25 January, 2011

Angel GroupsDriving Future Innovation

Niagara Venture Forum & Niagara Angel Network

Randall HowardGeneral Partner, VERDEXUS

Board member & Chair Selection, Golden Triangle Angelnet

VERDEXUS © 2010 2

Agenda: Vision of Angels

“Angel Networks are bridging an unprecedented

funding gap to accelerate innovative young

companies”

Who Is Randall? And why am I qualified to discuss this?

Where does Angel investing fit in?

Where has all the Venture Capital gone?

How is Angel syndication is filling the “Series A” gap?

What are the benefits of Angel investing?

What has been our experience with GTAN in Waterloo-Wellington?

Questions: responding to your needs“A person starts dying when they stop dreaming”

Brian Williams

VERDEXUS © 2011 3

Who is Randall? Why Should I Listen?

A passionate technologist & entrepreneurial serial executive

Who loves to build – innovative products and companies:

Directly involved with building a dozen technology based products

Involved with building a half dozen companies + 8 acquisitions

Involving lifetime revenues of almost $½ billion, millions of users

Now, with partners at Verdexus, investing using hands-on,

“Venture 2.0” playbook:

To date have raised or funded $80 Million of VC, IPO and/or Angel investment

Yet, it’s not all about me. It’s about assembling and empowering great

teams

And, by the way, I’ve made $10 million of mistakes

“Making the impossible, merely difficult”

Randall Howard

VERDEXUS © 2010 4

Where Does Angel Investing Fit In?

In order of increasing structure:Own money, friends & family and bootstrappingAlternatives to conventional investment:

Government programs – e.g. IRAP, HRDCCustomer funding – consulting, funded developmentPartnerships (e.g. Microsoft BizSpark), incubators, EIRs

Angels/high net worth (incl. Angel Networks)Institutional (highly structured):

Venture capital and private equityIPO and public marketsStrategic investors and corporate venturing

5

Where Does Angel Investing Fit In?

VERDEXUS © 2010, 2011

*Source: Paul Connor, National Angel Capital Organization (NACO)

6

Where Has the Venture Capital Gone?

Precipitous drop in Ontario VC fundingfrom $179 m Q3/2008 to $24m Q3/2009Extinction after 10 year decline/low returns:

LSIF model – distorted market, then policy reversalWrong balance of operational vs financial skillsFew LPs, even fewer global, chasing small asset class

Healthier globally (US/Europe), yet issues there too:Average US financings 2.5x larger than in OntarioIn Silicon Valley – “Series B is new Series A”

Current depressing situation: Ontario lagging world in funding innovative startups

VERDEXUS © 2010“Constraints breed creativity”

Sergey Brin, Google

7

How is Angel Syndication Filling the Gap

Angel Syndicates:GTAN: $200K-$500K per funding (& sometimes more)

Typically 5-7 investors (and up to 15)Individual investors range $25K to $200K

Syndication with 7+ other Ontario NACO groups:Remains an ad hoc process

Government and institutional:Fed Dev Ontario Investing in Business InnovationOETF, IAF, OCE CCER, BDC all aligning w Angels

VERDEXUS © 2011“Entrepreneur …has no safety net underneath

them”Henry Kravis

8

How is Angel Syndication Filling the Gap

Angel syndication = “Series A Replacement”Series A traditionally $3-5 million (or more)Example super-syndicated Angel Round $1-1.5 million

$500K Angel - typically in tranches & 5-10 individual angels$500K IAF – structure, tranching & diligence led by Angel T/SUp to $500K FedDev IBI + other government sourcesVersus Series A: 30-50% deal size with up to 10x the effort

Risk is co-leveraged with less dilution:Angel syndicate leaders are the unpaid centreFunding legal, accounting, etc. more challenging

VERDEXUS © 2011“Entrepreneur …has no safety net underneath

them”Henry Kravis

VERDEXUS © 2010 9

What are the Benefits of Angel Investing?

Benefits to the Investor:Collegial collaboration of talented investors in Angel networksDirect involvement in company, mentoring to help it achieve goalsMedium and long term financial rewards via exits, etc.

Benefits to the Company:Value add of smart, passionate people who can make a differenceA longer term mindset than many institutional alternatives

Benefits to the regional (& provincial) Economy:Innovative startups are the future economic engineSignificantly more job creation multipliers than alternatives

VERDEXUS © 2010 10

What is the GTAN Experience?

Key success factors:Select great companies, focus on Waterloo-WellingtonRecruit many “accredited investor” membersFocus on getting deals done with strong lead investorUltimately achieve exits to make cycle compelte

Process:>150 companies w 75 at Selection & 46 allowed to present to members10 meetings p.a. (15 so far) & 3 companies per meeting (46 so far)Investors versus “service providers” at meetings; “who’s in?”

Results: 50 members, on way to 100, 10 deals done

VERDEXUS © 2010 11

Agnel Networks – 3 Take-aways

1.

2.

3.

VERDEXUS © 2011 12

Questions?

“Turbulent times may well be the best time for an entrepreneur to start a new business”

Contact: rhoward@verdexus.comPresentation: http://slideshare.net/verdexus