This document provides a comprehensive overview of angel investing, detailing who qualifies as an angel investor, the types of investments, and the risks and rewards associated with such investments. It explains the fundamentals of evaluating startups, the importance of due diligence, and the various terms and terminologies relevant to the field. Additionally, it outlines the necessary steps for investment and the typical deal structures involved in angel investing.

1. ANGEL INVESTING 101
www.NicoleGravagna.com
ngravagna@gmail.com
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2. START WITH
INTRODUCTIONS

3. WHAT IS ANGEL INVESTING?
• An individual investing in a private company
• Usually for equity
• Sometimes alone, sometimes in a group
• Without insisting on a lot of legal control
• Lending help where appropriate

4. AN ANGEL INVESTOR IS:
• an accredited investor
• not always experienced
• who can live without the
cash
• who hopes to get their
money back 2x or more in
10 years or fewer

5. ACCREDITED INVESTOR
• Reported $200k last year in
income
• Expects to do the same this year
• Unless married (then $300k)
• OR owns $1M in assets not
including the primary home
• OR someone who manages a
fund or group of accredited
investors

6. NOT
ACCREDITED?
You can still invest.

7. NON-ACCREDITED
INVESTORS
• Friends & family rounds
• Debt is better than equity
for you and the company
• Or become a VC!

8. ANGELS
• High wealth individuals
• Not formally trained investors
• Various motivations
• Investing their own money
• Usually with others
• Usually $15k to $100k per angel
• But really it could be any amount

9. VENTURE CAPITALISTS
• Investing other people’s
money
• Raised a fund that they now
deploy
• $100k to $50M investments
• Work alone or syndicate
• Will be active members of
the board

10. HIGH GROWTH

11. HIGH GROWTH
• Generally includes software or other technology
• One to five years of work before anything can be
sold
• Requires $500k to $2M to create the product
• Capital generally pays developers and engineers

12. PHYSICAL PRODUCT

13. PHYSICAL PRODUCT
COMPANY
• Product is a tangible thing
• The invention is unique
• Upfront capital goes to design, patents, and
manufacturing
• The normal Angel/VC model isn’t great for this kind
of company

14. ONE ANGEL PORTFOLIO
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
Co 1 $15k $0k
Co 2 $25k $75k
Co 3 $25k $5k
Co 4 $35k $0k
Co 5 $50k $0k
Co 6 $50k $0k
Co 7 $50k
Co 8 $100k $450k
Co 9 $100k
Co 10 $50 $0k

15. PORTFOLIO ANALYSIS
• Invested $500k over 4 years
• At year ten 8 of 10 investments are liquid, 2 are ongoing concerns
• Two investments returned 2x or more
• Five returned nothing
• One returned <1x
• The total portfolio returned $530k + two ongoing concerns

16. ANOTHER ANGEL
PORTFOLIO
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
Co 1 $15k $0k
Co 2 $25k $75k
Co 3 $25k $5k
Co 4 $35k $0k
Co 5 $50k $0k
Co 6 $50k $800k
Co 7 $50k
Co 8 $100k $0k
Co 9 $100k
Co 10 $50 $0k

17. ANOTHER POSSIBILITY
• $500k invested
• $880k returned + two ongoing concerns

18. YET ANOTHER ANGEL
PORTFOLIO
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
Co 1 $15k $0k
Co 2 $25k $45k
Co 3 $25k $5k
Co 4 $35k $0k
Co 5 $50k $200k
Co 6 $50k $60k
Co 7 $50k
Co 8 $100k $0k
Co 9 $100k
Co 10 $50 $0k

19. YET ANOTHER POSSIBILITY
• $500k invested
• $310k returned + two ongoing concerns

20. FOLLOW ON FUNDING
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
Co 1 $15k $25 $0k
Co 2 $25k $45k
Co 3 $25k $5k
Co 4 $35k $0k
Co 5 $50k $125 $500k
Co 6 $50k $60k
Co 7 $50k
Co 8 $100k $0k
Co 9
Co 10

21. YOUR
PORTFOLIO
The key to hedging your odds

22. ANGEL INVESTING
Pros Cons
• Returns in the multiples possible
• Company can benefit from your
expertise
• Personal connection to founders
• Personal connection to other
investors
• Interesting and educational
• Can’t pull money out until liquidation
• Cash is tied up for years
• High likelihood of loss
• There are tax implications to equity
ownership
• Limited control over company
decisions

23. STANDARD ANGEL DEAL
• $15k-$100k per angel
• Total raise = $500k-$2M
• Convertible note
• No board seat

24. CONVERTIBLE NOTE
(aka convertible debt) an early stage investment vehicle

25. CONVERTIBLE NOTE
• Accepted investment vehicle for early stage companies
• Cheaper transaction because of less legal paperwork
• Puts off the decision of setting a valuation
• Your investment is technically debt (avoids tax implications)
• Conversion to equity occurs when the first equity round takes place
• You get a discount on the purchase price of the equity shares

26. INVESTOR-FOUNDER RELATIONSHIP
This is a happy fist bump!

27. THE CATCH
founder and investor should
quickly get on the same side
of the table
!
except…

28. INVESTOR COMPETITION
A savvy founder should always try to gather
more investors than can fit in the round.
An “oversubscribed” round:
good for the founder and limits the power of
the investor.

29. THE CATCH-22
• Oversubscription is good for the investor too!
• Insurance for when someone backs out at capital call
• You want your friends in the round with you
• Validation of a good deal
• Smart investors actually help oversubscribe the round

30. BECOME A STARTUP EXPERT
this is not corporate business at all

31. “A startup is a company designed to search for
a repeatable and scalable business model.”
–Steve Blank

33. VETTING DEALS
Learn to measure value in early stage companies

34. FIRST RULE
See a lot of deals

35. SECOND
RULE
Talk to other angels about
deals

36. THE REST OF THE RULES
• Founder is coachable & able to attract talent and capital
• The company makes sense
• The company is scalable
• A 10x or higher ROI is possible
• $100M in revenue is possible - soon

37. FOUNDER COACHABILITY
• Founder is the only constant
• Founder must be able to take
and manage advice
• The company can pivot at
any time
• The market can shift
• The technology can fail

38. THE PLAN
The founder doesn’t need to have the answers.
!
!
The founder does need to have a plan to
empirically uncover the answers.

39. A SCALABLE BUSINESS
• The cost of selling the
product or service
plummets as the number of
units sold rises
• Software is inherently
scalable
• And other things are too

40. 10X ROI OR HIGHER
• Figure out what wild
success looks like using
current assumptions.
• If you can’t get 10X ROI
under wild success situation,
then don’t invest.
• Unless the likelihood of wild
success is very high.

41. THE MAGIC #
How long does it take for the
business to get to $100M in
revenue?

42. FUNDAMENTALS
• A company needs to find and serve a paying
customer before its going to be a profitable company
• The company must exit for you to get your money
back
• Every company has limitations beyond capital—find
them. Understand them.

43. FUNDAMENTALS
• A company needs to find and serve a paying
customer before its going to be a profitable company
• The company must exit for you to get your
money back
• Every company has limitations beyond capital—
find them. Understand them.

44. THE CUSTOMER
• A good company knows its
customer
• serves its customer
• and can get paid by the
customer
(The customer always has cash)

45. USER
VS
CUSTOMER
The customer doesn’t always
use the product
!
and the user doesn’t aways
pay (look-a-likes can be confusing)

46. FALSE
PROBLEMS
Problem analysis often
uncovers a tree of symptoms
leading to the true problem

47. QUESTION
THE
SOLUTION
Many problems are social in
nature and cannot be easily
solved with a new app or
device.

48. FUNDAMENTALS
• A company needs to find and serve a paying
customer before its going to be a profitable company
• The company must exit for you to get your money
back
• Every company has limitations beyond capital—find
them. Understand them.

49. BEGIN WITH THE EXIT
• Equity investors get paid
when the company is
acquired or goes public.
• You do not get paid when
the company brings in a lot
of revenue.
• You do not get paid when
the next investor invests.

50. COMPANY LIFE CYCLE
Angels join at the larvae stage

51. FINANCING PLAN
VC
Series A
$2M
VC
Series B
$11M
Angel
Seed
$800k
Time
Bootstrap
$200k
Exit:
Acquisition
$180M

52. MILESTONE PLAN
Expand into
2o market
Growth
and
ramp up
sales
Product
completion
distribution
and
sales
Time
Minimum
viable
product
Exit:
Acquisition
$180M

53. EQUITY
CAPITAL
Invest capital only when the
raise will get the company to
the next value-increasing
milestone.

54. VALUE-INCREASING
MILESTONES
• Own property
• Buy the rest of the
monopoly
• Add a house
• Add multiple houses
• Add a hotel

55. FUNDAMENTALS
• A company needs to find and serve a paying
customer before its going to be a profitable company
• The company must exit for you to get your money
back
• Every company has limitations beyond capital—
find them. Understand them.

56. FIND THE EDGES
And use them to make real projections

57. THE “NOW” EDGE
• With no more business development, how much
product can the company sell right now, per year?
• How much will it cost to make and sell exactly
that? This is the size of the minimum round.

58. “WILD SUCCESS” EDGE
• If the company had all the money in the world,
what is the next limiting factor?
• Use this to calculate your financials under the
circumstance of wild success.
• Use these numbers to determine the max raises.

59. DUE DILIGENCE
How much is enough?
!
Due diligence is your research to determine whether this is a
smart investment.

60. BE HELPFUL DURING DUE
DILIGENCE
Guide the founder
Golden unicorn founders will do it right in spite of having
no idea what they are doing. They will still need help.

61. BE SWIFT ABOUT IT
• Are there any glaring problems? Fraud, bankruptcy,
mistakes with previous investors.
• Have you discovered the hard part?
• Do you have all the documents you need to make
a decision in 48 hours?

62. WILD GOOSE INVESTOR
CONCERNS
• Dilution - OMG my shares get diluted in second
and third rounds!
• Valuation - OMG how is company with no
product worth $1M?
• Board seats - OMG I don’t get a seat on the
board!
Don’t be a PITA

63. 4 THINGS THAT CRASH A
COMPANY
1. Failing to serve a paying
customer by solving a real
problem
2. Team infighting
3. Poor capital plan
4. Poor growth management
(In order of when the
poor choice is made)

64. TECHNICAL THINGS
Do some reading on this stuff

65. CAPITALIZATION TABLE
How to make a cap table
Ask the VCs version

66. TERM SHEETS
Plain English Term Sheet
National Venture Capital Association Documents

67. ANGEL TERMINOLOGY
• Term sheet - legal document detailing legal terms of the investment agreement
• Cap Table - list of all shareholders and their rights to shares
• Convertible note - temporary investment vehicle that leads to ownership of shares
• Equity round - direct purchase of shares
• IRR (Internal Rate of Return) - Cash returned with respect to the length of time it was in
play.
• ROI (Return On Investment) - The amount of money returned after investing
• Exit - Liquidation of assets usually by acquisition or IPO
• Multiple - The number of times your money doubled while invested

68. ANGEL TERMINOLOGY (PT2)
• Due diligence - homework done to understand a deal
• Syndication - pooling capital with other investors
• Broker dealer - a person paid a percentage to connect investors with deals (it’s not
recommended to use these people in early stage deals)
• Seed stage - first non-friends and family round generally under $1M
• Spray and pray - invest a little in a lot of companies
• Follow-on - putting more money in the same company in future rounds, often to retain the
original percentage ownership
• Anti-dilution - term sheet terms that protect investors in future rounds only when the company
is not doing well

69. ANGEL TERMINOLOGY (PT3)
• Lead investor - The investor who acts as point person for the other investors. No need to invest the
most $, or have the most experience.
• Down round - The company is valued lower in this round than the last. Not good.
• Traunched - A $500k investment round might be traunched and collected half now and half in 9
months.
• Valuation - The cash value of the company. Based on assets, not EBITDA in early stage.
• Burn rate - The speed at which the company burns through cash.
• Preferred shares - At liquidation, these shares are paid back first. When the payout is small, this matters
a whole lot more.
• Common shares - Founder stock, FFF stock, stock paid to advisors and consultants, paid after preferred.

70. ANGEL GROUPS
Inside and outside
• Chattanooga Renaissance Fund - Local angel-backed
• Jump Fund - Local angel-backed, women-focused
• Rockies Venture Club - Come visit Denver!
• Angel List - online (follow famous angels)
• Gathering of Angels - Atlanta (small investments)
• Atlanta Technology Angels

71. LEARN MORE
www.NicoleGravagna.com
ngravagna@gmail.com
Share. Tweet as you learn.
@NicoleGravagna