“Angel Investing Tug of War”

“Angel Investing Tug of War”
©2014 Tech Coast Angels
It’s a Difference,
In Philosophy…

“Angel Investing Tug of War”
©2014 Tech Coast Angels
Entrepreneurs typically only
anticipate success:

”We will win!”
“Angel Investing Tug of War”
©2014 Tech Coast Angels
Angel Investors typically only anticipate
problems:

”We Hope Rope Doesn’t
Break!”

“Angel Investing Tug of War”
©2014 Tec...
The interaction between entrepreneurs and
early stage investors (angel investors or
venture capitalists) can sometimes be ...
Valuation

“Angel Investing Tug of War”
©2014 Tech Coast Angels
Entrepreneurs are Extremely Optimistic
(One Could Say “Idealistic”):
 See high valuations of other Startups
 Value their...
Angel Investors are Extremely Pessimistic
(One Could Say “Realistic”):
 Most startups fail
 Many initial company valuati...
Company Valuation
 Be reasonable given stage of company
 Will increase as future milestones met
 Heed investor’s pessim...
Market

“Angel Investing Tug of War”
©2014 Tech Coast Angels
Entrepreneurs See Simple Path to Success:
 “Only” have to get x% of $B market!
 Mentality: “Build It and They Will Come....
Angel Investors See Long Road to Success:
 Need to prove market acceptance
 Selling product more difficult than building...
Perform Analysis of Market
Validate there is a customer & market
 Work numbers top-down & bottom-up
 Test market: find ...
Competition

“Angel Investing Tug of War”
©2014 Tech Coast Angels
Many Entrepreneurs Say:
 There is no competition!
 Existing solutions are archaic, expensive
 Our product is “unique” f...
Many Angel Investors Will Say:
 There’s always competition!
 If not direct competition, a “substitute”?
 How do you get...
Create Competitive Selling Argument
 Identify “Switching Cost” for customers
 Identify product “substitutes”
 Need feat...
Exit

“Angel Investing Tug of War”
©2014 Tech Coast Angels
Entrepreneurs Say:
 We’ll exit to M&A or IPO!
 It’ll take 3-5 years…
 …but it’ll be a huge return for investors!

“Ange...
Angel Investor’s Experience:
 IPO highly unlikely, scaling expensive
 Success will take 6-8 years (or more)…
 …but fail...
Exits
 “EXIT” signs usually RED for a reason!
 Some investment exits outlive investors
 Exit plan should be reasonable ...
Remember Both Sides of
“The Rope”…
Entrepreneur’s optimism (“idealism”)
Investor’s pessimism (“realism”)
…and try to meet ...
Who are the Tech Coast Angels?

Tech Coast Angels, www.techcoastangels.com, the largest angel investor
network in the Unit...
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Angel Investing Tug of War

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How Early Stage Investor/Entrepreneur Relationship can seem like "Tug of War" at times...

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Angel Investing Tug of War

  1. 1. “Angel Investing Tug of War” “Angel Investing Tug of War” ©2014 Tech Coast Angels
  2. 2. It’s a Difference, In Philosophy… “Angel Investing Tug of War” ©2014 Tech Coast Angels
  3. 3. Entrepreneurs typically only anticipate success: ”We will win!” “Angel Investing Tug of War” ©2014 Tech Coast Angels
  4. 4. Angel Investors typically only anticipate problems: ”We Hope Rope Doesn’t Break!” “Angel Investing Tug of War” ©2014 Tech Coast Angels
  5. 5. The interaction between entrepreneurs and early stage investors (angel investors or venture capitalists) can sometimes be a game of “Tug of War” when discussing areas like company valuation, market, competition, exits etc. “Angel Investing Tug of War” ©2014 Tech Coast Angels
  6. 6. Valuation “Angel Investing Tug of War” ©2014 Tech Coast Angels
  7. 7. Entrepreneurs are Extremely Optimistic (One Could Say “Idealistic”):  See high valuations of other Startups  Value their idea/company highly  Can see nothing but success ahead “Angel Investing Tug of War” ©2014 Tech Coast Angels
  8. 8. Angel Investors are Extremely Pessimistic (One Could Say “Realistic”):  Most startups fail  Many initial company valuations too high  More likely to lose money than big return “Angel Investing Tug of War” ©2014 Tech Coast Angels
  9. 9. Company Valuation  Be reasonable given stage of company  Will increase as future milestones met  Heed investor’s pessimism (“reality”) “Angel Investing Tug of War” ©2014 Tech Coast Angels
  10. 10. Market “Angel Investing Tug of War” ©2014 Tech Coast Angels
  11. 11. Entrepreneurs See Simple Path to Success:  “Only” have to get x% of $B market!  Mentality: “Build It and They Will Come.”  Getting funding from investors is hard… “Angel Investing Tug of War” ©2014 Tech Coast Angels
  12. 12. Angel Investors See Long Road to Success:  Need to prove market acceptance  Selling product more difficult than building “Build It, They Might Not Come.”  Getting funding is easy part… “Angel Investing Tug of War” ©2014 Tech Coast Angels
  13. 13. Perform Analysis of Market Validate there is a customer & market  Work numbers top-down & bottom-up  Test market: find your customer first  Would customer use product “for free”? “Angel Investing Tug of War” ©2014 Tech Coast Angels
  14. 14. Competition “Angel Investing Tug of War” ©2014 Tech Coast Angels
  15. 15. Many Entrepreneurs Say:  There is no competition!  Existing solutions are archaic, expensive  Our product is “unique” for customer “Angel Investing Tug of War” ©2014 Tech Coast Angels
  16. 16. Many Angel Investors Will Say:  There’s always competition!  If not direct competition, a “substitute”?  How do you get customer to “switch”? “Angel Investing Tug of War” ©2014 Tech Coast Angels
  17. 17. Create Competitive Selling Argument  Identify “Switching Cost” for customers  Identify product “substitutes”  Need feature/price/performance factor  Make buying decision easy calculation “Angel Investing Tug of War” ©2014 Tech Coast Angels
  18. 18. Exit “Angel Investing Tug of War” ©2014 Tech Coast Angels
  19. 19. Entrepreneurs Say:  We’ll exit to M&A or IPO!  It’ll take 3-5 years…  …but it’ll be a huge return for investors! “Angel Investing Tug of War” ©2014 Tech Coast Angels
  20. 20. Angel Investor’s Experience:  IPO highly unlikely, scaling expensive  Success will take 6-8 years (or more)…  …but failure (loss) more likely! “Angel Investing Tug of War” ©2014 Tech Coast Angels
  21. 21. Exits  “EXIT” signs usually RED for a reason!  Some investment exits outlive investors  Exit plan should be reasonable & …  …continually revisited (as part of business) “Angel Investing Tug of War” ©2014 Tech Coast Angels
  22. 22. Remember Both Sides of “The Rope”… Entrepreneur’s optimism (“idealism”) Investor’s pessimism (“realism”) …and try to meet somewhere in the middle… “Angel Investing Tug of War” ©2014 Tech Coast Angels
  23. 23. 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. “Angel Investing Tug of War” ©2014 Tech Coast Angels

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