Accredited investors investing in early stage companies Angel Investing 201 Accredited investors investing in early stage companies Agenda Stages of investing Why a Portfolio? Due diligence  better performing portfolio

Not all companies use all these stages. Stages of Investing Amounts raised $0 $x0,000 $x00,000 $xx,000,000 $xx0,000,000 Exits Bootstrap Friends and Family Angels Venture Capital IPO Crowd Funding Strategic Investors M&A Kickstarter Private Equity Grants Time Not all companies use all these stages.

Impact investing is not concessionary

What (ideally) happens when investing? Assume you make equal sized investments in 10 companies Then, maybe five companies will provide a return, and one of those will give you a big win. $ $

How Big a Portfolio? 5 10 25 100 Minimum of 10 20 is better

Typical Time to an Exit or Going Out of Business

Positive returns occur at all investment amounts

Decide how much to invest in total What percent of your assets do you want to put into this asset class, and over what period of time? Reserve funds for follow-on rounds.

Improve Return Probability – Do Due Diligence  X Analysis

The Due Diligence Payoff

Approaches to Due Diligence Go solo Prepare to spend a week Be part of a team Our angels working together Build upon diligence reports of others Maybe this is a syndication deal and another team has put in many hours Harder Easier

Performing due diligence. What to understand, and how to do it.

The most important consideration! Due Diligence Goals Gain confidence in the management team. The most important consideration! Gain confidence that the company will have significant social impact Gain confidence that the company will become profitable and provide a return to investors

Due Diligence Process Process can be short cycled if a quality due diligence report is available from another investor Identify deal lead & diligence team Team writes Deal Memo Angels decide whether to Invest Company application, pitch deck & Supplemental info form Deal Memo is not an investment recommendation. Rather, it is a set of observations. Angels make individual investment decisions. Team in conversation with company

Team Validation –Job #1 What to understand How CEO’s emotional maturity Transparent, open, trustworthy, humble, coachable, always learning Good team collaboration and communication skills CEO’s startup experience Prior mistakes are good CEO’s domain knowledge of the company’s market Appropriate titles? How does the C-level team work together? 10 additional phone calls 3 to direct references supplied by CEO 4 to secondary references shared by direct references 3 to former co-workers, board members, investors LinkedIn is your friend Recruit other angels to help Have entire C-level team in the deep-dive meeting/call

The most basic Impact Test Does the company’s primary business mission clearly speak of impact? Does the company’s home page clearly communicate that impact mission?

2nd major test - Efficacy What evidence is there that the company will effectively deliver significant impact? A must-have-impact for impactees? Effective plan for acquiring impactees? Long-term competitive impact advantages? Higher adoption rates? More significant impact? Direct impact?

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Market Validation What to understand How Can they demonstrate that they solve a problem for a payer who strongly feels that pain, and who has a budget to pay for a solution? Are there enough of those payers to generate enough revenue (big market)? Is there thorough validation of the market opportunity? Early revenue from payers is strong validation Phone calls with three to five payers Understand their pain point and budget Understand the sales channels they routinely use Try the product out

Go-to-market validation What to understand How How do they connect with potential customers? What is the cost of acquiring one incremental customer? and retention rate and lifetime revenue What type of marketing and sales organization and partners do they need? Is the sales process scalable? Is the current process just talking to the CEO’s friends? Interview company If there is a significant sales partner, make a call One-on-one call with VP of Sales/CMO

Product/Technology Validation What to understand How How ready is the product for full release? Modern and viable architecture that matches market need? Is the technology scalable? Are developers tightly coupled to market validation? If hardware, is the supply chain in place? Company interview Recruit an angel with domain knowledge, to help, or find an outside expert

Competitive Advantage Validation What to understand How How significant is their competitive advantage? What keeps them successful five or ten years from now? Critical mass of customers? Sales channel lock? Supply chain lock? IP/Copyright/trade secret? Company interview Web search Recruit an angel with domain knowledge, to help, or find an outside expert Patent review

Financial Validation What to understand How Reasonable bottom-up details driving the financial model? Credible, customer-driven revenue plan? Yes: “number of customers willing to pay how much to solve a problem” No: “we will get 10% of big market” Detailed review of their financial model Recruit an angel with domain knowledge, to help, or find an outside expert

Investor Return Validation What to understand How With this investment, can the company achieve a business result that significantly increases valuation Is the pre-money valuation or cap reasonable? What percent ownership will we achieve? What future rounds of investments are anticipated? Acquisition examples? Attractive for syndication? Company interview Recruit an experienced angel to help

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