Observations on Angel investing

Brown Bag DiscussionChristian Dahlen

January 2015

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Agenda

• State of VC investing

• Start-up trends and observations

• Case examples: Failures and successes

Software is eating the world

Dow Jones run up

VC Investments in SW are high

2013 - 2014 Start-up trends

Unicorns

Source: Cowboy Ventures, 2013

•On average, four unicorns were born per year in the past decade.

•It takes seven-plus years on average before a “liquidity event” for companies.

Source: Cowboy Ventures, 2013. U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors

Being contrarian and right

Average good results

Average bad results

Failure

Major Risk Categories

• Market

• Technology

• Team

• Financial

• Business Model

Case Study #1: Failure – Social media gaming company

Company creates social media games that allow fans to extend their engagement and live their favorite

hit movies, TV series or brands via Facebook, iPad and mobile devices.

Closed Seed financing in: $1.5m seed from 3 angel groups in June 2011Exit: Sold my shares for $1.00 in December 2012; company closed 10/2013

Deal History:

• First board meeting in September

• December board meeting unearths significant revenue shortfall

• Multiple board meetings in January – CFO duties removed from CEO

• COO resigns for health reasons

• CEO breaches investor rights; pledges company common shares and AP for a loan w/o board approval

• Company lays off all employees in March 2012. Cash survival plan fails; board resigns.

There are many excuses• The market conditions deteriorated significantly after the Zynga IPO

• None of the investors had a background in games

• CEO unfit to also be CFO and Chairman. COO and the board couldn’t hold him in check

• The first game did not perform as expected

… but the team didn’t execute

Company provides micro-location solutions to large format retailers that increase revenue, enhance the

brand experience, and reduce operating expense at a cost that makes business sense.

Closed Seed financing in: July 2011 – $1m convertible note at $3.5m pre from angels and seed fund

Exit Occurred in: Dec 2013 - Merged into Series C start-up at their last respective valuations

Summary of Deal History:

• Convertible debt converted to equity in January 2012; Raised an additional $500k

• $850k follow-up investment from existing shareholders in November 2012

• Acquirer raised $30m in April 2014

A repeat founder team can still struggle, but will also find

unexpected ways to succeed

• When you are too early to market, pivoting is not an option, it is an imperative.

• Difficulties raising money can be turned into an advantage

• A strong team will come out on top

Case Study #2: Success – WiFi location for retailers

Christian

00s & 10s

• Investor: 13 angel investments since 2009, Band of

Angels, blogger

• Companies: SAP, Kabel Deutschland, Excite@Home

• Roles: General Manager, Bus Dev, Strategy & Portfolio

80s & 90s

• Strategy Consultant: Hi tech, IT, general management

• Engineer: Aerospace/mechanical engineering and SW