tech angel investing

Introduction to Tech Angel Investing

Agenda

• Why do it?

• Angel Profile

• What to invest in?

• Where to find deals?

• Reducing risk

• Pulling a funding round together

• Negotiation

Why Do It?

US Unicorns

Via The Wallstreet Journal and Dow Jones Venture Source

European Unicorns

Via The Wallstreet Journal and Dow Jones Venture Source

What does a tech angel look like?

?

ANGELS

• Invest own money • Often entrepreneurs • Invest in different sectors • Interested in tax breaks • Collect return on

investment • Often hands-on

VENTURE CAPITAL

• Invest other people’s money

• Need very high potential ROI

• Invest at later stage

• Charge management fees and carry

• Always looking to maximise the return on the fund over 5-10 years

• Increasingly provide value-added services

Angels vs. VCs

• Return on investment

• Diversification of assets

• Helping entrepreneurs to achieve their dreams

• Assisting businesses to provide jobs

• Intellectual stimulation

• keeping in touch with trends

• Giving back

• Social and fun

Why Angels Invest?

• How much are you prepared to lose?

• How much time do you have available?

• What contribution can you make?

• Are you willing to be a non-executive director?

• Are you happy to let the management run the company?

• Will you be sourcing your own deals?

• Will you do your own due diligence?

• What is your experience level?

Angel Profile

What to invest in?

Bet on the Jockey, not the Horse

How do you spot a great founder?

?

❖ Integrity❖ Passion❖ Startup Experience❖ Operating Skills❖ Leadership Ability❖ Commitment❖ Long Term Vision❖ Realism and Pragmatism❖ Flexibility❖ Even temperament❖ What about Age or Technical skills?

How do you spot a great founder?

• Team - Full experienced team covering all key disciplines

• Market - Large and growing market

• Problem - A clear issue that others will pay to solve

• Proposition - A clear solution to the problem

• Business model - A way to make money

• Road map - How they will execute

• Financials - 3 or 4 year projections

• The ask - How much? Valuation? What for?

What to look for?

Where to find deals?

Numbers Game

For every 100 pitches to

angels only 3 receive funding

• Angel groups/clubs

• Accelerators/incubators

• Investor/entrepreneur referrals

• Startup pitching events

• Online platforms ……..or let us do the legwork.

Deal Sourcing

Reducing risk

Great Expectations vs. Tough Reality

• 50 % fail completely

• 20% eventully return the original investment

• 20% return a profit of 2 to 3 times the investment

• 9% return a profit of 10 times the investment

• 1% return a profit of more than 20 times the investment

• The 2012 Angel Investment Performance Study1 on 3,097 investments with 1137 closures2 shows:

• An average return of 2.6x amount invested in 3.5 years • Annualized 27% IRR3

1 Robert Wiltbank & Warren Boeker – University of Washington

2 Acquisitions, Initial Public Offerings or firm closures

3 Average annualized IRR of U.S. private equity is 13.7% [Cambridge Associates LLC September 30, 2012]

Return on Investment

• Invest only 10% of free cash in early stage tech

• Spread over multiple investments to diversify risk

• Reserving 50% or more for follow-on

• Invest in groups with people you trust

Spreading the risk

Angels/Syndicates

• Invest in Early stage / Seed stage

• Invest between 50k - 250k

• invest small amounts to spread the risks in many different projects (about 20)

• Angels usually form groups in order to invest in one project (Syndicates)

• Syndicates can include any type of investor: whether a VC, angel, super angel, strategic investor, corporation, law firm etc.

• Syndicates usually have the lead investor, who often is in the centre of the process (negotiations, term sheets etc.)

Pulling the round together

•One page teaser

• Two page executive summary

• 10-20 page pitch deck

• Full business plan

•Spread sheets

• Legal Documents

What to ask for?

• invest enough to hit the next major milestone

• Link to the amount to stages:

• Proving problem/solution fit - up to £10K

• Building an MVP - £5 to £50K

• Proving product/market fit - £50 - £500K

• Scaling - £500K +

How much to invest?

• Lead investor

•Sector or functional knowledge

•Will probably put more £££ in

•Negotiate the deal and set the term sheet

•Will bring other investors

• Lead the Due Dilligence

Taking the lead

Negotiation

It’s a partnership

• The investment is only the start of the relationship

•Select a balanced (standard) term-sheet that protects everyone’s interests

•Don’t negotiate to the point where the founders have no incentive to succeed

•Aim for for maximum of 25% equity at seed stage

•Don’t leave it to the lawyers

• In UK the government encourages investments: •SEIS/EIS: Investors can receive an income tax deduction worth up to 50% of investments of up to £100,000 per annum

•CGT exemption on gains invested in full

•225% R&D tax credit for companies with fewer than 500 employees

•Patent Box

Your country needs you!

Resources

investor@dreamstake.net

There are 34,000 digital technology businesses in London, the highest concentration in Europe.

Tech firms in London have attracted more than $1bn of investment in 2014.

This is almost 30pc more than the previous record of $719m (£444m) raised last year.

It is also more than 10 times the amount raised in 2010, according to figures from London & Partners, Mayor Boris Johnson’s promotions agency.

Why London is big?

http://www.telegraph.co.uk/finance/businesslatestnews/10901320/Londons-tech-sector-to-create-46000-jobs-by-2024.html