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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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Hutchison Law Group
5410 Trinity RoadSuite 400Raleigh, NC 27607
Tel: 919.829.9600Fax: 919.829.9696hutchlaw.com
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