Scoring Angel Investment for Startups

in New Zealand

Dave Moskovitz11 June 2014

Standard disclaimer

I have a conflict of interest

I am not a lawyer- get professional advice

Talk to as many people as you can

Take all advice with a grain of salt... And two disprin!

Agenda

Before you startBasic parameters- Cash to raise- Pre-money Valuation- Tranches- Equity or convertible debt?Target selectionContact!Pitch events (eg Demo Day)The morning afterDue Diligence & NegotiationNZVIF (SCIF)Settlement

Before you start

Do you really need investment?Are you investment ready?What are you selling?Who is your target investor?Why would they want to invest?When do you need the money?Is there a Plan B?What’s the next round?Get an advisor

The 7 attributes ofhighly investable startups

Tight team, already pivotedActive overseasDoing something that’s hardKnow how to sell and distributeConstantly learning and integratingHave a lead investor on boardCrushing it in some way (traction)

Basic parameters: Cash to raise

Financial projectionsSensitivity analysisUse of moneyHow much runway?Should be < 3x pre-money valuation

Basic parameters: Pre-Money Valuation

NZ Rules of thumb -Pre-prototype: < $200KBeta product: < $500KHave significant NZ customers: < $1mNZ & O/S customers, some scale: > $1m

Quote from last Lab: “Probably wont be investing unless very attractively priced as I have too many other options and not enough time to devote to this one”

Traction is king

Basic parameters: Tranches

What are your key milestones?Value uplift points?

Do it to them before they do it to you

Basic parameters:Equity or Convertible Debt?

Equity is less onerous on founders- Preferred or ordinary shares?

Conv Debt avoids valuation issues (ish)

Lots depends on the fine print

Target Selection

Institutions (Movac, Sparkbox, VCs, etc)SuperAngels Strategic investorsAngel clubsFriends Family and FoolsAbsolutely anyone else you can think ofCrowdfundingUse LinkedIn

Make a prioritised list

Contact!

Develop informal relationshipsTry to have an insider working for youApproach via email, phone, in personInvestors are really busyThey may fob you off at firstBe persistentBe prepared – drop sheet, pitch deck, detailsBe proactive and responsiveAlways follow up, even if negative

Pitch events

Avoid going in without $ on the tableDo what you can to steal the showTyre-kickers outnumber real puntersFind the few passionate individualsGet them to socialise with their friendsFollow up at the event, get contact infoSet a date for next steps

You will likely have to pitch at more than one event

The morning after

Talk to the organiserSchedule followup meeting(s)Keep up contact – good news is greatDo what you can to get people talkingDon’t let it go coldDon’t stop hustling

More roadshows / syndication

Can you get to critical mass?

Due Diligence (Start Now!)

Usually run by a team of investorsFinancialGeneral corporateTaxContractsProductIPLitigation and compliancePersonnel (incl credit checks)Valuation

Recommendation

Negotiation

ValuationTermsMilestones

You will probably sweatYou will likely get less than you wantYou can always walk away

Remember you need to work with these people in future, even if not on this deal

=> Term sheet

NZVIF (SCIF)

Lead investor identifiedReview term sheetEligibility certificateStandard documentsYour lawyer tailors SASA/ConstitutionGoes through SCIF partner’s lawyerThen to NZVIF lawyerWill match up to $250K per round, to a max of $500KCan take as little as 10 daysManaged by angel club rep

Settlement

Collect signaturesAngel club will collect club money- they invest through a nomineeChase people for moneyCash in bank

What next?

TractionSeek investor commitment NOWPlan out your terms & due diligenceGet help where you need it

DON’T BE SHY

Fortune favours the bold