Serving as the voice of the North American angel community, the Angel Capital Association is pleased to bring you our new Insights Blog, featuring commentary on startup investment trends, the latest on public policy affecting entrepreneurial investment, and other topics top of mind to active accredited investors.
We encourage you to participate in the discussion, and we hope you enjoy the blog!
This post was written by ACA Board Member, Catherine Mott.
What is happening behind the scenes in Washington? Could angel investors be cut off at the knees? Will the number of net job creators be cut to 1/3 of its current count?
Most of us are aware of the background: Section 415 of the Dodd-Frank Act (2010) required that Congress study criteria in 2013 to determine whether changes should be made to accredited investor definitions. This might include raising the financial thresholds (or recommending other criteria) to qualify for accredited investor status for eligibility to invest in private placement securities.
Entrepreneurs waste a lot of time soliciting professionally managed venture funds. Venture capitalists operate according to their own largely unwritten rules. In order to play the funding game, you must learn these rules. Below, I've listed some of the most-common mistakes. They won't tell you everything you'll need to know, but these simple rules should help you understand the VC process and avoid an enormous waste of time, energy, and opportunity.
Rule #1: Choose the Appropriate Audience
I had the pleasure of listening to Frank Peters interview Liz Marchi, coordinator of the Frontier Angel Fund in Montana, last weekend. The podcast interview was fun, as Frontier Angels had two exits in late 2012 – great for the entrepreneurs, investors, and the angel group itself. Or as Liz puts it “everyone understands the ‘do good’ part of
angel investing, but it is great to ‘do well’ so I can invest again… It’s really fun to put capital in to build companies.”
Here’s information on the two exits:
There’s a massive amount available on the interwebs on how to improve the odds for success in new ventures. But almost nothing concrete is available on the care and feeding of your investors. You can do all of the Lean Startup experimentation you want, but we’re here to tell you that one of the the easiest and most underrated skills that a startup CEO needs is knowing how to keep your investors updated, excited and engaged.
This post was written by Bill Payne in conjunction with Angel Capital Association.
Much like the real estate market, the starting point for determining the valuation of seed stage ventures is comparable deals. At what valuation have similar deals at the same stage, in the same business segment and in your region been funded recently? Knowledge of local recent transactions is key to establishing the valuation of the target company. And, it is important to acknowledge that the valuation of startup ventures changes with competition (lots of capital chasing deals in a given business sector increases median valuations) and with the business cycle (angels are less likely to open their pocketbooks during a deep recession, driving down valuations).
This post was co-written by John May and Wendee Wolfson, co-hosts of the 2013 International Exchange at the 2013 ACA Summit.
This year’s International Exchange (IE) at the ACA Summit, was comprised of 120 leading angels from around the world to exchange ideas, discuss challenges, and broaden their global networks. The 100%+ growth in attendance year over year and participation from 25 countries on 6 continents demonstrates a growing appetite for cross-border collaboration.
Below are highlights on some of the key topics from the sessions:
Christopher Mirabile, ACA Board member and Managing Director of Launchpad Venture Group, features a new post from his blog, ScratchPaper, that discusses angel investment decisions, and whether it is best to jump on the bandwagon or swim against the tide. To read the original post, click here.
So the other day I’m chatting with a new angel about a very large round that had lots of momentum – it had been expanded and was still over-subscribed. Classic case, driven by the usual factors: little bit later stage with some traction, so risk is perceived as lower, great pitch by an appealing CEO, backed by a seemingly good team, momentum in the round building quickly, a product people can understand that is already built and in the stream of commerce, and, perhaps most importantly, a perception of scarcity as the round filled up.
For those of us living and breathing angel investing day in and day out, it can be hard to remember just how much angel investing has evolved in the past few decades. At the recent ACA Summit, I recounted some of the key shifts in the environment and described the impact this has had on all of us:
30 Years Ago…was when we really started seeing innovation migrate from large corporate R&D labs (largely due to cost cutting) towards early stage ventures that were more nimble at innovating on their own.
This post was written by Bill Payne in conjunction with Angel Capital Association. Bill is has been actively involved in angel investing since 1980. He has funded over 50 companies and mentored over 100. Bill is also a founding member of four angel organizations: Aztec Venture Network, Tech Coast Angels, Vegas Valley Angels, and Frontier Angel Fund.
Perhaps the most difficult and contentious negotiations between angels and entrepreneurs develop over the valuation of seed stage deals. Most angels decided long ago that the answer is not convertible debt, which only postpones the valuation negotiations until a subsequent round. The best solution is a better understanding of the appropriate valuation for these risky seed stage deals and a proliferation in the use of sound methodologies for valuing early startups. Furthermore, the key to many valuation methods is a comparison to the median valuation of similar deals, that is, startups in the same region and comparable business sectors. Much like the real estate asset class, the valuation of comparable startups is an important consideration.
Yesterday I was on a conference call with several angel investors talking about public policy two issues that could have a huge impact on angel investors – and really the startups angels support. It strikes me that very few angel investors know these issues, so I’d like to make sure a few more people know about them. Both could change who qualifies to be an accredited investor and make it more difficult for investors to verify their accredited status.
SEC Rulemaking on General Solicitation in JOBS Act
Many of us know about the JOBS Act, passed a year ago to provide more access to capital for small businesses and therefore more jobs. Much of the Act hasn’t been implemented yet because detailed rules need to be set by the SEC. Most of the conversation has been about equity crowdfunding, but there is another issue that may have a much bigger impact on angel funding: how your accredited status is verified.