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Angel Investing . Glen Caplan | July 10, 2008. “Starting companies are like having babies - fun to conceive but hell to deliver.” - Anonymous. Sources of Capital. Dilutive Self Funding (Bootstrapping) Angel Investors Venture Capitalists Corporate Investment (Strategic Investment)

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angel investing

Angel Investing

Glen Caplan | July 10, 2008

slide2
“Starting companies are like having babies - fun to conceive but hell to deliver.”

- Anonymous

hutchlaw.com

sources of capital
Sources of Capital
  • Dilutive
    • Self Funding (Bootstrapping)
    • Angel Investors
    • Venture Capitalists
    • Corporate Investment (Strategic Investment)
  • Non-Dilutive
    • Grants, SBIR’s NIH, STTR’s, loans, etc.

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what do vc and angel investors want
What do VC and Angel Investors Want?
  • Venture Capitalists
    • 10X return on initial investment in 3-5 years
  • Angel Groups
    • 5X-10X in 3-5 years… Some similarities to VC’s in investment return expectations
  • Individual Angel Investors
    • Make money… less requirement on multiples…positive returns are great!!!

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who are angel investors
Who are Angel Investors?
  • Individuals
    • Other Successful Entrepreneurs
  • Organized Groups
    • One signature for all dealings
    • Better preparation for institutional rounds

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characteristics of angel investors
Characteristics of Angel Investors
  • High Net Worth Individuals
  • High Risk Appetite
  • Early Stage Preference
    • Individuals - $25,000 - $50,000
    • Organized Groups - $100,000 - $500,000
  • Endangered species?

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pros cons of angel investors
PROS

Terms offered by Company

Speed

Less sophisticated on terms and value

Simpler investor relations

CONS

Follow-on investment

Less “Value Added”

Less sophisticated on terms and value

Issues for VC’s

Pros/Cons of Angel Investors

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the life cycle of a venture deal
The Life Cycle of a Venture Deal

They like the idea

The

Negotiated

Deal

100

Due Diligence

Ecstasy

Term Sheet

Rejections

Interest Shown

Fun Scale

0

Business Plan

Reformulate Plan

Last Minute

Demands/

Expectation Mismatch

Agony

All Reject

-100

9 to 12 months

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types of fundraising
Types of Fundraising
  • Common Stock
    • Rarely Used
  • Preferred Stock
    • Provides special rights, preferences and privileges to investors
  • Convertible Promissory Note
    • Converts at a discount at financing

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4 principles of term sheets
4 Principles of Term Sheets
  • Valuation
    • Pre-Money Valuation
    • Option Pool
  • Exit Strategy
    • Liquidation Preference
    • Registration Rights
  • Down-Side Protection
    • Anti-Dilution Protection
  • Control
    • Protective Provisions

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disclosure notebook
Risk Factors

Term Sheet

Use of Proceeds

Business Plan and Financial Projections

Financial Statements

Capitalization Chart

QBV Disclosure

Certificate of Incorporation

Bylaws

Subscription Agreement

Stockholders Agreement

Disclosure Notebook

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securities law issues
Rule 504

Raise up to $1 million

Unlimited number of investors

No required level of investor sophistication or wealth

No formal disclosure documents – but antifraud provisions apply

One year time period and then a 6 month quiet period

No general solicitation or advertising

Typically used for friends and family

Rule 506

Unlimited dollar amount

Accredited investors only

No general solicitation or advertising

No formal disclosure documents – but antifraud provisions apply

FORM D

Filed with SEC within 15 days of first sale

Securities Law Issues

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accredited investors
Accredited Investors
  • Individual net worth or net worth with spouse of at least $1 million
  • Individual income in excess of $200,000 in each of the 2 most recent years or joint income with spouse in excess of $300,000 in each of those years and reasonable expectation of reaching the same income level in the year in which the purchase is made
  • Director or Executive Officer of the Company
  • Corporation or partnership with assets in excess of $5 million

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north carolina qualified business tax credit
North Carolina Qualified Business Tax Credit
  • Available to passive investors with North Carolina income
  • A credit not a deduction on your income tax return
  • 25% of the amount of invested
  • Available in the year after the year in which the investment was made
  • A $7 million aggregate limitation per year
  • Must register with the North Carolina Secretary of State’s office
  • Must have $5 million or less in income
  • Must have reviewed or audited financial statements submitted to the Secretary of State each year
  • Certain disqualified industries – professional services, construction, retail, real estate, entertainment, recreation
  • Must be engaged primarily in manufacturing, processing, warehousing, wholesaling, research and development, service-related industry

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angel investment groups
Wilmington Investor Network

Wilmington, NC

Piedmont Entrepreneurs Network

Greensboro, NC

Inception Micro Angel Fund

Winston-Salem, NC

WED3.org

Charlotte, NC

Charleston Angel Partners

Charleston, SC

Avansis Ventures

Reston, VA

New Vantage Group

Vienna, VA

Emergent Growth Fund II

Gainesville, FL

Startup Florida

Sarasota, FL

New World Angels

Boca Raton, FL

Springboard Capital

Jacksonville, FL

Savannah Angel Partners

Savannah, GA

Angel Investment Groups

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angel investment groups continued
Atlanta Technology Angels

Atlanta, GA

Seraph Group

Atlanta, GA

Nashville Capital Network

Nashville, TN

Angel Capital Association

www.angelcapitalassociation.org

Angel Investment Groups (Continued)

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and then what
… and then what?

“Only one thing is certain about a new venture: It’s going to turn out very different from its business plan.”

- William Congolton, Venture Capitalist

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hutchison law group
Hutchison Law Group

5410 Trinity Road

Suite 400

Raleigh, NC 27607

Tel: 919.829.9600

Fax: 919.829.9696

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Driven by Our Clients’ Success SM

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