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I N T R O D U C T I O NNAFTA Institute Buyer meets Supplier– June 11th and 12th
New Mexico Venture Capital/Angel investing.
Goals of Presentation
Describe the small company financial eco-systemIntroduce Venture Capital FundingIntroduce Angel Investing
New Mexico Angels-President
Former Cabinet Secretary New Mexico Taxation and RevenueAssisted in creating two start-upsAngel investor since 2003Vice-President Business Development Financial Management Services—financial services companyPresident of Tafoya and Brainerd Partners LLC-consulting company
Small Company Financial Eco-system
Entrepreneur funds companyFriends and FamilyMicro Lenders—WEEST Corp; Loanfund, AccionAngel InvestorsSeed-GAP venture fundsVenture Capital Funds
Venture Capital Funds
What Are They? How Do They Come Into Existence?
Individuals like you and me or companies create Venture Capital funds.
Venture Capital Funds
How Do They Get Their Funds?Venture Capital funds raise money from high worth individuals, pension funds, university endowment funds, state investment funds, and insurance companies.
Venture Capital Funds
Why? Return On Investment!!!; Diversification of AssetsVenture Capital funds usually promisetheir investors a 25% to 30% yearly return.Diversity of investment dollars across asset classes for investors
Venture Fund Economics-ExampleAssumptions
$30 Million Dollar Fund2% Management Fee For Venture Capitalists20% Management Fee Back End Percentage30% Promised Return To Fund InvestorsFive-Year Investment Period
Venture Fund Economics
The Numbers$30 Million Dollar Fund
2% Management Fee Per Year = $600,000 Per Year$3 Million Management Fee OffOf the Top
$27 Million Left To Invest
Venture Fund Economics
The NumbersA Typical Fund Makes Ten Investments To Diversify the Risk$2.7 Million Per Investment
CompanyInvestment$(Millions) Return
Total $(Millions)
A $2.7M 30X $81.0MB $2.7M 15X 40.5MC $2.7M 5X 13.5MD $2.7M 1X 5.4ME $2.7M -- 2.7MF $2.7M -- 2.7MG $2.7M -- 2.7MH $2.7M -- 2.7MI $2.7M Dead (2.7M)J $2.7M Dead (2.7M)
Venture Fund Economics
$2.7 Million Per InvestmentTotal Return From Investments
$145.8 MillionPromised Return To Fund Investors
$111.38 MillionExcess Return Over 30% Per Year
34.42 Million
Venture Fund Economics
$2.7 Million Per InvestmentAdditional Return To Fund Investors
80% = $27.53 MillionAdditional Fees To Venture Capitalists
20% = $6.88 Million
Venture Capitalist FundingStatistics & Process Statistics
VC funds currently fund one out of 1,000 start-ups.In the year 2000, there were 700,000 companies started in the United States. VC’s funded 500 companies. There were 50 IPO’s that were VC funded that year.VC’s provided $3 billion in start-up capital in the year 2000. Approximately 500 companies were funded.
Venture Capitalist FundingStatistics & Process Statistics
Most VC funded companies exit not through an IPO, but through a merger or acquisition.VC’s usually make investments in the $5 million range.VC’s typically are later stage investors in a company.
Venture Capitalist FundingStatistics & Process Statistics
VC’s assist the companies in which they invest with investment advice, marketing advice, business structure advice and networking deal advice.VC’s usually will take six to nine months to process an investment.
Venture Capitalist FundingBusiness Model
In 2008, the IPO market froze up. Companies, VC’s and investors looking for the big exit were stuck with non-performing assets.The VC business model needs the IPO market to hit the big one.The VC business is in a tizzy regarding investment returns and exits.
Angel Investing
High Risk/High ReturnEquity Investments usually less 20% of companyReturn is realized when company is sold and money distributed
Angel Investing
In 2007, 258,200 angels pumped $26 billion into 57,120 U.S. companies, according to figures from the University of New Hampshire's Center for Venture Research. 185 Angel groups are members of the Angel Capital Association
Angel Investing
What Angels Are Good At!Having lunch and drinking coffee!
Why Is This Important?Angel investors are the front-line educators of entrepreneurs who want to utilize outside capital in their companies.
Angel Investing
Why Are Angel Investors Important?What Do They Add To The Financial Structure In The United States?
Angel Investing
In the year 2007, Angel investors funded 57,000 new start-ups.One in ten start-ups obtains Angel financing.One in ten Angel deals sees VC money.Less than one in 100 Angel-funded companies go public via IPO’s.
Angel Investing
Angel investors have traditionally higher investment returns than comparable asset groups. 22.4% versus 18.7% for venture capital firms. 22.4% versus S&P 500 returns of 14.9%.
Angel Investing
Angel investors comprise of wealthy individuals. Many Angel investors are “been-there, done-that” entrepreneurs.Angel investors usually have a portfolio of investments. Their Angel investments are a way to diversity their portfolio.
Angel Investing
The usual size of an Angel investment is $25,000 to $250,000.The typical investment is a seed or early stage investment.
Angel Investing
Angel investors do not want to control the companies in which they invest. However, they do like to influence the company.Angel investors usually take two to four months to process an investment.
New Mexico Angels
•Founded in 2003 , a 501-c-6 Tax exempt business service organization•Sixty+ high-net worth individuals as core members•Twelve industry service providers as corporate members, Banks, Legal, CPA, Marketing•Early investors in New Mexico Companies such as Advent Solar, Comet Solutions, ApJet, Knowledge Reef and Exagen.•Cumulative investment since 2004: $2.1 million
New Mexico Angels
•Personal memberships $900.00 per year.•Corporate memberships $1500.00 per year.•Sponsors• Four dinner meetings, eight lunch meetings, two-three technology showcase.•Multiple Investment opportunities
Broad Funding Approach
New Mexico Angel funded start-upsKnowledge Reef---Web. 3 Social NetworkingAcoustic Focusing Systems---Medical DeviceVista Therapeutics---Nano Bio-ScienceThe Teaspot---Retail
New Mexico Angels
The Numbers- Invested in companies2005 two Investments in the amount of $130K.2006 two Investments in the amount of $330K.2007 six Investments in the amount of $785K.2008 seven Investments in the amount of $1.31 million2009 three investments in the amount of $150K
New Mexico Angels
What Angels look for in a companyBarriers to entry such as patents, trade secrets or other proprietary advantage.A solid management team.A scalable product or service that provides large amount of revenue in the short timeframe.A desire for advice and coaching.A potential return that will provide a 10X return during the life of the investment. 3-5 years.
New Mexico Angels
The Process- How a start-up company engages the New Mexico AngelsSubmit a business plan via the New Mexico Angel Website.Business plan is reviewed and vetted by a screening committee.The entrepreneur presents to the screening committee.
New Mexico Angels
The Process- continuedThe entrepreneur presents to a dinner or lunch meeting of all the New Mexico Angels.The New Mexico Angels would engage the company in a due diligence process.The New Mexico Angels would present to the entrepreneur a term sheet outlining the investment terms.
Success
Entrepreneur approached NM Angels for funding in July 2007.Company/Entrepreneur screened/presented and closed NM Angel investment of $225K in October of 2007Company sold in October 2008
Success
Angels have received $1.21 for every dollar invested.Angels will receive $.56 for every dollar invested by end of 2009. Milestones-holdbacks.Additional compensation of $5 million to investors for every $50 million in sales of products using the IP developed by the company—18 year life of milestones
New Mexico Angels
In 2009, we have seen increased activity in funding start-ups.Three funding events; one new company two follow on investments.Three term sheets; one dead, one funding next week, one in due diligence
