icebergs and angel investing

“Icebergs and Angel Investing”

©2013 Tech Coast Angels


This presentation details the relationship between angel

investing (early stage company investing) and icebergs.

How can one have anything to do with the other, you ask?

Let’s follow the ice flow and discover…



Sourcing Deals



Finding great startups for investment

can be like navigating through a field

of icebergs…



…and a large number of

startups you review are

companies you WON’T want

to “sink your money” into.







A small number of

startups may interest

you …







A small number of

startups may interest

you …

… and an even

smaller portion

you may

consider

“investable”.



Sourcing Deals

Cast a wide net: join local angel group, online angel group etc.

Find “deal flow” that meets your interest (volume/startup type).

Starting angel investing: most deals sound good, but most fail.

“Learn the ropes”: take your time, read and research.

Use online resources like the “Angel Capital Association”

(http://www.angelcapitalassociation.org/), books and other angel investor’s

experience: there’s lots of information easily accessible to help.

http://www.angelcapitalassociation.org/



Due Diligence



“The shape of the underwater portion can

be difficult to judge by looking at the portion

above the surface. This has led to the

expression "tip of the iceberg", for a

problem or difficulty that is only a small

manifestation of a larger problem.”

http://en.wikipedia.org/wiki/Iceberg






The potential success of a

startup is difficult to judge

simply by the initial

company presentation or

the initial “visible portion” of

the company…this is just

the “tip of the iceberg”…



The potential success of a

startup is difficult to judge

simply by the initial

company presentation or

the initial “visible portion” of

the company…this is just

the “tip of the iceberg”…

… angels must use a

“diligence” or “due

diligence” check to

uncover the

underlying details.



Due Diligence

Check background/work history of team members.

Investigate product and any IP (software, patents, trade secrets etc.)

Validate market: size, potential acceptance of product, competition.

Verify financials: business model, financial plan, see their “books”.

Check for legal encumbrances: prior actions, existing lawsuits etc.

This is a minimal list: use your due diligence time to uncover as much of

the “non-visible” portion of the company’s history as possible.



Startup Investment



Angel investors typically

invest in “seed” or “series A”

rounds: smaller rounds of

investment as companies

first start-up…







first start-up…

…VCs (Venture

Capitalists) typically

invest in larger

rounds as company

expands to bring

product to market…







first start-up…

…VCs (Venture

Capitalists) typically

invest in larger

rounds as company

expands to bring

product to market…

…the more money a VC

invests, usually the more

the iceberg “sinks” and

“melts”, “diluting” the

angel’s investment.



Startup Investment

Know startup’s capital requirements (future rounds required?).

Use “preferred stock”: anti-dilution, other protection features.

VCs can be very good (deep pockets, good guidance, contacts).

VCs can be very bad (over spending, bad guidance).

The longer the iceberg floats, generally the more it melts: dilution and

death are more common than exit to M&A (Merger or Acquisition) or IPO

(Initial Public Offering).



Investment Portfolios



Maybe 1 or 2 out of

ten or twenty startup

investments yield a

large return on

investment…



…most startup

investments end up

“under water”: partial

return of investment or

total loss.

Maybe 1 or 2 out of

ten or twenty startup

investments yield a

large return on

investment…



Investment Portfolios

Build a portfolio of investments to increase odds of success.

Vary investment targets: software, hardware, internet, biotech etc.

Invest at different startup stages: seed, series “A”, follow-on rounds.

If you are “very good” or “very lucky”: you can choose to concentrate in

one technology area, startup stage or market.

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.

Who are the Tech Coast Angels?



http://www.techcoastangels.com/

icebergs and angel investing

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