Raising Money from Angels!

October 2009

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Chris Sheehan

1997 - 2009 (US): •  Early stage investor: CommonAngels •  Consultant & venture partner: Industry Ventures •  Enterprise software: BEA Systems (Silicon Valley) •  Startup: Stax, central square

1986 – 1997 (Australia): •  Finance: Investment banking/stockbroking •  Founder: Northstate Partners

CommonAngels: www.commonangels.com Blog: http://earlystageadventures.com/ Twitter: @c_sheehan

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Overview

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Angel investors: individuals & groups

Angel Groups 155 + in US; 7k angels

Individual ~ 260k

~ $19B/pa 55K deals

~ 45% seed & early stage

Source: Center for Venture Research, UNH; MoneyTree

Source: Center for Venture Research, UNH

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Angel groups are easy to find www.angelcapitalassociation.org

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With many in New England

CommonAngels

North Country

Launchpad

eCoast Angels

Bay Angels

Cherrystone

Walnut

Hub Angels

River Valley

Maine Angels

Boston Harbor Angels

Angel Investor Forum

Golden Seeds

Beacon Angels Investors Circle

Granite State

CT Angel Guild

Boynton Angels

Landmark Angels Est. ~ 700 – 1,000 angels

Clean Energy Venture Group Mass Medical Angels

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What sectors/businesses do angel groups like?

•  Information technology: semiconductors, communications, HW, software, applications, digital media, consumer web, ad tech, financial tech, healthcare tech, mobile, ecommerce, video, games, ….

•  Healthcare: Medical devices, life sciences, therapeutics, diagnostics,….

•  Other: Energy tech, material sciences, industrial/manufacturing, ….

Some groups specialize

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When should I think about angel financing for my business?

“I have an idea”

$5k - $20k

Sweet equity, family, friends

Seed stage “working on a b-

plan” $25k - $200k Seed/Early stage

“beta/prototype” need $200k to $2M +

“ready for rapid growth”

Looking for $2M +

Individual angels Angel groups

Venture capital

Incubation Transition: early go to market

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How much do angel groups like to invest?   A single angel group capacity for a new financing tends to be

between $100k to $750k

Syndication is common

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7 Practical Tips

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Practical tips: #1 manage the process like a sales campaign

  Build and manage a prospect pipeline of individual angels and groups

  Materials needed (for groups, probably good for individuals as well)

  Executive summary (.doc) ,

  pitch deck (.ppt)

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Practical tips: #2 what should go in a pitch deck (www.earlystageadventures.com)

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Practical tips: #3 initially meet with anyone you can – network intensively. Build pipeline!

  Begin even before you need money

  “I’m bootstrapping my company for the next 6 months, but can I talk to you about it and get your perspective?”

  Start with your closest network and work out – particularly for individual angels

  “who else should I talk with?”

  Look for angels who “will get it” and invested in your space before

  When pitching

  Take the feedback; don’t be discouraged

  Will be some good advice (and bad)

  Look for patterns in the advice, “Hmm why is everyone suggesting to me to consider inbound marketing as a way to generate leads?”

  May not invest, but how can they be helpful?

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For most of us this will take time away from running our business!  Nice to have a friendly super angel to underwrite us

  But that is rare

  Balance time fund raising vs likelihood of success in a reasonable time frame

  Don’t let your business head south

  Mid course adjustments – same as in any aspect of business

  Plan B

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Practical tips: #4 use an experienced attorney!

  You do for estate planning, real estate, etc. Early stage financing is a specialized area

  Should have local angel/VC contacts

  Understands term sheets

  Understands issues

  Vesting, 83-B elections

  Confidentiality agreements, stock agreements, IP, …

  Some will work on reduced fee basis

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Practical tips – #5 working with angel groups   Warm introductions help

  For some, its absolutely necessary

  Groups have different processes – ask!

  some use online applications

  pitching can be 15 min or 60 min

  some very informal, others professionally managed, others vote as fund

  Some meet regularly; others less frequently

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Practical tips – #5 working with angel groups (cont.)

  Understand who is in group, what they like to invest in, and what stage they prefer – ask!   Pre-seed “ideas” generally not a good fit

  Look at what they have invested – does my business fit?   Businesses that groups generally shy away from: small markets, capital

intensive, some consumer retail products, franchises, restaurants, low gross margins, hard to scale, lack of differentiation, lack of competitive barriers, no relevant experience in the group

  Better to look for capital from F&F and angels who know you

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CommonAngels process

PLANS SCREENING GENERAL MEETING

DILIGENCE & FUNDING

~ 350/ year ~ 60/ year

Do we bring this before the membership?

Light Diligence

~ 20/ year

Follow up: • Diligence • Term sheet • Syndication

~ 5 new investments/ year

Typical CA investment •  $300k to $1M •  12 to 20 members

Active role •  Board seat •  Business assistance •  Next round

8 to 12 weeks

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CommonAngels ideal investment profile

Seed/Series A Financing between $500K - $5M

  Passionate entrepreneur with CEO capabilities

  New areas of information technology

  Typically around early go-to-market

  Current expertise within the membership

  Capital efficient

  Typically around the route 128 area, but will consider NE and NYC

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Examples of our current portfolio

Wireless

Internet/Business Services

Digital Media

Semiconductor/EDA

Software

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Practical tips: #6 convertible notes (debt) or preferred stock (equity)?!

  Depends on how much you are raising and from whom

  Small amounts (eg < $300k) targeting individual angels tend to be with a note. Quicker, cheaper, no lead needed to set terms

  Attorney can give you market terms for notes

  But more sophisticated angels tend to prefer equity

  So be flexible

  Groups will likely prefer equity

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Practical tips: #7 term sheet and valuation!

  You want a term sheet to catalyze a round

  Many angels sit on the fence until they know the terms. Keep them informed and “warm”

  Can use your own if doing a note. If equity, need a lead sophisticated angel to negotiate terms

  Angel groups: all comfortable doing term sheets

  Angel group term sheets similar to VC term sheet

  Aligns everyone's interest and helps on next round (assuming terms are in market)

  Typical pre money ~ $1M to $3M for “seed to early stage”

  But its more complicated…option pool, dollars raised, dividends, participation……..