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    THE BASICS OF
      ANGEL
    INVESTING
              THE BASICS OF ANGEL INVESTING
              © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
    NORTHSTAR ECONOMICS, INC.
$   BACKGROUND INFORMATION
     Founded in May of 2000
     Focused on New Economy economic
     development strategies
     Projects in Wisconsin, Minnesota, Iowa,
     Kansas, Ohio, New Hampshire, Wyoming
     Special focus on Angel Investing
     Located in University Research Park in Madison
     Publish NorthStar Guide to Growth and
     Venture Capital for Wisconsin companies
     Service areas include:
        Strategic Economic Planning
        Economic Impact and Feasibility Studies
        Regional Economic Development
                                     THE BASICS OF ANGEL INVESTING
                                     © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                        2
$   OVERVIEW


       Overview of Risk Capital

       Basics of Angel Investing

       Angel investing in Wisconsin




                             THE BASICS OF ANGEL INVESTING
                             © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                3
     $            FUNCTION OF RISK CAPITAL

Risk Capital
                     To fund the development of ideas and
                     products
Basics of
Angel Investing

Angel Investing
                     To fund the startup of new companies
in Wisconsin
                     To fund the growth of new and existing
                     businesses

                     To fund the acquisition of an existing
                     business

                     To create market value in publicly traded
                     companies


                                                 THE BASICS OF ANGEL INVESTING
                                                  © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                     4
     $
                  Risk capital is relevant to
Risk Capital
                   high-tech and low-tech
Basics of
Angel Investing
                         companies.
Angel Investing
in Wisconsin
                      It is relevant to
                    existing businesses
                            and to
                    startup companies.


                                    THE BASICS OF ANGEL INVESTING
                                    © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                       5
     $            SOURCES OF RISK (EQUITY) CAPITAL
                                Family and Friends
                                         ↓
Risk Capital                      Angel Investors
Basics of                                ↓
Angel Investing
                                    SBIR/STTR
Angel Investing                           ↓
in Wisconsin
                      Community Development Venture Funds
                                          ↓
                            Seed Stage Venture Funds
                                          ↓
                               Venture Capital Funds
                                          ↓
                       Strategic / Corporate Venture Investors
                                          ↓
                             Mezzanine / Buyout Funds
                                          ↓
                                 Investment Banks

                                                     THE BASICS OF ANGEL INVESTING
                                                     © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                        6
     $            BUSINESS FINANCING STAGES

Risk Capital            Seed Stage
Basics of                     ↓
Angel Investing
                          Start-Up
Angel Investing
in Wisconsin
                              ↓
                        Early Stage
                              ↓
                        Expansion
                              ↓
                        Later Stage
                              ↓
                         Exit Stage


                                        THE BASICS OF ANGEL INVESTING
                                        © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                           7
     $            THE NORTHSTAR GUIDE TO
                  GROWTH AND VENTURE CAPITAL

Risk Capital
                                   Primer and directory for all
Basics of                          stages of risk and investment
Angel Investing
                                   capital in Wisconsin
Angel Investing
in Wisconsin                       Includes information about
                                   more than 40 organizations
                                   providing risk capital

                                   Updated in 2005, including
                                   new chapter and appendices
                                   and updated directory

                                   Available for purchase on
                                   the NorthStar website:
                                   www.northstareconomics.com


                                         THE BASICS OF ANGEL INVESTING
                                         © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                            8
     $            BASICS OF ANGEL INVESTING

Risk Capital
                      What is angel investing?
Basics of
Angel Investing       Who are angel investors?
Angel Investing
in Wisconsin          What do angel investors expect?

                      How do angels organize?

                      How do angel groups operate?




                                                 THE BASICS OF ANGEL INVESTING
                                                 © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                    9
     $            WHAT IS ANGEL INVESTING?

Risk Capital      Angel investors provide seed funds for proof
Basics of
                    of concept, product development, market
Angel Investing
                     research, business plan development,
Angel Investing
in Wisconsin
                  recruiting management and early production.

                     Angel investors provide startup capital
                      for early stage business production,
                             expansion and growth.




                                               THE BASICS OF ANGEL INVESTING
                                               © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                  10
     $            WHO ARE ANGEL INVESTORS?

                    High income / net worth individuals
Risk Capital

Basics of               $200K+ income for two years
Angel Investing

Angel Investing
                             or
in Wisconsin
                        $1 million+ net worth

                    Willing to assume seed stage /
                    start-up stage risk




                                                THE BASICS OF ANGEL INVESTING
                                                © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                   11
     $            WHAT DO ANGEL INVESTORS EXPECT?

                   Investment Horizon 3 - 5 years
Risk Capital

Basics of
Angel Investing
                   ROI = 30% - 40%
Angel Investing
in Wisconsin
                   Experienced management team

                   Ongoing relationship with management




                                               THE BASICS OF ANGEL INVESTING
                                                © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                   12
     $            HOW DO ANGELS ORGANIZE?

Risk Capital
                    Individually
Basics of
Angel Investing     Open associations
Angel Investing
in Wisconsin
                    Investing groups and networks
                       Individual Commitment / Decision
                       Angel Fund




                                             THE BASICS OF ANGEL INVESTING
                                             © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                13
                  HOW DO ANGEL GROUPS OPERATE?
     $
                      Organization
                         Partnership
Risk Capital

Basics of
                         Sub Chapter S
Angel Investing
                      Investment Focus
Angel Investing
in Wisconsin              Software
                          Life Sciences
                          Regional Companies
                          Etc.
                      Management of the Angel Group
                         Paid Staff
                         Group members / committees
                         Combination
                                               THE BASICS OF ANGEL INVESTING
                                               © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                  14
     $            HOW DO ANGEL GROUPS OPERATE?

Risk Capital
                   Annual Operating Dues ($1,000 - $5,000)
Basics of
Angel Investing
                   Deal Flow
Angel Investing        Screening
in Wisconsin
                       Presentation
                       Follow up
                    Due Diligence
                    Valuation




                                              THE BASICS OF ANGEL INVESTING
                                              © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                 15
     $            HOW DO ANGEL GROUPS OPERATE?

Risk Capital
                   Size of Investment
Basics of              $100k - $500k
Angel Investing

Angel Investing
in Wisconsin
                    Investment
                       Group Investment decision
                       Individual angel decision
                       Critical mass / LLC formed




                                               THE BASICS OF ANGEL INVESTING
                                               © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                  16
     $            ANGEL INVESTING IN WISCONSIN

Risk Capital
                    Active Angel Groups
Basics of Angel
Investing           Angel Group Networking
Angel Investing
in Wisconsin
                    Angel Investments to date




                                           THE BASICS OF ANGEL INVESTING
                                             © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                17
     $            ACTIVE WISCONSIN ANGEL GROUPS
                  1. Wisconsin Investment Partners                                      (2000)
                  2. Silicon Pastures                                                   (2001)
Risk Capital
                  3. Origin Investment Group                                            (2001)
Basics of Angel
Investing         4. Golden Angels Network                                              (2002)
Angel Investing
in Wisconsin
                  5. Chippewa Valley Angel Investors                                    (2003)
                  6. Marshfield Investment Partners                                     (2003)
                  7. St. Croix Valley Angel Network, Inc.                               (2003)
                  8. Phenomenelle Angels                                                (2004)
                  9. Badger AgVest                                                      (2004)
                  10. Pennies From Heaven                                               (2005)
                  11. Central Wisconsin Business Angels                                 (2005)
                  12. Women Angels                                                      (2005)
                  13. IQ Corridor Angel Network                                         (2005)
                                                       THE BASICS OF ANGEL INVESTING
                                                        © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                           18
     $            ANGEL INVESTING GROUPS
                  IN WISCONSIN
                                                                  7            5
                                                                                                6
                                                                                                    11
Risk Capital
                                                                                   3
Basics of Angel
Investing
                                                                                                          9               2
                                                                                                         18            13 4
                                                                                                                            12
Angel Investing                                                                                                         10
in Wisconsin      1.    Wisconsin Investment Partners, LLC            Madison
                  2.    Silicon Pastures                              Milwaukee
                  3.    Origin Investment Group, LLC                  La Crosse
                  4.    Golden Angels Network                         Milwaukee
                  5.    Chippewa Valley Angel Network                 Eau Claire
                  6.    Marshfield Investment Partners, LLC           Marshfield
                  7.    St. Croix Valley Angel Network, Inc.          River Falls
                  8.    Phenomenelle Angels                           Madison
                  9.    Badger AgVest                                 Madison
                  10.   Pennies From Heaven                           Racine / Kenosha
                  11.   Central Wisconsin Business Angels             Portage / Wood Counties
                  12.   Women Angels                                  Milwaukee
                  13.   IQ Corridor Angel Network                     Waukesha
                                                               THE BASICS OF ANGEL INVESTING
                                                               © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                                  19
     $            ANGEL GROUP NETWORKING


                   Deal Flow sharing
Risk Capital

Basics of Angel    Due Diligence sharing
Investing

Angel Investing
in Wisconsin
                   Joint investments




                                           THE BASICS OF ANGEL INVESTING
                                           © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                              20
     $            OTHER NETWORKING

                   Wisconsin Angel Network (WAN)
Risk Capital
                      Joe Kremer, Director
Basics of Angel
Investing             Wisconsin Technology Council
Angel Investing
in Wisconsin       Angel Capital Resource Center
                      Wisconsin Department of Financial Institutions

                   Wisconsin Entrepreneurs Network (WEN)
                      Dept. of Commerce, Bureau of Entrepreneurship




                                                    THE BASICS OF ANGEL INVESTING
                                                     © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                        21
     $             RECENT LEGISLATION
                   WISCONSIN ACT 255
                  Act 255 established the following programs:
Risk Capital
                    Early Stage Investment Tax Credits - Designed to
Basics of Angel     encourage investment in small, high-tech businesses that have
Investing
                    high growth potential
Angel Investing
in Wisconsin
                    Technology Assistance Grants - Provides grants for
                    early-stage high-tech companies to offset costs of hiring
                    independent third parties to assist in securing private or federal
                    funding.
                    Technology Bridge Grants - Provides funding to small
                    businesses that have received Phase I R&D awards and are
                    struggling to maintain operations awaiting a Phase II or other
                    follow-on funding decision.
                    Technology Matching Grants - Provides state dollars
                    to enhance a small business's federal R&D funding application
                    Technology Venture Fund Loans - Provides low-
                    interest loans to Wisconsin high-tech companies to facilitate the
                    search for angel or other seed capital investment.
                                                              THE BASICS OF ANGEL INVESTING
                                                              © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                                                 22
     $            ANGEL INVESTMENTS TO DATE

Risk Capital
                        Cumulative 2000-2004
Basics of Angel
Investing

Angel Investing
                             $15 - 18 million
in Wisconsin


                                50 Deals




                                           THE BASICS OF ANGEL INVESTING
                                           © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                              23
     $            ORIGIN INVESTMENT GROUP
                  DEALS TO DATE

Risk Capital
                    Fiberstar
Basics of Angel
Investing
                    npoint, inc.
Angel Investing
in Wisconsin
                    Paradigm Diagnostics

                    QLD Learning




                                           THE BASICS OF ANGEL INVESTING
                                           © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
                                                                                                              24
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    David J. Ward, Ph.D., President

    Phone: (608) 279-3393

    Email: dward@northstareconomics.com

    Fax: (608) 441-8064

    Web: www.northstareconomics.com
                               THE BASICS OF ANGEL INVESTING
                               © Copyright 2005, NorthStar Economics, Inc. All rights reserved.
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