As you expect in this climate angel money tighter
Inc Magazine reports angel money tighter with Angels not only having to worry about less M&A opportunity for investments and a dead IPO market.
On top of that they are being squeezed by the current financial climate and as an angel myself I can see this affecting most people’s daily thinking so that will mean less funding for many for some time until things "calm down" and people can assess the damage to their short and long term finances.
Inc, Andrew Leigh:
As exit options become scarce, angel investors are injecting more cash into fewer startups, a recent report shows.
According to the University of New Hampshire’s Center for Venture Research, a total of 23,100 ventures have received angel funding so far this year, down 3.8 percent from the first half of 2007.
Over the same period, the total value of investments has increased by 4.2 percent to $12.4 billion, the report found.
Software, health-care and energy businesses are attracting the largest share of angel funding, while investments in biopharmaceutical firms are dropping off.
Nearly half of all angel investments this year have gone into seed and start-up stage funding.
So far this year, only six venture-backed companies have filed an initial public offering, the lowest number since the 1970s.
As we all know a great investment and management will always find willing people to help and support them through good and bad but it does mean those companies having to spend even more time finding the money and not focusing on their businesses, as a CEO having had to do this too I found it really painful and it slowed my ventures considerably while we went through the cycles.
But you have to do what you have to do, that’s life so "suck it up" and get on with it…
It may help you to know what Angels will be looking more selectively for in companies.
I am a member of the Band of Angels and Ian Sobieski (Coordinator) indicates the following:
Near term paths to cashflow breakeven will be favored over those that require a leap of faith or al lot of capital; also favored will be those that reward investors with a large multiple on a modest exit (<$40M) versus those that require an IPO or $100M+ exit.
So if you can get to this point by driving sales and cutting costs this will help you to get more funding, as will focusing your efforts at a faster and more modest exit requiring less capital.
So good luck with your search and to speed you along Inc magazine also helpfully have an Angel Investor Directory – it’s a little dated but a good start point.
You can also find lots of resources on this blog for more Angel Sources.
How angels rate your opportunity…use this checklist to make sure you have covered the bases
Attached is a useful checklist that professional angels will have a form of to hand when they are doing any due diligence on your business proposal.
It will help you to be aware of what they are looking for and to also make sure your materials cover off these key areas, preferably in a punchy way, not in a long drawn out business plan.
Early in the angel screening process for angel groups having something that addresses these key areas will help you progress faster and with more confidence.
If you don’t have good answers for all these questions, do your best to cover them all off as best you can or don’t approach investors until you can.
In some cases you won’t have great answers for everything but the less convincing your story vs. this checklist the lower your chances of funding success.
Why not have it with you when pitching with a few notes on it as an aid-memoir
and also use it when putting together your pitch and check you have covered everything.
how angels rate your opportunity.pdf download now
Most Active Angel Investors in the Greater Bay Area
This is an excellent resource for those looking for Angel Capital in the Bay Area, it lists the key groups and some useful metrics.
My advice is to hit the best ones for your idea, I am a member of the Band Of Angels for example and this group is very technology focused so no “sheep farm ideas” here!
Also, note their limits on funding and the stage they prefer.
Keiretsu Forum is an excellent group, well run and very supportive of Entrepreneurs – these guys look at many different types of investments from Real Estate to Software.
Make sure you checkout their web sites and look at their criteria for approaching the group, if you can get an intro in then all the better!
Also, note the costs for pitching and make sure you feel it’s worth the investment.
Take a look and use it as a way to plan your pitching.
Most Active Angel Investors in the Greater Bay Area download pdf
Save a chunk of the $20-30K angel funding legal fees
Paul Graham does it again, this guy is showing us the way, in his latest effort to help startups he has released some excellent documents to help with reducing legals for angel funding.
These are strictly for US companies but will surely save a chunk of the $20-30K startups have to fork out for simple legals like this. Sure they still need help, guidance and advice from their legal counsel but that’s worth paying for.
The documents were created with their law firm, Wilson Sonsini Goodrich & Rosati and so you know they will be good quality and they are meant to be as neutral to both parties as possible.
Get them here:
What’s The Best Structure For A Pre-VC Investment?
Brad Feld’s blog post had a most useful note for those seeking Pre-VC funding:
What’s The Best Structure For A Pre-VC Investment?
I received the following question earlier this week. It’s conveniently timed, as I recently participated in two angel investments – each with one of the structures defined below.
What’s the best/preferred structure of investment money pre-VC investment. We’re in the beginnings of raising angel capital (~500k) and were wondering what, if any, considerations we should make regarding the investments to allow for VC later. Should we take convertible loans or issue straight preferred stock? What are the other options that are out there for investment structure? Is it too much of a hassle to handle future investments when there is an “angel group (say 5 doctors banded together)” versus a singular angel?
Assuming that you are planning on raising VC money some time in the future, there are two different typical structures for the first angel financing: (1) convertible debt and (2) preferred equity.
Convertible Debt: This is the easier approach of the two. In this case, the investment is in the form of a promissory note that converts into equity on the terms of a “qualified financing” (where qualified financing typically is defined by having a minimum amount – say $1m of total investment.) The note will either convert at a discount to the price of the qualified financing (usually in the 20% – 40% range), will have warrant coverage (usually in the 20% to 40% range), or both. This discount and/or warrant coverage gives the angel investors some additional ownership in exchange for taking the early risk. This note should be a real promissory note with the conversion and redemption characteristics clearly defined to protect both the investors and the entrepreneurs from any misunderstandings.
Preferred Equity: This is also known as a “light Series A” – it’s preferred stock that is similar to that a VC will get, but usually with lighter terms due to the relatively low valuation associated with it. For a very young company, a $500k investment can receive between 25% and 50% of the equity in the company and, as a result, many of the terms associated with a typical VC investment are overkill.
While either of these work, you’ll find some angels that strongly prefer one over the other. In addition, if you don’t believe you are going to raise additional VC money and will only be relying on additional small angel-type investments, the preferred equity approach is fairer to the investors as they’ll more clearly be participating in the upside on terms that are agreed to early in the life of the company.
Finally, I don’t think there is a difference between having “an angel group” vs. a single angel investor. However, you should try to insure that all of your investors are accredited and – if some aren’t – make sure you understand the implications of this.
