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Raising Money from Angel Investors. Oregon Entrepreneurs Network Webinar - Jan 29, 2009 Dennis Powers 503-292-3513 dennis.cornerstone@comcast.net. Agenda. Who is an Angel Investor - and what motivates them to invest. Understanding Angel Investor realities. Where to find Angels.

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raising money from angel investors

Raising Money from Angel Investors

Oregon Entrepreneurs Network

Webinar - Jan 29, 2009

Dennis Powers

503-292-3513

dennis.cornerstone@comcast.net

agenda
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
The Funding Continuum

Proof-of

Concept

Product

Design

Product

Development

Manufacturing/

Delivery

Discovery

Idea

Pre-seed

Funding

Seed Funding

Expansion/Mezzanine

Start-up Funding

Source of Capital

Founder

Venture Funds

FriendsandFamily

Institutional Equity

Angels

Angel Groups

Loans / Bonds

Seed Funds

attributes of angel investors
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
not all angels are alike

Operational Expertise Angel

Guardian Angel

Relevant Industry

Experience

Financial Return Angel

Professional Entrepreneur Angel

Relevant Entrepreneurial

Experience

Not all Angels are alike

MORE

LESS

LESS

MORE

angel investor realities
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
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!

how to prepare for angel investors
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
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
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
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
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
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 continued17
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
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
slide19

The Anatomy of the 10 Minute Pitch*

Introduction

{00:30 seconds}

The Problem

Traction

The Solution

{02:30 seconds}

Market Size

Customers

Revenue Model

Sales Cycle

{06:30 seconds}

Competition

Partners

Management

Advisory Board

{08:30 seconds}

* Source - Alliance of Angels

Financials

The Offer

{10:00 min.}

the angel s process
The Angel’s Process
  • Pre-screening
  • Screening
  • Due diligence
  • Investment presentation
  • Follow-up discussions and meetings
  • Closing
purpose of due diligence
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
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
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
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
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 cont26
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 cont27
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
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