State of Angel Groups A Report on ACA and ACEF

State of Angel Groups: A Report on ACA and ACEF April 27, 2006 James Geshwiler John May Marianne Hudson Summit Objectives • Strengthen angel group community • Provide education – Angel group operations – Investment process – Portfolio management • Share data about the field • Share ideas, best practices with peers Early-Stage Entrepreneurs Important • Majority of new jobs created • Source of innovation • Wealth creation Angel Investors Critical for Early-Stage Innovation • Financial capital – May provide 90% of outside equity • Intellectual capital – Often successful entrepreneurs • Other capital sources moving away early stage ventures • Relatively distributed across country • BUT….. The Angel Community Has Issues • Wide variation in investor sophistication • Perception by later investors is mixed • Privacy makes angels hard to locate • Lack of investor education reduces participation • Very limited data on market and track record • Few industry standards and tools Angel Organizations Can Fill Capital Gap Stage Pre-Seed Seed/StartUp Early Later Source Founders, Friends and Family Individual Angels Funding Gap between $500,000 and $2,000,000/$5,000,000 (depending on region) Venture Funds Investment $25,000 to $100,000 $100,000 to $500,000 $2,000,000/$5,000,000 and up VC Seed Deals Remains Small Minority of Funding 18% % of All VC $ Invested 16% 14% 12% 10% 8% 6% 4% 2% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 184 Deals Avg: $4.2M 190 Deals Avg: $2.2M PwC MoneyTree Survey Markets Large, Complementary Stage Late $23B 49,500 deals Mostly early stage Mostly later stage 3,008 deals $22B Early 761 Early Stage 184 Seed 2005 VC Investment source: NVCA/PWC/VE 2005 Angel Investment source: UNH CVR Growth in Angel Organizations 250 200 150 100 50 0 1999 2000 2001 2002 2003 2004 2005 Sources: Center for Venture Research and Kauffman Foundation (04-05 data) Kauffman Premise on Angel Groups & Top Individuals • Creating new class of investor – Entrepreneur-friendly – Sophistication/ excellent processes – Growing geographic diversity • Market efficiencies developing – Entrepreneurs can locate more easily – Investors get better quality deal flow, while individuals maintain anonymity – Building partnerships with VCs for follow-on funding • Beginning to close capital gap Vision for Angel Capital Field • Establish, grow into an “industry” respected by the investment, entrepreneurial communities • Build common practices, models, tools, data, and relationships that build sustainability, excellence • Foster sustainable entrepreneurial ventures that build economic vitality in North America • Create a more efficient market for entrepreneurs to find appropriate mentor capitalists Early Evidence: Angel Groups Beginning to Fill Capital Gap • Investments per round - $100,000 - $1 million • New trend: co-investment by 3 or more angel groups • Pria Diagnostics - $2.3 million (2 rounds) –Lake Tahoe, Sacramento, Tucson • SealPack - $850,000 –Columbus, Cincinnati, Toledo • Bright View - $1.7 million –Raleigh, Charlotte, Charleston, Greensboro History of Angel Organization Industry - Summits 180 160 140 120 100 Attendees 80 60 40 20 0 Groups Apr 02 Oct 02 Apr 03 Nov 03 Jun 04 Apr 05 Apr 06 Growth & Tax Issues Lead to Two Organizations 501c3 public charity Education: • Summits & meetings • Workshops & webinars Research: • Group investment data • Research reports that benefit general public Public awareness 501c6 trade association Membership organization • Professional standards • Members’ only Web site • Member networking • Industry tools • Awareness campaigns • Advocacy (?) History of Angel Group Industry - Organization • Formalized ACA as Kauffman Foundation program – January, 2004 • Incorporated ACA as independent organization – August, 2005 • Created companion ACEF program – November, 2005 • Filed exemption applications to IRS for ACEF and ACA – January, 2006 Accomplishments to Date in Field 50% of all angel groups involved Media coverage – 200 stories in 2005-2006 Tools – investment data collection, guidebook, Web sites Power of Angel Investing delivered to 1,200 high net worth individuals • Operations established and business plans in implementation • Partnerships with universities, associations (North America and world) • • • • Summary of Group Involvement – April, 2006 • • • • • Groups in Operation Groups in Development Investors in Operating Groups States & Provinces Affiliate Organizations 94 22 4,100 44 6 Member Locations Full Member Provisional Member Upcoming ACEF Programs • New workshops for Power of Angel Investing – – – – Due Diligence Advanced Term Sheets Valuation Mechanics Starting Angel Organizations Webinars on fund development & management MIT Enterprise Forum broadcast – June 7, 2006 Paper on women as angel investors (today) Paper on state policy to catalyze quality angel investing and good entrepreneurial deal flow • Best practice guidance documents • Analysis of angel group and investment data • • • • Guidance Documents - Care & Feeding of an Angel Group Define the Group Structure Screening Due Diligence Community Building The Investment Process Monitor, Report & Advise Group Management The Group Development Process Deal Structure Negotiation Capital Sources 2005 Group Investment Data Number of investments Number of companies Total monies invested Dollars invested per round Dollars invested per company Dollars invested per angel (per deal) Average Median 5.46 4 4.49 3 $1.45M $900K $266,037 $386,963 $33,236 • 45% co-invested with venture capital firms • 15% had distributions to investors Source: Data from 50 ACA members reported in ACA Survey – 2006 Investors Per Group 35 30 25 20 15 10 5 0 Average = 41 Median = 33 2 to 10 11 to 25 26 to 50 51 to 75 76 to 100 101+ Source: ACA membership applications - 94 groups reporting (2005-2006) 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 Source: ACA Membership applications - 40 groups reporting (2005-2006) Years in Operation Groups 20 18 16 14 12 10 8 6 4 2 0 Average = 4.32 Median = 4 0.5 1 2 3 4 5 6 7 to 9 10+ Source: ACA membership applications - 94 groups reporting (2005-2006) Organization Types Groups 35 For Profit 48% (45 groups) Non Profit 32% (30 groups) No Structure 20% (19 groups) 30 25 20 15 10 5 0 LLC LP C-Corp S-Corp 501c3 501c4 501c6 NonProfit None Source: ACA membership applications - 94 groups reporting (2005-2006) Funds, Networks and Sidecar Funds Angel Networks Networks w/Sidecar Funds Angel Funds Source: ACA membership applications 85 groups reporting (2005-2006) Group Leadership • Nearly evenly split between: – Member-Managed – Manager-Led 42 groups 40 groups • 3 Networks with Sidecar Funds report the network is member-managed and the sidecar is manager-led Source: ACA membership applications - 85 groups reporting (2005-2006) Annual Member Fees Groups 35 30 25 20 15 10 5 0 Average = $1,108 Median = $1,000 $0 $200-499 $500-999 $1,000-1,999 $2,000-4,999 $5,000+ Source: ACA membership applications - 81 groups reporting (2005-2006) Note: Funds and groups with one-time fees not included Current ACEF Advisory Board • Chair: James Geshwiler – CommonAngels (Boston) • Vice Chair: John May – New Vantage Group (Washington, DC) • Lou Anne Flanders-Stec – Piedmont Angel Network (Greensboro, NC) • Geoff Maletta – Angel Healthcare Investors (Boston) • Barry Moltz – Prairie Angels (Chicago) • Bill Payne – Vegas Valley Angels (Las Vegas) • Sue Preston – Seraph Capital Forum (Seattle) • Ian Patrick Sobieski – Band of Angels (Silicon Valley) • Tom Walker – Oklahoma Investment Forum (Tulsa) Join us at the “Table” to Grow the Industry: • Give us your thoughts and recommendations at Summit and beyond • Assist ACEF in creating more educational opportunities and PAI licensees • Attend interactive regional meetings • Submit investment data via Angel Tracker • Help us crack opportunities in technology transfer • Join ACA • Participate in tomorrow’s ACA Annual Meeting