Panel Participants:
Marianne Hudson, Kauffman Foundation
William Payne, Kauffman Foundation
John Richards, Utah Angels
Marianne Hudson, Kauffman Foundation
We see 8 million “potential” angels in the US.
Most angels tend to make angel investments locally
We are seeing some trends including the formation of angel groups, and increasing sophistication among angels.
The biggest angel group is the Band of Angels in the Bay area
The Kauffman Group is currently tracking 230 angel groups in US.
Why do Angel groups exist?
- Standardized term sheets
- More opportunities
- Develop partnerships with VC
- “Institutionalized Investing” among angels
Kauffman helps angel groups be more robust. We are Working with more than 100 groups with education and mentoring.
These angel groups are learning to trust and learning to partner.
Angel groups are all over the country, yet you do not see the same distribution among VC groups.
There is a new class of investors called “Guardian Angels” which are entrepreneur friendly, yet very sophisticated processes.
Angels helping close capital gap and angel groups are helping this even more.
The average investment amount for angels is $350,000.
We are seeing a trend of many deals are having 3 or more angels investing in deals
Kauffman is researching angel investing - how many, size of deals, stored in a database
Also focused on education for less experienced angels with workshops, helping all the aspects for the investment process.
Focus on building on true standards for Angels and creating a national organization. Conference will be held in 4 months and we expect over 200 angels from around the world to attend.
Bill Payne, Kauffman Foundation
I will be talking primarily about Angel Only funded deals that don’t need any more financing from VCs because they become cash flow positive
We see stats that there are more than ½ million companies are formed per year that are “High impact companies” that create more than 20 employees
The Center for Venture Research states that there are more than 50,000 angel investments made each year.
50-60% of these investments are seed and start up angel investments. The remainder are later stage, or follow up investments.
I always count on the fact that the entrepreneur will come back and ask for more money – so I always tell angels to save some dry powder. SO if 25,000 companies receive start up angel investing, our stats tell us that only 4% of angel deals that are financed this year are likely to ever see Venture capital.
Those 4% are the companies that are likely to scale and see big returns for the Angel investors. So only 1 in 25 only see VC money.
While there are angel groups around the country, there are not VC groups around the US.
Over ½ of VC money is invested in Silicon Valley and the Boston area. The rest of the country gets the other half. The percentage of angel deals that get VC money is higher in Silicon Valley and the Boston area than elsewhere.
Consequences for angel only funded companies
- Regarding follow-on financing
- Think about it in advance
- Seek broader participation
- Seek more investors – less per investor
- Keep dry powder for subsequent rounds
- Syndication among angel groups
- Sophisticated term sheets
Angel only generally have longer time period for exit
- Board/mentoring service
- In for the long term
- Dealing with the changing needs of the company
- Finding / using different skill sets
- Cycling angels thru Board
John Richards Utah Angels
John performs a triage process to determine if it will be Angel only deal these steps include:
1. determine how much capital
2. project the capital needs
Two critical mistakes made in a start-up
1. Failure to determine the type of company and who owns what
2. Failure to plan financially, especially cash flow
Cash flow projection is all important
- Need to make 23-36 months of month by month projections
- Then make cash flow projections for the next 2-3 years year by year
This will tell you your cash and capital needs
Find the low cash flow point and then I like to put a 20-50% cash buffer above the low cash flow point
Also it is really important to map out potential capitalization tables.
VCs are really needed for deals for more than $1 million for a compact period.
Terms too favorable for angels will kill the deal for VC financing, so angels expect to see them go away.
Things that a VC will want to see: make debt go away, get rid of non standard terms, have angels give up board seats. The angel will see his direct influence dimished.
You have to remember the "Golden rule" - he who has the gold sets the rules.
Q&A
Q. How do you make any money?
A. Most of return comes from 12-15% of your investments
8-9 of deals you just get capital back
1-1.5 of deals will return all your ROI - so you need to get 20-30x to get a fair return (20-25% return per year)
So we look for deals that we can get 10x+ returns
A critical rule to always remember: Invest in a B product maybe, but always invest in a A manager
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