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Success with Venture Capital and Angel Investors
Presentation to the America & China Small & Medium Sized Business Conference
October 30, 2007
Dan Loague
Capital Formation Institute
www.cfi-institute.org
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Outline: About CFI Basics of the investor market About Venture Capital and Angel Investors
– Characteristics– Skill sets
How to find– VCs– Angels – Strategic investors
What Investors Want Think of Investors as Buyers Success Examples from VC Portfolios
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
CFICapital Formation Institute
The Capital Formation Institute provides
expert knowledge, research and education,
helping leaders build more competitive local economies
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
National Board of Directors Chairman:
Dr. Richard T. MeyerPresident - Orion Technical Associates, Albuquerque, New Mexico
President: Woody MaggardAssociate Vice Provost – STOR-UB Office of Science, Technology Transfer and Economic Outreach, University at Buffalo, Amherst, New York
Directors: Mr. C. Michael CassidyPresident - Georgia Research Alliance, Atlanta, GA
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
National Advisory Board Dr. H. Randall Goldsmith, President and CEO, Mississippi Technology Alliance
Dr. Joseph E. McCann III, Dean, John H. Sykes College of Business, The University of Tampa
Dr. Robert G. Schwartz, Chairholder, College of Business and Public Administration, Eastern
Washington University
Dr. Frank Hoy, Director, Centers for Entrepreurial Development, Advancement, Research and
Support, University of Texas at El Paso
Dr. William E. Wetzel, Jr., Professor of Management Emeritus, Whittemore School of Business
and Economics. Director Emeritus of the Center for Venture Research, University of New
Hampshire
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Capital Formation InstituteCapital Formation Institute
Essential ideas and tested techniques for
starting and growing entrepreneurial ventures
2005 Guide to Bootstrapping: Back to 'Bootstrapping'! (or Buddy, Can You Spare Some Cash?)
Innovators and Enterprise Creation
Planning for Future Growth & Its Consequences
A Sea Change in the Economy
Incubators and Angel Investors
Entrepreneurs - Gamblers or Risk Managers?
Success with Venture Capital and Angel Investors
Capital Formation InstituteCapital Formation Institute
discussing the issues and works-in-progress that promote seed and early stage investing and enterprise development
Rules for Mentoring Entrepreneurs
Creating Venture-Backable University Start-Ups
University Pre-Seed and Venture Funds Entrepreneurial Development Corporation Midwest Research University Network
(MRUN) Building Intellectual Capital of University
CommunitiesAccess to Capital for Entrepreneurs Act of
2006Building a Culture of Innovation
Click-and-listen programs featuring early
stage investment professionals
Faculty CEOs
State Sponsored Venture Funds
Translational Research
Investing in Intellectual Property
Success with Venture Capital and Angel Investors
CFI’s Audience:
• Committed to the “double-bottom line”• Practice the art, not science, of seed and early stage investing• Build relevant value-added relationships• Expect peer-to-peer interactions (flat structure – networking is key)• Participate in adding to knowledge base of early stage investment practices• Open to ALL points of view in the exchange of information• Worldwide represent the full range of private, public and non-profit organizations
committed to investing and facilitating investing in local entrepreneurs
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
CFI Network members are expert in:
developing new and emerging technology structuring companies valuing start ups mentoring management creating networks of investment resources scrubbing deals to reduce risk establishing investment exits
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Basics of the
Investor Market:
Center for Venture Research - University of New Hampshire
StageEarly LaterSeed/ Start-Up
SourceFDRS FFF Angels Venture Funds
Demand$25K $100K $500K $2,000K
Supply ------------------------------------------------------------------
Funding Gap
Equity Capital for Entrepreneurs
Capital Formation InstituteCapital Formation Institute
Valley of Death
Success with Venture Capital and Angel Investors
Who invests in what: Financial industries and investment communities
Financial Industries Investment Communities– Later stage investment “Valley of Death” investments– Professional management Individuals and informal groups of 4-5– Extensive government regulations Regulations minimal– ROI driven Psychic income– Professional associations Often “Invisible” investors– Corporate management skill sets Entrepreneurial start-up skill sets– Lobbying groups common Limited interest in government actions– Staff focus on financial analysis and Sophisticated in early stage due diligence – macro-economic conditions practices
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Success with Venture Capital and Angel Investors
Financial industries and investment communities (continued) Financial Industries Investment Communities
– Large scale market focus Focus on “deals” with expectation of high returns– Funding “mobilization” common Emphasis on high growth of enterprise– Little interest in start-up companies Consistent high interest in start-up companies– Capital leveraging Producing magnitudes of scale value-adds– Secondary and tertiary role in Primary role in technology commercialization
technology commercialization– Extensive business consultant useExtensive personal involvement in company
development (risk control techniques)– Incremental involvement in growth Strategic and tactical involvement in company
of company growth
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Success with Venture Capital and Angel Investors
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Venture Capital Partnership Funds Raising Trend 1993 - 2004
14.921.9
32.2
106.0 110.2
59.4
43.939.4
56.4
97.2
178.5
84.7
0
20
40
60
80
100
120
140
160
180
200
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
$ In
Bil
lio
ns
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Commitments to all types of Private Equity Partnerships NASDAQ
Source: Private Equity Analyst
Success with Venture Capital and Angel Investors
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VC Investments by Stages: 2004
Source: PricewaterhouseCoopers/Venture Economics/NVCA Moneytree SurveySource: PricewaterhouseCoopers/Venture Economics/NVCA Moneytree Survey
Success with Venture Capital and Angel Investors
About Angels
Angels are the "invisible" portion of the early stage VC investment market - UNH research shows that since about 1985 an estimated 400,000 angels annually invest on average $30 billion to $40 billion in over 50,000 ventures.
Invest close to home - about one-half day of travel time Cashed out entrepreneurs - "psychic" income important Markets and technologies with which they are familiar - angels are
"value-added" investors and "mentors for money" Terms and conditions - more Informal
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Success with Venture Capital and Angel Investors
About Angel Investments
Early stage round $100,000 to $1 million range 6 to 8 investors Co-investors are trusted friends and associates who have done
deals together before or know each other Angels provide crucial smaller rounds of seed and start-up capital -
over 80% of the seed deals are done by angel or private investors Longer exit horizons - patient investors who provide capital early
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Types of Investments: Intellectual property Tech commercialization Concept/Seed Stage Start up companies Emerging high growth Rarely VC later stage Other limited partner
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
How to find investors:
Seed and early stage investors are part of networks that give
them access to deals. To find angels and VCs, become a part of
their working networks, such as:
High profile “super angels” Individual local investors part of community leadership Local informal angel investment clubs skilled in assessing and “scrubbing”
potential investments Local angel organizations with a legal structure, also skilled in assessing and
“scrubbing” potential investments Angel groups
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Finding Investors (continued)
Investment professionals including:
Attorneys experienced in:– seed deals and expert in term sheets,– intellectual property (IP) law and investment
Founders - entrepreneurs who bootstrap their enterprises with personal
resources and sweat equity FFF (Friends, Family and Fools; also referred to as "Uncle Harry or Aunt
Harriet money") - investors in loosely structured seed/start-up deals
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Strategic investors from corporations also source deals through their networks. Primary sources include:
Consultants, local financial organizations, regional private seed fund
managers, local entrepreneurs who have “cashed out” of a successful
enterprise and seeking new opportunities (especially those entrepreneurs with
successful technology-based companies) Technology associations that help develop specialized “clusters” of companies
Venture Capital companies that work with local private investors (first and later
rounds)
Corporate research and development directors with IP available for
investment, new product investment managers, seed and venture funds
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Success with Venture Capital and Angel Investors
Other Sources (continued) University IP and technology managers, business incubators assisting local
start up companies State sponsored seed and venture funds State departments of economic development/commerce with funded
technology development programs AND MORE …
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Think of Investors as Buyers It’s not the amount of money, it’s about the quality of the
invesmtent in investment communities $1 million checks are readily
available and pooled investments often reach $50 million or
more smaller seed-stage VC funds can write checks for $5
million and often syndicate investments of greater than $50
million seed stage VC syndications often launch very large
enterprises. early stage investors wash out risks, make market
connections and help position products and services in the
global marketplace.
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Success with Venture Capital and Angel Investors
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What investors want:
vetted deals experienced investment partners great enterprise management a winning portfolio psychic rewards
Success with Venture Capital and Angel Investors
Capital Formation InstituteCapital Formation Institute
ROI Expectations: Desired 5-year return (IRR) and percent ownership required
3X 25% (third-stage financing)4X 32% (third-stage financing)5X 38% (second-stage financing)6X 43% (second-stage financing)7X 48% (second-stage financing)10X 58% (startup or first-stage projects)15X 72% (startup or first-stage projects)20X 82%25X 90%30X 98%
Success with Venture Capital and Angel Investors
Examples from VC Portfolios
Innovalight Innovalight has developed a silicon nanocrystalline ink that holds the promise to bring flexible solar panels to cost that could be as much as ten times cheaper than current solar cell solutions. Using proprietary methods, Innovalight has developed a solvent-based silicon process that lends itself to a low cost production and high throughput manufacturing.
Conrad Burke, President & CEOMr. Burke brings over 17 years of proven expertise guiding innovative semiconductor and optical technologies into the commercial market. Prior to Innovalight, Conrad was senior vice president of worldwide sales and marketing for Bookham Inc. Before Bookham, Mr. Burke was a venture partner at Sevin Rosen Funds, a leading US-based venture capital firm.
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
KonarkaKonarka builds power plastic that converts light to energy – anywhere. The company develops and manufactures light-activated power plastic that is inexpensive, lightweight, flexible and versatile.
Howard Berke, Chairman & CEO Berke is chairman, chief executive officer and co-founder of Konarka Technologies. He has nearly 30 years of hands-on management experience launching, building and leading both public and private technology companies. This includes 20 years of general management with full P&L responsibility for eight start-up companies and nine years of business development and marketing focusing on emerging technologies. Berke has founded or co-founded 13 start-up companies and has initiated and completed numerous corporate acquisitions, mergers and R&D joint ventures in the US, Europe and Asia.
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
UltraCell develops and manufactures complete micro fuel cell systems for portable devices. The company has developed new technologies and intellectual property in the field of methanol-based fuel cells. UltraCell has an exclusive license with Lawrence Livermore National Laboratories for micro fuel cell technology based upon reforming methanol into hydrogen “reformate” using proprietary technology in the fuel reformer and hydrogen fuel cell stack. A single UltraCell fuel cartridge can power a typical laptop computer for an entire workday. By swapping in new cartridges, a wireless workweek is possible.
James L. Kaschmitter - Chairman, CEO and PresidentJim is Chairman, Chief Executive Officer (CEO) and President of UltraCell Corporation, and has held those positions since he founded the company in 2002. Previously, Jim was Chairman, CEO and President at PowerStor and PolyStor Corporations, both companies he founded. In 1987, he co-founded nChip Corporation, later sold to Flextronics. Jim has over 20 years of senior management experience in Silicon Valley's hi-tech industry and holds more than 20 patents.
Capital Formation InstituteCapital Formation Institute
Success with Venture Capital and Angel Investors
Dan LoagueCapital Formation Institute Inc.University at Buffalo, Office of Science, Technology Transfer and Economic Outreach1576 Sweet Home Rd., Amherst, N.Y. 14228Ph: 405-824-5549Fx: 800-420-8329Web: http://www.cfi-institute.org
Em: dloague@cfi-institute.org
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