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Top 10 Do’s and Don’ts for Raising Capital from Angel

Investors

Welcome!

November 19, 2014

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•Use chat to submit questions

• Yes, you’ll get the slides

•We’re recorded, so come back and listen again

Mission: Fuel the success of angel groups and accredited individuals active in the early-stage landscape

• World’s largest trade group for angel investorso 220+ angel groups

o 12,000 accredited investors

o Voice of accredited individuals, portals, and family offices

• 50 US states + Canada

• Research/ education partner

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Member Groups & Accredited Platforms

New Dominion Angels

ACA Partners

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Our Speakers

Catherine Mott

Managing Partner, Blue Tree Allied Angels

Chair Emeritus, Angel Capital Association

Jim Connor

Board member, Sand Hill Angels

Angel Capital Association

Angel Investors

• TYPES - all shapes and sizes!• Friends and Family

• Unsophisticated

• Sophisticated

• Active Guardian Angels or coaches/mentors

• Passive

• Super Angels

• Angel Networks/Funds

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Who are Angel Investors?

• Often successful entrepreneurs or retired business persons

• Active investors providing money, expertise, and their network

• Contribute to their local ecosystem (mentoring, judging, educating)

• Accredited investors – SEC definition (US)

• Invest their own money (not money managers)

• Generally invest in local companies

• Invest in businesses not run by family

• In 2013, 298,000 investors invested ~$24.8B in about 71,000 deals (2/3rds early-stage)

Angels Fund Majority of Startups in USA

Sources: Center for Venture Research/ UNH; NVCA 2014 Yearbook; PwC MoneyTree

• $24.8 billion

• 71,000 deals

• 32,000 seed

• 29,000 early stage

• 9,200 expansion

• > 298,000 individuals

Angel Investors (2013)

• $29.6 billion

• 4,050 deals

• 120 seed

• 1,375 early stage

• 2,550 later/expansion

• 548 active firms

Venture Capital (2013)

Angels Provide ~90% of Outside Equity for Startups

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Growth in Number of American Angel Groups

Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ARI (04-13 data)

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100

200

300

400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number 10

• Do be prepared: research your targeted prospects, follow instructions for your meeting to a tee, and finally rehearse, practice and rehearse again.

• Don’t expect investors to be “dumb money” –this is not charity money. This is hard earned capital, for which investors are seeking a return. Many investors bring good advice and really good connections.

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Number 9

• Do follow fundamental presentation rules for your slide deck, like Guy Kawasaki’s 10, 20, 30 rule. That is, 10 slides, 20 minutes, and 30 point font.

• Don’t spend your 20 minutes focused on describing the technology, but instead focus on the business opportunity.

Number 8

• Do be passionate about your business and the opportunity. First impressions are important and need to be strong and positive.

• Don’t be a complete clone of another funded and fully deployed company and not be aware of this fact.

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Number 7

• Do know thy financials! Know the assumptions, discuss the assumptions, and admit they are best guesses based upon the research you have done.

• Don’t fake an answer to a question. Always admit that you do not know, and then promise to get back with an answer.

Number 6

• Do exude confidence • Don’t display arrogance

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Number 5

• Do discuss and display your competition. Create a slide that clearly demonstrates how your company stands up to the competition.

• Don’t ever say you don’t have competition. There is always competition.

Number 4

• Do explain how you will reach your customers. Demonstrate market validity. Convince your audience that your market strategy won’t break the bank before your next round, or before you break even.

• Don’t just create a slide deck of text. Demonstrate your business model with charts, graphs, and pictures. You will put your audience to sleep if you read to them.

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Number 3

• Do discuss the backgrounds of your management team, your Board of Directors, and your advisors.

• Don’t leave out the magic sauce, the intellectual property that differentiates your company and provides barriers to entry.

Number 2

• Do describe how you will deploy the use of funds and do demonstrate an understanding of how you will stage funding rounds in the future.

• Don’t talk too fast. You will lose your audience and you will give the impression of a “slickster”.

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Number 1

• Do know your exit strategy for the company. Demonstrate your research with market comps, players that could acquire your company, and be clear about value inflection points necessary for selling your company.

• Don’t have an unreasonable valuation that is not close market terms. High valuations are an immediate deal killer.

The Pitch

• Solid Business Plan and Financial Model

• Presentation - 10 Slides, 20 Minutes, 30 Pt Font• Identify the Problem • Explain your solution • Business model – How will you make money?• Underlying magic/technology • Marketing and Sales • Competition• Management Team • Projections and Milestones • Status and Timeline

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Investor Considerations

• Management Team usually most important• CEO

• Coachable, vertical experience, leadership

• Team • Balanced & complete• Experience working together • OK to have some positions still to be filled

Management Team Experience 30%

Opportunity Size and Maturity 25%

Product or Service 20%

Technology / Product Uniqueness / Solution 15%

Investment Structure 10%

Investor Expectations

• Potential for Company to grow and scale• $30M min. revenue in 5 years

• High gross margins business

• Large “niche” market

• Unfair competitive advantage

• Ready for customers

• Fundable management team

• Business capable of providing a return to Investors through an Acquisition (rarely IPO)• Expect a 10X – 30X ROI

• 1 or 2 of every 10 investments bring most of return

• >50% of businesses will fail24

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Is this team going to leverage these partners, to execute this

plan, engaging in these activities, to defeat these competitors

in order to better serve these customers selling this product or

service with these current and future features and benefits,

which solve this problem, at this price point and capture this

market which drives these financial projections which in turn

accretes value such that I will one day see a return of this

magnitude on my investment?

One Simple Question

Conclusion

Do’s

1. Be prepared

2. Follow presentation etiquette

3. Be passionate

4. Know your financials

5. Be confident

6. Know your competition

7. Know your customer strategy

8. Present your team background

9. Know your use of funds

10. Know your exit strategy

Don’ts

1. “Expect” investment2. Describe product details

3. Be a clone

4. Fake your answers5. Be arrogant

6. Disregard competition

7. Overwhelm with text8. Forget the secret sauce

9. Be “slick”

10. Have unreasonable terms

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Additional Resources

Marianne Hudson

Executive Director

Angel Capital Association

Christopher Mirabile

Managing Director, Launchpad;

Vice Chair, Angel Capital

Association

http://www.angelcapitalassociation.org

/news-forbes/http://www.angelcapitalassociation.org/

news-inc/

Thank you!

Audience Questions

December 5, 2014: Tax strategies for Angels and Entrepreneurs

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