OPENdeals is a private directory of deals accessbile only to investors on the Angelsoft platform. It functions as a community allowing investors to find new deals, as well as to find other potential investors for co-investment opportunities.
Deals come in directly from entrepreneurs as well as from each different type of user on our platform; Angel groups, VC Firms, Seed funds, Law Firms, etc.
To further help manage this dealflow we've also include a ratings system that allows investors to leave their feedback for each deal. Based on this feedback the Angelsoft investor community will be collaboratively filtering the deals to make sure the right deals get to the right investors.
1) Overview
Filter and Sort all deals to fit your criteria
Quickly review deals in the list and then click for a full deal dashboard
Easily distinguish between Entrepreneur submissions and Group submissions looking for co-investors
2) Finding Deals that meet your criteria
To find deals that meet your basic investment critiera, look at the filters along the left hand side of the screen. With the click of a button you can filter by location, industry, or the type of group that made the submission. In addition, you can filter the list by any set of keywords that you decide to type into the search box.
3) Viewing a Deal
Once you've found a deal you like, you can click on the deal to view all the details. You will be taken to a deal dashboard that has all the basic information you need to make a preliminary decision.
4) Referring a deal back to your group
If this deal is a match for your group's investment criteria, and you think other investors might be interested, you can refer a copy of the deal back to your group. Simply click the "Refer this Deal to my Group" button.
5) Ratings & Reviews
Based on what you see on the dashboard you can leave your expert feedback for other investors, and optionally to the entrepreneur. Click the ratings & review button, set your ratings by click the stars in each category, and add your comments in the free form text box. This is your chance to share you expertise to the community by leaving valuable feedback on deals in your preferred sectors, regardless of location. Over time your comments will help you build a name and a reputation for yourself amongst investors and for your angel group.
6) Finding Group Deals
When on the deal list, you may want to be able to distinguish where the deals are coming from. We saw and "Entrepreneur" deal earlier in the tutorial, and now I want to point out the "Angel Group" deal. This is a deal that has been posted to OPENdeals in order to find co-investors. Click on the deal to see the details...
7) Contacting another Angelsoft investor about their deal
You know you are looking at an "Angel Group" deal when you see the note from the investor at the top. The investor posting the deal to OPENdeals will include a basic introduction to the deal as well as details on how much they are looking to raise and how much as been committed. To learn more about this opportunity simply click the "Contact Me" button to contact the originating group.
To follow up on Jason's post about unfundable deals, I wanted to lay out some guidelines for what makes a fundable deal:
Entrepreneur/Team
Angels invest time and money in seed/startup and early stage deals. They seek investments in ventures lead by inspired, experienced entrepreneurs who genuinely seek counsel of experienced investor/advisors. While the management team need not be complete, the entrepreneur should have a good understanding of the team necessary to do the job and probably has a team member or two waiting in the wings.
Scalability
Funding startup entrepreneurs is very high risk investing. Only 10 to 15% of startup ventures provide all the return on investment for angels. Consequently, angels only look at companies that can scale revenues quickly to at least $30 million in revenues in five years or less. Angels personally invest $25,000 to $50,000 in seed/startup rounds ranging in size from $250,000 to $1 million. (Less than 5% are larger than $1 million.)
Business plan/Strategy
Angels seek entrepreneurs who have a complete business plan, not just a product or technology description. Company should have a well-articulated strategy to capture and defend a significant market share, including the ability to construct significant barriers to entry. Complete proforma financials for three to five years are a must.
Location
Most, but not all, angels seek investments within an hour’s drive of the angel’s residence, so they can conveniently visit the entrepreneur, as needed. Helping local companies can also be part of the angel’s give-back strategy for his or her community.
Bill Payne is an angel investor on the west coast, and has a website here at BillPayne.com
As an entrepreneur, when you login to Angelsoft you are brought to the My Applications tab where you can manage all of your applications to groups. Recently we added the ability for entrepreneurs to see updates on investor activity relating to your deal.
On the right hand side of the My Applications tab you will find the News Feed
Here is a guide to better understand what each news item means:
– Application rated:
An investor has rated your deal and chose to anonymously share it with you. Investors use a star system, moderating the best opportunities to the top. They rate your deal using a 1-4 star scale on four categories: Management, Market, Product, and Deal Terms. Some groups use the rating system as designed, others use it as a proxy for interest in which case the actual values don't mean anything. Investors can also leave comments which often includes advice for the entrepreneur.
– Application was privately rated:
If the investor does not share their rating, your News Feed will tell you that the application was privately rated. We are actively encouraging investors to share their ratings with entrepreneurs. However, in some cases it would be inappropriate to do so.
- An Investor has reviewed your application:
An investor has clicked on your application and read it over
- New Investment: $100,000 from John Doe, East Coast Angels
An investor has committed funds to your deal
- New Investor: John Doe, East Coast Angels
An investor has expressed interest in funding your deal, but has not entered an investment amount.
- Invitation: Name Of Event:
An investment group has invited you to an event. Clicking on the event name will link you to the details
- Referred from Group1 to Group2:
Angelsoft is a network and groups will often share deals between them. This is called a referral. When your deal is referred, it is sent to the second group as if you had applied to that group directly. A new application will show up on your My Applications tab.
- Group1 invited Group2 to collaborate:
To finish out a round of financing, Angel Groups often need to collaborate on a deal, or co-invest. When this happens, Group2 is invited into Group1s deal room. In this case, you will not see a new application on you’re My Applications tab
- A member of East Coast Angels has referred your application to his group:
An investor has referred your deal from OPENdeals to his investment group for further review.
- Investment Terms updated by John Doe:
An investor has made changes to the investment terms, which can be viewed on the My Investors Tab
- Application posted to Open Deals by John Doe: OPENdeals is an investment community inside Angelsoft. Investors post deals there when they are looking for outside investors to finish out a round. Applications posted by investors are labeled differently than those posted by entrepreneurs.
Market size is an important factor when an investor is considering your application. An ideal market for an investor is at least a billion dollars. If you don’t think your market is that large, then you may not be right for investment.
Chances are you think your market is much larger than that, which is one of the biggest pitfalls that entrepreneurs fall into. You will not impress an investor with inflated market numbers; it signals a lack of understand about the business you are trying to start. The goal is to hone this number down to a true reflection of the number of people that could be interested in your product or service.
Here’s an example using fake numbers for simplicity:
If you’re selling guitar strings, you could say that your market is the billion-dollar music industry, but that includes plenty of people that don’t play instruments.
You could claim that it’s the million-dollar musical instrument industry, but there are plenty of people that play instruments but not guitar.
You could say you plan to capture the $500,000 guitar owner market, but your strings are for electric guitars.
The electric guitar market is $250,00, however your strings are made of carbon-fiber. They are a huge step forward in the guitar string industry, but can only work with 50% of electric guitar models. Now your market is down to $125,000
This is the type of exercise that is necessary to determine the true size of your target market. When you get down to it, you may find that your market is too small. This is invaluable information to know BEFORE you invest yourself into a business that isn’t sustainable. You don’t want to a pitch an investor and look like this:
"As has been discussed for several years, Birmingham is in dire need of additional startup capital for our many worthy high growth and high tech businesses and BAN will be a great resource for many of those companies."
Watkins is Managing Member of the Watkins Law Firm, one of the few firms in the area that works with early stage companies on all manners of financial transactions, and adds he is looking forward to "seeing the group grow and become a powerful driving force in the Birmingham and Alabama economy."
I found this report that Jason Nazar, founder of docstoc.com, wrote on raising capital. It provides a great overview of the entire funding process that is essential for entrepreneurs to understand.
I particularly like pages 3-4 which explain the funding lifecycle. I receive a lot of questions from entrepreneurs who are confused about what stage an Angel Investor is looking to invest at. Highly recommended reading:
One of Angelsoft’s angel networks in Europe, the BiD Network, has launched an new opportunity for angels across the globe. Taking a cue from the success of micro-finance and the problem with finding any type of early stage funding for SMEs in emerging markets, the Business in Development Network has created a way for angels to start investing in newly emerging markets. Investments with comparably high risks, but often in untapped markets with unlimited opportunities.
In our rapidly globalizing world, it is vital to keep up with the latest investment opportunities. Read on for a short interview with a business angel without borders.
Why are you committed to the BiD Network and her entrepreneurs? "I think I can meaningfully support SMEs in emerging markets, by sharing my expertise and by providing access to finance to promising entrepreneurs. I consider this an important personal objective. The BiD Network offers a professional platform to get in touch with the entrepreneurs I am looking for."
In which BiD Network entrepreneurs did you invest? 'In 2006 I invested in Stewart Craine and his business called Barefoot Power (click here). Last year I decided to continue with another two entrepreneurs: Peter Meijer and Victor Mfinanga.
Peter is starting up a workshop in Malawi. He is going to manufacture bicycle carts as a mean for transportation, as mobile shop or even as an ambulance. Peter knows Malawi very well, saw a clear opportunity and is highly dedicated to make this business a success. I will provide Peter a loan of about 23,000 US dollar.
One of my friends went on business travel to Tanzania. He did me a favor to also visit Victor Mfinanga whom I already met at a BiD Network event in the Netherlands. My friend reported positively on Victor, proving my gut feeling to be right. I am currently negotiating with Victor on a 20,000 US dollar equity investment in his milk business. I believe that Victor is the right man to make it happen.'
What do you expect from the investments? 'I do not have calculated expectations. But obviously the repayments and financial returns will influence my possibilities to make new investments as well as the confidence I have in the entrepreneurs I invested in.’
To learn more about the entrepreneurs and matchmaking services of BiD Network, please visit www.bidnetwork.org/matchmaking or send an e-mail to matchmaking@bidnetwork.org. To learn about more examples of business opportunities, please click here. If you would like BiD Network to tell you when relevant deals come in, please indicate your investment preferences in the “Expression of Interest”. Access to deals relevant to you will be provided via Angelsoft.
The BiD Network is a member of the European Business Angel Network and is headquartered in the Netherlands.
If you want to set off an entrepreneur, tell them that their business isn't an Angel deal. We receive more complaints from entrepreneurs when an investor says that, than anything else.
There are a lot of reasons that a deal may not be right for investment, and over the next few weeks we will be covering a number of them. The important thing to remember is that just because a business isn't right for early stage investors, doesn't make it a bad business. However, it does mean that if you want to go ahead, you will need to find another way to finance your startup.
Lifestyle Business
A lifestyle business could generate enough money for the entrepreneur to live comfortably, but lacks the potential for scalability that would make it attractive for acquisition. It may also mean that even if the company could scale, it appears that the entrepreneur has no real ambition to do so past providing a comfortable income.
Example 1: The entrepreneur has a plan for a high-end concierge service for wealthy New Yorkers. The entrepreneur projects $2 Million in revenues every year.
It would be very difficult to scale this company. There are few places in the world where this service would be needed, and the potential market is relatively static. It may provide a nice salary for the entrepreneur, but there is little potential to grow this company to the point of acquisition.
Example 2: A famous designer decides he wants to break off and start his own company. He wants to work at home so he can spend more time with his children.
This is not the hallmark of someone who is interested in building a company. While he may be able to trade on his name to turn the new company into an international brand, it doesn’t appear that he has the ambition to do so. He is looking to create a lifestyle that is comfortable for him.
In either case, there is no exit for the company, and therefore no way for an investor to see a return. If the investor can’t get a return, there is no reason to invest.
So how do you start a lifestyle business without investors? If you’re going to start one, make sure you can bootstrap your way to revenue. Use income from another job, raise money from friends and family, or take out a business loan. If you can’t, then you may want to reconsider your business.
Two things can happen with a startup, you can succeed or you can learn. Roger Ehrenberg wrote a great postmortem on Friday detailing what he learned from Monitor110. His seven deadly sins are:
The lack of a single, "the buck stops here" leader until too late in the game
No separation between the technology organization and the product organization
Too much PR, too early
Too much money
Not close enough to the customer
Slow to adapt to market reality
Disagreement on strategy both within the Company and with the Board
Roger learned these lessons the hard way. Take a minute to read over his post so you can avoid them in your startup.
The question of whether angel investments in early stage companies should be in the form of a loan that converts (usually at a discount) into the equity, and at the valuation, of the following (usually VC) investment round, or instead in the form of Convertible Preferred stock (typical of a venture capital investment round) is one which generates a lot of heat in entrepreneurial circles. It also frequently leads to disagreements and hard feelings between entrepreneurs seeking funding and the angels who may be in the best position to fund them. But in reality, the answer is very simple:
"Smart Money" does NOT invest in convertible debt. Period.
This is not a negotiation, or a matter of what is right, or a matter of choice, or anything else. It is simply a definitive, rational, factual statement.
But it does have one corollary, and one exception.
The multiple reasons that smart money (which includes venture capitalists, modern organized angel investment groups, and the leading independent angel investors) simply won't (and shouldn't) do convertible notes are amply and clearly spelled out by Bill Payne, formerly Entrepreneur in Residence at the Kauffman Foundation and generally regarded as the world's leading trainer of angel investors. The primary reason, of course, is economic: the angel is investing at an earlier, riskier stage and therefore should expect a higher return than the VC, who is coming in when some of the risk has been removed, and after the entrepreneur has made the company more valuable using the angel's money. For the angel to wait until the next round to value the company results in exactly the opposite: he or she takes the early stage risk and ends up with later stage valuation: a lose/lose proposition!
Another perspective on why convertible debt sucks comes from Furqan Nazeeri, a serial entrepreneur with EIR experience who is an extremely perceptive observer of the startup financing scene. He points out that from the side of the entrepreneur, doing a convertible debt round correctly is complicated, creates a perverse incentive for the angel investor to work against the company, and ultimately doesn't make a big difference for the entrepreneur.
The practice of convertible debt had its heyday about a decade ago, when inexperienced angels found themselves getting hammered by VCs in follow-on rounds, and decided that it would be better to join them instead. Since then, serial angels have gotten a lot smarter, best practices in angel investing have been standardized, and a funny thing happened to all the serial angels who started out doing convertible notes: they found themselves losing money because of the poor risk/reward relationship, and therefore either (a) stopped angel investing, or (b) got smart and stopped doing convertible notes.
But wait, you say. I mentioned earlier that there was a corollary and an exception. OK, here they are:
Corollary: "Not-Smart Money" SHOULD invest in convertible debt.
Huh? Why? Because the primary trick to raising early stage money in a 'priced' round of Convertible Preferred stock is to price it to value it correctly! And this is the essential difference between 'smart' and 'not-smart' money.
Perhaps the single biggest problem we see with companies applying for funding to New York Angels is that they have done an earlier Friends & Family round that valued the company at a significantly higher valuation than we (the so called "smart money") believe it is worth. In this situation, there are only three possible outcomes, none of which are good: (1) the entrepreneur won't do a 'down round', so we simply walk away and don't fund; (2) the entrepreneur does a down round, and poor Aunt Edna, who invested $50,000 of her retirement money, sees her investment lose half it's value; or (3) the entrepreneur falls on his/her sword and protects Aunt Edna by taking the full valuation hit personally. Ugh.
In cases like this, the BEST thing the entrepreneur can do is take the unsophisticated money in a convertible note, because that way it will end up getting priced correctly when the smart money comes in. But one thing to beware: the next round investors, whether professional angels or venture capitalists, will be the ones to ultimately decide what discount the convertible note will get...regardless of whatever was written into the original note. In practice, few sophisticated investors will have a problem with a 10% discount, which will usually stand. And if there has been a fair amount of time between the note and the venture round (say, six months to a year, or more) a 20% discount has a decent chance of holding. But don't bet the farm on the new investors accepting anything much more than that. If the note has, say, a 50% discount, it will almost certainly be eliminated, or, in a best case, factored into the lower pre-money valuation the VC offers.
Exception: Smart Money should consider a convertible note as a bridge to a legitimate term sheet, and should always have a backup price.
Bill Payne walks through these economics in detail, but in a nutshell, if a VC has already signed (or is thisclose to signing) a term sheet, it will be at a fixed valuation, so the angel bridge will be at a known discount to a known 'correct' price. In this case (a) the 10-20% discount is a fair benefit for the risk being taken (which is that the term sheet might fall through), and (b) if the term sheet DOES fall through, the angel now has debt, which is a better thing than equity to have when things go bad, which they will if the VC walks. Nevertheless, even in this case the convertible note should have a fallback feature of a set price, so that if the term sheet doesn't happen the angel will STILL end up with an investment at a known, appropriate, valuation.
Note to angel investors: As Ben Franklin said, "experience is a hard school, but some will learn through no other." Let me add one more piece of advice: no matter HOW iron clad a term sheet you think you are bridging to, NEVER make the bridge loan subordinate to other debt, and ALWAYS ensure that you are first in line (ideally, make the loan secured.) Don't ask me how I know this.
So, there you have the definitive answer on convertible debt vs. preferred stock. It's not hard. It's not emotional. It's just business.
– Application rated:
- An Investor has reviewed your application: 
- New Investment: $100,000 from John Doe, East Coast Angels
- Invitation: 
- Referred from Group1 to Group2:
- Investment Terms updated by John Doe: