Angel Investing

Objective

How to attract angel investors

Characters of angel investors

Type of angel investors

Angel Finance

Estimates suggest angels provide more capital than VCs

Small business association estimates that 250,000 angels commit $20bn each year to over 30,000 private companies

Fenn and Liang 1998: 2/3 of high tech IPOs backed by angels, 1/3 by VCs (some overlap)

Invest smaller amounts/less follow up investments than VCs

Although there are network of angels/informal networks that “syndicate”

• No systematic data for angel investments

Angel Finance (cont.)

Advantages:

Provides expertise and advise?

Invests own capital and is not intermediary

Finance “just for fun”

Disadvantages:

Limited capital

slide: 5

Start-up/Early Stage Eco-System

Source: Jonathan Cooper, Poteza Fund

Business Angel 101

1. Who are business angels Business angels Diaspora business angels Other business angels

2. What types of Investments Low end: $10K individual

Investments High end: $1M+

syndicated investment

3. Benefits of Business Angels Invest their own money Contribute more than

money (advice, introductions, etc.)

Flexible

Context

People

Deal(Business) Opportunity

Angel Investment Criteria

Source: Harvard Business School

Angel Financing vs.VC Financing

Investors have fewer control rights

Contracts appear less contingent

Funding less tied to future relationships

Angel Contracts

Andrew Wong (2002): “Angel Finance: The Other Venture Capital”

• Firm <1 year old when getting angel financing

• Do not rely on as much control mechanisms as VC:

Seldom receives board seats

Not much staging

Common equity, without anti-dilution or contingent equity claims

• But allows entrepreneur to hold larger stake

• Close geographical proximity

(informal substitute to control?)

Considerations

Why do firms not get VC financing?

Negative NPV

Hold-up problems

VCs organization

Contractibility

Duncan Bannatyne

For impressing in an interview/pitchBe concise and do not spend 4 minutes presenting a presentation if you can do it in 1 minute.

For running your own businessStay focused and work hard.

For surviving the recessionDo not spend a penny unless absolutely necessary, focus on cash flow rather than profit.

For getting your product to marketUse what ever PR sources are available to you.

For winning investmentPresent yourself to as many investors as you can. If you are turned down ask why and use the advise when preparing your next pitch.

For making millionsRead my autobiography "Anyone Can Do It".

Th

eo P

ap

hit

is For impressing in an interview/pitch

Dress smartly (a tie is not always necessary)Research the subject/business as much as possibleAnswer questions with honesty and precision

For running your own businessWork in a subject area that you loveUnderstand the detail – if you are new there are many sites like Businesslink and smarta.com that are full of useful tips and adviceWrite down your business plan

For surviving the recessionWork sharper and smarter e.g. small, tight teamsWatch your overheadsDon't forget to invest in people i.e. keep training

For getting your product to marketGet true feedback from those other than friends (as they will always be kind)Agree target audiences and ways you are going to tackle themInvest in great design and strong promotion

For winning investmentHave a business planDemonstrate your achievements to date, ideally financial onesGet testimonials and support from respected third parties

For making millionsLook for business opportunities with scale i.e. ones that have potential to growMake your first £100,000, knowing the rest will be far easierAlways keep your feet on the ground

Deb

ora

h

Mead

en

For impressing in an interview/pitchBe clear, concise, and honest. Address the most important business

issues upfront. Do not waffle, do not make things up. Your pitch or interview doesn't have to be perfect, just credible.

Doing your homework on the person you are presenting too and explaining why you/your business is the perfect fit will also impress.

For running your own businessKnow what is important to your business and where and how the

profit is generated and spend your time on that. For surviving the recessionThink about how your customer is feeling and behaving in the current

climate and flex your model to make sure it is relevant and appealing.

For winning investmentChoose your target investor wisely, tell them why they should invest

and what returns they will achieve in a clear, concise, and credible way.

Explain what you require from them and what you will offer in return. Simple, but not easy!

For making millionsBeing a millionaire is not a career. It is something that happens

because you do something of value that enough people want to pay for.

For you to become a millionaire you simply need to provide a product or service to a large enough market, at a viable price - that's it!

Pete

r Jo

nes

For impressing in an interview/pitchBe truthful, spell out your achievements but don't make up qualifications and previous jobs. If you are honest you will establish a reputation for reliability with your boss and colleagues.

For running your own businessBe results orientated, this will help you to be more motivated, and leave you with a sense of achievement when you reach your goals. Think carefully about what you want, and then focus on how to get there. You'd be amazed at how many people don't do this.

For surviving the recessionProtect your job by making your boss aware of how committed you are

For getting your product to marketCreate a strong brand identity

For winning investmentPassion and commitment are vital ingredients of a winning pitch

For making millionsAlways be confident, believe in what you are doing and don't waver. You won't persuade other people to believe in you if you don't believe in yourself.

Jam

es C

aan

For impressing in an interview/pitchDress appropriately - simple but trueBe concise and focusedMake sure the pitch is of mutual benefit and that you can clearly describe thatKnow your numbers

For running your own businessIn one phrase - the devil is in the detail

For surviving the recessionWith change comes opportunity - seize it when you see it

For getting your product to marketGet it OUT THERE - be seen to be soldDon't take no for an answerCommunicate face to face and over the phone - don't hide behind a computer

For winning investmentKnow your numbers, your market, your product, your competition

For making millionsUnfortunately there is no secret recipe - great businesses are 5% concept, 95% execution- so believe me, there is no substitute for hard work, I'm sorry to say.