Tag Archives: Valuation

Angel Investing – Twelve Days of Christmas 2014

12 days of christmas: 12 Snowflakes

On the first day of Christmas
a founder sent to me:
A Financial Model error free Continue reading

Angel Investing – Term Sheets and Value Protection

Accountant With Giant Golden CalculatorThis 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:

Angel Investing – Term Sheet Economics

RechenschieberIn 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

Angel Investing – Term Sheets and Country Western Music!!!

Hank WilliamsProbably 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

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

Angel Investing – Valuation Methods

Question Gold Dollar CoinsFor 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