Angel Investing Glen Caplan | July 10, 2008

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“Starting companies are like having babies - fun to conceive but hell to deliver.”

- Anonymous

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Sources of Capital

Dilutive Self Funding (Bootstrapping)

Angel Investors

Venture Capitalists

Corporate Investment (Strategic Investment)

Non-Dilutive Grants, SBIR’s NIH, STTR’s, loans, etc.

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What do VC and Angel Investors Want?

Venture Capitalists 10X return on initial investment in 3-5 years

Angel Groups 5X-10X in 3-5 years… Some similarities to VC’s in

investment return expectations

Individual Angel Investors Make money… less requirement on multiples…

positive returns are great!!!

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Who are Angel Investors?

Individuals Other Successful Entrepreneurs

Organized Groups One signature for all dealings

Better preparation for institutional rounds

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Characteristics of Angel Investors

High Net Worth Individuals

High Risk Appetite

Early Stage Preference Individuals - $25,000 - $50,000

Organized Groups - $100,000 - $500,000

Endangered species?

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Pros/Cons of Angel Investors

PROS

Terms offered by Company

Speed

Less sophisticated on terms and value

Simpler investor relations

CONS

Follow-on investment

Less “Value Added”

Less sophisticated on terms and value

Issues for VC’s

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The Life Cycle of a Venture Deal

100

Ecstasy

-100

Agony

Fun Scale

0

9 to 12 months

Business Plan

Rejections

Due Diligence

They like the idea

Interest Shown

Term Sheet

The Negotiated

Deal

Last MinuteDemands/Expectation Mismatch

All Reject

Reformulate Plan

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Types of Fundraising

Common Stock Rarely Used

Preferred Stock Provides special rights, preferences and

privileges to investors

Convertible Promissory Note Converts at a discount at financing

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4 Principles of Term Sheets

Valuation Pre-Money Valuation Option Pool

Exit Strategy Liquidation Preference Registration Rights

Down-Side Protection Anti-Dilution Protection

Control Protective Provisions

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Disclosure Notebook

Risk Factors

Term Sheet

Use of Proceeds

Business Plan and Financial Projections

Financial Statements

Capitalization Chart

QBV Disclosure

Certificate of Incorporation

Bylaws

Subscription Agreement

Stockholders Agreement

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Securities Law Issues

Rule 504 Raise up to $1 million Unlimited number of investors No required level of investor

sophistication or wealth No formal disclosure

documents – but antifraud provisions apply

One year time period and then a 6 month quiet period

No general solicitation or advertising

Typically used for friends and family

Rule 506 Unlimited dollar amount

Accredited investors only

No general solicitation or advertising

No formal disclosure documents – but antifraud provisions apply

FORM D Filed with SEC within 15 days of

first sale

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Accredited Investors

Individual net worth or net worth with spouse of at least $1 million

Individual income in excess of $200,000 in each of the 2 most recent years or joint income with spouse in excess of $300,000 in each of those years and reasonable expectation of reaching the same income level in the year in which the purchase is made

Director or Executive Officer of the Company

Corporation or partnership with assets in excess of $5 million

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North Carolina Qualified Business Tax Credit

Available to passive investors with North Carolina income A credit not a deduction on your income tax return 25% of the amount of invested Available in the year after the year in which the investment was made A $7 million aggregate limitation per year Must register with the North Carolina Secretary of State’s office Must have $5 million or less in income Must have reviewed or audited financial statements submitted to the

Secretary of State each year Certain disqualified industries – professional services, construction,

retail, real estate, entertainment, recreation Must be engaged primarily in manufacturing, processing,

warehousing, wholesaling, research and development, service-related industry

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Angel Investment Groups

Wilmington Investor Network

Wilmington, NC Piedmont Entrepreneurs

Network

Greensboro, NC Inception Micro Angel Fund

Winston-Salem, NC WED3.org

Charlotte, NC Charleston Angel Partners

Charleston, SC Avansis Ventures

Reston, VA

New Vantage Group

Vienna, VA Emergent Growth Fund II

Gainesville, FL Startup Florida

Sarasota, FL New World Angels

Boca Raton, FL Springboard Capital

Jacksonville, FL Savannah Angel Partners

Savannah, GA

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Angel Investment Groups (Continued)

Atlanta Technology Angels

Atlanta, GA

Seraph Group

Atlanta, GA

Nashville Capital Network

Nashville, TN

Angel Capital Association

www.angelcapitalassociation.org

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… and then what?

“Only one thing is certain about a new venture: It’s going to turn out very different from its business plan.”

- William Congolton, Venture Capitalist

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