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PowerPoint _1 MB_ - From Invention to Startup - Fall Qtr 2009

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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
              Financing Life Cycle
               Proof-of    Product       Product              Manufacturing/
  Discovery    Concept     Design        Development          Delivery


                                         Strategic Investment
                                           Strategic Investment

 Founder
                                              Venture Funds
  Friends and Family

                          Angels                     Institutional Equity

                                                          Loans / Bonds
                          Angel Groups

Government Grants/Loans              Seed Funds
             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 strategy

Bottom 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
        Angel Investment Preference
             Biotechnology

 Business Products/ Services

    Computers & Peripherals

Consumer Products/ Services

 Electronics/ Instrumentation

          Financial Services

        Healthcare Services

           Industrial/ Energy

                  IT Services

      Media & Entertainment

Medical Devices & Equipment

    Networking & Equipment

                       Other

          Retail/ Distribution

            Semiconductors

                    Software

        Telecommunications


                                 0   5   10   15   20   25   30   35
        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)



12000

10000

8000
                                                        2003
6000                                                    2004
                                                        2005
4000                                                    2006
2000

   0
        Expansion   Late Stage Early Stage   Start-Up
           Venture Capital Investment

$120.00                                                                   9,000
                                                                          8,000
$100.00
                                                                          7,000
$80.00                                                                    6,000
                                                                          5,000
$60.00
                                                                          4,000
$40.00                                                                    3,000
                                                                          2,000
$20.00
                                                                          1,000
  $0.00                                                                   0
          1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*

                           Dollars (in $B)   No. of Deals   Source: MoneyTree
 Average Venture Deal Size                  ($Mil)


7.6                                $7.5
                            $7.4
7.4
                    $7.25
7.2
 7           $7.0
                                          2002
6.8   $6.6                                2003
6.6                                       2004
                                          2005
6.4
                                          2006
6.2
      2002   2003   2004    2005   2006
          Valuations Of Venture Capital
           Seed/Startup Rounds ($ Millions)
$5.00


$4.50


$4.00


$3.50


$3.00


$2.50                                                                                            Startup/Seed


$2.00


$1.50


$1.00


$0.50


$0.00

        1995   1996   1997   1998   1999    2000     2001    2002   2003   2004   2005   2006*

                                     *2006 Estimated Value
  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                     CONS
 Less price sensitive    Erratic follow on
  than other investors     investment behavior
 Can create instant      Won’t always
  credibility              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

				
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