On the first day of Christmas
a founder sent to me:
A Financial Model error free Continue reading
Posted in Angel Groups, Angel Investing, Financial Models, Golden Seeds, Opinion, Uncategorized
Tagged Angel Investing, Angel Investor, Financial Modeling, Golden Seeds, Happy Holidays, Valuation, Women in Angel Investing
This is the fourth post on Term Sheets and how they impact returns to investors. In addition to economics and control, term sheets also contain provisions that impact how as investors we can add some level of protection for the value of our investment. Although there are a number of provisions in the term sheet addressing this, the three most important to me are:
Posted in Angel Groups, Angel Investing, Due Diligence, Opinion, Term Sheets, Uncategorized, Venture Capital
Tagged Angel Investing, Angel Investor, Anti-dilution, Female Investors, Golden Seeds, Information Rights, Term Sheets, Valuation, Value Protection, Women Angels, Women in Angel Investing, Writing Checks
In my last post, I listed four areas that Term Sheets cover. This week, I thought I would focus on some of the “Economic” terms. The terms below apply to Convertible Preferred Stock, although there are clearly other types of securities used to fund early stage companies. These “economic” terms outline who gets what and cover such concepts as:
Valuation: For a Preferred Stock Offering, this represents the per-share price that you will be paying for the investment as well as the “pre-money” company valuation that this price implies. In addition, the term sheet will typically indicate the “post-money” valuation which includes in the company valuation the new funds being invested. Continue reading
Posted in Angel Groups, Angel Investing, Due Diligence, Golden Seeds, Term Sheets, Uncategorized, Venture Capital
Tagged Angel Investing, Early Stage Company Valuation, Early Stage Investing, Exit, Golden Seeds, Investment, Liquidation Preference, Liquidity Events, Term Sheet Economics, Term Sheets, Valuation
Probably one of the things I have found that many of my fellow angel investors enjoy even less than analyzing the financial model of a company they are contemplating investing in (see my last post ) is diving into the Term Sheet. A term sheet is a document that lays out the key terms of a proposed investment. Once those key terms have been negotiated and the term sheet is executed by both parties, it serves as the basis for drafting the other documents which comprise the legal closing documents in a transaction.
At a recent meeting, one of colleagues made the comment that term sheets are like country western songs – you know those soulful ballads that bemoan the difficult breakup, the secrets never shared, the soulmate you trusted who walked away and left behind a pile of debt…… When you make an angel investment you are not only entering into a financial transaction, you are entering into a relationship with the CEO/founders/management team. If you have been investing in this sector for awhile, it is likely you have made at least one investment that did not turn out as planned! Another way to think about the term sheet is a kind of “pre-nup” for angel investing. Clearly if you don’t really believe that a particular investment has the potential to be a good partnership over time, you probably shouldn’t make the investment. Continue reading
Posted in Angel Groups, Angel Investing, Due Diligence, Financial Models, Golden Seeds, Opinion, Term Sheets, Uncategorized, Venture Capital
Tagged Alex Wilmerding, Angel Investing, Deal Economics, Early Stage Company Valuation, Exit Strategy, Follow-on Rounds, Golden Seeds, Term Sheets, Valuation, Women Angels
“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
Posted in Angel Groups, Angel Investing, Due Diligence, Financial Models, Opinion, Uncategorized
Tagged Angel Investing, Angel Investor, Early Stage Company Valuation, Exit, Financial Modeling, Golden Seeds, Investment, Investor, Valuation, Women Angels
There 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
Posted in Angel Groups, Angel Investing, Golden Seeds, Opinion, Uncategorized, Venture Capital
Tagged Adam Quinton, Angel Investing, Angel Investor, Davos, Diversity Matters, Early Stage Company Valuation, Founders, Golden Seeds, Harvard Business Review, Investment, Investor, Rules of Investing, Selection Criteria, Strategies, Valuation, Women 2.0
For those of use entering the world of angel investing with a background in evaluating publicly traded equities, the valuation process for this investment class can be a real challenge. PE multiples and comps are very difficult to apply to companies that are not only pre-earnings but in many cases pre-revenue. The earlier the life cycle of the company, the less data points exist to determine a reasonable valuation.
In this post, I will outline some of the valuation methods you may want to consider for evaluating these early-stage investments (Note: please click on the title links to learn more about these methods): Continue reading
Posted in Angel Groups, Angel Investing, Golden Seeds, Uncategorized, Venture Capital
Tagged Angel Capital Association, Angel Investor, Benchmark Method, Bill Payne, Dave Berkus, Early Stage Company Valuation, Equity, Exit Strategy, Golden Seeds, HBS, Portfolio Company, Scorecard Method, The Berkus Method, Valuation, Venture Capital Method, William Sahlman, Women Angels, Women in Angel Investing, Women Investor
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%.
Posted in Angel Investing, Opinion, Uncategorized, Venture Capital
Tagged Andy Rachleff, Angel Capital Association, Angel Investor, Female Angels, Investment, Investor, Investor Returns, Robert Wiltbank, Valuation, Women in Angel Investing, Women Investor
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
Posted in Angel Investing, Golden Seeds, Opinion, Uncategorized, Venture Capital
Tagged Angel Investor, cap tables, capitalization, Equity, Female Angels, Female Investors, Golden Seeds, Investment, Investor, Money, ownership, Valuation, Women Angels, Women Investor
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”!
Posted in Angel Investing, Opinion, Uncategorized, Venture Capital
Tagged Angel Investor, Charles Moldow, Female Angels, Female Investors, Friends & Family, Golden Seeds, Investment, Investor, TechCrunch, Valuation, Women Angels, Women in Angel Investing, Women Investor