Angel Investors

• TYPES    -­‐  all  shapes  and  sizes!  

– Friends  and  Family  
– Unsophis1cated  
– Sophis1cated  
– Guardian  Angels  or  coaches/mentors  
– Passive    
– Super  Angels  
– Angel  Networks  /Funds  
 Who are Angel Investors?
• O?en  successful  entrepreneurs  or  reBred  business  persons    
– Ac1ve  investors  providing  money,  exper1se,  and  their  network  
– Contribute  to  their  local  ecosystem  (mentoring,  judging,  
educa1ng)  
• Accredited  investors  –  SEC  definiBon  (US  &  a  few  others)  
• Invest  their  own  money  (not  money  managers)  
• Generally  invest  in  local  companies  
• Invest  in  businesses  not  run  by  family  
• In  2013,  298,000  investors  invested  ~$24.8B  in  about  71,000  
deals  (2/3rds  early-­‐stage)  
 Why Angel Investor Networks
• The  Power  of  AggregaBon  
– Aggrega1ng  investment  dollars  
– Aggrega1ng  knowledge,  experience  
– Aggrega1ng  industry  connec1ons  
– Collec1ve  Due  Diligence  
• MiBgate  Risk  -­‐  Diversified  porJolio  
• Higher  Quality  Deal  Flow  
• Greater  Investment  Clout  
• ConBnuity  through  Por`olio  Management  –    monitoring  
and  mentoring  with  talent  and  experience    
Premise on Angel Networks
Advantages for Entrepreneurs

•    CreaBng  new  class  of  investor  

• Developing  sophis-ca-on/excellent  processes  
• Crea-ng  opportuni-es  for  Syndica-on    
•    Market  efficiencies  developing  
•    Beginning  to  close  capital  gap  
 Growth in Number of American
Angel Groups
400
350
300
250
200
150
100
50
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ARI (04-13 data)
 BlueTree Allied Angels
• Network  of  Accredited  Investors  (Pibsburgh  &  Erie)    
• 60+  Members  
• Cashed-­‐out  Entrepreneurs,  Senior  and  C-­‐Level  ExecuBves,  
Professionals  
 
• Investments:  
– $20K  per  deal  (individual)  
– $200K  per  deal  (group)  minimum  
– $30  M  invested  in  46+  Companies  ($400K/deal  avg.)  
– Co-­‐Invested  with  other  groups  and  VC’s  in  17  deals  

7  
 Investor Considerations
Management  Team  Experience   30%  
Opportunity  Size  and  Maturity   25%  
Product  or  Service   20%  
Technology  /  Product  Uniqueness  /  Solu1on   15%  
Investment  Structure   10%  

• Management  Team  usually  most  important  

– CEO    
• Coachable,  ver1cal  experience,  leadership  
– Team    
• Balanced  &  complete  
• Experience  working  together    
• OK  to  have  some  posi1ons  s1ll  to  be  filled  
8  
 Investor Expectations
• PotenBal  for  Company  to  grow  and  scale  
– $30M  min.  revenue  in  5  years  
– High  gross  margins  business  
– Large  “niche”  market  
– Unfair  compe11ve  advantage  
– Ready  for  customers  
– Fundable  management  team  

• Business  capable  of  providing  a  return  to  Investors  through  

an  AcquisiBon  (rarely  IPO)  
– Expect  a  10X  –  30X  ROI  
– 1  or  2  of  every  10  investments  bring  most  of  return  
– >50%  of  businesses  will  fail  
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 Investment Landscape –
Company Valuation
Company Technology   Proof-­‐of   IniBal   Develop   Build  &   Scale  
- Product Discovery   Concept   Design   &  Test   Deliver   Up  
Stage

Investment  
$25K                                          $100K                                    $500K                                    $2M                                $10M                          $50M  
Needed  

Funding   Pre-­‐seed   Seed   Start-­‐up   Expansion     OperaBng  &  

Stage   Funding   Funding   Funding   Mezzanine   Growth  

Founder   Individual  Angels     Seed  Funds  

Source     SBIR  Phase  1  &  2   Venture  Funds  
of    
Funding   Friends  &  Family   Angel  Groups   InsBtuBonal  Equity  

Business     Gov.  Economic  Dev.       Loans  /  Bonds  

Incubators  

Company      $100K                                    $500K                                $2M                                              $10M                          $75M                      $250M  

ValuaBon   10  
 Angels Fund Nearly All Seed/
Early-Stage Deals…
Number of Deals in 2013: Angel Investment and Venture Capital
35,000  
120  
30,000   1,375   Venture  Capital  

25,000   Angel  Investment  

20,000  
32,000  
15,000   29,000   VC  Total  =  1,495        
2,550    
10,000  
Angel  Total  =  
5,000   9,200   61,000  

0  
Startup/Seed   Early  Stage   Expansion/
Later  
Without angels few startups would make it to VC, PE or IPO funding
Source: Jeffrey E. Sohl, Center for Venture Research and 2013 NVCA Yearbook
 Angels Fund Majority of
Startups in USA
Angels  Provide  ~90%  of  Outside  Equity  for  Startups    
Angel  Investors  (2013)   Venture  Capital  (2013)  
• $24.8  billion   • $29.6  billion  
• 71,000  deals   • 4,050  deals  
• 32,000  seed   • 120  seed  
• 29,000  early  stage   • 1,375  early  stage  
• 9,200  expansion     • 2,550  later/expansion  
• >  298,000  individuals   • 548  ac1ve  firms  

Sources: Center for Venture Research/ UNH; NVCA 2014 Yearbook; PwC MoneyTree
Deal Flow Process
 

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 BlueTree Deal Flow Process
Monthly   Monthly    
Screening   Member     Diligence      
MeeBng      MeeBng   Performed   Manage  
Submissions       Term  Sheet     Investment  (1  
(~10  -­‐  20  Plans   3  –  4     1  –  3     NegoBated   -­‐2  per  quarter)  
Per  Month)   Companies   Companies    
Present   Present  

Screening   Members  
Board  member  
Commibee   polled  for  level   Investment  LLC  
Deal  Flow     represents  
votes  which   of  investment   formed,  money  
Commibee  pre-­‐ member  
companies  to   interest  in   collected  and  
screens  emailed   interests  and  
invite  to   deals.   investment  
submissions.   seeks  an  
Member   Diligence  team   made.  
abracBve  exit.  
meeBng.   formed.  

Commimee  Process  –  Engages  membership  

14  
Elements of the Pitch
 

15  
 The Pitch
Ø Solid  Business  Plan  and  Financial  Model    
Ø Two  page  ExecuBve  Summary  
 
• PresentaBon  -­‐  10  Slides,  20  Minutes,  30  Pt  Font  
– IdenBfy  the  Problem    
– Explain  your  soluBon    
– Business  model  –  How  will  you  make  money?  
– Underlying  magic/technology    
– MarkeBng  and  Sales    
– CompeBBon  
– Management  Team    
– ProjecBons  and  Milestones    
– Status  and  Timeline    
16  
 Opening Slide
• OrganizaBon  name,  your  name  and  Btle,  and  
contact  informaBon.  

• Explain  what  your  organizaBon  does.    

("We  sell  so=ware  for  civil  engineers.“  We  sell  hardware  for  
data  networking  companies."  "We  are  a  medical  device  
company."  "We  protect  the  environment.”)  

• Amount  of  money  to  be  raised,  and  the  purpose  

of  the  money.  

• Cut  to  the  chase!    

17  
 Problem
 
• Describe  the  pain/issues/problems  you're  
alleviaBng.  

• The  goal  is  to  get  everyone  nodding  and  "buying  

in”  that  the  problem  is  real.  

• Avoid  looking  like  a  soluBon  searching  for  a  

problem.  

18  
 Solution
• Explain  how  you  alleviate  this  pain  and  the  
relevance  of  your  product  to  the  soluBon.  

• Ensure  that  the  audience  clearly  understands  what  

you  sell  and  your  value  proposiBon.    

• Not  the  place  for  in-­‐depth  technical  explanaBon.  

• Provide  just  the  list  of  how  you  fix  the  pain.  
Example:  “We  are  a  discount  travel  site.  We  have  wriFen  
so=ware  that  searches  all  other  travel  sites  and  collates  their  
price  quotes  into  one  report."    

19  
 Business Model
• Provide  simple  explanaBon  of  precisely  how  you  
make  $$$$$  
– Who  pays  you  
– DistribuBon  channels  
– Gross  margins,  etc.  

• A  unique,  untested  business  model  is  a  scary  

proposiBon.  Explain  a  revoluBonary  business  model  
in  terms  of  familiar  ones.    

• Drop  the  names  of  the  organizaBons  that  are  

already  evaluaBng  or  using  your  product  or  service.  
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 Underlying Magic
• Describe the technology, secret sauce, or magic
behind your product or service.
– Discuss source
– Why it can’t be easily duplicated.
– Discuss patents
– Is the technology yours, licensed from a University, exclusive,
are there royalties, etc?

• The less text and the more diagrams,

images, flowcharts, the better.

• White papers, research, and objective proofs of

concept are helpful.

21  
 Marketing and Sales
• Explain  how  you  reach  your  customer  and  
markeBng  leverage  points.      

• EsBmate  market  size  and  realisBc  percentage  that  

you  can  penetrate.  

• Convince  the  audience  go-­‐to-­‐market  strategy  is  

effecBve  and  won't  break  the  bank.    

• Explain  the  logic  behind  growth  plans.  

• Be  sure  working  capital  in  financial  models  

supports  growth.  
  22  
 
 Competition
• Provide  a  complete  view  of  the  compeBBve  
landscape.  Too  much  is  beber  than  too  lible.    

• Never  dismiss  direct  or  indirect  compeBBon  in  

core  or  adjacent  market(s).    

• Everyone  including  customers,  investors  and  

employees  want  to  hear  why  you're  good,  not  
why  the  compeBBon  is  bad.  

• There  is  always  compeBBon!    

23  
Example: COMPETITION
Local  read  
Item  level   No  wires  
Passive   capability   Transferable,  
CompeBtors   In-­‐transit   between   Comments  
RFID   with  doors   Plug  and  Play  
visibility   devices  
closed  
   
ABC  Company   !   !     !   !   !  
Nearly  3  x  
Odin   !   !     û   û   !   expensive  

Lockheed-­‐MarBn   Read  at  portals  

Savi  Tech     û   û   û     û   û   only  

GE  Commerce   Discon1nued    

Guard   û     û     û   û   û  
“On-­‐the-­‐road”  
Intermec   û     !     !   û   û   opera1ons  only  

Read  at  portals  

UNISYS   û     û     û   û   û   only  

Central  control  
Cubic   û     û     û   û   û   only  

Inteligistics Confidential and Proprietary 24  

 Management Team
• Key  players  are  important.  
– Management  team  
– Board  of  directors  
– Board  of  advisors  
– Any  major  investors  
• Ok  to  have  less-­‐than-­‐perfect  team.    
• As  a  founder,  are  you  the  “right”  President  &  
CEO?    
  All   startups   have   holes   in   their   team;   what's   truly   important   is   having   a  
willingness  to  fix  them.    

25  
Financial Projections and Key Metrics
• Provide 5-year forecast:
– Chart or graph is better than just #’s
– Know your key metrics: Customers #s, Conversion rate,
etc.

• Bottom-up forecast: consider long sales

cycles and seasonality.

• Explaining forecast’s underlying

assumptions is as important as the numbers.

• Clearly identify cash flow break even point.

26  
 Example:
ABC achieves $37 MM in Y5 revenue
2012   2013   2014   2015   2016  

Parent  revenue   145   692   3,736   17,673   37,134  

Media/recruiters/replay   0   ?   ?   ?   ?  

Percent  gross  margin   57%   51%   59%   60%   65%  

EBITDA   (510)   (1,026)   (509)   5,562   12,687  

ABC  headcount   8   21   38   83   191  

Number  of  athletes   1.2K   5K   43K   136K   238K  

Market  penetraBon   ~0.0%   0.1%   0.4%   1.2%   2.4%  

$100  MM  enterprise  value  in  Y5  

Revenue  +  EBITDA  in  thousands  
 Summary

– Various Exit Strategies and ROI

– Offering Amount, Terms and Conditions
– How money will fund milestone
achievement.  
– Current Status, Accomplishments &
Timeline
– Positive momentum : close with a bias
toward action.

28  
 Common Mistakes/Advice
• Common  Mistakes  
– Discussing only the product and not the
actual business
– Lack of preparation
– Presentation too long and does not build
momentum  
• Advice  
– Have  back  up  slides  with  details  to  help  answer  
quesBons  
– Prepare,  Rehearse,  Prepare,  Rehearse…..  

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Information, Resources, and Support

• Kauffman  FoundaBon    www.eventuring.com  

• Angel  Capital  AssociaBon  
www.angelcapitaleduca1on.org  
• Books  
– Term  Sheets  &  ValuaBon  by  Alex  Wilmerding  
– The  Art  of  the  Start  by  Guy  Kawasaki  

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 PHONE: 724.475.4538
[email protected]
www.bluetreealliedangels.com