abcs of-angel-investing

“ABC’s of Angel Investing”©2011 Tech Coast Angels

“ABC’s of Angel Investing”

The following presentation offers the ABC’s of angel

investing, a dictionary of early stage investing terms

and phrases.

This presentation is a starting point for describing

some of the basic terms that form the common

language between entrepreneurs and early stage

investors.


A is for Angel

An “angel” investor is typically a wealthy private investor who

invests their own money in private companies called “start-ups”.

(“A” is also for: Advisors, Alignment, Anti dilution…)


B is for Bootstrap

To “Bootstrap” or “bootstrapping”: company owners or founders self financing operations, no outside

capital has been raised.(“B” is also for: Bankrupt, Board of directors, Bubble, Business plan…)


C is for Cap Table

A “cap table” or “capitalization table” is usually in spreadsheet

form and lists all stock holders and ownership in a private company.

(“C” is also for: Co-investing, Conversion rights, Convertible debt, Cram down…)


D is for Dilution

“Dilution” is the decrease in the proportional size of one’s stock ownership in a company usually

resulting from additional follow on financing rounds of investment.

(“D” is also for: Demand rights, Diligence or Due diligence…)


E is for Equity

“Equity”, usually in the form of stock, represents the percentage

ownership of a stake holder’s share of a company .

(“E” is also for: Early stage firm, Early-exit, Entrepreneur, Exit…)


F is for Founder

A “Founder” or “Founders” are the principals that have created a

private company.

(“F” is also for: Financing, Founder-Friends-and-Family (FFF) investment round…)


G is for Growth

“Growth” or “High Growth”: a company that delivers a successful

product to a quickly expanding market segment(s) with

corresponding high revenue growth.(“G” is for nothing else!)


H is for Harvesting

“Harvesting” is the collection of capital gains from a prior

investment usually by company exit to acquisition, merger or IPO.

(“H” is also for: Headache(!), High growth, Holding period…)


I is for IP

“IP” or “Intellectual Property” are a company’s intellectual assets which could include patents, trademarks

etc.

(“I” is also for: IPO (Initial Public Offering), IRR (Internal Rate of Return)…)


J is for Jerk

“Jerk”: angel investors and entrepreneurs – don’t be one!

(“J” is also for: Jobs - successful start-ups create many…)


K is for Killer product

A “Killer” product will decimate competition, spurn high growth

and yield a highly successful company.


L is for Liquidity

“Liquidity” is a measure of access to capital: early stage company

investments are typically “illiquid” until “harvesting”.

(“L” is also for: Lead investor, Lifestyle business, Liquidation, Living dead…)


M is for Mentor

A “Mentor” is a person with domain experience that would be

able to help guide a start-up management team.

(“M” is also for: Management, Minority shareholder, Murphy’s law…)


N is for NDA

A “NDA” or “Non-Disclosure Agreement”: an agreement to keep private information

discussed between parties. Angels and Venture Capitalists generally don’t sign

NDAs with perspective companies.(“N” is also for: Net present value, Non-compete clause…)


O is for Offering

“Offering”: usually a stock offering which describes the financial

transaction allowing investors to purchase company stock.

(“O” is also for: Options, Over subscribed…)


P is for Preferred

“Preferred” or “Preferred Stock” is a stock instrument that has special rights attached to it, a class above

“common stock”.

(“P” is also for: Piggyback rights, Pre-Money, Post-Money…)


Q is for Q&A

“Q&A” or “Question and Answer”: always take advantage of your Q&A time to obtain detailed information

from perspective companies.

(“Q” is also for: Quality deal…)


R is for ROI

“ROI” or “Return On Investment”: usually represented as the annual

return on investment based on investment value and capital returned

calculated over time period held.(“R” is also for: Ratchet, Reserve, Rounds (Seed, Series A, Series B, etc.)…)


S is for Start-up

“Start-up”: early stage company that may be looking for seed or

early stage investment.

(“S” is also for: Seed, Serial entrepreneur, Sweat equity…)


T is for Team

The start-up company “team” is the most important component of the start-up for

potential investors to consider: arguably more important than the product idea or market it

will serve.

(“T” is also for: Term sheet)


U is for Unknowns

"There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know

there are some things we do not know. But there are also unknown unknowns - the ones we don't know we don't know."

--Former United States Secretary of Defense Donald Rumsfeld

Angel investing is full of “Unknown Unknowns”.


V is for Valuation

The “Valuation” is one’s opinion of the total value of a private company. The valuation is

typically expressed as “pre-money” and “post-money”, the value of the company both before

and after a particular round of investment.

(“V” is also for: Venture capital, Venture capitalist…)


W is for Warrant

A financial agreement to typically purchase a fixed number of shares of stock, at a fixed price, any time

during a fixed time period.

(“W” is also for: Working capital…)


X is for X-ray

Investors, in hindsight, may sometimes wonder whether they should get an X-ray

to have their head examined as to why they made a particular investment. Of

course, hindsight is always 20/20.


Y is for Yahoo!

“Yahoo!” is the sound angel investors make on successful exits from earlier

investments.

“Yahoo!” isn’t heard as often as one would like…

(“Y” is also for: Yeti (probably seen more frequently than a 100x return)…)


Z is for Zilch

“Zilch” (nothing, nada): slang for what investors receive from a failed investment. At least “Zilch” returns are deductible as a

capital loss and are also valuable lessons for both angel investors and entrepreneurs.

(“Z” is also for: Zombie company…)

Who are the Tech Coast Angels?

Tech Coast Angels, www.techcoastangels.com, the largest angel investor

network in the United States, provides funding and guidance to more

early‐stage, high‐growth companies in Southern California than any other

investment group. Since its inception in 1997, TCA members have focused on

building valuable companies, personally invested more than $100M, and

helped portfolio companies attract more than $1B in additional capital, mostly

from venture capital firms.

TCA members give companies more than just capital; they also provide

counsel, mentoring and access to an extensive network of potential investors,

customers, strategic partners and management talent.

TCA has more than 300 members, including its venture capital affiliates, in five

networks in Los Angeles, Orange County, San Diego, Westlake/Santa Barbara

and the Inland Empire.


http://www.techcoastangels.com/

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