tech angel investing
TRANSCRIPT
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
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