Investor Network - Business Startup and Incubator …...DocSpace sold to Critical Path for over $750...

angelonenetwork.ca

Angel One Investor Network

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A member-based, not-for-profit organization for accredited investors who live, work or have strong interests in Oakville, Burlington, Hamilton and other communities at the western end of Lake Ontario. STATS 38 Members in Good Standing 4 Closed Deals Over $1.5 million invested Due diligence underway with 5 more companies

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Angel Backed Successes

DocSpace sold to Critical Path for over $750 Million in 2000.

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Angel Backed Company Exits

• Radian6 (NS) – Salesforce paid $326 million in March 2011

• Q1 Labs (UNB) – Acquired by IBM Oct. 2011 ($ undisclosed)

• Sentinelle Medical (ON) developer of MRI coils and diagnostic

software – Hologic paid $85 million in July 2010

• DNA Genotek (ON) saliva testing kits to collect and preserve

DNA– Purchased by OraSure Technologies Inc. for US $53M in

July 2011

• BumpTop (Toronto) –$1.65 million in seed funding from angels

and VCs: acquired by Google at ~$25M to $35M April 2010

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Investment Landscape

Syndicates of VC Funds

Syndicates of Angels

Angel Investors

Traditional Big Venture

Capital Funds

Small

Venture Cap Funds ≤$75

$10 to $100

Million

$5 to $10 Million

$10 to $100 K A

mo

un

t In

vest

ed in

Co

mp

any

Risk

Maturity Stage

Concept Start-up Growth Expansion

Govt.∕Quasi- Govt. Sources

Seed & Start-up Funds

Angel Funds

Friends & Family

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Initial review by ED

Company applies to Angel one

Company meets

criteria?

Screening Committee

review

Investment meeting

Due diligence with interested Angels

Opportunity subscribed

Regular up-dates to and follow-up by

Angel One

Company given feedback and referral to

RICs/others

Our Process

Yes

No

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• Typical angel investment ~$25K

• 10 investments = $250,000 invested

• 100% reserves, another $250,000

• 10% of Net Worth ($500K/10% = $5 million)

• Therefore:

— Minimum net worth for angels = $5 million

Angel Investor Profile

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• 1-2 in 10 investments will produce almost all of the ROI for the

portfolio

• These successes must yield 20 – 30X ROI

• And… they cannot pick the winners

• Therefore, all portfolio companies must demonstrate the

opportunity for a 20 – 30X return on investment

Size of Each Opportunity

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• VCs exit in 3-7 years (assume 5)

• Angels invest earlier and expect to exit in 5-7 years (assume 7)

• A balanced angel portfolio contains ten companies

• Consequently, angels should invest in 2-3 companies per year

— Build to ten company portfolio gradually

— A portfolio of companies in all stages of development

— Good balance for investors time

Exit Strategies

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• Current market: back to fundamentals of investment & growth

• Angel values: patient, value-added investing, local/regional

focus, invest with 5-7 angels on average

• Angel investments are exceeding VC investment dollars

• Joining angel groups – 50% of groups formed in past 3 years

• Federal government is encouraging angel investment: FedDev

“Investing in Business Innovation” program: 1/3 gov’t funding

matching 2/3 qualified angel investment – Angels Lead!

Current Angel State

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What do we look for?

• Business opportunity with superior products

• An understandable business model

• High growth potential

• Global prospects

• Sustainable competitive advantage

• Quality management team

• Customer engagement

• Realistic and alternative exit strategies

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Valuation

Scorecard Method

• Determine median value for pre-revenue companies in the region: pre-revenue companies rarely worth more than $1m

• Determine critical criteria

• Assign % weighting to each critical criteria

• Assess company against the criteria

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Hypothetical Evaluation

Valuation Criteria Weighting Full Marks Management 30% Quality team in place

Size of Opportunity 25% Huge, global opportunity

Product and Technology 15% Disruptive, prototype complete

Marketing/Sales Channels 10% Sales team not in place

Competitive Environment 10% Many small players lacking technology

Other Factors 10% Partners, foreign market

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Hypothetical Evaluation

Criteria Analysis Weight Factor Input

Management On board 30% 120% .36

Size of Opportunity

enormous 25% 130% .325

Product and Technology

Disruptive, prototype okay 15% 130% .195

Marketing/Sales Channels

Sales team not in place 10% 50% .05

Competitive Environment

Many small players lacking technology

10% 110% .11

Other Factors Partners, foreign market 10% 80% .08

Weighted average multiple = 1.12

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Pre-Money Valuation

Median value $1,500,000

Weighted multiple X1.12

Pre-money valuation $1,680,000

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1. First Meeting – provide the big picture:

• Team, tech, territory

2. Get a quick “no” – ask why

3. Get to a “maybe” – due diligence team forms

4. Deliver business plan and start building the “brick”

5. Be prepared to answer questions

6. Provide introductions to customers, suppliers, inventors

7. Provide a site inspection, let them “kick the tires”

8. Answer more questions

9. Don’t be greedy

Attracting Investors

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1. Ask around

2. Find out who else has invested

3. Be comfortable with the valuation

4. Complete the due diligence

5. Review shareholders’ agreement – are they protected?

6. Check for leveraged financing eligibility

7. Sign a subscription agreement and write the cheque

8. Monitor the investment and your performance

What Will Angels do?

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• Many lone angels got burned in the dot-com collapse. Angels

see networks as a way of sharing deals, sharing due-diligence

and of reducing risk.

• Groups provide more efficient matching of entrepreneurs and

investors.

• Market recognition of an angel group leverages public

presence and grows a network of members to increase quality

deal sourcing and opportunity review.

• Enhanced economic power in group investing.

Angel Groups

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Angel Groups

• 30 member groups • 4,000 accredited investor members • Est. national total: 15,600

source: NACO

• 150 member groups • 6,500 accredited investor members • Est. national total: 125,100

source: University of New Hampshire's Center for Venture Research

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Thank You

Questions?

Investor Network - Business Startup and Incubator …...DocSpace sold to Critical Path for over $750...

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