ACEF Newsletter

Many angel investors mentor to apply their specific experience and know-how to help more startups become fundable and to help companies that have been funded grow and succeed. Angel mentoring offers unique advantages to entrepreneurs and the U.S. economy. The Angel Resource Institute – the new name for ACEF - will study and share mentoring processes and practices

These days, angel groups are much more likely to have adopted a standard term sheet as a starting point for negotiations with entrepreneurs. Entrepreneurs improve their credibility by understanding basic terms and angel risk.

Due diligence can be a very beneficial and yet time consuming process for both angels and entrepreneurs. Read how angels and entrepreneurs can improve the experience and their odds of success.

SmartCells, based in Beverly, MA, was purchased by Merck for more than $500 million in upfront and potential milestone payments. It’s not every day that a $9.8 million angel investment returns 50X. Several angel groups were involved.

For many angel groups, deal syndication is becoming a way of life. They are combining forces to fund Series A rounds that previously might have hinged on venture capital. The over-subscribed Series A round of $1.6 million included eight angel groups.

It can be challenging for new angel groups to make more than two or three investments in their first year, even when deal flow is exceptionally good. TiE Angels, founded last summer in California’s Silicon Valley, has invested in seven portfolio companies in eight months.

Angels readily understand the benefits of diversification and balance in their investment portfolios. It’s the same principle with human capital. That’s why many angel groups are working to attract more women angels and welcome investable women-led businesses.

The Angel Capital Association and Angel Capital Education Foundation named James Geshwiler—managing partner of the CommonAngels in Boston, ACA co-founder and founding chair, and ACEF chair emeritus, as the recipient of the 2011 Hans Severiens Award.

As social media has gone from fad to phenomenon, some entrepreneurs are using “crowdfunding” to raise the capital needed to take their startup businesses to the next step. There are considerations for entrepreneurs, their future investors, and the SEC.

Mentoring is a significant component of PIPELINE, a year-long “immersion experience” based on the studying many nationally renowned fellowship models. PIPELINE equips high-growth entrepreneurs with training, networks, resources, and mentors. The program is one of the top entrepreneurial mentoring programs in the country.

The Angel Capital Education Foundation (ACEF) is partnering with Silicon Valley Bank and CB Insights to build a comprehensive database of angel investing for use by angels and angel groups. The data will be used to produce the Halo Report, the first ever quarterly report on angel investing statistics and trends.

Six hot areas of sector investing, early exits and large returns, entrepreneurs who hit home runs, and a look into the future of angel investing, plus the exciting entrepreneurial aura of the Boston area, are on the agenda of the Angel Capital Association’s 2011 Summit, April 4 - 6.

We asked three experienced angel investors to give entrepreneurs “insider tips” on how to be more successful at raising angel capital. It starts with seeking advice, understanding how angel groups work, and walking in an angel’s shoes to recognize that exits and returns are priorities and that execution is the secret sauce.

These days, large companies’ money is very green and their interest in tapping into entrepreneurial innovation is high. This creates an interesting exit environment for angels and entrepreneurs who want to sell. But before trying to dance with the so-called “Big Dogs,” it pays to prepare.

When it comes to collaborative investing, Sierra Angels of Incline Village, NV is one of the most pro-active angel groups in the country. Recently the group transformed an underfunded bridge loan into an over-subscribed $4.5 million Series A involving eight angel groups.

RAIN Source Capital is building a national community-based system of investors and capital growing private companies close to where investors live. The RAIN Fund Network of angel groups has 23 angel investor funds in six states with 450 individual angel investors, $150 million invested, $20 million in committed capital, and more than eighty portfolio companies. They plan large growth in the coming years.

New companies are almost solely responsible for all net new job growth in the U.S. for most of the last three decades. Startup America, a new public/private initiative aims to increase the ranks of entrepreneurs, the number of startups, and find new ways to help entrepreneurs and young companies succeed. Learn about the initiative from the perspective of corporate leader HP.

The Global Entrepreneurship Program (GEP) is a U.S. State Department-led initiative designed to promote entrepreneurship around the world as a primary plank in U.S. foreign economic policy. GEP is a collaboration of public, private, and non-profit international partnerships. One of GEP’s marquee efforts in emerging markets is to expand angel networks, working with ACEF in countries like Egypt, Indonesia, Turkey, Jordan, and Morocco.

BlueTree Allied Angels of Pittsburgh recently experienced a 28 percent compounded ROI on the exit of medSage Technologies, LLC. This is a classic angel deal. Angels invested in two rounds of $1.3 and $1.2 million, and medSage was able to scale and start generating cash with no VC money required.

Revenue capital (also known as royalty-based financing) offers a potentially flexible financing alternative for entrepreneurs seeking additional capital. For investors, revenue capital presents an opportunity to receive regular and increasing returns as the company gains traction instead of waiting multiple years for a liquidity event.

Female angels represent less than five percent of the European angel market according to a recent report by EBAN. With 28 percent of EBAN groups reporting no women members at all, EBAN has set initiatives to increase the number of women in the business angel market to 20 percent of business angel investors in Europe by 2015.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides a 100 percent exemption for gains in qualified small business stock from investments made between September 27, 2010 and December 31, 2011. This creates an immediate opportunity to lock in a zero percent capital gains rate on qualified long-term investments held at least five years.

Three experienced angels from the East coast, Midwest, and West coast share their ideas on how accredited investors who think they might want to participate directly in early stage equity can determine if angel investing is right from them. Joining an angel group, participating in angel investing workshops, and seeking mentoring from other angels all increase understanding.

A lot has been written, blogged, and tweeted lately about super angels. The Angel Capital Education Foundation is sponsoring a research project to further the understanding of the influence and impact that super angels have on entrepreneurial innovation and angel investing. Researchers and angels discuss their initial findings and impressions.

Secondary transactions involving big-name companies such as Facebook and Google have helped broaden the awareness of secondary markets as an option for shareholders, including angels, who want to sell shares in a company ahead of an acquisition or IPO. Read about two firms that connect accredited buyers and sellers in the secondary marketplace.

The Ohio TechAngels have launched a comprehensive project to answer the question: “How can our members sitting on the Boards of our portfolio companies encourage more lucrative exits?” This angel group has developed processes and tools to equip angels to facilitate and accelerate lucrative exits for all shareholders.

More than twenty states currently have tax credits for early stage investment. These credits range from 10 to more than 50 percent. Read about how angel investors in Georgia, Minnesota, and Connecticut played significant roles in getting tax credit legislation passed and signed into law.

Founded in 2006 in Austin, TX, CTAN has is organized as a network. In 2009, CTAN invested about $3.5 million in twelve companies. This year’s outlook is up about 25 percent. Read about this seventy-member angel group that has invested about $12 million in more than forty companies in less than five years.

The financial reform bill—now known as the Dodd-Frank Wall Street Reform and Consumer Protection Act became law in July. Two sections of the legislation are of particular interest to angels and entrepreneurs: Section 413, Adjusting the Accredited Investor Standard, and Section 926, Disqualifying Felons and Other "Bad Actors" from Regulation D Offerings. Learn some of the effects of the new law.

At Kauffman Labs, the word “labs” has a double meaning—a place for participating entrepreneurs to receive the best advice and information as they go about starting companies and a place of hypothesis testing and study to determine how to inspire more first-time entrepreneurs and how to make those entrepreneurs more successful in producing high-growth firms.

The Angel Capital Education Foundation announces Valuation of Early Stage Companies, the newest offering in the internationally recognized Power of Angel Investing series. The workshop is designed to educate angel investors, entrepreneurs, and others interested in access to capital on a variety of ways to value pre-revenue companies.

This conference for entrepreneurs, investors, and the innovation community is offered on January 26-27, 2011 in San Jose. Educational sessions on funding strategies are offered from op-tier professionals from venture capital, angel networks, business accelerator models and other industry sectors for an exclusive and in-depth day and a half discussion on the future of funding. Discounts are available for entrepreneurs and angel investors who belong to the Angel Capital Association.

As an investment class, angel groups continue to proliferate, evolve, and mature. Growth, financial stability, and investment success are priorities. Groups train for deal leads, raise sidecar funds, seek earlier exits, contribute to broader support for entrepreneurship, and manage through up and down economies. Some group members pursue angel investing as a career.

Angels know that the CEO is critical to the success of any startup company. ACEF asked Tom LeFevre, a twelve-year member of the Angels’ Forum in Palo Alto, CA and co-founder of Intuit, to share his perspective on assessing startup CEOs.

ICE Angels was founded in 2003 and is one of the first New Zealand angel groups. The group has more than ninety members and affiliates who have invested more than NZ$14 million (US$9.8 million) in 42 investment rounds that totaled more than NZ$26 million (US$18 million). There are 17 companies in ICE Angels’ portfolio. In 2009 the Kiwis had a record year.

The Angel Capital Association and Angel Capital Education Foundation named John May—managing partner of the New Vantage Group, ACA co-founder and chair-emeritus, and active participant in five angel groups—as the recipient of the 2010 Hans Severiens Award. ACA also announced Modumetal of Seattle, WA, as inaugural winner of the Luis Villalobos Award.

Continuing education and skills building contribute to stronger connections and relationships between members of angel groups while helping angel group members become better angel investors. Groups become better at conducting due diligence, understanding the concepts and approaches to term sheets, and leading the valuation process.

The same privacy protection and data security issues that affect individuals and companies create important considerations for angel groups. Collecting and storing only necessary private information, understanding providers’ privacy policies, and granting access to information only on an as-needed basis are all good practices.

In July, Congress approved the final Restoring American Financial Stability Act of 2010 (now called the Dodd-Frank Wall Street Reform and Consumer Protection Act) based on an important amendment in the Senate. The amendment, which was included in the final bill, will ensure that high growth entrepreneurs continue to have access to a strong pool of angel capital and that investors are better protected from fraud. The final bill had not been voted on in the Senate as of the publication of this article

The Angel Capital Association’s annual Summit was held May 5 - 7 in San Francisco. More than 400 attended, the largest gathering of angel investing groups in the world. Presentation, panel discussion, and roundtable topics included syndication, working with venture capitalists, accelerated exits, trends in angel investing and group models.

“The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis,” a working paper published by Harvard Business School quantifies the positive impact of angel investors on the new ventures they fund. Overall, the study results suggest that investments by angels improve entrepreneurial success.

Learn more about four conferences: - Auto Venture Forum, September 22nd in Novi, Michigan - National Angel Capital Organization Annual Summit, October 6-8th in Montreal - National Association of Seed and Venture Funds Conference, October 13-15th in Baltimore - Investors Circle National Venture Fair and Symposium, November 10-12th in Washington, DC

The Angel Capital Association’s annual conference includes best practices and networking with peers and “rock star” investors. The event attracts angels who invest in groups from around the world. ACEF offers a Pre-Summit agenda that includes several full- and half-day professional education workshops and seminars.

CoreNetwork of Toledo, OH recently completed a successful exit with Pump Engineering, LLC, doubling the angel group’s investment in about twelve months. This is the group’s third successful exit in six years.

Angel groups invest in LLCs and C corporations. Depending on investor objectives, there are advantages and limitations to each type of entity. These considerations are addressed from legal, accounting, and angels’ points of view.

A twenty-page term sheet, years of VC experience, and empathy for fellow angels, prompted Dan Rosen, of Alliance of Angels in Seattle, WA, to develop a model term sheet for angel investors and entrepreneurs.

Due diligence comes in many shapes, forms, and sizes. Share the perspectives of an angel group that invests through structured funds and another that follows the network model with members making individual investment decisions.

Making a background check a pro forma part of the regular diligence process can help angels identify hidden icebergs and deal killers. Castle Branch, a screening and investigative firm, provides a background check package tailored specifically for angel groups.

Tech Coast Angels provides a catchy, entrepreneur-friendly presentation to help entrepreneurs create memorable investor presentations to capture potential investors’ attention.

Angel group members tend to be at the heart of a region’s entrepreneurial community, making potential conflicts of interest almost inevitable. At Mid-Atlantic Angel Group (MAG), disclosure is a straightforward and routine part of the group’s deal flow process.

In 2009, Sand Hill Angels, a 50 member all volunteer group, invested more money in more deals than in any previous year. Engaged members, good processes, and economic conditions all contribute to the group’s robust deal flow.

"High-Growth Firms and the Future of the American Economy" and "The Economic Future Just Happened", two studies by the Ewing Marion Kauffman Foundation of Kansas City, MO, point to entrepreneurship, and particularly high-growth entrepreneurship, as a fertile and perhaps under-recognized source of new jobs as the country struggles to recover from the economic challenges of the last few quarters.

ACEF's newest workshop presents emerging trends and best practices in capital raising by early stage companies. The seminar is designed to inform angel investors, entrepreneurs, economic development organizations, and technology incubators.

The angel community lost a true leading light this Fall - Luis Villalobos, founder of the Tech Coast Angels, as well as ACEF and the Angel Capital Association.

"Calling All Angels," a recent article by Donald Jay Korn published in Financial Planning magazine explores the potential implications of IRS Section 1202 for angel investors and entrepreneurs.

Angels serve on boards of directors of portfolio companies because they want to contribute to the success of those companies. As board members, how do they best protect themselves and their personal assets?

John Huston, founder of the Ohio TechAngel Funds in Columbus, discusses a successful and innovative approach to negotiating valuation with entrepreneurs that aligns entrepreneur and angel interests and is working quite well.

PAN is having a record investment year, having invested $2 million, growing their number of portfolio companies by 25 percent since January. The North Carolina group is starting a third angel fund targeted at $5 million.

"Entrepreneurial Impact: The Role of MIT," published by the Kauffman Foundation, highlights the role universities can play in entrepreneurship and how angel investors can make a difference in the entrepreneurial ecosystem at local universities.

In this difficult economy with VCs pulling back, time to exit and follow-on rounds can be a challenge for angel groups and portfolio companies. Keeping dry powder for future rounds stands angel groups in good stead.

The National Angel Capital Association promotes angel group syndication throughout Canada through successful two Co-investment Summits. Forty companies presented at the Toronto events.

Entrepreneurs and angel investors throughout the United States may seek out cost effective medical coverage via special Web site partnership.

From sizing the market, to building an effective team and board, to creating a milestone-specific financial roadmap, "Sowing the Seeds of a Successful Start-up" offers a real-world perspective on considerations for budding entrepreneurs.

More than 200 people from around the world attended and exchanged information about developments in angel investing during the December event in Beijing, China.

William H. Payne is the recipient of the 2009 Hans Severiens Award. Payne is a member and active participant in Tech Coast Angels, Aztec Angel Networks, Vegas Valley Angels, and Frontier Angel Fund, all groups he helped found.

A good understanding of accounting for equity and revenue recognition can help entrepreneurs, their investors, and board members ask the right questions and know when to seek outside expertise to avoid unpleasant surprises.

ACA's annual Summit was held April 15 to 17 in Atlanta. This event, the largest gathering of angel investors in North America, focused on trends and best practices in angel investing. ACEF provided five Pre-Summit professional education programs.

Angel groups' 2009 strategies include increased investment in portfolio companies, preferences for co-investing, less appetite for new deals, fewer anticipated exits, and a predicted increase in both quantity and quality of deal flow.

Knox Massey, of the Atlanta Technology Angels, and Bill Payne, of the Vegas Valley Angels and Frontier Angel Fund share their views on the effect of these challenging economic times on valuation of new deals and follow-on rounds.

With more than 100 members, MAG is one of the largest organized groups of angel investors on the east coast. In the midst of the worst economic environment since the Great Depression, the group has raised a second $4 million plus fund.

Hub Angels of Boston recently lead national syndication of $1 million investment round in iTeam. The angel group used CEO presentations and webinars to attract investors from Texas, Toronto, and Connecticut.

Richard Sudek, current president of the Orange County Tech Coast Angels, co-authors a study on the effect of perceived entrepreneur passion on angel investing and part of in-stream research series about angel decision-making.

Several angel groups and universities participated in a mini-conference at University of Arizona to review best practices and share models for effective interactions between universities and angel groups. The event was hosted by the University and supported by the Kauffman Foundation.

The World Business Angels Association (WBAA) was recently launched to promote the creation of business angel groups and associations; identify and share best practices, coordinate research, and establish standard terminology on angel investing.

The agenda for ACA's annual conference focuses on angel investing in the current economy with an emphasis on best practices. ACEF will provide a comprehensive Pre-Summit professional education program on Wednesday, April 15.

As angel groups' experience and sophistication have grown, their interest in sidecar funds has increased. The Houston Angel Network of Houston, TX and the Alliance of Angels of Seattle, WA discuss their approach to evaluating a sidecar fund.

This recession may be flat-bottomed and long. Angels are looking for entrepreneurs whose products will sell better in a down economy and that don't need more capital than angel groups can provide.

Basil Peters recognizes opportunities for earlier exits and encourages angel groups to build strategies to capitalize on $10 to $30 million M&A exits for angel-backed companies. Corporations have money, and they are putting it to use buying young companies.

Matrix provides a handheld, electronic measuring system that accurately and precisely measures collision damage so that a body shop can repair a vehicle back to factory specifications. Three Kansas angel groups teamed up the Series A round.

This paper by Foley Hoag's Peter Rosenblum discusses approaches to compensating angel group leaders whether they are members or hired from the outside. It also discusses the effects of an angel group's investment structure on available methods of compensation.

Since opening its doors in 2005, this angel group has made 13 investments in eight different Arkansas companies. Investors can receive a 33.3 percent credit that reduces their state income tax obligation dollar for dollar.

Online reports from the Ewing Marion Kauffman Foundation offer insight into the characteristics of new business formation and sustainability, the impact of job creation from US startups, and a comparison of new firm's characteristics by gender.

The BizSpark program provides eligible early stage companies with Microsoft's current, full-featured development tools and production software licenses to server and office productivity software at (almost) no cost.

In the past 18 months more than 2,000 people were trained in 85 deliveries of PAI seminars and workshops. Three new half-day workshops were introduced: Valuation and Portfolio Strategies; Post-investment Relationship: Entrepreneurs and Angels, and Valuation for Entrepreneurs.

The fifth annual Angel Capital Association Summit was held May 7-9 in San Diego, CA. Topics focused on angel investing including sessions on how to start a board, how to help a company exit, how to negotiate between the entrepreneur and angel investors, and how work with venture capitalists.

Incoming ACA Chair John O. Huston of the Ohio TechAngels offers a slightly tongue-in-cheek approach to what angel investors should NOT do if they are interested in generating ROI in return for the risk they take with their capital and the investment they make of their time.

Dave Berkus, chairman emeritus and member of Tech Coast Angels, has invested in 68 small technology companies since 1993 and served on more than 40 boards. He talks about how angels on Boards can deliver on their responsibility to help the entrepreneur and management team grow a company.

John May, exiting Chair of the Angel Capital Association, shares his perspective on the last two decades of structured angel investing. May discusses advances in angel investing and the challenges and opportunities that organized angel groups face as the movement continues to grow and mature.

Shared processes, common documents, monthly conference calls, and joint education encourages and streamlines deal sharing across angel groups in the Pacific Northwest. Angel groups in Washington and British Columbia team up for Power of Angel Investing events for investors and entrepreneurs.

With chapters in South Florida and Tampa Bay, New World Angels is building a 100% integrated membership model. Member angels belong to both chapters; the group operates as a single entity. Members commit to investing in three group-approved deals per year.

The Kauffman Foundation has published several new reports and launched a new blog to encourage discussion about the economic impact of entrepreneurship.

More than 60 countries have signed up to participate in the inaugural Global Entrepreneurship Week, November 17 - 23. ACEF newsletter readers may want to consider hosting an event or participating in mentoring programs for young innovators.