Angel InvestingSome of the Important Rules Have
Changed
Mike PanesisPresident, Central Coast Network
Tech Coast AngelsNovember 16, 2011
About angel investing
Angel investing is not new
What is an angel investor?
Anyone who makes a private investment in a company, typically a start-up
Typically, but not necessarily, accredited: $1 million in investable assets (not including value of
primary residence) OR $200K in income ($300K joint)
Often are entrepreneurs themselves
How many potential accredited angel investors are there?
Source: http://money.cnn.com/2011/05/05/pf/millionaire_rise/index.htm, Angel Capital Association, Cap Gemini/Merrill Lynch World Wealth Report 2001
Only ~7,000 members of angel groups (2009)
Change in angel investing has a lot to do with advancing technology
10 years ago Now Buy your own servers, in advance Software distributed in boxes Dial-up internet access Need $1M+ to start a business Capital intensive manufacturing
Rent virtual servers by the hour Software distributed online Broadband internet access common Can start a business for <$100K Low cost prototypes & offshore mfg
Founder, friends & family investment is expected FIRST Greater importance placed on market validation Lower entry point for angel investment Led to the rise of angel groups as specialized social networks
Effect on angel investing
About TCA
Largest angel investing group Invests in Southern California
companies (mostly) Group negotiation, individual
investment 12-20 deals per year Invests in more than tech
Hardware/Software Life Science Digital Media Consumer Products/Services CleanTech/Industrial Financial Services
5 TCA Networks
TCA Investing Process
Find
• Networking Events• Quick Pitch Competitions• Industry Group Meetings• Mentoring
Filter
• Funding Application• Pre-Screen (Vertical & Virtual)• Screen (Local x5)• Dinner Meeting (Local x5)
Fund
• Due Diligence• Write Check
Follow
• Board Participation• Personal Networking• Plan for Next Round
Why (and why not) pursue angel capital?
Good
More fundraising options
Common term sheet More tolerant of pitch
flaws Decision-making
priorities:1. Heart2. Head3. Wallet
Brings more than money to the deal
Bad and/or Ugly
Process takes time Requires more
patience Usually rational, but
not always More sensitive to
valuation
Tips for success with angel groups
A good pitch covers all of these… The problem you solve Market size Company & products Business model (how you make money & grow) Team Competition (and why you win) Barriers to entry Financial projections: sales, gross margins & EBITDA, 5
years Raise amount & use of funds Valuation Exits
If you only have one chance to pitch, bring your best stuff… 15 minutes long, followed by 15 minutes of Q&A. Greatest contributor to the investment decision. As much a sales pitch as an investment pitch. Needs to be rehearsed, memorized and internalized. One presenter is best. Put a lot of thought into your valuation.
When you pitch to an angel group, you’re really looking for one person.
Awesome!
Pitch
Awesome!
That person loves the pitch, clearly sees the value proposition, is willing to invest, and will be your advocate inside the angel group. We call this person the Deal Lead.
It’s always about friends & family
Why?
Friends & family invest because they know and trust you.
Angels rely on their “friends & family” to decide if they should trust you. Then they invest.
Once they trust you, angels open up their networks.
What matters most?
Reputation Trust Who you know What you know Passion
If you first meet a Tech Coast Angel at your screening, then you waited too long.
Entrepreneurs & Small Businesses need a network to thrive.
You don’t have to succeed first to start giving back. Local networking groups
805startups: http://www.meetup.com/805-Startups SBStartups: http://www.meetup.com/startupsb
TCA-sponsored events Quick Pitch (San Diego) & Fast Pitch (LA & OC) Meetup Group (OC): http://www.meetup.com/techcoastangels
Mentoring opportunities Small Business Development Center (SBDC): http://edcsbdc.org UCSB Technology Management Program (TMP), New Venture
Competition (NVC): http://www.tmp.ucsb.edu
What’s next
TCA initiatives
Syndication Cooperation among angel groups Shared due diligence speeds investment decisions
Angel Capital for Entrepreneurs (ACE) Fund Invests where TCA members invest Don’t have to be a TCA member to invest
Seed Track For early stage companies with a missing piece 10 minute pitch Investors commit up to $100K on the spot 30 day close
The changing business and investing landscape for angels
Business Sustainable business Entrepreneurship as an
early career choice Incubators, accelerators et.
al. Rediscovering the
manufacturing sector Mass applied research (e.g.
hackerspaces)
Investing AngelList
~1,800 accredited angels
400 investments in 18 months
Still need local groups CrowdFunding
Expands the investor pool
Spreads risk Self-governance is key
Need more angels!
How the Feds can help
Remove Barriers
LegislationBig Company Misbehavior
Effect on Small Business
Sarbanes Oxley
Creative paper shredding
Difficult to IPO
Dodd Frank Too big to fail
Limits accredited investors
Patent Reform
Patents as a profit center
Favors first to file over first to invent
Add Value Fund cutting edge research Subsidize infrastructure H.R. 2930: Entrepreneur
Access to Capital Act (Crowdfunding) Greatly increases pool
of potential angel investors
Passed the House, 407-17
Questions?