Tag Archives: Investor

Angel Investing – Financial Models

Gold Guy With Business Reports“I am a serial entrepreneur with a business idea that will generate $100 million in sales in 3 years!!!!” , sound familiar? As an angel investor, I meet many passionate entrepreneurs who present a very optimistic outlook for the future of their business concept. Building financial projection models is a very difficult process for the CEO of an early-stage company and an even more difficult process for the investor to believe in.

So, is there any real value in financial projections? Continue reading

Angel Investing – Rules for Investing

stockpile 05There are many screens that angel investors employ when trying to decide which investment opportunities make sense for them. Selection criteria often include:

  • The “big” or “disruptive” idea
  • Quality Management Team
  • Large addressable market
  • Significant barriers to entry
  • Plausible Exit Strategy & “reasonable” valuation Continue reading

Does Angel Investing Generate Investment Returns?

A recent article by Andy Rachleff published in TechCrunch entitled Why Angel Investors Don’t Make Money … And Advice For People Who Are Going To Become Angels Anyway, paints a very dismal picture for the potential returns to angel investors.  Rachleff uses as a proxy for potential returns to angel investors, data from the venture capital industry where he cites that ” about 3 percent of the universe of venture capital firms – generates 95 percent of the industry’s returns” and that overall returns for the industry are less than compelling. Rachleff cautions angel investors not to enter this investment class with an expectation of making money.

In response,  Robert Wiltbank, PhD a professor at Willamette University, has shared the research he has conducted on angel investing in conjunction with the Kauffman Foundation, NESTA, the University of Washington, and Willamette University. In his recent TechCrunch article entitled  Angel Investors Do Make Money, Data Shows 2.5x Returns Overall, Professor Wiltbank concludes from his research that the best estimates  of overall angel investor returns is 2.5 times investment over a four-year holding period.

As an angel investor, this is a very interesting debate to follow and both Rachleff and Wiltbank have interesting perspectives to share. Where Rachleff and Wiltbank agree is that a portfolio approach is important when investing in this sector as the probability of success for any one investment is less than 50%.

Cap Tables – Puzzles for Investors

A Cap Table, which is an abbreviation for capitalization table, is a record that outlines the ownership of a company. The details of a cap table include not only the names of the shareholders but also the type of equity security they own, the prices they paid and any other options or future equity that will impact the fully-diluted ownership of the company. Continue reading

The “Friends and Family” Round

In a recent article entitled “Things to consider before asking friends and family to invest in your venture”, published by TechCrunch, the author Charles Moldow provides the following guidelines to follow when contemplating raising funds from “friends and family”:

  • “Not all capital is created equal” – Moldow describes this round as “love money” where investors need to understand the risk of loss of their invested capital at this very early stage.
  • “Less is more” – don’t give away too much equity too soon.
  • “Don’t ask for money they can’t afford to lose” – this seems like a pretty basic concept, however too often we see an investor who uses funds for this investment that they truly can’t afford to lose.
  • “Educate your friends and family on the investment cycle” – make sure your early investors understand that additional financing will most likely be required down the line and what the implications are for their investment stake and potential returns.

As an angel investor, I have experienced many situations where the terms or structure of the “friends and family” round have made additional financings problematic. Oftentimes “friends and family” investors are not financially sophisticated and don’t understand how to value an early stage company or how additional financing rounds will impact their ownership percentage. This article is a must read for anyone contemplating a “friends and family” round and as the author states anyone still wanting to “be invited home for Thanksgiving”!

The Jockey or the Horse?

I am frequently asked the “jockey or the horse” question – whether it is the team or the idea that is most important when considering an early stage investment opportunity. The real answer for me is that both are critical in the decision process. That being said, although I may invest in a company where the “idea” is not 100% formulated, I will always walk away from any opportunity where I am not completely convinced that the right team is in place and more importantly it is one that I want to be in partnership with over the long term. Continue reading

Angel Investing is similar to playing golf…

OK, so you are looking at the title of this post and asking yourself, “what in the world is she thinking; how can you possibly compare angel investing to playing golf”?

Let me explain… Continue reading