Angel Investing 101

http://www.flickr.com/photos/roblee/133498854/

David Teten, Partner, ff Venture Capital Founder, Harvard Business School Alumni Angels of New York ffvc.com // @ffvc teten.com // @dteten

Angel Investing 101

photo by Aaron Patterson, http://www.flickr.com/photos/40875537@N04/5659908590/

Intro Originate Structure Add Value Next Steps

© 2015 David Teten. More at teten.com

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Don’t Take Notes!

Download detailed slides at: teten.com/angel



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David Teten (teten.com) • Partner, ff Venture Capital, early-stage technology venture capital fund • Lead author of first-ever research study on best practices in private equity/

venture capital deal origination • Lead author of first-ever research study on best practices of venture

capitalists in increasing portfolio company value through operational support • Currently co-leading study on how to disrupt investing • Harvard MBA 1998, Yale BA, both with honors. • @dteten



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•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps

Agenda: Introduction to Angel Investing

http://www.flickr.com/photos/alancleaver/4375850315/sizes/m/in/photostream/



Evaluate Overview

Average Angel Returns

•  Angel mean IRR ranges from 18% to 54% across twelve large studies with differing timeframes 1

•  47% of angel investments exited at a loss, vs. 64% of VC investments2

•  Angel and VC rates of “home run” investments (IRR over 100%) are roughly equal 2

2 Is It Worth It?, Journal of Business Venturing, http://www.crab.rutgers.edu/~richmich/NVF%20Spring%202013/ROR%20on%20VC.pdf

1 Historical Returns in Angel Markets, Right Side Capital Management, and other sources listed at http://techcrunch.com/2012/11/17/how-institutional-limited-partners-can-avoid-limited-returns/



Evaluate Overview

HBS Alumni Angels Global (HBSAlumniAngels.com): Progress Since 2007

•  10 chapters globally •  Over 800 members invested in over 100 companies



Evaluate Overview

•  >200 members, largest angel group in NY tri-state area by number of paying members

•  Investments range from $15K - $500K; median $25K, mostly convertible notes

•  $4m in total investments in 30 companies, $5m including affiliates •  Monthly pitch nights with typically 4 companies/night •  Launched Venture Capital Access Program, helping women and

minority entrepreneurs meet members of our network

HBS Alumni Angels of Greater NY (HBSNYAngels.com): Progress Since December 2010



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About HBS Alumni Angels of NY Members

Requirements: •  Be accredited investors. For an individual investor, this means individual net worth, or

joint net worth with spouse, exceeds $1m; or individual income in excess of $200,000 in each of the two most recent years; or joint income with spouse in excess of $300,000 in each of those years and have a reasonable expectation of reaching the same income level in the current year.

•  Budget to invest at least $25,000 per year in early-stage companies. This is a directional commitment, not binding.

•  Sign our Membership Agreement and join the HBSAANY. •  Be Harvard affiliates (not necessarily HBS). Our members include venture capitalists, entrepreneurs, investment bankers, and other

experienced businesspeople.



Evaluate Overview

65%

35%

60%

40%

56%

45% 51% 49% 46%

54%

2010 2020 2030 2040 2050

White Non-Hispanic “Diverse” Population

America’s Growth

America’s Population by Ethnic Background

United States Department of Commerce



Evaluate Overview

Venture Capital Access Program

•  Program geared to help minority and women entrepreneurs meet potential investors in the HBSAANY network.



Evaluate Overview

ff Venture Capital (ffvc.com)

•  Venture capital fund focused on investing at seed stage and follow-on rounds

•  Based in NYC but investing across the US, plus abroad •  Extensive resources to support portfolio companies’ growth, with 27

employees •  Invested over 200 times in over 70 companies since 2008 •  First investments typically $100-$500K at valuations of <$5m pre-money •  Prominent investments include:

Cornerstone OnDemand (IPO); Quigo Technologies (sold to AOL for reported $340m); Indiegogo; Klout; Plated



Evaluate Overview

Invested Amount

Grey = amount invested

Green = valuation in excess of amount invested

$1.5mm

Select Emerging Growth $50mm + Valuation Acquired/IPO

acquired by

ffVC companies create new industries


Intro Originate Structure Add Value Next Steps Evaluate Overview

•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps





Definition: Start-Up

Steve Blank: “A startup is a [temporary] organization formed to search for a repeatable and scalable business model.”

http://www.docstoc.com/docs/425051/Financing-Lifecycle-of-your-startup



US Angels commit $20+ billion per year, over $6 billion at seed or start-up stage

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

2004 2005 2006 2007 2008 2009 2010 2011

VC Angel

National Venture Capital Assoc 2012 Annual Report; New Hampshire Center for Venture Research Annual Market Analysis reports 2004-2011

US Angels commit $20+ billion per year, over $6 billion at seed or start-up stage



US Angels invest in 60,000+ companies every year

National Venture Capital Assoc 2012 Annual Report; New Hampshire Center for Venture Research Annual Market Analysis reports 2002-2011

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Angel VC



Notable Angel-backed Startups



Why Angel Investing? •  Exceptional time for entrepreneurship

–  Low cost of starting –  Exploit seismic changes in technology

•  High historic returns –  Permanent institutional arbitrage increases likelihood of continued high returns

•  Portfolio diversification –  Uncorrelated alpha

•  Education and Meeting People –  Work with passionate entrepreneurs, like-minded high net worth individuals, and VCs –  Understand the future

•  Opportunity to be a mentor –  Become board member / advisor / interim executive

•  Altruism –  Promote entrepreneurship to build and support thriving communities



Requirements to be a Successful Angel •  Large bank account

–  Need to weather losses and reserve capital for later rounds. •  High risk tolerance

–  Most investments will fail. Don’t invest money you can’t afford to lose. 2

•  Patience –  Assets are illiquid and average time to exit is ~6 years.

•  Rigorous due diligence –  A minimum of 40 hours per investment correlates with best returns.2

•  Value-add –  Top angels have relevant industry experience and are active advisors.2

•  Diversified portfolio –  You should be willing to make a minimum of 10 investments—better 20.

3 Is It Worth It?, Journal of Business Venturing 2 Returns to Angel Investors in Groups, Kauffman Foundation

If you lack anything above, avoid angel investing.



Why join an angel group?

•  Higher returns! •  Scale – more investment dollars •  Collaboration re: due diligence •  Industry/topic experts •  Broad domain knowledge •  Broader network as a resource for portfolio companies •  More and higher quality deal flow •  Make new friends

Susan Balloch, Golden Seeds



•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps





HBS Alumni Angels NY Deal Criteria

HBS Alumni Angels members invest as individuals, typically in aggregate up to $350,000 in any particular investment. Ideal candidates are companies seeking $100,000 to $750,000 We invest in capital efficient "for profit" businesses, and expect our portfolio companies to achieve a successful exit within five years. We do not invest in R&D intensive businesses or those with high capital requirements. We strongly encourage business plan submissions from Harvard Alumni, but consider all investments based on potential economic returns. We typically invest in companies with these characteristics:

Premoney Valuation: $1,000,000 - $3,000,000 Capital Seeking: $100,000 - $750,000 Previously Raised: $50,000 - $500,000

Generally we expect the following performance from our portfolio companies:

Expected Revenue By Year 5: $10,000,000 - $50,000,000 Expected Returns: 10x Investment - 50x Investment Expected Years to Exit: 3 Years - 5 Years Expected Years to Break Even: 2 Years - 3 Years



ff Venture Capital Decision Criteria •  Team. We want to know what qualifies you to execute your idea successfully and better than the

five other companies in your space: work history, network, and skills are all key. •  Demo. We almost always require a demo, or at least a mockup. •  Market. What is the problem, why does it exist, and how big is the opportunity? •  Solution. Your value proposition: how you solve this problem faster, cheaper, smarter. •  Business Model. How do you make money? Who pays, how much, from where? •  Customer/user. Who they are and how many? How will you reach/acquire them? •  Competition. Know every competitor and what are the current solutions to this problem, and why

they aren’t addressing your market adequately. List the major competitors, understand their processes and what your competitive advantage is.

•  Financial Overview. What are the expected revenues, expenses, and EBITDA three years out? How long will this round’s cash last you?

•  Funding. How much are you raising and how are you going to use the money? To grow a team, to support overhead, to expand? How much have you raised thus far and from whom?

•  Milestones. What is your vision for the future, measured in milestones for the next 3 years? Note that in our board meetings, we will evaluate your progress against these milestones.

http://teten.com/pitch/

Character – Competence – Relevance – Strength – Information – Number – Diversity



•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps






Info is private Few buyers

based on Robert Bruner, Applied Mergers & Acquisitions, page 186

Ability of buyer to

intervene to tailor

pricing & terms

Info is public Many buyers

Sweet spot of highest returns

Higher returns

Lower returns

Private information is more valuable than public information because of the leverage that discretion gives to the buyer.

Buyer Power vs. Public Awareness of Transaction




You earn higher returns by investing in people you know well. Mutual Fund Managers’ Excess Returns

in Companies Run by College/Graduate School Classmates vs. All Other Companies

Study of 2,501 portfolio managers of 1,648 actively managed equity funds that specialized in aggressive growth, growth, or growth and income stocks between January 1990 and December 2006

Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Christopher Malloy, 2008 Connected Holdings=Stocks for which managers had the strongest connection to senior officials (same school at same time with same degree)

Excess return=total gain minus the Treasury bill return




Investment Search Process (# Companies)

Angel groups using Gust

(2010)[i] ff Venture Capital

(2014)[ii] Typical

entrepreneur Profiled initially 20,850 NA ~3-6 Target Selected 1,315 ~2,000 ~3 Met 1,047 ~1,000 NA Due diligence 577 ~20 2

Invested/launched 541 ~12-15 1

Deals as % targeted companies

33.5% (2.1% of

submissions)

0.6% 33%

[i] Available at http://angelsoft.net/a/venture-valuation , as of twelve months ending March 17, 2010. [ii] David Teten.




Intermediaries refer deals to investors primarily in the hopes of future revenues.

•  Possibility of future revenue •  Integrity •  High certainty to close •  Responsiveness •  “Fair” treatment of sellers •  Experience with the industry

or owner type •  Friendship •  Candid feedback •  Maintaining a single point of contact

http://www.flickr.com/photos/extranoise/3382930813/

Top Reasons Intermediaries Refer Deals to Investors (descending order of importance)




Differentiation makes origination more efficient. Selected Highly Differentiated Investing Strategies

Strategy Example Co-investments with corporates Blackstone Group, Castle Harlan, Clayton

Dubilier & Rice Executive-led transactions Frontenac Company, GTCR, Housatonic

Partners Intellectual property Intellectual Ventures Spinning out processes from within Fortune 500 companies and setting them up as independent ventures

Exigen Capital

Deep focus from early to late stage in narrow vertical Andreessen Horowitz, Healthpoint Capital Minority-owned businesses AP Capital, ICV Capital Partners

Women-owned businesses Hypatia Capital

Family-owned businesses Heritage Partners Film financing Relativity Media Buying Western companies and outsourcing operations to China Crimson Ventures Distressed Searchlight Capital




Social media technologies are pertinent throughout the investing cycle.

Investing Cycle Use of Social Media Raise capital •  Identify value-added potential investors & find a path to them

•  Solicit past investors in both your prior and comparable funds

Originate investments

•  Identify and reach out to relevant people & companies •  Become a magnet for investment opportunities

Due diligence •  Review professional and personal lives of management •  Talk with firm’s network: customers, competitors, suppliers

Negotiate Deal •  Gain insight into counterparty’s negotiating style, motivations

Improve operations

•  Recruit “A” performers •  Accelerate sales and marketing

Exit investment •  Identify and more effectively negotiate with strategic acquirers

How Investors Are Using Social Media




David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com)

Ch = Character Co = Your Firm’s Competence R = Relevance of the contact S = Strength of your relationship I = Information N = Number of people D = Diversity

= D * ∑ (Chn*Con *Rn* Sn*In) N

n=1

Corporate Network Valuation Formula




Biography analysis software allows you to search by common affinity and more effective subsequent outreach.

Leading Providers of Biography Analysis Data

* ff Venture Capital portfolio company

•  Boardex •  Klout* •  LinkedIn •  Pipl •  Relationship Science •  ZoomInfo




David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (TheVirtualHandshake.com)

• Daniel Zumino, founder of BCG Paris and angel investor, had made a small investment in a startup

• November 1999: He sent email to Stanford GSB alumni list seeking capital for the startup

• March 2000: Raised $8m through referral from alumni, via this list service

Case study: A set of angel investors sourced a transaction and invested $8m via an alumni email list.




10-15% of the active VC population of 1,000 blog and tweet; some individual bloggers are as influential as entire media companies.

* Individual VC blogs http://www.blogmetrics.org/venture_capital

Jeff Bussgang, Flybridge Capital Partners http://techcrunch.com/2011/01/19/top-20-vc-bloggers/

Top VC Blogs (BlogRank), November 2014

Blog Title # Incoming Links

(rank) Google PageRank VentureBeat 1 7 Paul Kedroskys Infec5ous Greed* 2 6 Redeye VC* 4 5 VC Café* 13 5 Xconomy Venture Capital Feed 1 6 India Business Blog 13 5 Web Strategy by Jeremiah 2 5 PEHub Blog 21 7 VC and Angel Investor Profiles 12 6 Union Square Ventures*

8

6




Best Practices in VC Blogging (written humorously, but still good advice)

Hi, I’m a tech VC on Twitter. I’m @xyzvc My icon is cool. It’s a painting/cartoon/wacky photo. Shows that I’m hip and approachable. But when I meet with you, I’ll

still crush your dreams. I tweet about technology, but occasionally post personal stuff. Important to show I have a sensitive side and care about

more than just making tons of dough. I use # tags, sometimes as a funny form of emphasis. Kind of like a wink and a smile ;) #donttakethisposttooseriously I love Twitter because I can broadcast my blog posts. Otherwise, no one would read them! I blog at xyzvc.com! I tweet blog posts with advice on fundraising, customer acquisition, and company building. Usually, someone really

smart has said it before and said it better. But I haven’t been in Hacker News for a while, so I figured there is no harm reinventing the wheel.

Retweeting is fun. It’s like a virtual high-five. I retweet the posts of my partners, coinvestors, and entrepreneurs I’ve backed. Oh, I also retweet posts from guys whose butts I’m currently kissing so that they will like me. I really hope @fredwilson retweets this… I’d get so many new followers!

My portfolio companies are the best. I will share so much of their good news with you it will make you want to unfollow me (unless you are a co-investor, in which case you will probably RT and add a #)

If a portfolio company is doing bad, no Twitter love. It’s like going to Disneyworld and trying to find Hercules or Mulan. It’s like they never existed.

I also tweet about the cool places I’ve been (via Foursquare and Gowalla), things I buy (via Swipely and Blippy), and the cool places I’m going to go (via Plancast).

Wow, that’s a lot of tweeting! That’s why I also tweet about how busy I’ve been and how little I’ve slept. It’s a tough life. Full disclosure, I’ve been a tech VC and I’ve done most of these things.

Hi, I’m a tech VC on Twitter (by Rob Go, NextView Ventures)

http://www.robgo.org/post/890368565/hi-im-a-tech-vc-on-twitter




Search engine optimize yourself.

•  Scan targets’ sites to understand the language that they use when searching.

•  Use keywords inconsistently.

•  Name what you’re selling.

•  Optimize top of the page.

•  Use Google Adwords Keyword Tool

http://flickr.com/photos/neilt/2517652/sizes/o/

Search Engine Optimization 101




•  Phone •  Email •  Web conferencing •  Instant messaging •  Internet telephony

(e.g., Skype) •  SMS •  Twitter

Using multiple media channels promotes stronger trust-building.

Caroline Haythornthwaite, “Strong, Weak, and Latent Ties and the Impact of New Media,” The Information Society, 18 ( 2002) 385–401. http://flickr.com/photos/re-ality/41676755/

Major Media Channels for Origination (descending order of importance)




Meetup creates opportunities to meet face-to-face.




Effective originators are data hounds

Tools for Assimilating Data into Your Contact Relationship Management (CRM) System

Data source Selected technology for inserting data into CRM Business Cards

FullContact

Emails Evercontact, FullContact, RelateIQ Cloud LinkedIn, Plaxo CRM Act, Salesforce, RelateIQ




Originators use blog and web readers to filter the data deluge, such as Bottlenose*.

* ff Venture Capital portfolio company




Use Copromote* to amplify your message via Facebook, Twitter, and Tumblr to millions of new people.

*ffVC portfolio company




Investors can also connect with one another via online gated communities.

Sample Gated Communities for Investors Angel Group

Platforms Angel

Communities Consumer Loans Private Equity

Public Gust

AngelList

CircleBack Lending

Assoc. for Corporate Growth

Albourne Village

Proseeder

CircleUp LendingClub Axial FT Alphaville Long Room

FundersClub Prosper

Intralinks Deal Nexus

Sum Zero

OurCrowd MergerMarket Value Investors Club

SeedInvest




Senior executives prefer to interact online behind barriers to more junior people, just as they do in traditional networks.

Sample Gated Communities for Executives •  IERG Online •  Executive Forum •  INMobile •  Sermo

•  Some LinkedIn groups




And everyone else is online too.

•  Yahoo Groups

•  Google Groups

•  LinkedIn

Online Community Platforms •  Xing




Diversity your network by entering logically adjacent social networks.

•  By technology •  By industry •  By geography •  By personal

characteristics •  By market

http://flickr.com/photos/extranoise/169187125/sizes/l/



•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps





How to Structure Your Portfolio

•  Compare vs. size of overall portfolio: typically cap at 20% •  Target at least 10-12 investments. Assume:

–  30-40% total loss –  30-40% breakeven and illiquid –  20-30% positive return

•  Diversify by industry, risk, and duration

Susan Balloch, Golden Seeds



Shortcuts to Structuring a Deal

•  Do not lead your first few deals; join the syndicate of a more experienced investor

•  Read Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist, by Brad Feld and Jason Mendelson

•  Use a template term sheet, e.g., National Venture Capital Association Model Legal Documents and the Wilson Sonsini Term Sheet Generator

•  Build your own financial model of at least the cap table; see teten.com/finance for some templates .



Choose the right terms to optimize

•  Pre-money valuation is just one term of many, and probably not the most important.

•  Other key terms, in declining order of importance: –  Vesting period for founders –  Redemption option, typically after 5-7 years –  Liquidity option, e.g., liquidation preference and a

participating preferred structure –  Investor protective provisions, e.g., and anti-dilution

protection –  Board seat

http://pasadenaangels.com/2011/02/the-truth-about-early-stage-pre-money-valuations/



#1 area of concern: Founder(s) Incentives

1.  Allocation of Equity 2.  Stock Vesting 3.  Power issues – Titles, etc. 4.  IP issues – relationship with past employers? Ownership of

outsourced work? 5.  Board Seats 6.  Employment Agreements

Tom Cervantez and Cecily Anne O’Regan, Business Counsel Law Group



Review the Company’s IP (which is usually valueless at launch)

The Enterprise

Patents

Trade-marks

Copy-rights

Trade Secret

Sui Generis

Tom Cervantez and Cecily Anne O’Regan, Business Counsel Law Group



How to value a startup: you can’t

•  Valuation is based on negotiation, not calculations. •  Benchmark against companies at a similar stage of

development. –  Revenues? –  # Employees –  # Customers –  Traffic



Checklist for discussing the next round

•  When? •  How much? •  Who should lead? •  How can I help the entrepreneur? •  Should I follow on?

Dan Rosen, Commerce Ventures



Phase of Startup Development Needs FTE Management Milestones

Early Development to Proto/Beta (12 months)

- Tight linkage between development & business goals -  Focus -  Excellent people

1 to 10

CTO and GM

Working prototype, beta

installations

Early Customer Deployments (24 months)

- 100% dedication to customer satisfaction -  Cheerleading and endurance

5 to 20

CTO, VP Eng, Dir’s of Sales, Finance,

Marketing GM/CEO

Customer approval,

some revenue

Moderate Penetration (36 months)

Savvy Management

20 to 50+

CTO, VP Sales,

Marketing, Finance, Engineering, CEO

Clear target market, Repeatability of

business, real product, real customers

Rapid Penetration (60 months)

Excellent Management

Growth to 100’s

All VP’s, CFO, COO if necessary

1/3 to ½ of all new sales in target markets

Dominance Greed and Ego Big Domestic and Worldwide

Clear #1 player

http://www.slideshare.net/Hukshorn/valuation-14854407



Questions, Capital, Valuations Question to answer with

capital Capital needed

Sources Pre-Money

Seed: Early Development Proto/Beta

Technology: does it work at all? Market: is there a market? Timing: if a market, when does it start?

< $1M usually <$500K

-  Friends, Family, Fools -  Angels -  Seed Funds

$100K to

$1M

1st Round: Early Customer Deployment

Technology: does it work in practice? Target market: is this the right first place? Timing: if a market, when does it start?

$1M to

$4M

- Angels - Seed Funds - Early Stage Funds

$2M to $5M

2nd and 3rd Round: Moderate Penetration

Market timing: is the market happening fast enough (or too fast)? Execution: can we grow, develop, sell, manage, etc.?

$5M to $15M

-  Early Stage Funds -  Later Stage Funds -  Corporate Investors -  Venture Leasing

$10M to

$50M

Mezzanine and IPO: Rapid Penetration

Execution: can you grow fast enough without loosing control?

$0 to

$100M

-  Corporate Investors -  Mezzanine Funds -  iBanks -  Leasing

$40M to $100M+

Dominance Complacency: with so much success can you continue being paranoid?

Corp.

finance

-  iBanks -  Commercial Banks -  Et al.

Public Market

http://www.slideshare.net/Hukshorn/valuation-14854407



•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps





7 levers of value creation (“TOPSCAN”) Team-Building Growing a startup’s human infrastructure Operations Enhancing admin, accounting, legal and

technological capabilities Perspective Strategy, competitive positioning, defining the

target market, and scoping the product. Skill-Building Building the right skills and ensuring they

develop with the company’s life cycle Customer Development

Identifying the right customers and gaining access to them

Analysis Helping entrepreneurs measure, understand and report the performance

Network Providing access to the investor’s typically very large network



Investor’s Demeanor

Insecurity = Distraction

I’m thinking of investing $X Unsaid: but I usually invest $X/2 I’ll ask my friends to try your product later

• Inflating $X motivates entrepreneurs to misallocate time

• Due diligence is about an investor making an efficient decision, not about playing entrepreneur-lite

• Someone has to be first. If you are

hedging why did you invest?

Confidence = Adding value

I can invest $X. My decision criteria is Y I’ll email/ tweet / blog / re-tweet

• $X is historically accurate and reflects real risk-appetites

• I’m part of the team • Network effects almost always matter • I do what I reasonably can to help

bootstrap

Source: Michael Ibrahim, CEO, Whisk



Investor’s Advice

Source: Michael Ibrahim, CEO, Whisk

Ideas = Rarely adding real value

Actions = Adding value

I’m a board member of public company Z – if you give me a 2 page proposal I’ll share with the board I have time, if helpful I can take a turn at your project/deck/article

• Wow!

• Rarely do investors have this much time…but if you do, offer

You should get an article in the NY Times You should raise more money You should have a deal with Google Your product should do Z

• No sh*t – help make it happen please!

• Maybe you have an “Aha!” so do share – but don’t presume you understand the 5k competing priorities in the roadmap



Investor’s Connections

Michael Ibrahim, CEO, Whisk

Intros = The most effective way an investor can create value

But even these can go slightly wrong

Please send a deck to W, he might want to invest Unsaid: sorry I didn’t check with you first Please meet Mr. X, analyst at firm Q Unsaid: sorry I didn’t check with you first

• Don’t promise company assets, it undermines our ability to qualify prospects

• Whoops! I had an intro to a decision

maker but just got tied up with a gate-keeper

This person could fill a gap in your team Give me a blurb and I’ll intro you to these 3 Series A investors Would you like to talk to company Z? I know the CEO and could imagine a BD deal

• Yes!



Things Investors Say But Shouldn’t

Craig Kanarick, CEO, Mouth



What CEOs Need

Craig Kanarick, CEO, Mouth

•  Money

•  Team

•  Clients

•  Friendship

•  Access to Other Entrepreneurs

•  A Listening ear

•  Support/introductions

•  Praise



•  Introduction

•  Overview

•  Evaluate

•  Originate

•  Structure

•  Add Value

•  Next Steps





How You Can Get Involved with HBS Alumni Angels •  Join! •  Take a leadership volunteer role. We’re seeking leaders for marketing

and in other capacities. •  Promote membership in the HBS Alumni Angels to your friends and

colleagues. •  Recruit companies seeking funding to visit

HBSAlumniAngels.com and apply to us for funding. •  Provide analytic resources. If you have access to MBA-level research

talent, we have a number of research projects in queue. •  Introduce us to sponsors. We are particularly interested in service

providers; corporate sponsors interested in attracting startups in their industry; and a sponsor to broadcast our events.

•  Promote us to the media.



Any questions ? slides at teten.com/angel

Sign up for our mailing lists at

ffvc.com HBSNYAngels.com

teten.com

Twitter: @ffvc @HBSAngelsNY

@dteten



Disclaimer

This Presentation is for the exclusive use of the recipients to whom it is addressed. References to the “Presentation” includes any information which has been or may be supplied in writing or orally in connection with the Presentation or in connection with any further inquiries in respect of the Presentation. This Presentation is not intended to serve as basis for any investment decision. While the information contained in this Presentation is believed to be accurate, the Preparers have not conducted any investigation with respect to such information. The Preparers expressly disclaim any and all liability for representations or warranties, expressed or implied, contained in, or for omissions from, this Presentation or any other written or oral communication transmitted to any interested party in connection with this Presentation so far as is permitted by law. In particular, but without limitation, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, analyses or forward looking statements contained in this Presentation which involve by their nature a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied in this Presentation. By its acceptance hereof, each recipient agrees that none of the Preparers nor any of their respective Representatives shall be liable for any direct, indirect or consequential loss or damages suffered by any person as a result of relying on any statement in or omission from this Presentation, along with other information furnished in connection therewith, and any such liability is expressly disclaimed. Except to the extent otherwise indicated, this Presentation presents information as of the date hereof. The delivery of this Presentation shall not, under any circumstances, create any implication that there will be no change in the affairs of ff Venture Capital or HBS Alumni Angels after the date hereof. In furnishing this Presentation, the Preparers reserve the right to amend or replace this Presentation at any time and undertake no obligation to update any of the information contained in the Presentation or to correct any inaccuracies that may become apparent. This Presentation shall remain the property of ff Venture Capital and HBS Alumni Angels. This Presentation does not constitute a recommendation regarding the shares in ff Venture Capital or HBS Alumni Angels. No securities commission or regulatory authority in the United States or in any other country has in any way opined upon the accuracy or adequacy of this Presentation or the materials contained herein. This Presentation shall not form the basis of any contract. The distribution of this Presentation in certain jurisdictions may be restricted by law and, accordingly, recipients of this Presentation represent that they are able to receive this Presentation without contravention of any unfulfilled registration requirements or other legal restrictions in the jurisdiction in which they reside or conduct business. Date at your own risk.



Appendix



Geo

Time Period

Study

Total Investments

Exited Investments

IRR

US 1994 - present

Band of Angels Website FAQ 240+ 63 54.0%

US 2010-11 Sohl: “The Angel Investor Market in 2011: The Recovery Continues” Unknown Unknown 18-28%

US 2009-10 Sohl: “The Angel Investor Market in 2010: A Market on the Rebound” Unknown Unknown 24-36%

US 2008-09 Sohl: “The Angel Investor Market in 2009: Holding Steady but Changes in Seed and Startup Investments”

Unknown Unknown 23-38%

US approx 2004-09

DeGennaro & Dwyer: "Expected Returns to Angel Investors" 603 434 33.0%

UK 2000-08 Wiltbank: "Siding with the Angels: Business angel investing - promising outcomes and effective strategies"

1080 406 24.6%

US 2007-08 Sohl: "The Angel Investor Market in 2008: A Down Year in Investment Dollars But Not in Deals"

Unknown Unknown 22.0%

US 2006-07 Sohl: "The Angel Investor Market in 2007: Mixed Signs of Growth" Unknown Unknown 27.7%

US 1990-07 Wiltbank & Boeker: "Returns to Angel Investors in Groups" 3,097 1,137 31.4%

US approx 1999-07

Villalobos & Payne: "Startup Pre-Money Valuation: The Keystone to Return on Investment"

117 117 24.3%

UK 1961- 1996 Mason & Harrison: "Is it worth it? The rates of return from informal venture capital investments"

372 128 37.4%

Average Angel Returns from Twelve Studies

Historical Returns in Angel Markets, Right Side Capital Management, and other sources listed at http://techcrunch.com/2012/11/17/how-institutional-limited-partners-can-avoid-limited-returns/



HBS Alumni Angels of Greater New York Mission •  The mission of the HBS Alumni Angels of Greater New York is to accelerate

the growth of the tristate early-stage company ecosystem, primarily by enabling Harvard alumni to invest in startup companies and earn healthy returns. We invest in companies regardless of whether or not they have any Harvard affiliation.

•  Our related goals: –  Establish a financially sound, self-sustaining organization that will be a

permanent contributor to angel investing, HBS, and entrepreneurship. –  Provide on-going education opportunities to the HBS community on angel

investing and entrepreneurship, including via seminars and events –  Promote HBS as a leader in entrepreneurship. –  Promote relationship building between HBS alumni, HBS faculty, and

current HBS students with an interest in early stage ventures and angel investing.



HBS Alumni Angels Global Mission •  The mission of HBS Alumni Angels Global is to provide an educational and networking

forum for Harvard alumni who are interested in researching and investing in early stage companies on an individual basis. Other goals of the HBS Alumni Angels include: –  Providing long lasting relationships between Harvard alumni and Harvard overall for

fundraising, governance, and promotion of entrepreneurship and angel investing that is critical to establishment of Harvard as a leader in entrepreneurship

–  Providing on-going education opportunities via seminars and events relevant to Harvard alumni interested in angel investing

–  Providing relationship building between current Harvard students and Harvard alumni with an interest in early stage ventures and angel investing

–  Providing mentoring and judging for business plans in the student and alumni business plan competitions

–  Establishing HBS Angels as the leading point of contact for interaction with Harvard on matters relevant to angel investing and entrepreneurship

–  Establishing a financially sound, self-sustaining organization that will be a long-time contributor to Harvard, entrepreneurship, and angel investing



HBS Alumni Angels NY Process

•  HBSAANY promotes submission of business plans and chooses among submissions approximately 4-8 to present at each pitch night.

•  Alumni invest individually; HBS Angels NY helps to coordinate. •  HBSAANY as a group makes no recommendations for investment and

does not organize any group investments. •  Recently launched Fast Track program for angel deals which are >50%

closed and need some angels to fill out a round.



HBSAANY Deal Funnel

Total # of Applications: 900

Pitch Night: 56 6%

Invested: 9 1%

data from March ‘11 through March ‘13



HBSAANY Applications by Industry


Industry Applications Percentage # Funded

Internet/Web Services 217 24% 4 Consumer Products/Services 89 10% 2 Media & Entertainment 52 6% Financial Services 44 5% Mobile 43 5% Food/Drink 38 4% So\ware 38 4% Business Products & Services 36 4% Healthcare Services 34 4% Clean Technology 29 3% Educa5on 29 3% Fashion 22 2% Retailing/Distribu5on 22 2% Biotechnology 20 2% 1 Medical Devices 20 2% 2 Marke5ng/Adver5sing 19 2% 1 All Other 146 16%



HBSAANY Member Interest by Industry




HBS Alumni Angels Global Educational Curriculum

•  Webinars –  Monthly live: $10 for members, $35 for non-members –  Call recording & materials distributed to attendees

•  Other programs –  Educational Content (Cases, Videos, etc…) –  Local Sessions



HBSA Global Notable Speakers

•  Kirsten Green (Birchbox, Bonobos, Hotel Tonight, Serena & Lily, Warby Parker)

•  Thomas Korte (Crittercism, MoPub, Postmates) •  Nihal Mehta (AdMob, GreyStripe, Thumb) •  Matt Ocko (BranchOut, XenSource, Zynga) •  Dave Samuel (About.me, Cardpool, Recurly) •  Tom Cervantez (Friendster, GeoNet, OpenTable) •  More to come…