“Show Me the $$$$!”…Session 3: Angels!

Tuesday November 19, 2013

General Assembly / RosePaul Investments Event

Insiders guide to Angels and Angel Investment

Tom Wisniewski

RosePaul Investments

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Agenda

I. Kick-off and Introductions

II. Intro to Angel Capital

III. Investor Profile and Discussion

• BREAK: Networking and Beverages

IV. More on Angel Investors

V. Best Practices:

• WRAP-UP: Networking and Beverages

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Why are you here?

Interested in finding Angels….

• Want advice and $’s to help my start-up

Interested in investing as an Angel….

• Want advice on how to get started and do it well

Curious what the hype on Angels is all about

Seminar Rationale:

The Challenge…

“Lots of noise, lots of conflicting descriptions and

advice”.

“Angels difficult to find”

“Angels challenging to engage …..and work with.”

Most Angel investments fail: tough on investors and

start-ups

…..”I have a lot of questions”

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So….. what helps?

Understand what Angel Capital is (and is not)

Understand who (and what) Angel Investors are

Understand the Angel Investment process

…….learn some best practices on Angel Investments from

some insiders and your fellow colleagues.

However, there is a better way.

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After B-school: joined a start-up management consulting firm Mitchell Madison

Group; focus on Strategy/Operations/IT for financial services, tech, outsourcing,

private equity/VC clients (1993 to 2000)

Walker Digital: helped set-up and run an early “internet incubator” (2000)

Independent Advisor / Turn-arounds: Advised VC and PE Firms on portfolio

company strategy and new investments; joined the management team of two

companies

Currently:

• Early stage investor and advisor to start-ups

• Investor and advisor to VC and PE funds

• Member and director at New York Angels

Tom Wisniewski: My background

Born in NYC; grew-up in Montclair, NJ

Physics and Philosophy major undergrad

(Clark University); MBA at Tuck School

(Dartmouth)

1st Job: Programmer at Morgan Stanley then

moved to Investment Banking

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Better understanding of Angels and Angel Investing.

A set of specific insights that will *change* your approach.

A “to-do” list: starting point(s), actions, things to try.

A set of recommended resources to consult and learn more

from.

A few new relationships with others in the NYC start-

up/fundraising ecosystem: fellow entrepreneurs, investors, etc.

Answers to specific questions about pitching that you might

have.

What would I like you to walk away with?

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So….what questions do you have about Angels and Angel

Investing?

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xxx

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II. Intro to Angel Capital

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Strategic Partners

$100K

$1M

$10M

$100M

Idea Plan Prototype Beta Sales Profitability

Angel Investors

Angel GroupsSBIR/STTR Grants

Venture Capital

Banks

Friends, Family

& Fools

IPO

Strategic Partners

Angel Investors

Angel GroupsGrants

Venture Capital

Banks

Friends, Family

& Fools

IPO

Source:

Tom Stephenson, Verge

Angel Capital: How it Fits in

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Early L

ate

Venture Capital

Mostly later stage

3,400 deals

$0.5-1.0B per

YearAngel Capital

49,000 deals

Mostly early-stage

$20B per Year

Deal Volume and Stage: VC’s vs. Angels

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Round Size: $100’s of K, up to $1M

Individual Angels Invest: $10K – 100K

• Sweet spot: $25K to 50K

Valuation: Pre-Money valuations of $1-5M generally

Requirements:

• B-Plan or “B-plan questions” answered

• Key founders in place (tech and bus), full-time

• Some product/ prototype done

• Some market validation / traction: piloting?

Paying? Customers

• Legal structure and documents in place

• Roadmap and plan for: Product, Market

Expansion, Breakeven? Next Round of Financing?

• $10’s of K

• Concepts? Plan

only?

• Not too many hard

questions..

• No legal ?

• Investing in YOU.

• Know YOU already:

Trust YOU.

Friends and

Family

(& Bootstrapping)

What does Angel Capital look like?

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III. Investor Profile and Discussion

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Drew Arlo, Entrepreneur, investor and fellow New

York Angel

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IV. More on Angel Investors

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Who are these “Angels”? What do they look like?

Experienced, successful entrepreneurs: frequently multiple exits

• Some from “tech-start-ups”, some from other businesses

Successful “corporate” business people: CEO or CxO-types

Older: most are in the 40-60 age group.

• But there are also notable angels in their 20’s and 30’s e.g. newly minted

start-up millionaires

3 – 10+ Angel Investments

~10% of investible capital in Angel Investments

Differ *widely* in: Industry/Functional Experience, Investment Experience,

Interests, Target Sectors/Stage, Investment $, Risk Tolerance, personal

do’s/don’ts and hot buttons.

Lists? Not many. All are partial. AngelList? Gust? Other?

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VC’s (vs. Angels): full-time job, invest other peoples $’s. Lifecycle: Raise $’s,

Find/Evaluate, Invest, Manage Portfolio. Need big exits to make economics

work

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Motivations: Why do they Angel Invest?

Passion. Have some strong affinity and interest in the industry,

technology, business or entrepreneurs

Involvement. Have the time. Want to stay engaged and involved.

Giving Back. Have done well, now want to give back help fellow

entrepreneurs. Support a cause or social mission.

Next Venture. Have exited. Looking for the next company to join, or

next big idea. Serial entrepreneur

Go Pro. Have been an Entrepreneur. Looking to be a VC.

Financial Returns. Have exited and made a fortune. Want to invest

and make more.

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How do Angels add value?

Feedback and Advice. On the business, on the pitch, on other

investors.

Contacts. Introductions to customers, partners, team members,

investors, and …..other advisors.

Experience. The wisdom of successes, and failures. Serial

entrepreneurs. Other investments.

Capital….Duh!. Important, but....

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Not Full-Time. Not a job.

Ask a lot of questions.

“Like herding cats”.

Takes too long.

Can’t / don’t follow-on invest.

Quality varies.

…..and NOT (?): the common complaints.

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Angel Groups (and Angels): How do they differ?

Member Profile: What does the “typical” member look like? What industries,

sectors, companies do they come from?

Sector Focus. What types of companies are they investing in?

• Internet, software (vs. Hardware vs. Pharma / Bio-tech vs. Clean/Green-tech)

• B2C vs. B2B, Saas, Cloud-based, Content-based

• How does their Portfolio compare to their stated strategy?

• What is their “sweet spot”? Vs. their “also do”?

Stage. What is the target “stage” for prospective investments? What completed

milestones and characteristics are they looking to see?

• Revenues vs. Pre-Revenue? Product/Tech development? MVP complete?

• Customer/market validation? Anchor accounts? User levels?

Valuations/ Investment Size: Pre-Money valuation range and size initial

investment

• “We typically invest $200 – 500K at valuations in the $1-3 Million level.”

Group Structure / Investment Decisions. How is the Angel Group structured?

Most importantly, how are investment decisions made? Who makes them?

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Individual Investor Profile: Tom Wisniewski Direct “Angel” Investor in Companies

• $25K-250K investments; Typical valuations: $1-5 Million,

• Typical Stage: at least some “product” done, some customer/sales traction

• Sector focus: Opportunistic generally within internet/software space;

- fair amount of Saas B2B, and consumer “marketplace” models, ecommerce enablers.

- NOT (or not much?): hardware, heathcare/ pharma, cleantech

• NYC based: 50% investments in NYC area companies; total of ~80% NE overall (e.g

Boston, DC), 20% West Coast.

• Examples:

- Sociocast (social/behavioral big data analytics)

- LiveLook (Saas, live collaboration sales/service platform)

- Anvato (Ad insertion to live video streaming via proprietary machine vision)

- Moveline (Uber for the moving industry)

- Bizodo (Saas, paperwork automation; “Adobe 2.0” internet document sharing)

- Movio (Digital “RedBox”; content delivery via “last 100 ft” of wifi internet)

- HeTexted (Relationship advice forum generating content, media opportunities)

- Wanderu (Kayak for ground transportation)

- DealFlicks (a “Priceline” or “Hotel.com” for movie theater tickets)

- iCharts (tool that enables engaging, sharable, embedible chart content)

Investor in Funds

• In addition to direct investments in start-ups, invest in VC and PE funds.

• Examples:

- Social Starts (Seed fund for start-ups leveraging the Social Web)

- Brooklyn Bridge Ventures (Charlie O’Donnell’s fund)

- Entrepreneurs Roundtable Accelerator (ERA Fund)

- Greycroft Partners (Venture Fund)

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NY Angels Profilewww.newyorkangels.com

Member Profile: ~100 investor/members; several early-stage funds; Member

backgrounds are generally representative of the tech / entrepreneurs / industries in NYC:

software, e-commerce, ad-tech, finance, media

Sector Focus: Internet, e-commerce, new-media, software; B2C and B2B. Mostly NYC

Area.

Stage. Mostly early stage (with some customers/revs), some pre-revenue

Valuations/ Investment Size: NYA pre-money valuations tend to range from $1M – 4M;

investments tend to range from $250K to $1M+;

• For larger rounds, NYA often leads the deal and helps find the rest of the capital by

sharing/syndicating the deal with other Angel Groups

Group Structure / Investment Decisions. NYA core structure is as a group of individual

investors. Individual investors “opt in” to deals and make their own investment decisions.

• Typical member invests $25-50K in a deal.

• In addition to the core “opt-in” model, NYA has just closed a small seed fund that will

operate in parallel (using a “democratic model” for investment decisions)

History/Background. NYA has invested $45M+ in 70+ companies.

• We are very active in the NYC entrepreneurial / early-stage ecosystem

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New York Angels Process: A Monthly Cycle1. Proposals Reviewed Online (via Gust): 50 – 100 monthly

• Sources:

• NYA website/Gust (“cold call”: low prob of quality, and success)

• Syndicated deal from other group/investor (warm intro: better quality, better

success)

• Referral from NYA member (warmer intro: even better quality/success)

2. In Person NYA Screening: ~15 companies monthly

• Around 15 of the 100 are selected to present at an in person pitch/screening session

(1st Wed of the month)

• Companies have 10 min to pitch, 5 Q&A (5 minute investor discussion)

• Usually ~40 NYA members attend

3. Discovery / Follow-up: 1-3 new companies enter monthly (3-6 in-process total)

• Of the 15, 1-3 companies garner enough investor interest to move forward in some

fashion

• If there is sufficient interest from a core group of investors, and an investor willing to

“lead”, then the core NYA process moves forward with follow-up “Discovery”

meeting(s) aka deep dives, due diligence.

• In some cases individual investors want to follow-up and explore the company

further independently

4. Investment Breakfast: 1-3? companies monthly

• Those Companies that get to the term-sheet stage with several committed NYA

investors, are brought back to present to the NYA Group at the Breakfast

• NYA Investment Breakfast meetings: 20 minute presentation + Q&A, 40-60 NYA

members attending

5. Final Due Diligence, Legal Docs, Closing.

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III. Best Practices

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Some Best Practices for Angel Investors

Learn to Invest. Smarter you are, the better you invest. Learn from other

Angels, VC’s, entrepreneurs, all the online opinions/resources.

• Shooting from the hip, almost never works.

• “Its like unprotected sex; fun while you do it, but afterward….” - Linda Holiday

(Investor, Entrepreneur)

Know the Investment. Invest in things you have some “insider knowledge” of.

• Leverage the talents and experience of other investors and experts.

Build a Portfolio. Angel investing is very risky, need to diversify across pool of

investments

• Typical “VC” Outcomes: Out of 10 investments made:

- 3 Fail, return no money

- 3-4 “Do OK”, provide a modest return, or return “most” of investment

- 3 “Succeed and Exit”, 5-10x or more returns make up for the rest. Often

it’s the “One”: the 100x that drives the entire return

• Need 10 – 12 investments; more better.

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Some Best Practices for Angel Investors

Long-Term Commitment. Plan ahead; average hold-time of Angel Investment

is 7+ years.

• Reserve capital for follow-on rounds,

• Reserve “patience” for all the speed bumps, pivots and crashes

Investment Structure Matters. [ GREAT COMPANY! ] + [….poor legal

structure] = [ Little/No returns and Misery ]

• Need to understand the key “terms”: term sheets, debt vs. equity

• But too much legal = counter productive, useless?....

Valuation Matters. [ GREAT COMPANY! ] + […wrong valuation] = [ Follow-

on problems, and Little/No returns ]

• Most “good” exits are in the $10’s of Millions, a very few >$100M;

• Repeat after me: “THERE ARE NO BILLION DOLLAR EXITS”

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A “Good” Pitch Looks Like:

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Adapted from “10 Slides to an Awesome

Pitch” by Dave McClure, 500 Start-Ups

1. Elevator Pitch

2. The Problem

3. Your Solution (Demo Here!)

4. Market Size

5. Business Model ($)

6. Proprietary Tech

7. Competition

8. Marketing Plan

9. Team / Hires

10. Money / Milestones

TW: + Evidence of Traction!!!! Market Fit!!!!!

http://www.slideshare.net/dmc500h

ats/how-to-pitch-a-vc-sept-2010

My (TW) Short List of

What is Most Important

1) Market Opportunity

2) Product

3) Traction

4) Team

What one investor

looks for…

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Key Success Factors and Advice

for attracting Angel Investment

Pitch, Get Feedback, Revise. Repeat. No venture idea was built in a

vacuum. The ONLY way to develop business ideas is to share them, solicit

feedback, make adjustments, develop/refine/add and…..DO IT AGAIN!

• Many ventures fail to gain investor attention because there are too many gaps

(perceived and real).

Find Good Advisors. To get good, detailed feedback and input you need to be

talking to right people, with the right experiences: Experienced entrepreneurs

and investors, prospective clients and partners.

• “Look for advisors. Find investors.”

• How? Networking, networking, networking….

Communication is Paramount. Potential investors (or potential employees,

customers, etc.) usually start out knowing nothing about you or you venture.

Getting someone up to speed: a challenge. Getting someone to write a check:

a big challenge. At the core is effective communication:

• Written: Business Plan, “One Pager”, e-mails, pitch decks

• In Person: Elevator Pitch, stand-up pitch presentation, video

• ….just as importantly: formally developing these pitches/plans will

improve/refine your actual business (its not just about telling your story to

others)

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Key Success Factors and Advice….continued

Find Investors that Fit. As a general rule, people invest in things that they

understand and have experience with; find Angels that come from industries,

sectors, etc. that are same/similar to your venture and the customer markets it

serves.

• If I have never invested in Caribbean real estate, oil wells….or

communication hardware, it is very unlikely that I will do it with you.

• For Angel Groups: use online bio’s / LinkedIn to identify likely “good fit”

Angels

Find “Lead” Investor(s). Its critical to get one or more investors on board

who can take the lead in driving the investment process: due diligence, term

sheet, investor commitments, closing documents/process

• Investors trust…..other investors. Their interests are aligned. Lead

investors help attract additional “followers”. With Angel Groups: use available

bios / LinkedIn to

Understand (and Manage) the Process. You are more likely to succeed if you

really understand what’s happening (or should be happening) For each step

(e.g. investor search, screening, presentation, due diligence, term sheets, etc.):

• What is happening or needs to?

• Why? What’s the rationale?

• Who is doing what? How do perspectives and motivations differ?

• ……now, what can I do to make it work for me?

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Key Success Factors and Advice….continued

Valuation (and Key Terms). Be realistic. Be Flexible. Realize this is a

professional (not personal) discussion ; there will be back and forth. Ultimately

the “market” sets the price/terms.

• There is more to investment terms than valuation….Important to understand.

Timing. Am I ready for Angel Investment?......A few probing questions:

• Have you covered the key success factors mentioned here? Do you have a

compiling business opportunity with huge growth potential?

• Do you really need the money? Now? The more that you can accomplish on

your own, the more compelling your case (and valuation) will be…..

• Are you ready to work for a someone else? e.g. the investors, the board of

directors

• Fund raising is “brain damage”. It wastes valuable time that could be spent

growing the business. Avoid it, minimize it, delay it if you can.

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Thanks! Thomas Wisniewski

Contact Info

Email: thomas@rosepaul.com

LinkedIn: http://www.linkedin.com/in/thomaswis

Twitter: @thomaswis

This presentation: http://www.slideshare.net/Thomaswis/

New York Angels www.newyorkangels.com

New York Angels Educational Meetup: http://www.meetup.com/NY-Angels/