Raising Money from Angel Investors Oregon Entrepreneurs Network Webinar - Jan 29, 2009 Dennis Powers 503-292-3513 [email protected]
Jan 14, 2016
Raising Money from Angel Investors
Oregon Entrepreneurs NetworkWebinar - Jan 29, 2009
Dennis Powers503-292-3513
Agenda
Who is an Angel Investor - and what motivates them to invest.
Understanding Angel Investor realities. Where to find Angels. Investor readiness and preparation. The Due Diligence process. Criteria of an ideal Angel Deal.
The Funding Continuum
Discovery
Proof-ofConcept
ProductDesign
ProductDevelopment
Manufacturing/Delivery
Idea Pre-seedFunding
Expansion/Mezzanine
Source of Capital
Friends and Family
Angels
Seed Funds
Venture Funds
Founder
Institutional Equity
Loans / Bonds
Angel Groups
Seed Funding
Start-up Funding
Attributes of Angel Investors
Often successful entrepreneur
“Accredited Investor”–regulatory assumption of financial sophistication and risk tolerance
Expectation of financial reward
Role in entrepreneurial process
Involvement in entrepreneurial company: wisdom and expertise
Community involvement
Social responsibility
Local businesses; regional investment
Angels vs VCs
Angels VC’s
Funding amounts $25K to $1.5M $500K and above
Motivation to Invest
Not just return drivenStrong emotional componentOften likes to be a coach, Bragging rights
Mostly return drivenBut some adjustments for other VCs and Entrepreneurs
Accessibility Prefer anonymityReachable via referrals or groups
Highly visiblePrefer to only look at deals referred from their networks
Geographical focus Regional, with in a 4hr drive Regional, National, International depending on firm
Key reasons to invest
Personal chemistry with MgmtDetail Plan with large marketsSustainable competitive advantage
Nearly developed productSome operating history with a strong experienced teamSustainable competitive advantage
Investment vehicle Common or Preferred StockOccasionally convertible debt
Preferred Stock
Long term value added
Operational experienceCommon Sense adviceSpecific Industry expertise
Experience in managing growthDeep pocketsNetworks for additional capitalExperience in managing IPO or sale exits
Reaction to bad news
Roll up sleeves and help to solve the problem, Open up rolodex
Intense communications and coachingOpen up rolodex, Help structure new financing or mergersFire management
Target exit time 5 to 7 years 3 to 5 years
Target Returns 15 to 25% IRR 20% to 40% IRR
Not all Angels are alike
Relevant Industry Experience
Relevant EntrepreneurialExperience
Operational Expertise
Angel
Guardian Angel
Financial Return Angel
Professional Entrepreneur
Angel
LESS
MORE
LESS MORE
Angel Investor Realities
Statistically Angel Investors reject 80% of the deals presented
Average outcomes of Investments made: 45% fail 40% are the “living dead” 15% are winners
Since at the seed stage it is impossible to predict which ones will be winners …………….
Therefore, all portfolio companies must demonstrate the opportunity for a 20-30X return on investment.
Finding Angels
Friends and Family Other Entrepreneurs who you worked with in the past
Services providers – Attorneys, Accounting firms, etc
Oregon Angels Online Angel Groups Investment Conferences
Its all about Networking! There are no short-cuts!
Northwest Angel Groups
Angel Group Location URL
Alliance of Angels Seattle www.allianceofangels.com
Keiretsu Forum (Seattle chapter)
Seattle,Kirkland, Boise, Portland
www.keiretsuforum.com
Northwest Energy Angels Seattle www.nwetc.com/nweangels.php
Oregon Sustainability Angels Portland www.sustainabilityangels.org
Portland Angel NetworkOREGON ANGEL FUND
Portland www.oef.org/programs/pan/
Portland Venture Group Portland [email protected]
Puget Sound Venture Club Seattle www.pugetsoundvc.com
Seraph Capital Forum Seattle www.seraphcapital.com/
Tacoma Angel Network Tacoma www.tacomaangelnetwork.com
Women's Investment Network Portland www.oef.org/programs/win/
The Zino Society Seattle www.zinosociety.com/
Lane Venture Forum Eugene http://www.eugenechamber.com/bus_info/entre_resources.htm
NW Investment Conferences
Conference Typical Timing Website
Angel Oregon March 12,2009 www.oen.org
Early Stage Investment Forum
April/May www.nwen.org/esif/esif.htm
The Gorge Angel Conference
The Zino Society Conference
May 19, 2009
September
www.gorgeangelconference.com
www.zinosociety.com/
The Bend Venture Conference
October www.bendvc.com/
Venture NW November www.oen.org
Seed Oregon Sept - Jan www.oen.org
Willamette Angel Conference
May 14, 2009 www.willametteconference.com
How to prepare for Angel Investors
Same as for any other funding source Well prepared business plan and due diligence documents
Know your market! Size, competition, distribution, verticals, etc.
Solid management Know your limitations and needs Advisors and/or board of directors Professional advisement and support -legal, accounting, etc.
What angel Investors Want
A solid management team- angel investor is investing in people - Team Brings Sector, Startup Skills
A solid business plan- convincing and complete• Novel (new) or disruptive business concept (may be
regional) • Sound and compelling IP• Clear understanding of Competition and how to win• A business structured for investment- Delaware ‘C’ corp.;
formal shareholder’s agreement• Scalable business• Financial Projections that make sense for investors• Realistic valuation • A viable exit strategy- ongoing concern, or M&A, IPO not
usually an option The potential for a solid return- 10-25X in 5-7yr
Investor Readiness
“Readiness” is all about preparation There are no short cuts At the end of the day the preparation is all about mitigating the concerns investors have about risk
Risk areas include:• Management• Product• Market• Financial
Investor Communication/Sales Tools Executive Summary Business Plan Elevator Pitch Investor Presentation
The Executive Summary
Contact name, address, phone numbers, e-mail address
Business idea in clear language - avoid excessive technical information
Management team, including executive team's track record
List your advisors, significant investors, and board of director
Clear description of product or service, including competitive analysis
Describe the market to be served, including current size and growth rate
Describe your sales & marketing strategies for reaching customers
Discuss your company's unfair advantage
Provide a brief income statement of sales & net income for next 3-5 years
Discuss your funding strategy and how much money you are seeking ----now and in later rounds
List the estimated percentage of ownership investors will receive
Discuss your exit strategy
Business Plan
Executive Summary Business objectives Principal products or services Technology and development program Market and customers Management team Financing requirements
Company description History and status Background and industry Company's objectives & strategies (briefly) Company's strategies
Market Market summary and industry overview Market analysis and forecasts Industry trends Target Customers
Business Plan (continued)
Products Product description and comparisons Innovative features (patent coverage) Applications Technology Product development and R&D effort Product introduction schedule and major milestones Future products (product evolution)
Competition/Competitive Position Sales and Marketing
Channel strategy Sales and distribution model Customer plan
Manufacturing/Operations (if appropriate) Service and field engineering (if appropriate) Facilities (if appropriate)
Business Plan (continued)
Management and ownership Founders and key employees Stock ownership Organization and personnel Future key employees and staffing Incentives (stock option and stock purchase plans)
Financial data and financial forecasts Assumptions used 3-year plan 5-year plan
Capital required and use of proceeds
Appendices Detailed management profiles References Product descriptions, sketches, photos Recent literature on product, market,
Elevator Pitch
It’s the last thing you prepare but often the first contact with a potential investor
The essence of your company An opportunity tell just enough to get an investor interested (usually a minute)
Sets the stage for follow-up opportunity
Introduction
The Anatomy of the 10 Minute Pitch*
The Problem
The Solution
Market Size
Revenue Model
Sales Cycle
Customers
Partners
Traction
Advisory Board
Management
Competition
{00:30 seconds}
{02:30 seconds}
{06:30 seconds}
{08:30 seconds}
{10:00 min.}
Financials
The Offer
* Source - Alliance of Angels
The Angel’s Process
Pre-screening Screening Due diligence Investment presentation Follow-up discussions and meetings
Closing
Purpose of Due Diligence
Establishes that obvious issues are non-issues or addressable
Uncovers issues you not have considered Allows you to get to know the founders Identifies key drivers critical to success
Provides enough data for personal ROI analysis
Due diligence review covers:
Corporate/Structure Organization Funding/Ownership Proposed Deal Financial Structure/ Financial model/
projections/ best and worse case scenarios Product/Service Customers Suppliers Regulatory/ Reimbursement Marketing/ Customer validation/ supplier
Business strategy/ over all market/ competition IP and freedom to operate Entrepreneur/ team background
Investor Evaluation Process
Individual Angels or Investor Groups based use many different methods for evaluation and analysis.
All come down to the Evaluation of Risk: Management Risk Market Risk Product Risk Financial Risk
Evaluation Questions
Management Risk Strong domain experience? Functional Expertise? Startup company experience? History of execution and success in previous roles?
Planned Key employee additions? Timing Current Advisors or existing Board members?
Do they have “skin in the game”?
Evaluation Questions (cont.)
Market Risk Is it a must have or like to have? Is the market itself healthy
• Size, Expected Growth rates?• How is the market segmented?• What is the target market/customers?
What is the competitive environment?• What companies currently service this market?• What motivates buying decisions?• What is the company’s competitive advantage?
Is it too early or too late? Is there a feasible sales strategy
• How will the product be sold• Direct vs Indirect?
Are there planned/existing strategic partnerships?
Evaluation Questions (cont.)
Product /Technology Risk Is the product/service clear? Stage of development
• Proof of concept, working prototype, Alpha, Beta, Pilot, or product launched?
Is there customer validation? How will it be produced? Where? Is there Intellectual Property? Patents? Does the product demonstrate competitive advantages? Are they sustainable?
What does the product roadmap look like?
Evaluation Questions (cont.)
Financing Risk Terms of the Deal
• Debt vs Equity?• Valuation?• Amount to be raised?
Are they raising enough? Is there a cushion in the budget?
Are milestones realistic for the amount raised?
Follow on rounds of financing planned? What is the exit strategy? Does it look plausible?
Criteria for an Ideal Angel Deal
Management team with relevant domain or startup successes
Large, rapidly growing markets
Unique products with proprietary technology or service offerings that meet customers' important needs
Credible and balanced business plans including key execution milestones
Clearly articulated sustainable competitive strategies
Patents or other intellectual property barriers to entry
Realistic, achievable financial projections, high return on investment (ROI) potential and clear exit strategy
Reasonable valuation and investment terms
A willingness to accept advice and coaching