13. 13. <ul><li>Funding </li></ul>The TCA Process <ul><li>About 7% of raw deal flow </li></ul><ul><li>Typical round is ~$500K </li></ul><ul><ul><li>Range is $250K - $1.25M </li></ul></ul><ul><ul><li>From 2 to 40 investors </li></ul></ul><ul><li>Typical follow-on is ~ $300K </li></ul><ul><ul><li>~ 10-20 a year </li></ul></ul>$
  14. 14. SDTCA Investment history
  15. 15. TCA Investment history
  16. 16. VC Investments in dollars Source: PricewaterhouseCoopers MoneyTree and Kauffman Foundation
  17. 17. VC Investments in deals Source: PricewaterhouseCoopers MoneyTree and Kauffman Foundation
  18. 18. VC Investments in early stage deals Source: PricewaterhouseCoopers MoneyTree and Kauffman Foundation
  19. 19. TCA and VC early stage investing <ul><ul><ul><ul><li>VC early stage investing has fallen dramatically </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Number of angel and VC early stage deals about equal </li></ul></ul></ul></ul><ul><ul><ul><ul><li>VC angel early stage deals about </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Angel investing dollars recovered </li></ul></ul></ul></ul>VC data for Southern California Compared to TCA data
  20. 20. Investors need angels to get to prime time “ How do I get across that gap?” Number of Investors $5 million $10 million Angels VCs GAP
  21. 21. Getting to prime time <ul><li>Presentation :: Presentation :: Presentation </li></ul><ul><ul><ul><ul><li>Content needed </li></ul></ul></ul></ul><ul><li>Sequence of presentations </li></ul><ul><ul><ul><li>Elevator Pitch :: Executive Summary :: Business Plan </li></ul></ul></ul><ul><ul><ul><li>Due diligence book :: Company documents :: Deal docs </li></ul></ul></ul><ul><ul><ul><li>Talk to investors, not customers (or fellow scientists) </li></ul></ul></ul><ul><li>Focus on what is key </li></ul><ul><ul><ul><li>Validated market need </li></ul></ul></ul><ul><ul><ul><li>Value proposition for customers and investors </li></ul></ul></ul><ul><ul><ul><li>Market niche, channel(s) and competition </li></ul></ul></ul><ul><ul><ul><li>What is the sustainable competitive advantage </li></ul></ul></ul><ul><ul><ul><li>Who is management and why is it credible </li></ul></ul></ul><ul><ul><ul><li>Deal details (money in, use of funds, pre-money) </li></ul></ul></ul>
  22. 22. SD TCA :: nuts and bolts <ul><li>California mutual benefit corporation </li></ul><ul><ul><ul><ul><li>Not the same as an IRS not for profit </li></ul></ul></ul></ul><ul><li>Members subscribe to code of conduct </li></ul><ul><ul><ul><ul><li>Annual membership renewed by invitation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Volunteer leadership </li></ul></ul></ul></ul><ul><li>Resources and knowledge pooled </li></ul><ul><ul><ul><ul><li>Website is the communications glue </li></ul></ul></ul></ul><ul><li>Disciplined process </li></ul><ul><ul><ul><ul><li>Prospects progress through a series of meetings scheduled way in advance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>DD leads must invest for deal to be offered to members </li></ul></ul></ul></ul><ul><li>All investments by individual members </li></ul>
  23. 23. SD TCA :: washers and cotter pins <ul><li>Administration by Connect </li></ul><ul><ul><ul><li>Connect is UCSD affiliated </li></ul></ul></ul><ul><ul><ul><li>Connect focused on entrepreneurial networking </li></ul></ul></ul><ul><li>Meeting frequency </li></ul><ul><ul><ul><ul><li>Monthly dinner meetings </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Screen meetings every 3 or 4 weeks </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Typical deal cycle is 6 to 12 weeks </li></ul></ul></ul></ul><ul><li>Web site enabled and driven </li></ul><ul><ul><ul><ul><li>www.techcoastangels.com </li></ul></ul></ul></ul><ul><ul><ul><ul><li>From application to deal documents </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Standard templates </li></ul></ul></ul></ul><ul><li>Introductory and advanced training </li></ul>
  24. 24. Proactive Outreach <ul><li>To develop high quality deal flow and mutual support </li></ul><ul><ul><ul><li>Venture Capital Affiliates :: 25 </li></ul></ul></ul><ul><ul><ul><ul><li>Co- and follow-on investment opportunities </li></ul></ul></ul></ul><ul><ul><ul><li>Network Sponsors </li></ul></ul></ul><ul><ul><ul><ul><li>Fee-paying service providers as resources </li></ul></ul></ul></ul><ul><li>“Meet the Angel” programs </li></ul><ul><li>“Business Plan” competitions </li></ul><ul><li>Professional associations </li></ul><ul><ul><li>MIT Alumni, WITI, etc. </li></ul></ul>
  25. 25. Pros & Cons of TCA structure <ul><li>Simple legal structure </li></ul><ul><ul><li>Mutual Benefit Corporation (SD) </li></ul></ul><ul><ul><li>Not for profit (LA OC) </li></ul></ul><ul><li>Organization has no fiduciary responsibility </li></ul><ul><li>Minimum annual fees and no carry </li></ul><ul><li>Typical $500,00 investment needs 20 out of 250 to commit </li></ul><ul><li>Self control of diversification </li></ul><ul><ul><li>None or a great deal </li></ul></ul><ul><li>Space-knowledgeable Members screen and DD the deals </li></ul><ul><ul><li>Separate Life and Si sciences </li></ul></ul><ul><li>Networks manage the activities </li></ul><ul><li>ROMACs apply to all Members </li></ul><ul><ul><li>Difficult to discipline Members who do not comply </li></ul></ul><ul><li>No fall back except trust of others </li></ul><ul><li>Volunteer effort needed as there is little overhead </li></ul><ul><ul><li>Drives fee level </li></ul></ul><ul><li>Investors need to agree on terms pre and post investment </li></ul><ul><li>Sharing of information is built on two-way trust </li></ul><ul><ul><li>First hand experience of others </li></ul></ul>
  26. 26. Forming an Angel Group <ul><li>What is the investment vehicle </li></ul><ul><ul><ul><ul><li>Individual, club, fund </li></ul></ul></ul></ul><ul><li>Who is going to do what </li></ul><ul><ul><ul><ul><li>Volunteers, hired hands, a mix </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Who determines a deal is an investment </li></ul></ul></ul></ul><ul><li>How is the organization set up </li></ul><ul><ul><ul><ul><li>Partnership, corporation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>By laws and rules of conduct </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Budget and source of operating expenses </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fees for applicants, affiliates and sponsors </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Website </li></ul></ul></ul></ul><ul><li>Where is the investment focus </li></ul><ul><ul><ul><ul><li>Deal flow from where </li></ul></ul></ul></ul>
  27. 27. Thank you for listening Questions

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