In the Dodd-Frank Act enacted on July 21, 2010, the Securities and Exchange Commission has been instructed to amend the net worth standard for an “Accredited Investor”. The new standard excludes your primary residence as part of the $1 million net worth threshold.
Accredited Investor status is based on either net-worth or annual income. Before the Dodd-Frank Act, an accredited investor was required to have at least $1 million in assets, $200k in personal annual income or $300k in joint-spousal annual income. With the Dodd-Frank Act in place, an accredited investor must have at least $1 million in assets besides the value of your primary residence or meet the annual income requirements.
The logic for the change is that a primary residence is not truly a liquid asset as it is depended upon for the basic need of shelter. While it is unfortunate that some accredited investors have been stripped of their status, the damage is far less than it would have been with the original proposal to adjust all requirements for inflation since 1982!
Angelsoft is proud to sponsor and provide the contest platform for The Elevate Pitch Competition held by the Harvard Asian American Alumni (HAAA).
The Elevate Pitch Competition (summit.haaaa.net/pitch) is the first alumni/student/faculty “elevator pitch” competition to give creative thinkers across every discipline and field of achievement the chance to present their ideas for potential funding: Would-be moguls nurturing innovative startups; social entrepreneurs hoping to change the world; emerging artists, designers, authors and performers with unpublished, unproduced works.
Entrants only need to submit a brief proposal and 2- minute video for initial consideration. Chosen semi-finalists will have 8 minutes to pitch their idea to a panel of online judges via webconference, with a maximum of 8 powerpoint slides. At the Live Pitch Finals on October 16th, 2010, finalists will present their updated pitches before a distinguished panel of judges and a large audience during the first ever Harvard Asian American Alumni Summit, held October 15-17 in Cambridge, Massachusetts.
I recently got asked a question I thought was very interesting on angel groups and their income and budgets. The question came from an acquaintance I met on my last trip to Asia, when I visited Singapore and attended the first Asian Business Angel Forum. He is a venture capitalist in Malaysia who runs a pre-seed fund for technology ideas, and a seed fund for technology startups. He asked the following, “What are the current chargeable methods (income) for an Angel Investment Group apart from membership subscription, and what are the pros & cons of such charges?”
May answer to him is included here in full:
Hi Jonathan,
Sorry for such a long delay in getting back to you. Linked In has not yet become a major form of communication for me and I often go many days or weeks between logins.
The three forms of income for an Angel Network that I’m aware of today are member fees, entrepreneur fees, and sponsorship money.
Member fees can include annual membership dues, or registration fees for attendance at each meeting/event. They can also include paying for meals or other costs directly, but these second types of fees do not provide the group with real income, but they do help offset the cost of running the group.
Pros: member dues provide the group a true budget for operations, they make the angels feel more invested in being a part of the group and keeps them wanting to “get their money’s worth” by attending more meetings and participating more often in deals.
Cons: if dues are too high they may dissuade investors from joining, or if the members feel they are not getting their money’s worth they may resent the dues. Also charging people to come to each meeting separately “feels” different than paying annually to come to every meeting. Doing this, may result in less attendance at each meeting if the investors feel that they can save money by not attending some of the meetings, but what you want as the group organizer is to have all the investors participating as much as possible, and attending all your events.
Entrepreneur fees can include a fee to apply, and sometimes a fee to present, and in countries where it is legal they may include a success fee (usually a small percentage of the capital raised) or a finder’s fee upon investment.
Pros: application and presentation fees weed out entrepreneurs who aren’t serious and prevents deal spammers, they also provide added income.
Cons: may hinder deal flow by discouraging entrepreneurs who are strapped for cash. Also the term “pay to pitch” has recently been denigrated by some very outspoken bloggers and angel investors in Silicon Valley over the last year, and therefore groups who charge very large fees to present have been castigated for the practice, success fees and finder’s fees may not be legal in certain countries so they are not an option unless the group becomes a licensed broker/dealer (as in the United States according to the SEC).
Sponsorship may come from law firms, accounting firms, and other service providers who are interested in selling their services to either the Angel Investor members of the group, the entrepreneurs pitching to the group, or both.
Pros: sponsorship can result in a HUGE amount of money each year for the group to pay staff and other overhead costs (some groups attract several hundred thousand dollars a year in sponsorship cash). It also may come in the form of other intangible offers like free office space/event meeting space, free catering at events, discounted legal or accounting fees, etc.
Cons: in my experience I can think of no downside to getting sponsorship. Sponsorship is always a good thing for an angel group as it lends credibility to the group on top of what it contributes to the coffers.
I hope this helps. And now that I’ve written this, I think I’m going to post this on the Angelsoft blog!
Investors in Startup Companies Go Online With Tools Connecting Promising Entrepreneurs To Worldwide Funding
NEW YORK and DUBLIN, June 16 /PRNewswire/ — Today at the Inaugural Business Angel Conference in Dublin, Ireland’s Halo Business Angel Network (HBAN) introduced a set of Internet-based collaborative tools that promise to greatly expand domestic and international angel investing. HBAN, a joint initiative of InterTradeIreland and Enterprise Ireland, is the umbrella organization for angel investing in Ireland. By adopting the Angelsoft platform as the standard, HBAN is dramatically enhancing the ability of Irish entrepreneurs to attract startup investments from angel investors here and throughout the world, while providing them with everything they need to effectively manage and streamline the funding process.
HBAN joins the business angel networks in over 50 countries, including the national angel federations in the United States, Canada and, most recently, Australia, in adopting Angelsoft as the country’s official Internet platform for connecting entrepreneurs with accredited angel investors and venture capitalists. In addition to deal flow management for angels, the Angelsoft tools encourage investors to mentor entrepreneurs, providing angels with unmatched solutions for managing ongoing relationships with startups. Every angel investor within HBAN’s nationwide network will now be provided free access to Angelsoft’s online tools as a benefit of membership.
By giving its member groups open access to Angelsoft, HBAN unifies the deal flow management systems being used, allowing investors from multiple groups across the country to pool their funds and resources in support of innovative Ireland-based startups.
Angelsoft’s comprehensive software-as-a-service will now power the internal collaboration process within each HBAN-affiliated angel network, professionally showcasing opportunities for prospective entrepreneurs, and supporting sponsors and individual members. As the new standard deal flow management tool for all early-stage investing in Ireland, Angelsoft enables entrepreneurs to apply for funding throughout the country, and the world, using one unified application.
Each angel group’s internal screening committee will be able to use the Angelsoft collaboration system to review and rate funding applications from aspiring entrepreneurs, while individual angel investors can use advanced Internet tools to lead deals all the way through to investment. Thanks to Angelsoft, HBAN angels can greatly shorten the time it takes to finalize an investment, while improving the due diligence research that enables them to make stronger investment decisions.
“Today’s announcement by HBAN was made in the best interests of its syndicates of Irish angel investors and entrepreneurs. HBAN is responsible for the promotion of best practice in angel investing in Ireland and until today Irish investors have not had a unified solution in place to effectively manage and streamline their angel financing activities,” said Diane Roberts, National Director for HBAN. ”Angelsoft has built an impeccable track record of success with more 20,000 investors from 500 angel networks in 50 countries. We believe a strategic partnership with Angelsoft will help strengthen our relationships with investors throughout the world, and facilitate international investment into Irish start ups”
“The adoption of Angelsoft by Halo Business Angel Network marks a significant step forward for Irish entrepreneurs and investors, whether in Ireland or elsewhere in the world,” said David S. Rose, Founder and CEO of New York-based Angelsoft. “Through Angelsoft’s powerful tools, angel investors anywhere can tap into a very vibrant start up scene in Ireland, making cross-border investing a welcomed reality.”
With this partnership developed by HBAN, entrepreneurs and members of HBAN affiliated angel groups and networks throughout Ireland will receive full and immediate access to Angelsoft as part of their existing membership dues.
About Halo Business Angel Network (HBAN)
Halo Business Angel Network (www.hban.org) is Ireland’s umbrella group for business angel networks. HBAN is dedicated to promoting angel investment and supporting the early stage entrepreneurial community in Ireland, working to create an eco-systems that promotes and supports early stage investment market. HBAN supports the formation of new and existing angel networks, both regionally and internationally, and within industry sectors. HBAN also acts as a voice to government, stakeholders, business and the media to promote the interests and needs of the angel and early stage investment community. HBAN, a joint initiative of InterTradeIreland and Enterprise Ireland, is the umbrella organisation for angel investing in Ireland.
About Angelsoft
Angelsoft (www.angelsoft.net) is the global provider of Internet-based solutions for early-stage investing worldwide. Angel investment groups and networks, venture capital firms, business incubators and entrepreneurs on six continents rely on Angelsoft to facilitate private equity investments into promising companies. Its award-winning collaboration tools make it easy for seed-stage investment groups to coordinate and process their deal-flow from initial contact, screening, due diligence and ultimately, through to funding and beyond.
The following is a guest post from Chris Rodde, CEO of SeniorHomes.com.
We recently just completed raising venture capital, (a Series A financing), in which we raised $1.1M. The round was led by MentorTech ventures, with participation from Amicus Capital and prominent Bay Area and Seattle angels. We started fundraising in earnest in August of 2009, so from start to finish it took us 8 months. Raising money was a lot harder and took a lot longer than we expected, but obviously with determination and a bit of luck it can be done.
This post covers the top lessons we learned along the way:
Raising money can be incredibly hard. Yes, I’ll repeat it again it case you missed it the first time. I’m sure there are plenty of startups out there that skate through the fundraising process-we were not one of them. Despite having many of the elements of an attractive investment (experienced team, huge market, proven business model) our hit rate with investors was very low. We had to push through hundreds of “No’s” before we got to the few “Yes’s”. Set your expectations properly so that you don’t get discouraged five months in when you are still eating Top Ramen and your bank account is near empty.
Start with great pitch materials. This topic is worthy of a whole series of posts, but I’ll summarize what we did. We found good advice and tried to follow Guy Kawasaki’s 10/20/30 rule for building your pitch for our powerpoint deck. I also would recommend reviewing Mint.com’s pitch deck–very well done. Look at the best advice out there and tailor the outline to fit your story. I’d recommend starting the process by writing a full business plan and creating a detailed 3 year financial model for the business. While nobody will ever ask for these things, they force a level of rigor that will ensure you think things through carefully. After this create a one-page overview, a seven page executive summary, and a 10-15 slide ppt deck. We also created a one page deal summary that summarized the key terms. We used all of these docs extensively. We attached the one-pager when first approaching someone. The 7-page summary we sent out if people wanted more info. The powerpoint is of course for meetings. And finally, the 1-page deal summary we sent to people that showed an interest in investing. For your pitch, I’d recommend planning about 3 weeks time for reviews and dry-runs. We practiced our pitch with about 5-6 friends and advisors and the quality improved dramatically. I’ve shared our 4 docs for your interest, omitting sensitive parts: AllSeniorHomes one page overview – PUBLIC, AllSeniorHomes Executive Summary – PUBLIC, AllSeniorHomes – pitch deck – PUBLIC, AllSeniorHomes Series A Terms Summary – public version.
Cast a very broad net. We created a target investor list of over 350 individuals and institutions that were either a good target for investing or were a good source of introductions. We reached out to over 200 of these people. We started by listing our closest connections and then became experts searching Linkedin. Much of our list we found by searching on the term “angel” on Linkedin. We then prioritized the list based on investor interests, how active an investor appeared to be and how many degrees of separation there was in Linkedin. We reviewed the list as a team to determine (in Linkedin) which of us had the closest connection to people we didn’t know and then started reaching out. Ultimately we found our lead investor, MentorTech, through an introduction from a business school teacher of mine from 10 years ago. One of our key angel investors we found via Linkedin and sent a “cold” email as the first contact–so even the “trawling” that we did worked.
Keep interested investors warm. As we started getting interest from people, we kept a “hot list” of folks that showed some level of interest. We made sure to send updates to these folks at least once every month or two so that when we found our lead investor, they’d be warm.
Be dogged, but not desperate. Investors live busy lives, are often are slow to respond, are flooded with other opportunities, and (some) take many vacations. Don’t take a non-response as a lack of interest. I generally would send a first email and then would send at least 2 more emails, starting with “Just checking in again in case you missed my earlier email… “. These 2nd or 3rd follow up emails worked in at least 4 cases leading to meetings. One of our seed investors finally came through after several long time gaps when he was totally non-responsive and we weren’t sure if he had lost interest–had we not persisted, we would have lost him.
Find a credible lead investor. You’ll read this advice everywhere–it’s critical. Finding a lead should be your primary goal. I have heard of a few startups that raised money from a herd of small angels, but I think this happened more often before 2008 during the time when angel investing was a hobby for many–these hobby investors are scarce now. We spoke to many investors that said, “I’m interested. Come back to me when you have a lead.” The lead investor will negotiate and set the terms with you. Others then will follow. It is hard to get those first investors and there is a good reason why: one of the primary risks in investing is “financing risk”. If you are a $25 – $50k investor talking to a startup, why would you ever invest first? Putting your $25k in might give the company 1-2 months of runway. If you sit on the sidelines and wait until a lead puts in $500k or $2M, you do risk getting squeezed out, but if you are able to get in, the financing risk is greatly diminished. Finding a lead investor is the hardest part of the whole process. If you are targeting VCs, look for those that have led in the past and are interested in your space. If you are targeting angels, determine through networking which angels tend to lead and bring others in–build and nurture a relationship with these folks.
Push hard for real business results. Four months into our fundraising process we started to see real results in our business. Traffic, leads and revenue were spiking. It was when our graphs started to climb up and to the right that we started to get interest from investors. I believe that we likely never would have gotten funded without the impressive results that we had in the Fall of 2009. So figure out a way to keep pushing hard in your business while you are fundraising–the progress you make during this time might be the catalyst for an investor.
Remove the investment risk. There are three types of risk to a startup investment (this explained to me by Geoff Entress): financing risk (will the company be able to raise enough capital to avoid bankruptcy?), business model risk (does the business model throw off enough profit to make this interesting?), and execution risk (can the team pull it off?). Do your best to remove as much of the risk as possible. By the time we had a commitment from our lead, we could argue pretty well that we had removed the business model risk (by proving that our model worked at a local level) and most of the execution risk (by demonstrating the strong progress and results that we had.) And of course, the lead investor then takes away the financing risk for the others you bring in.
Be wary of angel networks. We presented to two angel networks in Seattle. Both were a waste of time and in fact caused us more anxiety than anything. At one presentation, the “CFO for hire” of one of our competitors was sitting in the front row as we went through our detailed plans and exposed our secret sauce–he was madly taking notes. At the other presentation, the lead attorney for our biggest competitor was in the room. In my humble opinion, this is complete bullshit–angel networks should do a much better job of ensuring that the sensitive details that they force startups to share don’t get in the hands of direct competitors. Know that when you apply to these networks, not only will you stand a chance of presenting to your competition, the docs you submit to the angel network or upload to AngelSoft can be accessed by hundreds of people that you can’t screen.
Hire an experienced startup attorney. A great startup attorney is an invaluable asset to have in the negotiations after you have interest from a lead investor. VCs and experienced angels negotiate terms for a living–you don’t. Hire an attorney that sees and negotiates a lot of financings, as he/she will have a good understanding of what terms are “market” and hopefully will turn out to be a shrewd negotiator. We used Beacon Law Advisors–Chris Hurley and Brian Richmond were fantastic. Be prepared for steep bills as a good attorney isn’t cheap–but it’s well worth it. Not only did Chris play a critical role in preparing us to negotiate the major term sheet terms (we led these discussions–he didn’t attend), he led the negotiations when we were going back and forth to finalize the “definitive docs”. During this final stage, the legaleze gets very thick and quite frankly there were times when both Jay and I were barely keeping up with the discussion.
Don’t take your foot off the gas until the money is in the bank. The process goes like this… The first sign of real commitment is when you get a term sheet from your lead (if you are doing an angel round, you should provide the term sheet.) You will then negotiate the major terms and settle on a final term sheet and then you will create and negotiate the “definitive docs”. From the time we received our term sheet to the day it was dually signed was 11 days. From signed term sheet to “funding” took us 18 days. A few tips for negotiating the term sheet: 1) be as prepared as possible for each negotiation (work through all the options and alternatives, model the alternatives and role play the negotiations with your attorney) 2) push hard for the terms you want–the investor likely wants to do the deal nearly as bad as you do so don’t be wimpy, and 3) push hard on the timing (have Saturday meetings if you have to, get your investor to commit to responding by a certain time, and work hard to turn things around quickly when the ball is in your court.) After you get the term sheet, someone will draft the first version of the “definitive docs” which in our case totaled over 100 pages, and then you’ll negotiate all the finer details of these docs. Simultaneously while you work to finalize and then sign the docs you will need to herd all of the other investors you are bringing in to sign and fund on the same day. I’d suggest to clear your calendar the week you are closing as you’ll want to be available at any time to jump in and push things along. The 29 days from receiving a term sheet to funding felt like a tight-wire act–we knew the deal could fall apart at any time. The key is to push as hard as you can until the deal is closed to avoid having something unforeseen blow up the deal.
Good luck!
Chris
SeniorHomes.com is a free resource for people looking for a senior home for a loved one or themselves. We provide rich information about the options available in someone’s local market as well as great content to help them through their decisions. Check out our Seattle assisted living page for an example.
Mark Suster wrote a great article on raising angel money. Mark is a VC and 2-time entrepreneur, and his blog Both Sides of the Table is a great resource for investors and entrepreneurs alike.
We highly recommend reading Mark’s post on strategies for raising money from angel investors. Here is an excerpt.
One side of the argument – angels should price:
18 months ago I sat on a panel with Ron Conway, the legendary angel investor from Silicon Valley who invested in Google, Twitter, Digg and many other early-stage Silicon Valley success stories. The topic of angel pricing came up. Ron said he never likes to do convertible debt deals and always insists on pricing his investments. His rationale was clear, “If I invest in a company I open my Rolodex for them. I help them with business development introductions. I introduce employees. I give them credibility in the fund raising process. Let’s say the company was worth $1 million when I met them and I’ve helped them with both my Rolodex and my cash and they can now raise a round of venture capital at a valuation of $6 million. I would be hurting my own interests. A $500,000 investment at a 30% discount to a $6 million round is still priced and more than $4 million and is certainly worth much less than my investing at a $1 million pre-money where I could own 33% of the company.”
Whether you’re an entrepreneur, angel investor or VC, Mark provides valuable context and insight for you in his blog.
Geography and investment sector are really two most important criteria when searching for an angel network to join. You can filter the list of investors based on where you live, and you can look for groups based on which industry they specialize in. What will an Angel group want to know about me before I can join?
Every group will have different requirements, ranging from a a simple exchange of email to a full blown application process. Investing with others in a group requires trust, so expect them to want to get to know you first.
More on New World: New World is a group of private investors dedicated to providing equity capital to early and mid-stage entrepreneurial companies. Our primary focus is on companies based in South Florida. However, we are opportunistic in considering investments in other locations.
Members of NWA have extensive experience in founding, building, and managing companies in a wide variety of industries. In addition to providing funding, NWA members make their expertise and resource networks available to portfolio companies.
NWA works closely with other regional and national venture firms. In addition, it is supported by such leading institutions as The Enterprise Development Corporation, Florida Atlantic University, and Florida International University.
More on StepStone: StepStone Angels was formed in 2008 to bring together high net-worth individuals who are interested in learning about unique investment opportunities in early-stage growth companies. StepStone Angels recruits new angel members into its exclusive network, engages in education, and is involved in business networking, opportunity generation and advocacy efforts on behalf of its angel network. StepStone Angels is not itself a fund and therefore does not invest on behalf of its community of angels.
Periodically, presentations will be made to the members of StepStone Angels, each of whom will then make an individual investment decision based upon the opportunity presented. Our focus is on providing a systematic process to evaluate opportunities and assist our angels in making the best possible investment decisions. Investments begin at $100,000 and may exceed $500,000 or more.
We are always seeking ACTIVE angels willing to invest, participate and support in the life sciences community in Indiana. We encourage you to contact us for more information or to make arrangements to attend one of our upcoming investor meetings as our guest.
In this release we are welcoming VCs into the Angelsoft network, with a few new features that will make life a lot easier for them. But angels too have a lot to be excited about: We’ve improved some key areas of the program, including adding new deals, customizing industries, and inviting entrepreneurs to collaborate.
All in all we’ve had 317 updates, among them 194 were general bug fixes, 4 were new features, and 29 were smaller improvements. You can see all of them here. The highlights are below:
NEW VC FEATURES
For our venture capital users, these power features could help streamline the process:
Submit Directly to a Partner - You can now require the entrepreneur to select one of your fund’s partners, who will automatically be notified and become deal lead.
Track Deal Status - Deal Status notes, always at the top of the deal dashboard, are a new way to track the status of each deal. Only deal leads and admins may create them.
Printed Progress Report - From the Deal List, select any number of deals and click Actions -> Print Weekly Report. You will get a printed version of a report containing all the deals, their last Status Note, 3 last activity feed items, and general information about the deal, its stage, the deal lead, etc.
NEW ANGEL FEATURES
Quickly Adding Deals - Investors and Administrators can now quickly create a deal without going through the full application form. Create New Deal will open a dialog where you can add a deal by merely its name, or add the entrepreneur information and invite them to collaborate!
Smart Email Drop-box - Emailing-in deals just got smarter. You or your members may add a Deal Lead directly from the email by adding ::lead@email.com to the subject line - which will give that user admin privilege and Deal Lead status.
Better Industries - We’ve added some default industries to our list, including Clean Technology, Education, Gaming, Internet/Web Services, Mobile, and Nanotechnology.
Administrator Unsubscribe - Administrators can now unsubscribe from deal messages if they have no interest in them. Simply go to your Profile, and click Edit Preferences, then uncheck All Deal Emails.
Invite Entrepreneur Template - When inviting an entrepreneur to fill out the application, you can now use a saved template that you can change under Group Preferences.
Whether VC or Angel Investor, your feedback is very important to us. So please let us know what you think! Requests, suggestions, or questions are all welcome. Simply comment below.
The Angel Capital Association released results of a survey that they did today on their web site. They report mixed results projected for angel investing projections in 2009:
While full data for 2008 investments are not yet in – as many angel groups expect to finalize investment deals in December – the picture from the survey is that total angel group investments in North America will decrease by at least ten percent from 2007. Survey data for the ACA Angel Group Confidence Report was collected from leaders of ACA member angel organizations November 6 to 18th. About two-thirds of all ACA member organizations participated in the survey.
Based on survey responses, the average size of group investment per deal in 2008 ($280,936) is about six percent larger than the 2007 average, but the average number of investments per group (6.1) will be about 16 percent less than 2007. The average total funding by each group is therefore estimated to be about $1.72 million, more than ten percent less than the 2007 figure of $1.94 million.
Group leaders had been optimistic about increasing their investments at the beginning of this year, in a survey conducted in January and February, 2008. But in this November survey, nearly half of the respondents (47.9 percent) found their activity was less than they had predicted for 2008. Activity was higher for 16 percent of the angel groups and another 36.2 percent found that their investment activity was about the same as they had forecast.
Also, David S. Rose, our CEO, was interviewed by Tech Confidential today on his view on the impact that the current market climate will have on angel investing. His comment:
TC: A recent survey by the Angel Capital Association indicates that angel group investments in North America this year will decrease by at least 10% from last year. Why do you say the role of angels will increase?
Rose: In the near term we will see a divergence in the angel community. The “casual” angels, people at the lower end of the accredited investor spectrum, will likely pull back during the crisis because their base of investable capital is shrinking, and there is going to be a significant movement away from risk. At the same time, the “serious” angels are likely to maintain or increase their early-stage investing during this period, because innovation doesn’t stop during a recession, and valuations are now quite attractive for startup deals in this tight market.
In the longer term, angels will unquestionably be playing a larger role in the startup space. Plummeting technology and distribution costs have made it possible to start highly scalable businesses anywhere, at any time, and on a shoestring budget. Because of the low capital requirements for these types of businesses, it is very difficult for traditional venture funds to get involved early in a company’s life cycle, since the funds need to put many millions of dollars to work. At the same time, the universe of active angel investors, leveraged by organized groups as well as by global platforms such as Angelsoft, is rapidly expanding to step in and provide funding at the early stage.
Today, in the U.S. early-stage market, angel investors and traditional venture capital funds invest roughly the same amount annually, between $25 billion and $30 billion. I believe that within 10 years, angels will be investing more than twice as much as VCs into startup and early-stage companies.
We think that both articles are valuable reads for anyone seeking angel or VC funds next year. Its clearly a challenging market, but the most important thing to take away from the articles is that there indeed will be funds in 2009 for the right companies at the right valuation, despite the market climate.
