Angel Investing
A Summary Profile
Kauffman Study – Benchmarking
• 2008 study comparing all 50 states • States rated on 29 different “New Economy” criteria • Seeks to find correlation among new economy strategies, wealth creation and job growth
“The dramatic expansion of the relevant market for most goods and the growing share of traded services have not only led to the rise of new and robust competitors; they have required a new sort of economic development policies that differ substantially from those practiced by most places since World War II.”
“THE 2008 STATE NEW ECONOMY INDEX”
What Nebraska Does Well
Overall Rank Nebraska Peer States: Kansas Iowa South Dakota 31 42 44 8 41 42 4 16 1 9 18 19 27 26 32 15 29 27 27 Gazelle Jobs 1 Tech in Schools 5 Online Population 16 IT Jobs 17 Workforce Education 18
“GAZELLE” JOBS Jobs in gazelle companies (firms with annual sales revenue that has grown 20 percent or more for four straight years) as a share of total employment. “Gazelles are responsible for as much as 80 percent of the jobs created by entrepreneurs.” Why Is This Important? The prevalence of new, rapidly growing firms – gazelles – is the sign of a dynamic and adaptive state economy. States that offer fertile ground for the entrepreneurial activity that spawns gazelles reap the harvest of robust job creation. Between 1993 and 1999, the number of gazelles grew almost 40 percent, to more than 350,000. One study estimates that such gazelles (termed “high expectations entrepreneurs”) are responsible for 80 percent of the jobs created by entrepreneurs.
Source: “THE 2008 STATE NEW ECONOMY INDEX”
Where We Lag Behind
Overall Rank Nebraska Peer States: Kansas Iowa South Dakota 31 42 44 26 41 49 45 6 47 23 37 42 21 31 44 41 40 9 27 Foreign Direct Investment 46 Mfg Value Added 30 Venture Capital 49 Industry Investment in R&D 35 IPO’s
41
Source: “THE 2008 STATE NEW ECONOMY INDEX”
NE ranks first in Gazelles and scores very well in IT Jobs and education. But, we lag behind in several investment categories that fuel growth. So why the apparent mismatch?
Kauffman Recommendations
• Align Incentives Behind New Economy Fundamentals
– focus on growing innovationbased companies from within and supporting the building blocks of knowledge, innovation, and entrepreneurship.
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Reorganize Economic Development Efforts
– Link workforce and economic development – Empower the private sector and non-profit organizations as economic development service delivery organizations
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Cultivate Entrepreneurship
– – – – Expand entrepreneurship training Support angel capital networks Pay special attention to gazelles Help entrepreneurs gain access to capital, particularly equity capital
Key Takeaways:
Support and train entrepreneurs Provide growth capital to business
Our Attempts to Improve
• • • • • • Hormel Foundation B-Plan Comp Invest Nebraska Corporation Nebraska Angels, Inc. Midlands Venture Forum Economic Development Initiatives Chambers of Commerce
Investor Groups: Drive Funding to the Local Level!
Sowing the Seeds of the Future!
The Value of Angel Investors
• What is an Angel Investor?
– An angel investor is typically defined as a high net worth individual who invests directly in promising entrepreneurial companies in return for ownership. There are estimated to be 225,000 active angel investors in the U.S. – The Center for Venture Research estimates that U.S. angels investors invested $19.2 billion in 55,000 deals in 2008. Most were start up or early stage companies.
• How much do they invest?
• How do they help?
– In addition to $$, top angels mentor and coach portfolio companies and provide access to key contacts, including new customers, employees and investors
Equity Capital - Market Segmentation
Deal / Pricing Parameters
Deal Size: $50 - 100 M Investor Amt.: $0.5 - 2.5 M
(Source: Mason Wells) IPO
Post Money: $170 - 300 M
Deal Size: $20 - 30 M Investor Amt.: $2 - 10 M
“C” ROUND
Post Money: $45 – 70 M
Deal Size: $8 - 15 M Investor Amt.: $1 - 6 M
“B” ROUND
Post Money: $16 – 30 M
Deal Size: $2 - 5 M Investor Amt.: $ 0.5 – 2 M
“A” ROUND
Post Money: $4.5 – 11 M
The Gap: $250,000 - $2 million
ANGEL & “SEED” ROUND
Post Money: $2- 3.5 M
Current market indicates many VC’s not willing to invest in deals < $ 5 million
Investor Groups – Key Issues
• Investors need to have willingness to put “hands on” to lower deal risks and create successful partnerships • “Networks” are crucial to long term success • Group Identity – are we going to be principled about our process or opportunistic? • Need to develop long term community vision; a strong stomach – multiple investment rounds common • VC money moving further “upstream” – currently an unreliable source in Nebraska • Ongoing investor recruitment and education creates smarter partners with more investable capital
The Nebraska Angels, Inc. (“NAI”)
• • • 501(c)(6) mutual benefit corporation Member managed Based on successful So. Cal. Tech Coast angel model – they have over 250 members Approaching 3 years of operation Four investments, with two additional pending – all Nebraska deals Currently approx. 35 members (Lincoln / Omaha / Kearney) • • • • • • • 12 member Board of Directors PT Executive Director Monthly dinner meetings with 2 companies presenting Screening committee meets every few weeks Utilize Angelsoft platform to manage deal flow $1,500 annual dues – pays for all dinner events and services Member of the Angel Capital Association (“ACA”)
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The NAI Organization
PURPOSE: • Enrich the entrepreneurial landscape in the state of Nebraska • Boost technological progress in the state of Nebraska • Create valuable jobs / reduce “brain drain” • Invest in high quality, high growth potential opportunities • Harvest investments with high success; profitable and contagious TYPES OF DEALS: • Strong preference for Nebraska-based companies (primarily, not exclusively) • Seeking capital investment at start up or growth stage of development • Company has sustainable competitive advantages; compelling business case • High-growth potential companies (offering 20-30x return, depending upon stage) • Reasonable pre-money valuations, primarily in the range of $1MM - $3MM • Experienced and coachable entrepreneurs; solid operational teams • Companies with planned, achievable exit strategies
NAI Key Issues:
1. Deal Flow 2. Process 3. Education 4. Outreach
Virtual Incision Corp.
Scoopeeze Brands, LLC
Thank You Baby, Inc.
Skyvu Pictures, Inc.
NAI Compared to ACA Peers
CVR Survey Sector Deals CVR Survey
# presentations Funded deals Avg $/deal % equity/deal
Healthcare 16% NAI
13 1 $425,000 25%
Software 13%
Retail 12%
Biotech 11%
Industrial 8%
Media 7%
Angel Market Mean
47 5 $346,500 16%
Angel Market Median
24 3 10%
Source: Center for Venture Research-2008
Thanks for Listening!
• www.nebraskaangels.org QUESTIONS? • www.investnebraskacorp.com • www.angelcapitalassociation.com • www.angelcapitaleducation.org
Please contact me : John Decker Nebraska Angels, Inc. (402) 432-1462 johnd@centerllc.com