BusinessWeek today wrote and article about angel investing during the credit crunch. The article offers insight into why angel investing has NOT slowed down during this economic climate but it has changed - and how it has changed.
"Two trends we've seen are: We're investing in deals we're already in and keeping them alive longer because conditions are not ripe for an exit," said John May, founder of Washington-based Active Angel Investors. "We're also giving more runway to portfolio companies. When times are tight, we want to overfund."
The article also references some of Angelsoft new live early stage investing stats that can be seen HERE
Angelsoft 3.0 is Angelsoft's most ambitious release ever. In this special release we aimed to better integrate all the bits and pieces of Angelsoft into one seamless web experience.
This release includes 569 improvements, of which 241 are bug fixes, 12 are new features, and 43 are user experience improvements. You can read the full release notes here. Below are the highlights:
GROUP TOOLS
Deal & Member Search - The search bar in the Group Deals list search will now search across ALL application data including business summary, answers to the questionnaire, management, etc. The search bar in the Group Members tab will now search across ALL data from the expanded member profiles including bio, investment interests, and more.
All Email Links Clickable - All links should now be "clickable" in all Angelsoft emails, regardless of your email program.
Bulk Submissions Protection - To help groups with the growing problem of bulk or "spam" entrepreneur submissions, we now label all deals submitted to more than 3 groups as 'Bulk,' and send them to a special Bulk folder under New Submissions. To take a deal out of Bulk, simply move it to another folder.
All Members Can Add New Deals - All group members can now add new deals using the same New Deal button that group administrators use. They can also use the New Submissions email.
Deal Guests Invitations - When inviting a guest to a deal, the invitation email now includes the name of the deal and a direct link to it.
Upcoming Events First - Upcoming Group Events are now sorted from nearest to latest, putting the next event first on the list.
Deal List Pagination - Groups with hundreds of deals will be happy to see the new pagination on the Deal List, which shows a max of 50 deals per page and allows for quicker loading and browsing.
Movable Dialog Boxes - Pop-up dialog boxes on the Deal Dashboard and elsewhere can now be moved to reveal the text underneath.
OPEN DEALS
Search OPENdeals - Deals in OPENdeals can now be searched by keyword, just like Group Deals.
'Most Referred' on OPENdeals - Deals in OPENdeals can now be sorted by "Most Referred," highlighting the deals that have received the most attention from other groups.
Deal Type Dropdown - You can now focus your OPENdeals browsing on deals submitted by entrepreneurs, deals posted by Angel Groups, Incubators, VCs, etc. (This depends on the presence of these deals in OPENdeals.)
Investor Self-Accreditation - Members are now required to confirm their status as Accredited Investors, or as Group Administrators before they can access OPENdeals, keeping OPENdeals a secure space for accredited investors.
OPENDeals Referral Note - When referring a deal from OPENdeals into your group, members can now compose a quick note to group administrators, letting them know why this deal was referred.
PUBLIC WEBSITE INTEGRATION
New Top Navigation - The new Top Navigation bar integrates all Angelsoft resources into one seamless experience. Drop-down menus allow quick access to every tool on Angelsoft.
Group Finders - The new Group Finder tool allows entrepreneurs to quickly locate and target investment groups in their region or area of expertise and start an application. Accredited investors can also use the Group Finder to locate groups in their area and inquire about membership.
Logged Out Demo Pages - When logged out, the new public web site shows demo versions of the different tools, with explanations.
Industry Insights - Angelsoft's position as the exclusive deal management tool to 400+ angel groups and VC's gives us a unique perspective on the early-stage ecosystem. Our new Industry Insights page gives you a window into some of that activity.
Real Activity Map - Angelsoft's home page now includes a live map of activity happening on Angelsoft in real-time. See it for yourself!
Unified Login - All users now have a unified login. Simply login on any page, and we'll point you to the right tool set for you.
We hope you'll love the new Angelsoft as much as we do. As always we are eagerly standing by to hear your feedback, requests, and suggestions.
One way to categorize businesses is growth businesses versus lifestyle businesses. Both are great for the US economy!
Growth Companies (build to sell)
Growth businesses often require professional investors and demonstrate that they can increase revenues and often number of employees rapidly. The pay-back to entrepreneurs is that they have the opportunity to build great value in their equity (stock ownership). The entrepreneurs and investors reap the benefits of their efforts by selling the company five to ten years after startup.
Angels (and VCs) invest in growth companies, which they often arbitrarily quantify as startup ventures that can grow revenues to $30 million (or more) per year in five years. These are the ventures that grow sufficiently rapidly to allow investors to harvest their financings (exit), usually by selling the company to a larger public company, within five to ten years. Because most such growth ventures fail (or are not highly successful), investors seek returns of 10X, 20X, 30X or even more over five to ten years, to justify the risk involved in investing in these startup ventures.
Lifestyle Companies (build to keep)
Lifestyle companies, on the other hand, tend to grow revenues slowly and may or may not need a substantial number of employees. As the company matures, lifestyle companies can become quite profitable, allowing the entrepreneur to earn a handsome income over as many years as the company thrives. The equity value of lifestyle companies is modest compared to growth companies because the smaller revenues and earnings of lifestyle companies equate to a lower valuation. But the potential salaries for entrepreneurs can be quite high and these high salaries can extend over decades, depending on the nature of the business.
In the end, lifestyle companies can produce very attractive salaries for entrepreneurs over many years. While, the primary motivation for growth company entrepreneurs is to harvest their investment of time and money thru the sale of the company in a limited period of time.
Of the estimated 500,000 new ventures started in the US every year, over 90% are lifestyle companies. If these entrepreneurs need outside capital to start these ventures, friends and family are their primary source. Entrepreneurs use these sources of capital and bootstrapping techniques to achieve positive cash flow. As the company matures, banks can provide the capital necessary for operations and growth. Less than 10% of new ventures annually qualify for investment by angels and VCs: about 25,000 new companies are funded annually in the US by angels and about 1000 new companies are funded by VCs.
This explanation is, by its nature, a generalization. Many growth companies have been started by bootstrap entrepreneurs and grown using internally generated cash (from earnings).
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
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:
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.
Tech Coast Angels has been promoting early stage investment for about 10 years. Frank Peters, the chairman of TCA, just announced that the companies that TCA has invested in have amassed a total of one billion dollars in early stage investment funds!
Angelsoft, in providing software for ALL types of early stage investment groups, sees deals that flow and get shared in all types of directions. From business plan competitions to angel groups, from angel groups to VC's, from group to group, from VC to VC, from VC's down to angel groups, and basically any combination that you can think of.
Angelsoft makes all of this easy and it happens live within our software all the time.
It's starting to get a lot more press in the blogosphere, as well. David Spreng of the National Venture Capital Association and Knox Massey of the Angel Capital Association authored an article that was posted on David's blog, Lightbulb. The article discusses how VC's and Angel Groups are starting to work together with increasing frequency.
David S. Rose takes Tech Confidential on a tour of the building in which Angelsoft resides. The same building now houses the New York Angels, SparkSpace incubator, Cloud9 (angel investment offices), and Angelsoft. This covers nearly the entire ecosystem: from Angels, Angel groups, Angel investment software, and entrepreneurs.
