Angel Investing Overview
This basic model outlines how an angel investment works in an early stage company assuming an initial investment of $500,00
Blue numbers are inputs, black numbers are calculated
Assumptions
Initial Angel Investment $500,000
Interest Rate 10% Note: This interest will be paid in kind, not in cash
Discount to Series A 25% Note: The Angel investor's equity stake will be determined by an investment that is a
Valuation Cap $10,000,000 Note: The maximum valuation the angel money can be invested at
Series A Investment $1,000,000
Series A Pre-Money Valuation$3,000,000 Note: What the Series A investors think the company is worth before they put their m
$4,000,000 Note: post-money valuations simply equal pre-money + cash that is going to the com
Series A Post-Money Valuation
From the Angel Investor's Perspective
Year 0 Year 1 Year 2 Year 3 Year 4
Initial Angel Investment $500,000
Principal Beginning Balance $500,000 $550,000 $605,000 $665,500 $732,050
Interest Paid in Kind $50,000 $55,000 $60,500 $66,550 $73,205
Capital Structure After the Series A
Series A 25% Note: The Series A investor invests 1,000,000 at a 4,000,000 valuation and gets 25%
Angel Investor 27% Note: The Angel investor's effective principal in year 5 is invested at a valuation whic
Management 48% Note: Management started with 100% of ownership and is left with 31% after the Ang
Total 100%
suming an initial investment of $500,000, and a $1,000,000 Series A investment in 5 years.
e determined by an investment that is at a 25% discount to the Series A valuation
ey can be invested at
ompany is worth before they put their money in
e-money + cash that is going to the company's balance sheet
Year 5
$805,255 Note: Interest is added to the principal each year as opposed to being paid in cash which causes the principal to
NA
0 at a 4,000,000 valuation and gets 25% ownership in return
in year 5 is invested at a valuation which is 25% less than the Series A valuation and ends up with 27% ownership
ership and is left with 31% after the Angel and Series A investors take their stakes in the company
ch causes the principal to increase