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.
David Teten, a serial entrepreneur and author of The Virtual Handshake: Opening Doors and Closing Deals Online, will be holding a webinar next week called, “Where are the Deals? Private Equity Fund’s Best Practices in Deal Origination” David will be talking a lot about the use of Angelsoft to both source deals from the Investor Community, and also using Angelsoft to manage all of your deal flow.
Other things that will be discussed:
-> In the current tough climate, how can you lower your deal origination costs?
-> How are you positioning yourself to become your target’s preferred investor?
-> What are the primary sources of deal flow for institutional investors?
-> How can you use online networks and other “Web 2.0” internet technologies to increase your pool of sources?
-> What are the earmarks of a potential investment opportunity?
-> What best practices from sales and executive recruiting can you apply to the deal origination process?
-> How do you increase your inflow of useful referrals?
-> What is the best way to make warm cold calls?
TechCrunch posted an article yesterday about Kleiner Perkins accidentally publishing 588 entrepreneur applications to the open web. Kleiner Perkins has a home brewed online submission form for entrepreneurs to submit through. According to the TechCrunch post:
That data was accidentally published on the web by Kleiner Perkins’ former hosting provider, Meteora Technologies Group, in a SQL file, which is easily readable in a text editor or other application. The file was then indexed by Google and found in a query on one of the companies (the guys from Fruux found it). Applications from 588 companies are in the file (Google has cached an incomplete version of the file here). A quick perusal shows very detailed information from each of these companies.
This “oops moment” at Kleiner Perkins’ is exactly why funds trust Angelsoft to manage all of their deal-flow. VC funds are in the business of finding and funding the best new companies - not in managing a software database or application.
When entrepreneurs apply through Angelsoft the data is encrypted and secure. Our database itself exceeds the most stringent security standards. We have a dedicated staff of engineers that works every day to ensure the integrity and the security of the data held within Angelsoft. These are full-time employees, not interns or associates who spend a portion of their time maintaining an in-house system.
The blame is really not on Kleiner Perkins. Until Angelsoft, there was no choice for proper deal-flow management software. Many firms just need to find a moment in their hectic schedules to move their data over to Angelsoft. Over 50 VC funds have entrusted us with their deal-flow management, and we are signing up more each day. The funds that have moved over tell us that they feel better knowing that their most valuable asset, their deal flow, is in a safe place with a team of professionals watching over it. Even better, they spend more time looking at DEALS - which is where they want to focus their time anyway.
The New Entrepreneur Newsfeed gives you even more visibility into the funding process, and how your application is being judged and evaluated.
Here is a guide to better understand what each news item means:
- Investor comment on Community:
An investor has posted a comment on your Community deal wall and chose to share it with you. This comment is available to all investors on the Angelsoft Investor Community. You may reply to this comment just once, and it will be posted right below the investors comments for all investors to see.
- An Investor gave your application a Thumbs Up:
Investors on the community can moderate deals Up or Down. You can see your total ratings from investors, including your current relative position among community deals.
- An Investor gave your application a Thumbs Down:
An investor has rejected your deal by giving it a thumbs down. This will affect your relative position in the community negatively, however positive ratings can cancel the negative ones out. Again, you can see how it affects your relative position right on your Investor Community box on the top left.
- An Investor has viewed your Open Deals application:
An investor has clicked on your application and read it over
- New Investment: $100,000 from John Doe, East Coast Angels
An investor has committed funds to your deal
- New Investor: John Doe, East Coast Angels
An investor has expressed interest in funding your deal, but has not entered an investment amount.
- Invitation: Screening Event 2008:
An investment group has invited you to an event. Clicking on the event name will link you to the details
- Referred from Acme Angels to East Coast Angels:
Angelsoft is a network and groups will often share deals between them. This is called a referral. When your deal is referred, it is sent to the second group as if you had applied to that group directly. A new application will show up on your My Applications tab.
- East Coast Angels invited Acme Angels to collaborate:
To finish out a round of financing, Angel Groups often need to collaborate on a deal, or co-invest. When this happens, Group B is invited into Group A’s deal room. In this case, you will not see a new application on your My Applications tab
- A member of East Coast Angels has referred your application to his group:
Congratulations! An investor has referred your deal from the Investor Community to his investment group for further review.
- An investor has viewed your [group name] application:An investor from the designated group has clicked on your application and read it over.
- Application posted to the Investor Community by John Doe: The Investor Community is a feature inside Angelsoft. Investors post deals there when they are looking for outside investors to finish out a round. Applications posted by investors are labeled differently than those posted by entrepreneurs.
The “Two Johns,” Knox, and Bill - seasoned investors all - provide some sobering, yet optimistic commentary on the current state of angel investing.
Some key realities and trends identified, in short (Entrepreneurs, take note):
Focus. Focus. Focus on businesses that move quickly to profitability and positive cash flow.
If you are an entrepreneur raising money now, take what you can get. Like, right now.
Valuations will likely be compressed.
Angels today will be much more proactive in managing their portfolio companies. While amounts invested may or may not change, angels will be much more selective and are going to pay a lot of attention to how their money is spent.
And, as we’ve been observing here at Angelsoft for some time, angel groups will increase syndication in order to pool funds and expertise, diversify, and spread risk (Hmmm…wouldn’t it be neat if there was, like, a platform, that facilitated syndication???).
My two cents, for what it’s worth: Despite the current doom-and-gloom narrative, and in a week where we’ve seen thousand point swings in the public markets, it was absolutely refreshing and encouraging to be in a room with 75 angels who, it seemed, can’t wait to fund the next great startup. I say, just get out of their way!
Tech Coast Angels, one of the largest angel groups in the world, has been evaluating and considering abadoning their own proprietary deal flow platform and moving to join the 425 investment groups using Angelsoft. Frank Peters, the TCA chairman, posted today on his blog the top 10 (actually 11) reasons why he feels that moving to Angelsoft is the right move for TCA.
The post is here where you can read all 10 reasons, and its a great read because it outlines not only why moving to Angelsoft makes sense for TCA, but really why it makes sense for most investment groups.
My personal favorite is number 7:
7. Is angel investing evolving, changing right before our eyes? The upset of the US economy is having an effect, but will the nature of angel investing change in other ways we can’t even imagine today? Very likely and Angelsoft will be a catalyst for this change.
At Angelsoft, we believe whole heartedly in number 7 not only for angel investing, but as more and more VC’s adopt our platform, we believe Angelsoft will bring positive change to all early stage investing.
A close second and third are:
5. The Wisdom of Crowds: This same world-wide community of users will generate more suggestions for improving Angelsoft than any one group would ever dream of. Just this month, Angelsoft released a new version with over 500 new features and improvements, all for free and available to all their angel groups. The TCA website has been tailored to our needs for the past few years, but its capabilities will never keep up with the capabilities of Angelsoft.
4. Syndication: We join a world-wide community of angel investors and VCs. Angelsoft has over 400 angel groups using their system and a growing number of VCs. Opportunities to syndicate deals among these many groups becomes as easy clicking the mouse to make an administrator in Las Vegas, Pasadena, or Boston aware of an exciting deal here at TCA that’s looking to top-off its round.
- An Investor has viewed your Open Deals application: 
- New Investment: $100,000 from John Doe, East Coast Angels
- Invitation: 
- Referred from Acme Angels to East Coast Angels:
- An investor has viewed your [group name] application: