Overview of Angel Investing

Overview of Angel Investing Nate Silverman Manager, WTC Angel Network (206) 616-7153 nates@exchange.watechcenter.org Washington Technology Center Non-Profit Today’s Agenda – What is “Angel Investing”? – Who are “Angels”? – How can you find and approach angels? – Q&A – Overview of WTC – Introduction to the WTC Angel Network – Preview of Olympic Region Angels (ORA) Questions I Hope to Answer What is "Angel Investing"? – Compare/contrast with Venture Capitalists, plain investors – What is the potential (availability and interest) for angel investors in our area? – Limitations on types of projects which qualify Angel Investors – Qualifications/guidelines on income/assets? – How connect with potential projects? Businesses in need of "startup or expansion capital" – – – – How do I connect with "angel investors"? Will my project qualify for "angel investors"? What do I do to interest angel investors? How does my approach and preparation differ from that I would undertake to obtain a "Grant" Others? Washington Technology Center Focuses state, federal and private resources for the development and commercialization of new products and technologies. Sparks ideas, forms connections between people and resources, and fosters job growth. WTC supports business by: – Providing access to technical expertise; – Supporting funding for company projects jointly with universities; – Providing access to federal R&D, small business and product development grants; – Helping companies maximize their exposure to and preparation for, growth capital opportunities; and – Housing a 15,000 square-foot public Microfabrication Laboratory WTC’s work with companies has generated $312 million in external funding for participating companies and researchers. My background Manager, WTC Angel Network Former Program Manager for Alliance of Angels MBA from UW Manager of New Business Development for United Way Budding intrapreneur and entrepreneur Unofficial History of Angels 1492 – Columbus 1918 – “No, No, Nanette” 1933/34 – Securities Exchange Laws 1980s – Starbucks 1999 – Pets.com 2003 – WTC Angel Network Angels and VCs Funding Rounds Round Age Seed Early Mid Late Investor Equity Multiple 20-35% 5-10x 20-30% 8-10x 3-12 mo Angels <2 yrs 3-5 yrs 5+ yrs Angels, VCs VCs, Corporate <25% Institutions <10% 5-8x 2-4x Varies by investor, perceived risk, time horizon, industry, etc. Financing Product Dev Financing Life Cycle Discovery Basic Research Proof-of Concept Product Design Product Development Manufacturing/ Delivery Pre-seed Seed Funding Funding Venture Funding University Res. SBIR / ATP WA State R&TD Private Res. Individuals (FFF) Angels Seed funds Loans / Bonds Venture funds Institutional Equity Expansion/Mezzanine Operating Cap. Role of Angels in U.S. 200,000 angels invested $15.7 billion in 36,000 ventures in 20021 Meanwhile, VCs invested $303 million in 148 seed and early stage deals2 1 Center for Venture Capital Research – University of New Hampshire 2 National Venture Capital Association Angel Investing Very risky investments – Lack of information – Earlier stage = higher risk – Company may be lacking critical success factors Management team Contacts Customers/Revenues What are Angel Investors? Accredited Investors Defined term under the Securities Act of 1933 “Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000;” and “Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.” With regard to organizations, an accredited investor is: “a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.” Who are Angels? Wealthy individual investors who make direct investments in start-up companies for an equity position in the company Variety of backgrounds – – – – Corporate executives Entrepreneurs Venture capitalists Family wealth Angels Invest close to home Mostly cashed-out entrepreneurs Value-added (may get actively involved with company) Patient Capital Invest in groups Must be willing to lose entire investment Center for Venture Capital Research – University of New Hampshire Profile of an Angel Prefers to invest within one day of travel In Seattle, often has industry experience Tends to invest in a group Range of investment: $10,000- $1,000,000 Average Investment: $50,000- $500,000 Makes one investment every two years BusinessFinance.com, 2002 Profile of an Angel cont. Younger individuals with industry experience looking to invest in someone else’s good idea Retired entrepreneurs who like start ups, but not 24 hour stress “Angels” who want to see others succeed as they did Invest in what they know … and people they trust The Ideal Angel Provides… Capital Expertise Key contacts and relationships to grow company – Management team – Partners – Customers Patience Where to Find Angels Family, friends and neighbors On the Street Industry Events Referrals from Service Providers Angel Organizations Angel Alliances Year 1996 1999 2000 2001 2002 # 10 98 138 126 170 35% facilitators, 40% angel groups Most investments outside of angel groups Center for Venture Capital Research – University of New Hampshire Benefits to Investors Angel groups provide: A structure for prescreening deals Exposure to more deals Sharing of information and insight Share time and expense for due diligence Deal syndication Camaraderie More, better, easier, smarter Angels in This Area Potential Accredited Investors? VALUE FOR ALL OWNER-OCCUPIED HOUSING UNITS [25] Universe: Owner-occupied housing units Census 2000 Summary File 3 - Sample Data County Clallam Jefferson Kitsap Mason Grays Harbor $500K$750K$749K $999K $1M+ Total 153 66 82 301 220 1299 126 65 5 412 50 12 41 194 59 45 266 1905 235 122 Olympic Region Angels (ORA) The WTC Angel Network Help facilitate new local angel groups Create a statewide network Bellingham Colville Olympic Pen Seattle Tacoma Olympia Wenatchee Spokane Kitsap Yakima Tri-Cities Vancouver Walla Walla The WTC Angel Network Will enable local investor groups to: – – – – – Share pre-qualified deal flow Fill investment rounds Attend and share cost for high-value training Reach additional contacts for local events Share information and experiences with other investor groups Will enable entrepreneurs to: – Access more investors, dollars and resources WTC Angel Network Advisory Board Cascadia Revolving Fund Evergreen Community Development Assoc. Greater Wenatchee Area Technology Alliance (GWATA) INTEC Jaguar Ventures Kauffman Foundation Northwest Entrepreneur Network Pacific Northwest National Laboratory Puget Sound Venture Club Seraph Capital Forum Technology Alliance Washington State Investment Board WBBA Why? WTC: Round out portfolio of offerings for companies – – – – – Technical services Research and technology development support SBIR grant preparation Community debt funds Now private equity and business services Economic Development – Fishing, Forestry and Farming are in decline – Small businesses offer most new jobs – Start-ups need capital and advice Personal Investment Returns – Equity investing is not easy – Groups can help increase personal ROI Approaching Angels Goal of Presentations Need to convince them that: – – – – – – There is a need (a “pain killer” NOT a vitamin) It’s big and growing (addressable) market You’ve got the solution You’re the right team They’ll make money Reduced risk: People (experienced team; advisory board) Market/Competition (existing customers; regulations) Product/Technology (prototype, validation, patents) Business Model (assumptions, scalable, profitable) Finance (total funding requirements, pre-money, you) In short… Help them see the image in the dizzying colors of the Magic Eye Remember… Angels want to make money Angels usually take equity They make money when you make money Or when they sell their stock Hire a securities lawyer Different angels are different Angels vs. Grants Grants May require match Want to see research risk (“returns” varies) Oversight = reports Fixed term/amount Angels Take EQUITY Want low risk/high returns Can add value/may join board of directors Can be patient Want own exit For more information www.watechcenter.org/angels www.watechcenter.org/investment Nate Silverman – 206-616-7153 EDC Clallam County – Jim Haguewood 360-457-7793 www.sec.gov Upcoming Events “Power of Angel Investing” Training – April 19 in Port Townsend – April 20 in Spokane “Eye of the Investor” Training – March 26 in Spokane – June in Bellingham – June in Tri-Cities NWEN’s Early Stage Investment Forum – April 29 in Seattle