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From Invention to Start-Up: Money – Angel, Venture and Strategic Partners February 20, 2007. Mary Baker Anderson Calipa Partners and Alliance of Angels. Proof-of Concept. Product Design. Product Development. Manufacturing/ Delivery. Discovery. Financing Life Cycle. - PowerPoint PPT Presentation
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From Invention to Start-Up:Money – Angel, Venture and
Strategic Partners
February 20, 2007
Mary Baker AndersonCalipa Partners
andAlliance of Angels
Financing Life Cycle
DiscoveryProof-ofConcept
ProductDesign
ProductDevelopment
Manufacturing/Delivery
Friends and Family
Angels
Seed Funds
Venture FundsFounder
Institutional Equity
Loans / BondsAngel Groups
Government Grants/Loans
Strategic InvestmentStrategic Investment
Professional Investors
Angels, venture capital, strategic investors (corporations) typically receive: Preferred stock Convertible debt with warrants or additional stock
Provide more than money: Can be proactive in developing business through (“win together”): Company building experience Company functionality experience Industry experience Contacts for partners, customers and follow-on financing
What Professional Investors Are Looking for: Investable Companies Clear path to profitability Solid management Realistic business concept and plan Scalable business Competitive edge/Technical superiority Market acceptance Realistic financial projections Realistic valuation Clear, well-articulated exit strategyBottom line: Opportunity for financial return
What Professional Investors Are Looking for: Investable Companies
How does an investor make this determination? Passion of entrepreneur (presentation) Team track record – individually and together
Entrepreneur’s ability to succinctly articulate vision and mission
Entrepreneur seeks advice of trusted, experienced, honest advisors
Coachable entrepreneur
What Professional Investors Are Looking for: Investable Companies
How does an investor make this determination? Competitors researched and understood Clear market differentiator Value proposition for customer clearly evident Market access strategy clear and realistic Comprehensive summary of risks (and plans to
cope/address) Profit potential – good margins Marketability of company – M&A exit
Type, timing and realistic purchasers
Who Are Angels?
Angels are accredited investors who: Expect a financial return Believe in giving back to their communities Invest locally and regionally Participate in the investment process Show interest in personal relationships with
companies and employees Offer wisdom and guidance to entrepreneurs
Financial Attributes of Angels
Provide early-stage investment dollars Invest smaller dollar amounts per investment Partially fill funding gap left by venture
capitalists (VCs) Invest individual wealth Can tolerate loss of entire investment Have diversified portfolios Invest with “patient money”
Forms of Investment
Debt (note) Equity (stock)
Options Warrants
Debt: collateralized, non-collateralized, interest in cash or stock (deferred?), convertible (at election or automatic?), length of time, etc.
Equity: common vs. preferred, dividends, many other terms discussed below
US Angel Investments
2005 – invested $23.1 billion (49,500 deals) Increase of 2.7% in $’s over 2004 Increase of 3.1% in deals over 2004
2004 – invested $22.5 billion (48,000 deals) 2003 – invested $18.1 billion 227,000 active angels
20% Healthcare/medical devices and equipment 18% Software
55% in seed/start-up 43% in post-seed/start-up (10% increase over 2004)
Source: Center for Venture Research
0 5 10 15 20 25 30 35
Telecommunications
Software
Semiconductors
Retail/ Distribution
Other
Networking & Equipment
Medical Devices & Equipment
Media & Entertainment
IT Services
Industrial/ Energy
Healthcare Services
Financial Services
Electronics/ Instrumentation
Consumer Products/ Services
Computers & Peripherals
Business Products/ Services
Biotechnology
Angel Investment Preference
Finding Angel Investors Angel Organizations:
Several in Puget Sound area including: AoA, PSVC, Seraph Capital Forum, Zino Society, Keiretsu Forum, Tacoma Angel Network, Bellingham Angel Network
Professional Service Providers Investment Forums
Early Stage Investment Forum, Zino Zillionaire Business Plan Competitions Professionally-funded Start-ups Venture Capitalists Corporate Boards
Venture Capital Statistics: Investments in US
2006 – invested $25.5 billion (3,416 deals) 2005 – invested $21.7 billion (2,939 deals) 2004 – invested $20.9 billion (2,876 deals) 2003 – invested $18.9 billion (2,893 deals) Increase due largely to late stage
investments Less than 2% in early/seed stage
Source: NVCA and Moneytree
Venture Investment by Deal Stage
($ millions)
0
2000
4000
6000
8000
10000
12000
Expansion Late Stage Early Stage Start-Up
2003200420052006
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Dollars (in $B) No. of Deals
Venture Capital Investment
Source: MoneyTree
Average Venture Deal Size ($Mil)
6.2
6.4
6.6
6.8
7
7.2
7.4
7.6
2002 2003 2004 2005 2006
20022003200420052006
$6.6
$7.0
$7.25$7.4
$7.5
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*
*2006 Estimated Value
Startup/Seed
Valuations Of Venture Capital Seed/Startup Rounds ($ Millions)
Valuation: Expected ROIs ROI Five Year ROI
Seed 60%+/year 10X+
Start-up 50% 8X
Early stage 40% 5X
2nd stage 30% 4X
Near exit 25%/year 3X
Angels and VCs – Similarities
Selective in investments Requirements for an investable company Expectation of return on investment -
scalable Similar investment terms (though angels can
and often are – or must be – simpler) Bring the attributes of a professional investor
Angels and VCs –Differences Venture capitalists:
Invest on “home-run” theory ROI is ultimate goal Investing 3rd party money Often more demanding and actively involved than angels:
Control often issue Can requirement board and advisor approval and corporate
actions Angels:
Invest for returns – may be more modest expectations Social /community aspect to investments Individuals investing their own wealth Patient money
Strategic Investor Characteristics
Typically invest in complimentary technologies Usually have an internal champion
Often will invest in competitive technologies Unlike VC’s or angels who will place only one
bet in a market segment Typically follow, don’t lead a round
Pros and Cons of Strategic Investment
PROS Less price sensitive
than other investors
Can create instant credibility
CONS Erratic follow on
investment behavior Won’t always
champion your product internally
Can box you out of competitor products
Summation Angels usually invest initially in seed/start-up rounds Angels represent (more) patient money Angels are almost always sophisticated investors Angels make excellent advisors and mentors Strategic investment can be your best investment opportunity
or your worst nightmare There is a place for angels, venture, and strategic investment,
depending on the stage and investment needs of the company Many companies will need only angel investors Not all companies make great angel investments Be open, coachable and realistic Show your commitment, passion and drive