angel investing 101
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David Teten, Partner, ff Venture Capital Founder, Harvard Business School Alumni Angels of New York ffvc.com // @ffvc teten.com // @dteten
Angel Investing 101
photo by Aaron Patterson, http://www.flickr.com/photos/40875537@N04/5659908590/
Intro Originate Structure Add Value Next Steps
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Don’t Take Notes!
Download detailed slides at: teten.com/angel
Intro Originate Structure Add Value Next Steps
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David Teten (teten.com) • Partner, ff Venture Capital, early-stage technology venture capital fund • Lead author of first-ever research study on best practices in private equity/
venture capital deal origination • Lead author of first-ever research study on best practices of venture
capitalists in increasing portfolio company value through operational support • Currently co-leading study on how to disrupt investing • Harvard MBA 1998, Yale BA, both with honors. • @dteten
Intro Originate Structure Add Value Next Steps
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• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
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Average Angel Returns
• Angel mean IRR ranges from 18% to 54% across twelve large studies with differing timeframes 1
• 47% of angel investments exited at a loss, vs. 64% of VC investments2
• Angel and VC rates of “home run” investments (IRR over 100%) are roughly equal 2
2 Is It Worth It?, Journal of Business Venturing, http://www.crab.rutgers.edu/~richmich/NVF%20Spring%202013/ROR%20on%20VC.pdf
1 Historical Returns in Angel Markets, Right Side Capital Management, and other sources listed at http://techcrunch.com/2012/11/17/how-institutional-limited-partners-can-avoid-limited-returns/
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HBS Alumni Angels Global (HBSAlumniAngels.com): Progress Since 2007
• 10 chapters globally • Over 800 members invested in over 100 companies
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• >200 members, largest angel group in NY tri-state area by number of paying members
• Investments range from $15K - $500K; median $25K, mostly convertible notes
• $4m in total investments in 30 companies, $5m including affiliates • Monthly pitch nights with typically 4 companies/night • Launched Venture Capital Access Program, helping women and
minority entrepreneurs meet members of our network
HBS Alumni Angels of Greater NY (HBSNYAngels.com): Progress Since December 2010
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About HBS Alumni Angels of NY Members
Requirements: • Be accredited investors. For an individual investor, this means individual net worth, or
joint net worth with spouse, exceeds $1m; or individual income in excess of $200,000 in each of the two most recent years; or joint income with spouse in excess of $300,000 in each of those years and have a reasonable expectation of reaching the same income level in the current year.
• Budget to invest at least $25,000 per year in early-stage companies. This is a directional commitment, not binding.
• Sign our Membership Agreement and join the HBSAANY. • Be Harvard affiliates (not necessarily HBS). Our members include venture capitalists, entrepreneurs, investment bankers, and other
experienced businesspeople.
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65%
35%
60%
40%
56%
45% 51% 49% 46%
54%
2010 2020 2030 2040 2050
White Non-Hispanic “Diverse” Population
America’s Growth
America’s Population by Ethnic Background
United States Department of Commerce
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Venture Capital Access Program
• Program geared to help minority and women entrepreneurs meet potential investors in the HBSAANY network.
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ff Venture Capital (ffvc.com)
• Venture capital fund focused on investing at seed stage and follow-on rounds
• Based in NYC but investing across the US, plus abroad • Extensive resources to support portfolio companies’ growth, with 27
employees • Invested over 200 times in over 70 companies since 2008 • First investments typically $100-$500K at valuations of <$5m pre-money • Prominent investments include:
Cornerstone OnDemand (IPO); Quigo Technologies (sold to AOL for reported $340m); Indiegogo; Klout; Plated
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Invested Amount
Grey = amount invested
Green = valuation in excess of amount invested
$1.5mm
Select Emerging Growth $50mm + Valuation Acquired/IPO
acquired by
ffVC companies create new industries
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
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Definition: Start-Up
Steve Blank: “A startup is a [temporary] organization formed to search for a repeatable and scalable business model.”
http://www.docstoc.com/docs/425051/Financing-Lifecycle-of-your-startup
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US Angels commit $20+ billion per year, over $6 billion at seed or start-up stage
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2004 2005 2006 2007 2008 2009 2010 2011
VC Angel
National Venture Capital Assoc 2012 Annual Report; New Hampshire Center for Venture Research Annual Market Analysis reports 2004-2011
US Angels commit $20+ billion per year, over $6 billion at seed or start-up stage
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US Angels invest in 60,000+ companies every year
National Venture Capital Assoc 2012 Annual Report; New Hampshire Center for Venture Research Annual Market Analysis reports 2002-2011
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Angel VC
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Notable Angel-backed Startups
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Why Angel Investing? • Exceptional time for entrepreneurship
– Low cost of starting – Exploit seismic changes in technology
• High historic returns – Permanent institutional arbitrage increases likelihood of continued high returns
• Portfolio diversification – Uncorrelated alpha
• Education and Meeting People – Work with passionate entrepreneurs, like-minded high net worth individuals, and VCs – Understand the future
• Opportunity to be a mentor – Become board member / advisor / interim executive
• Altruism – Promote entrepreneurship to build and support thriving communities
© 2015 David Teten. More at teten.com
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Requirements to be a Successful Angel • Large bank account
– Need to weather losses and reserve capital for later rounds. • High risk tolerance
– Most investments will fail. Don’t invest money you can’t afford to lose. 2
• Patience – Assets are illiquid and average time to exit is ~6 years.
• Rigorous due diligence – A minimum of 40 hours per investment correlates with best returns.2
• Value-add – Top angels have relevant industry experience and are active advisors.2
• Diversified portfolio – You should be willing to make a minimum of 10 investments—better 20.
3 Is It Worth It?, Journal of Business Venturing 2 Returns to Angel Investors in Groups, Kauffman Foundation
If you lack anything above, avoid angel investing.
© 2015 David Teten. More at teten.com
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Why join an angel group?
• Higher returns! • Scale – more investment dollars • Collaboration re: due diligence • Industry/topic experts • Broad domain knowledge • Broader network as a resource for portfolio companies • More and higher quality deal flow • Make new friends
Susan Balloch, Golden Seeds
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
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HBS Alumni Angels NY Deal Criteria
HBS Alumni Angels members invest as individuals, typically in aggregate up to $350,000 in any particular investment. Ideal candidates are companies seeking $100,000 to $750,000 We invest in capital efficient "for profit" businesses, and expect our portfolio companies to achieve a successful exit within five years. We do not invest in R&D intensive businesses or those with high capital requirements. We strongly encourage business plan submissions from Harvard Alumni, but consider all investments based on potential economic returns. We typically invest in companies with these characteristics:
Premoney Valuation: $1,000,000 - $3,000,000 Capital Seeking: $100,000 - $750,000 Previously Raised: $50,000 - $500,000
Generally we expect the following performance from our portfolio companies:
Expected Revenue By Year 5: $10,000,000 - $50,000,000 Expected Returns: 10x Investment - 50x Investment Expected Years to Exit: 3 Years - 5 Years Expected Years to Break Even: 2 Years - 3 Years
© 2015 David Teten. More at teten.com
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ff Venture Capital Decision Criteria • Team. We want to know what qualifies you to execute your idea successfully and better than the
five other companies in your space: work history, network, and skills are all key. • Demo. We almost always require a demo, or at least a mockup. • Market. What is the problem, why does it exist, and how big is the opportunity? • Solution. Your value proposition: how you solve this problem faster, cheaper, smarter. • Business Model. How do you make money? Who pays, how much, from where? • Customer/user. Who they are and how many? How will you reach/acquire them? • Competition. Know every competitor and what are the current solutions to this problem, and why
they aren’t addressing your market adequately. List the major competitors, understand their processes and what your competitive advantage is.
• Financial Overview. What are the expected revenues, expenses, and EBITDA three years out? How long will this round’s cash last you?
• Funding. How much are you raising and how are you going to use the money? To grow a team, to support overhead, to expand? How much have you raised thus far and from whom?
• Milestones. What is your vision for the future, measured in milestones for the next 3 years? Note that in our board meetings, we will evaluate your progress against these milestones.
http://teten.com/pitch/
Character – Competence – Relevance – Strength – Information – Number – Diversity
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Info is private Few buyers
based on Robert Bruner, Applied Mergers & Acquisitions, page 186
Ability of buyer to
intervene to tailor
pricing & terms
Info is public Many buyers
Sweet spot of highest returns
Higher returns
Lower returns
Private information is more valuable than public information because of the leverage that discretion gives to the buyer.
Buyer Power vs. Public Awareness of Transaction
Character – Competence – Relevance – Strength – Information – Number – Diversity
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You earn higher returns by investing in people you know well. Mutual Fund Managers’ Excess Returns
in Companies Run by College/Graduate School Classmates vs. All Other Companies
Study of 2,501 portfolio managers of 1,648 actively managed equity funds that specialized in aggressive growth, growth, or growth and income stocks between January 1990 and December 2006
Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Christopher Malloy, 2008 Connected Holdings=Stocks for which managers had the strongest connection to senior officials (same school at same time with same degree)
Excess return=total gain minus the Treasury bill return
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Investment Search Process (# Companies)
Angel groups using Gust
(2010)[i] ff Venture Capital
(2014)[ii] Typical
entrepreneur Profiled initially 20,850 NA ~3-6 Target Selected 1,315 ~2,000 ~3 Met 1,047 ~1,000 NA Due diligence 577 ~20 2
Invested/launched 541 ~12-15 1
Deals as % targeted companies
33.5% (2.1% of
submissions)
0.6% 33%
[i] Available at http://angelsoft.net/a/venture-valuation , as of twelve months ending March 17, 2010. [ii] David Teten.
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Intermediaries refer deals to investors primarily in the hopes of future revenues.
• Possibility of future revenue • Integrity • High certainty to close • Responsiveness • “Fair” treatment of sellers • Experience with the industry
or owner type • Friendship • Candid feedback • Maintaining a single point of contact
http://www.flickr.com/photos/extranoise/3382930813/
Top Reasons Intermediaries Refer Deals to Investors (descending order of importance)
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Differentiation makes origination more efficient. Selected Highly Differentiated Investing Strategies
Strategy Example Co-investments with corporates Blackstone Group, Castle Harlan, Clayton
Dubilier & Rice Executive-led transactions Frontenac Company, GTCR, Housatonic
Partners Intellectual property Intellectual Ventures Spinning out processes from within Fortune 500 companies and setting them up as independent ventures
Exigen Capital
Deep focus from early to late stage in narrow vertical Andreessen Horowitz, Healthpoint Capital Minority-owned businesses AP Capital, ICV Capital Partners
Women-owned businesses Hypatia Capital
Family-owned businesses Heritage Partners Film financing Relativity Media Buying Western companies and outsourcing operations to China Crimson Ventures Distressed Searchlight Capital
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Social media technologies are pertinent throughout the investing cycle.
Investing Cycle Use of Social Media Raise capital • Identify value-added potential investors & find a path to them
• Solicit past investors in both your prior and comparable funds
Originate investments
• Identify and reach out to relevant people & companies • Become a magnet for investment opportunities
Due diligence • Review professional and personal lives of management • Talk with firm’s network: customers, competitors, suppliers
Negotiate Deal • Gain insight into counterparty’s negotiating style, motivations
Improve operations
• Recruit “A” performers • Accelerate sales and marketing
Exit investment • Identify and more effectively negotiate with strategic acquirers
How Investors Are Using Social Media
Character – Competence – Relevance – Strength – Information – Number – Diversity
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David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com)
Ch = Character Co = Your Firm’s Competence R = Relevance of the contact S = Strength of your relationship I = Information N = Number of people D = Diversity
= D * ∑ (Chn*Con *Rn* Sn*In) N
n=1
Corporate Network Valuation Formula
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Biography analysis software allows you to search by common affinity and more effective subsequent outreach.
Leading Providers of Biography Analysis Data
* ff Venture Capital portfolio company
• Boardex • Klout* • LinkedIn • Pipl • Relationship Science • ZoomInfo
Character – Competence – Relevance – Strength – Information – Number – Diversity
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David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (TheVirtualHandshake.com)
• Daniel Zumino, founder of BCG Paris and angel investor, had made a small investment in a startup
• November 1999: He sent email to Stanford GSB alumni list seeking capital for the startup
• March 2000: Raised $8m through referral from alumni, via this list service
Case study: A set of angel investors sourced a transaction and invested $8m via an alumni email list.
Character – Competence – Relevance – Strength – Information – Number – Diversity
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10-15% of the active VC population of 1,000 blog and tweet; some individual bloggers are as influential as entire media companies.
* Individual VC blogs http://www.blogmetrics.org/venture_capital
Jeff Bussgang, Flybridge Capital Partners http://techcrunch.com/2011/01/19/top-20-vc-bloggers/
Top VC Blogs (BlogRank), November 2014
Blog Title # Incoming Links
(rank) Google PageRank VentureBeat 1 7 Paul Kedroskys Infec5ous Greed* 2 6 Redeye VC* 4 5 VC Café* 13 5 Xconomy Venture Capital Feed 1 6 India Business Blog 13 5 Web Strategy by Jeremiah 2 5 PEHub Blog 21 7 VC and Angel Investor Profiles 12 6 Union Square Ventures*
8
6
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Best Practices in VC Blogging (written humorously, but still good advice)
Hi, I’m a tech VC on Twitter. I’m @xyzvc My icon is cool. It’s a painting/cartoon/wacky photo. Shows that I’m hip and approachable. But when I meet with you, I’ll
still crush your dreams. I tweet about technology, but occasionally post personal stuff. Important to show I have a sensitive side and care about
more than just making tons of dough. I use # tags, sometimes as a funny form of emphasis. Kind of like a wink and a smile ;) #donttakethisposttooseriously I love Twitter because I can broadcast my blog posts. Otherwise, no one would read them! I blog at xyzvc.com! I tweet blog posts with advice on fundraising, customer acquisition, and company building. Usually, someone really
smart has said it before and said it better. But I haven’t been in Hacker News for a while, so I figured there is no harm reinventing the wheel.
Retweeting is fun. It’s like a virtual high-five. I retweet the posts of my partners, coinvestors, and entrepreneurs I’ve backed. Oh, I also retweet posts from guys whose butts I’m currently kissing so that they will like me. I really hope @fredwilson retweets this… I’d get so many new followers!
My portfolio companies are the best. I will share so much of their good news with you it will make you want to unfollow me (unless you are a co-investor, in which case you will probably RT and add a #)
If a portfolio company is doing bad, no Twitter love. It’s like going to Disneyworld and trying to find Hercules or Mulan. It’s like they never existed.
I also tweet about the cool places I’ve been (via Foursquare and Gowalla), things I buy (via Swipely and Blippy), and the cool places I’m going to go (via Plancast).
Wow, that’s a lot of tweeting! That’s why I also tweet about how busy I’ve been and how little I’ve slept. It’s a tough life. Full disclosure, I’ve been a tech VC and I’ve done most of these things.
Hi, I’m a tech VC on Twitter (by Rob Go, NextView Ventures)
http://www.robgo.org/post/890368565/hi-im-a-tech-vc-on-twitter
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Search engine optimize yourself.
• Scan targets’ sites to understand the language that they use when searching.
• Use keywords inconsistently.
• Name what you’re selling.
• Optimize top of the page.
• Use Google Adwords Keyword Tool
http://flickr.com/photos/neilt/2517652/sizes/o/
Search Engine Optimization 101
Character – Competence – Relevance – Strength – Information – Number – Diversity
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• Phone • Email • Web conferencing • Instant messaging • Internet telephony
(e.g., Skype) • SMS • Twitter
Using multiple media channels promotes stronger trust-building.
Caroline Haythornthwaite, “Strong, Weak, and Latent Ties and the Impact of New Media,” The Information Society, 18 ( 2002) 385–401. http://flickr.com/photos/re-ality/41676755/
Major Media Channels for Origination (descending order of importance)
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Meetup creates opportunities to meet face-to-face.
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Effective originators are data hounds
Tools for Assimilating Data into Your Contact Relationship Management (CRM) System
Data source Selected technology for inserting data into CRM Business Cards
FullContact
Emails Evercontact, FullContact, RelateIQ Cloud LinkedIn, Plaxo CRM Act, Salesforce, RelateIQ
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Originators use blog and web readers to filter the data deluge, such as Bottlenose*.
* ff Venture Capital portfolio company
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Use Copromote* to amplify your message via Facebook, Twitter, and Tumblr to millions of new people.
*ffVC portfolio company
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Investors can also connect with one another via online gated communities.
Sample Gated Communities for Investors Angel Group
Platforms Angel
Communities Consumer Loans Private Equity
Public Gust
AngelList
CircleBack Lending
Assoc. for Corporate Growth
Albourne Village
Proseeder
CircleUp LendingClub Axial FT Alphaville Long Room
FundersClub Prosper
Intralinks Deal Nexus
Sum Zero
OurCrowd MergerMarket Value Investors Club
SeedInvest
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Senior executives prefer to interact online behind barriers to more junior people, just as they do in traditional networks.
Sample Gated Communities for Executives • IERG Online • Executive Forum • INMobile • Sermo
• Some LinkedIn groups
Character – Competence – Relevance – Strength – Information – Number – Diversity
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And everyone else is online too.
• Yahoo Groups
• Google Groups
Online Community Platforms • Xing
Character – Competence – Relevance – Strength – Information – Number – Diversity
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Diversity your network by entering logically adjacent social networks.
• By technology • By industry • By geography • By personal
characteristics • By market
http://flickr.com/photos/extranoise/169187125/sizes/l/
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Intro Originate Structure Add Value Next Steps Evaluate Overview
• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
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How to Structure Your Portfolio
• Compare vs. size of overall portfolio: typically cap at 20% • Target at least 10-12 investments. Assume:
– 30-40% total loss – 30-40% breakeven and illiquid – 20-30% positive return
• Diversify by industry, risk, and duration
Susan Balloch, Golden Seeds
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Shortcuts to Structuring a Deal
• Do not lead your first few deals; join the syndicate of a more experienced investor
• Read Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist, by Brad Feld and Jason Mendelson
• Use a template term sheet, e.g., National Venture Capital Association Model Legal Documents and the Wilson Sonsini Term Sheet Generator
• Build your own financial model of at least the cap table; see teten.com/finance for some templates .
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Choose the right terms to optimize
• Pre-money valuation is just one term of many, and probably not the most important.
• Other key terms, in declining order of importance: – Vesting period for founders – Redemption option, typically after 5-7 years – Liquidity option, e.g., liquidation preference and a
participating preferred structure – Investor protective provisions, e.g., and anti-dilution
protection – Board seat
http://pasadenaangels.com/2011/02/the-truth-about-early-stage-pre-money-valuations/
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#1 area of concern: Founder(s) Incentives
1. Allocation of Equity 2. Stock Vesting 3. Power issues – Titles, etc. 4. IP issues – relationship with past employers? Ownership of
outsourced work? 5. Board Seats 6. Employment Agreements
Tom Cervantez and Cecily Anne O’Regan, Business Counsel Law Group
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Review the Company’s IP (which is usually valueless at launch)
The Enterprise
Patents
Trade-marks
Copy-rights
Trade Secret
Sui Generis
Tom Cervantez and Cecily Anne O’Regan, Business Counsel Law Group
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How to value a startup: you can’t
• Valuation is based on negotiation, not calculations. • Benchmark against companies at a similar stage of
development. – Revenues? – # Employees – # Customers – Traffic
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Checklist for discussing the next round
• When? • How much? • Who should lead? • How can I help the entrepreneur? • Should I follow on?
Dan Rosen, Commerce Ventures
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Phase of Startup Development Needs FTE Management Milestones
Early Development to Proto/Beta (12 months)
- Tight linkage between development & business goals - Focus - Excellent people
1 to 10
CTO and GM
Working prototype, beta
installations
Early Customer Deployments (24 months)
- 100% dedication to customer satisfaction - Cheerleading and endurance
5 to 20
CTO, VP Eng, Dir’s of Sales, Finance,
Marketing GM/CEO
Customer approval,
some revenue
Moderate Penetration (36 months)
Savvy Management
20 to 50+
CTO, VP Sales,
Marketing, Finance, Engineering, CEO
Clear target market, Repeatability of
business, real product, real customers
Rapid Penetration (60 months)
Excellent Management
Growth to 100’s
All VP’s, CFO, COO if necessary
1/3 to ½ of all new sales in target markets
Dominance Greed and Ego Big Domestic and Worldwide
Clear #1 player
http://www.slideshare.net/Hukshorn/valuation-14854407
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Questions, Capital, Valuations Question to answer with
capital Capital needed
Sources Pre-Money
Seed: Early Development Proto/Beta
Technology: does it work at all? Market: is there a market? Timing: if a market, when does it start?
< $1M usually <$500K
- Friends, Family, Fools - Angels - Seed Funds
$100K to
$1M
1st Round: Early Customer Deployment
Technology: does it work in practice? Target market: is this the right first place? Timing: if a market, when does it start?
$1M to
$4M
- Angels - Seed Funds - Early Stage Funds
$2M to $5M
2nd and 3rd Round: Moderate Penetration
Market timing: is the market happening fast enough (or too fast)? Execution: can we grow, develop, sell, manage, etc.?
$5M to $15M
- Early Stage Funds - Later Stage Funds - Corporate Investors - Venture Leasing
$10M to
$50M
Mezzanine and IPO: Rapid Penetration
Execution: can you grow fast enough without loosing control?
$0 to
$100M
- Corporate Investors - Mezzanine Funds - iBanks - Leasing
$40M to $100M+
Dominance Complacency: with so much success can you continue being paranoid?
Corp.
finance
- iBanks - Commercial Banks - Et al.
Public Market
http://www.slideshare.net/Hukshorn/valuation-14854407
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
7 levers of value creation (“TOPSCAN”) Team-Building Growing a startup’s human infrastructure Operations Enhancing admin, accounting, legal and
technological capabilities Perspective Strategy, competitive positioning, defining the
target market, and scoping the product. Skill-Building Building the right skills and ensuring they
develop with the company’s life cycle Customer Development
Identifying the right customers and gaining access to them
Analysis Helping entrepreneurs measure, understand and report the performance
Network Providing access to the investor’s typically very large network
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
Investor’s Demeanor
Insecurity = Distraction
I’m thinking of investing $X Unsaid: but I usually invest $X/2 I’ll ask my friends to try your product later
• Inflating $X motivates entrepreneurs to misallocate time
• Due diligence is about an investor making an efficient decision, not about playing entrepreneur-lite
• Someone has to be first. If you are
hedging why did you invest?
Confidence = Adding value
I can invest $X. My decision criteria is Y I’ll email/ tweet / blog / re-tweet
• $X is historically accurate and reflects real risk-appetites
• I’m part of the team • Network effects almost always matter • I do what I reasonably can to help
bootstrap
Source: Michael Ibrahim, CEO, Whisk
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Intro Originate Structure Add Value Next Steps Evaluate Overview
Investor’s Advice
Source: Michael Ibrahim, CEO, Whisk
Ideas = Rarely adding real value
Actions = Adding value
I’m a board member of public company Z – if you give me a 2 page proposal I’ll share with the board I have time, if helpful I can take a turn at your project/deck/article
• Wow!
• Rarely do investors have this much time…but if you do, offer
You should get an article in the NY Times You should raise more money You should have a deal with Google Your product should do Z
• No sh*t – help make it happen please!
• Maybe you have an “Aha!” so do share – but don’t presume you understand the 5k competing priorities in the roadmap
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
Investor’s Connections
Michael Ibrahim, CEO, Whisk
Intros = The most effective way an investor can create value
But even these can go slightly wrong
Please send a deck to W, he might want to invest Unsaid: sorry I didn’t check with you first Please meet Mr. X, analyst at firm Q Unsaid: sorry I didn’t check with you first
• Don’t promise company assets, it undermines our ability to qualify prospects
• Whoops! I had an intro to a decision
maker but just got tied up with a gate-keeper
This person could fill a gap in your team Give me a blurb and I’ll intro you to these 3 Series A investors Would you like to talk to company Z? I know the CEO and could imagine a BD deal
• Yes!
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
Things Investors Say But Shouldn’t
Craig Kanarick, CEO, Mouth
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Intro Originate Structure Add Value Next Steps Evaluate Overview
What CEOs Need
Craig Kanarick, CEO, Mouth
• Money
• Team
• Clients
• Friendship
• Access to Other Entrepreneurs
• A Listening ear
• Support/introductions
• Praise
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
• Introduction
• Overview
• Evaluate
• Originate
• Structure
• Add Value
• Next Steps
Agenda: Introduction to Angel Investing
http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/
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Intro Originate Structure Add Value Next Steps Evaluate Overview
How You Can Get Involved with HBS Alumni Angels • Join! • Take a leadership volunteer role. We’re seeking leaders for marketing
and in other capacities. • Promote membership in the HBS Alumni Angels to your friends and
colleagues. • Recruit companies seeking funding to visit
HBSAlumniAngels.com and apply to us for funding. • Provide analytic resources. If you have access to MBA-level research
talent, we have a number of research projects in queue. • Introduce us to sponsors. We are particularly interested in service
providers; corporate sponsors interested in attracting startups in their industry; and a sponsor to broadcast our events.
• Promote us to the media.
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Intro Originate Structure Add Value Next Steps Evaluate Overview
Any questions ? slides at teten.com/angel
Sign up for our mailing lists at
ffvc.com HBSNYAngels.com
teten.com
Twitter: @ffvc @HBSAngelsNY
@dteten
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Intro Originate Structure Add Value Next Steps Evaluate Overview
Disclaimer
This Presentation is for the exclusive use of the recipients to whom it is addressed. References to the “Presentation” includes any information which has been or may be supplied in writing or orally in connection with the Presentation or in connection with any further inquiries in respect of the Presentation. This Presentation is not intended to serve as basis for any investment decision. While the information contained in this Presentation is believed to be accurate, the Preparers have not conducted any investigation with respect to such information. The Preparers expressly disclaim any and all liability for representations or warranties, expressed or implied, contained in, or for omissions from, this Presentation or any other written or oral communication transmitted to any interested party in connection with this Presentation so far as is permitted by law. In particular, but without limitation, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, analyses or forward looking statements contained in this Presentation which involve by their nature a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied in this Presentation. By its acceptance hereof, each recipient agrees that none of the Preparers nor any of their respective Representatives shall be liable for any direct, indirect or consequential loss or damages suffered by any person as a result of relying on any statement in or omission from this Presentation, along with other information furnished in connection therewith, and any such liability is expressly disclaimed. Except to the extent otherwise indicated, this Presentation presents information as of the date hereof. The delivery of this Presentation shall not, under any circumstances, create any implication that there will be no change in the affairs of ff Venture Capital or HBS Alumni Angels after the date hereof. In furnishing this Presentation, the Preparers reserve the right to amend or replace this Presentation at any time and undertake no obligation to update any of the information contained in the Presentation or to correct any inaccuracies that may become apparent. This Presentation shall remain the property of ff Venture Capital and HBS Alumni Angels. This Presentation does not constitute a recommendation regarding the shares in ff Venture Capital or HBS Alumni Angels. No securities commission or regulatory authority in the United States or in any other country has in any way opined upon the accuracy or adequacy of this Presentation or the materials contained herein. This Presentation shall not form the basis of any contract. The distribution of this Presentation in certain jurisdictions may be restricted by law and, accordingly, recipients of this Presentation represent that they are able to receive this Presentation without contravention of any unfulfilled registration requirements or other legal restrictions in the jurisdiction in which they reside or conduct business. Date at your own risk.
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
Appendix
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
Geo
Time Period
Study
Total Investments
Exited Investments
IRR
US 1994 - present
Band of Angels Website FAQ 240+ 63 54.0%
US 2010-11 Sohl: “The Angel Investor Market in 2011: The Recovery Continues” Unknown Unknown 18-28%
US 2009-10 Sohl: “The Angel Investor Market in 2010: A Market on the Rebound” Unknown Unknown 24-36%
US 2008-09 Sohl: “The Angel Investor Market in 2009: Holding Steady but Changes in Seed and Startup Investments”
Unknown Unknown 23-38%
US approx 2004-09
DeGennaro & Dwyer: "Expected Returns to Angel Investors" 603 434 33.0%
UK 2000-08 Wiltbank: "Siding with the Angels: Business angel investing - promising outcomes and effective strategies"
1080 406 24.6%
US 2007-08 Sohl: "The Angel Investor Market in 2008: A Down Year in Investment Dollars But Not in Deals"
Unknown Unknown 22.0%
US 2006-07 Sohl: "The Angel Investor Market in 2007: Mixed Signs of Growth" Unknown Unknown 27.7%
US 1990-07 Wiltbank & Boeker: "Returns to Angel Investors in Groups" 3,097 1,137 31.4%
US approx 1999-07
Villalobos & Payne: "Startup Pre-Money Valuation: The Keystone to Return on Investment"
117 117 24.3%
UK 1961- 1996 Mason & Harrison: "Is it worth it? The rates of return from informal venture capital investments"
372 128 37.4%
Average Angel Returns from Twelve Studies
Historical Returns in Angel Markets, Right Side Capital Management, and other sources listed at http://techcrunch.com/2012/11/17/how-institutional-limited-partners-can-avoid-limited-returns/
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
HBS Alumni Angels of Greater New York Mission • The mission of the HBS Alumni Angels of Greater New York is to accelerate
the growth of the tristate early-stage company ecosystem, primarily by enabling Harvard alumni to invest in startup companies and earn healthy returns. We invest in companies regardless of whether or not they have any Harvard affiliation.
• Our related goals: – Establish a financially sound, self-sustaining organization that will be a
permanent contributor to angel investing, HBS, and entrepreneurship. – Provide on-going education opportunities to the HBS community on angel
investing and entrepreneurship, including via seminars and events – Promote HBS as a leader in entrepreneurship. – Promote relationship building between HBS alumni, HBS faculty, and
current HBS students with an interest in early stage ventures and angel investing.
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
HBS Alumni Angels Global Mission • The mission of HBS Alumni Angels Global is to provide an educational and networking
forum for Harvard alumni who are interested in researching and investing in early stage companies on an individual basis. Other goals of the HBS Alumni Angels include: – Providing long lasting relationships between Harvard alumni and Harvard overall for
fundraising, governance, and promotion of entrepreneurship and angel investing that is critical to establishment of Harvard as a leader in entrepreneurship
– Providing on-going education opportunities via seminars and events relevant to Harvard alumni interested in angel investing
– Providing relationship building between current Harvard students and Harvard alumni with an interest in early stage ventures and angel investing
– Providing mentoring and judging for business plans in the student and alumni business plan competitions
– Establishing HBS Angels as the leading point of contact for interaction with Harvard on matters relevant to angel investing and entrepreneurship
– Establishing a financially sound, self-sustaining organization that will be a long-time contributor to Harvard, entrepreneurship, and angel investing
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Intro Originate Structure Add Value Next Steps Evaluate Overview
HBS Alumni Angels NY Process
• HBSAANY promotes submission of business plans and chooses among submissions approximately 4-8 to present at each pitch night.
• Alumni invest individually; HBS Angels NY helps to coordinate. • HBSAANY as a group makes no recommendations for investment and
does not organize any group investments. • Recently launched Fast Track program for angel deals which are >50%
closed and need some angels to fill out a round.
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
HBSAANY Deal Funnel
Total # of Applications: 900
Pitch Night: 56 6%
Invested: 9 1%
data from March ‘11 through March ‘13
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Intro Originate Structure Add Value Next Steps Evaluate Overview
HBSAANY Applications by Industry
data from March ‘11 through March ‘13
Industry Applications Percentage # Funded
Internet/Web Services 217 24% 4 Consumer Products/Services 89 10% 2 Media & Entertainment 52 6% Financial Services 44 5% Mobile 43 5% Food/Drink 38 4% So\ware 38 4% Business Products & Services 36 4% Healthcare Services 34 4% Clean Technology 29 3% Educa5on 29 3% Fashion 22 2% Retailing/Distribu5on 22 2% Biotechnology 20 2% 1 Medical Devices 20 2% 2 Marke5ng/Adver5sing 19 2% 1 All Other 146 16%
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
HBSAANY Member Interest by Industry
data from March ‘11 through March ‘13
© 2015 David Teten. More at teten.com
Intro Originate Structure Add Value Next Steps Evaluate Overview
HBS Alumni Angels Global Educational Curriculum
• Webinars – Monthly live: $10 for members, $35 for non-members – Call recording & materials distributed to attendees
• Other programs – Educational Content (Cases, Videos, etc…) – Local Sessions
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Intro Originate Structure Add Value Next Steps Evaluate Overview
HBSA Global Notable Speakers
• Kirsten Green (Birchbox, Bonobos, Hotel Tonight, Serena & Lily, Warby Parker)
• Thomas Korte (Crittercism, MoPub, Postmates) • Nihal Mehta (AdMob, GreyStripe, Thumb) • Matt Ocko (BranchOut, XenSource, Zynga) • Dave Samuel (About.me, Cardpool, Recurly) • Tom Cervantez (Friendster, GeoNet, OpenTable) • More to come…
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