Angel Investing to Island Tech 2009


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David Shore gave this presentation to the Island Tech 2009 conference on the topic of Angel Investing. Rick Rasmussen co-presented on the mechanics of developing an angel group (with a different slide deck).

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Angel Investing to Island Tech 2009

  1. 2. Stirling Team <ul><li>Hugh Notman , partner </li></ul><ul><li>30 yrs securities and corporate finance; PwC Corporate Finance, Association for Corporate Growth, 3 boards </li></ul><ul><li>Peter Scott , partner </li></ul><ul><li>32 yrs corporate finance; 17 years TD Bank; 5 years president TD Capital; PwC Sr VP of Corporate Finance </li></ul><ul><li>David Shore , partner </li></ul><ul><li>18 yrs corporate finance; CIBC Investment Banking; 3 meaningful startups; 2 public boards </li></ul><ul><li>George Dorin , Sr VP </li></ul><ul><li>30 yrs corporate finance; CA with CF designation (Corporate Finance), Sr VP, Wolrige Mahon; Sr Accountant, KPMG; PwC; RBC </li></ul><ul><li>Mike Hou , associate </li></ul><ul><li>BA, with distinction; studying for CFA </li></ul>
  2. 3. About Stirling Mercantile Divestitures M&A Advisory Expansion Capital Fairness Opinions Early-Stage Finance FAIRNESS OPINIONS Director comfort & legal protection from independent, expert valuation EXPANSION CAPITAL Multiple industry experience Seasoned corporate financiers EARLY-STAGE FINANCING Full-service approach throughout process Aligned interests likely to secure funding DIVESTITURES Corporate financier involvement can improve price, simplify process . M&A ADVISORY Sage advice in times of need or growth opportunity
  3. 4. 10 Years of Transactions
  4. 5. Early-stage Financing
  5. 7.
  6. 8. Diverse Portfolio - Successful Exits 7 Technology IRR 342% 23x Cash 5x Cash 3x Cash Life Science
  7. 9. Perspectives Advisor Investor Exit Transactions Founder
  8. 10. Funding Road Map Confidential F, F & E Seed, Angel Series A Series B Year 1 2 3 4 5 Early Adopters Crossing the Chasm Mainstream Growth Develop Scale Expand Phases Funding Roadmap . Investor Exit Revenue today Launch
  9. 11. Objectives
  10. 12. Murphy’s Law
  11. 13. High Valuation Trap <ul><li>Problem: </li></ul><ul><li>Follow-on investors value lower than last </li></ul><ul><li>Forced to “cram down” last investors or no deal </li></ul><ul><li>Solution: </li></ul><ul><li>Understand downstream valuations </li></ul>.
  12. 14. Valuation <ul><li>Consider the post $ cap table for the next round </li></ul><ul><li>And subsequent rounds to the exit </li></ul>
  13. 15. Term Sheet Structures <ul><li>Common shares </li></ul><ul><li>Preferred shares </li></ul><ul><li>Convertible debt </li></ul><ul><li>Hint: this will all be thrown out with the next investment, keep it simple </li></ul>.
  14. 16. Investment Types <ul><li>Common shares </li></ul><ul><li>Pros </li></ul><ul><ul><li>Quick and inexpensive agreement </li></ul></ul><ul><ul><li>Alignment with entrepreneurs </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>No protection </li></ul></ul><ul><li>Suggest </li></ul><ul><ul><li>Include some rights often given to Prefs </li></ul></ul>.
  15. 17. Investment Types <ul><li>Preferred shares </li></ul><ul><li>Pros </li></ul><ul><ul><li>Downside protection from rights </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Time consuming and expensive agreement that will be replaced </li></ul></ul>.
  16. 18. Investment Types <ul><li>Convertible Debt </li></ul><ul><li>Pros </li></ul><ul><ul><li>Downside protection from debt and rights </li></ul></ul><ul><ul><li>Quick and inexpensive agreement </li></ul></ul><ul><ul><li>Flexibility on valuation – discount to next round or warrants </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Typical discount of 20% to 30% is not high enough reward </li></ul></ul>.
  17. 19. Suggested Rights <ul><li>Follow/tag/drag along </li></ul><ul><ul><li>Follow – right to sell if management sells </li></ul></ul><ul><ul><ul><li>Also called tag along or co-sale rights </li></ul></ul></ul><ul><ul><li>Drag – if majority want to sell, 100% sell </li></ul></ul><ul><li>ROFR of financings, right to participate </li></ul><ul><li>Restrictions on changing rights, issuing debentures or stock, or completing mergers or acquisitions </li></ul>.
  18. 20. Final thoughts <ul><li>Make a decision quickly, don’t drag out entrepreneurs </li></ul><ul><li>When “No”, try to offer advice </li></ul><ul><li>Focus on your domain expertise </li></ul><ul><li>Invest in people . Don’t try to cover all downside risks with deal terms. </li></ul>.