The Inside

Story of

Angel

Investing

More than $100 Million invested in 100 CompaniesNo organization has invested in more New York startups

@brianscohen

The

Wisdom od

Crowds

Choosing the “right” Partnerships,

Not Cash, Are Often the Basis For

Success

Angels And Entrepreneurs

A Special Relationship

Great for

openning

doors to

customers!

Investor Raising

Angel Investment Flow Analysis

This is 40:1 get

investments

Angel Investor Gambler?

Angels Have Become Very PromiscuousHurting The

Funding

Ecosystem

@brianscohen

Angel Investing IsRapidly Becoming A Losers Sport

Very very very

few angels

EVER make

money!

Half of Angel Investors Regret Investments They Made This year!

• Overly Optimistic Financial Projects

• Business Model Flawed

• Startup Management was not the right fit

• Go To Market Strategy was wrong

• Pre money Valuation Was To High

• Did NOT Understand Term Sheet Legal Info

• Used Convertible Notes

Worthworm Research

And their wives

(only 18% of

angels are

women) knew it

Angel

Exhaustion

Everyone Needs To Wake Up And Step Up Their

Game Every MUST get

smarter!

Angel only have

so much to

invest.

Venture $ Is Running Away!

Venture Backed Company Exits

• 1500 Companies per year

• 8 exits per year > $750M

• 80 exits per year > $50M

Losers Gold!

Chances of

investing in a

billion $

business IS

ZERO!

Smart Money

Investing in

Smart

Businesses

What Is Professional Angel Investing ?

Only route to

angel investing

success is best

business

practices!

IF you are an Accredited Investor, and

IF you are prepared to invest at least $50K to $100K per year, and

IF you make sure to reserve quite a bit for follow-on financings, and

IF you develop a VERY strong deal flow of good companies, either through

an angel group or your own contacts, and

IF you invest consistently so that you have at least 20 companies (ideally

more) in your portfolio, and

IF you are professional in both your “do” diligence investigation and your

deal term negotiation (including specifically with regard to valuations), and

IF you go in with the knowledge that you are going to be in it for at least a

decade, holding completely illiquid assets, and

IF you can help add value to your portfolio companies above and beyond

simply money (such as board service, contacts, fundraising, etc.)

IF you have an Angel friendly term sheet (does not imply entrepreneur

unfriendly)

The Odds Will ONLY Be In Your

Favor

Lots of

Touchy-

Feely

Stuff

Due Diligence Considered a Tedious (But Necessary) Process

Entrepreneurs

Neither investors nor entrepreneurs are particularly thrilled about

the process – it is costly in for both in terms of hours involved

(dozens or possibly scores of hours) and money required (legal

fees, etc.)

Do

Diligence

Investors

Due “Do” Diligence in Today’s Market Building a More Agile Approach

Angel Must

Get Better At

this

Angel Investment Without Do Diligence is Like Unprotected Sex

Opportunity Risks Resources Deal

• Market size – Huge

• Team leadership

expertise

• Product/technology

• Value

proposition/clear

customer pain

point

• IP

• Competitive

advantages

• Traction/proof of

concept

• Customer base

• Scalable

• Target segments

• Existing business

models

• Market dynamics

(Porter’s Five

Forces analysis)

• Underlying

financial

assumptions

• Competition/compe

titive threats

• Lack of team

expertise

• Unproven business

model

• Scalability issues

• Breakeven analysis

• Likelihood of

execution

• Cost of capital

• Capital/cash on

hand

• IP

• Unfair advantage

• Technology/data

• Team

expertise/knowled

ge base

• Existing

partnerships

• Brand/goodwill

• Other Assets

(real, intangible)

• Preferred Equity

• Angel Protections

• Valuation

• Market forces

• Cap table

• Equity available

• Option pool

• Existing

investors/partners

• Existing

deals/partnerships

• Extenuating

circumstances

*Basic model provided by HBS developed and taught

by Professor Glenn Okun at NYU Stern School of Business.

Not all

balanced.

Some more

important

Angels don’t

mind smaller

exits! that’s a

good thing

Angels Are Really In The Exit

Business!

It’s Not Just About Ideas!

Good Ideas Are

Everywhere –

Can The

Leader Lead

and Team

Execute

Simulations have shown that it takes investing the same

amount of money consistently into at least 20-25 companies

before your returns begin to approach the typical return of over

20Most

angels only

invest in

one

company!

Portfolio Theory Wins!

Smart SyndicationIt Takes Many Smart

Angels/Groups To Do A Deal

So Many

Investment

s Need

Many

Smart

Angels!

It’s about Becoming Close

To The Start Up Community

Get Close To

The Startups!

Relatively

Stable!

Money Per Seed Round

Seed Stage Valuations

SVB Research Halo Report 2014

Dropped

last

quarter!

Can the Founder Handle Surprising Challenges?

You Need

To Meet

Them &

Get To

Know

Them

• $1 million for angel investments

• Distributed over 10 deals

• 1.256 = 3.8x ROI

5 = 0x

2 = 1x

2 = 3x

Economics of the Angels

1/10 x 5 x 0 = 0.01/10 x 2 x 1 = 0.21/10 x 2 x 3 = 0.6

3.8 –

0.0+

0.2+

0.6

3.0

Source: David S. Rose http://rose.vc

It’s all in the

numbers

The Exit

must return 30 times

our investment

It’s All About

The Math!

It is quite likely that the value of the syndicate's portfolio will still be

underwater, unless it just happened to include one unusual, Black Swan,

quick home run.

The Big Wait

Exits only

happen

1.7% of

the time