OUR 2020 PLAN...If you’ve invested in an equity crowdfunding campaign, there’s a good chance you...
Transcript of OUR 2020 PLAN...If you’ve invested in an equity crowdfunding campaign, there’s a good chance you...
OUR 2020 PLAN: KEEP MOVING FORWARD WHEN THE WORLD SHUTS DOWN
Crisis. Pandemic. Recession. A few months ago, who could have
guessed these would be words we’d end up hearing on a daily,
even hourly, basis? Back then, most people wouldn’t have believed
a storm of this magnitude was even coming.
In reality, you never know when something like COVID-19 could
come along and rattle the global economy. And the impact of the
virus on the stock market is not just evident – it’s staggering. But
that doesn’t mean we need to panic – because things are going
to be okay. We’re going to get through this.
In fact, this could be a better time than ever to consider adding private
equity to your portfolio of assets. All startups share a certain set of
qualities that make them better equipped to weather this storm
than many publicly traded goliaths. Let’s dig into this a little deeper.
The Big Advantage of Being Tiny
The truth is, many big companies – think Microsoft, Apple, or
GE – will miss their earnings this quarter. Most will see their
share price plummet. It could take months or even years for
them to recover.
These same factors can and do affect many startups’ bottom
lines. But when it comes to surviving recessions, there are big
advantages to being tiny.
T H E S T A T E O F A N G E L I N V E S T I N G
Q1 2020
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The Private Equity Landscape
Digging Deeper Are SAFEs Really Safe?
The Future Is Automated – and It’s Starting Now
Ask Neil
Deal Snapshots
angels +entrepreneursnetwork
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For one thing, startups tend to have lower
overhead costs; many are fully remote, while
others have just a few dozen employees.
They also typically have more manageable
needs when it comes to manufacturing.
It’s much easier to stay up and running
when you’re only producing a small
number of units.
What this really boils down to is agility.
Most startups have pretty small needs
in comparison to their publicly-traded
counterparts – which means they’re able
to move quickly when the going gets
tough. When a crisis like COVID-19 forces
people to work from home, having a
small, nimble staff is a huge relief.
Plus, consider the fact that the vast
majority of younger companies sell most or
all of their products online – meaning they
don’t need to rely on brick-and-mortar
locations to make money. This gives them
a huge advantage over many traditional
retailers since it lowers their overhead costs
substantially. And in fact, some of these
companies are seeing significant growth
right now as consumers stay home and
do more shopping online.
Short-Term Pain for Long-Term Gains
Another key thing to remember is that
angel investing is a long-term commitment.
If you invested in a startup today – or even
six months ago – the odds of an exit within
that time window are minute. A typical
angel investment takes two to 10 years to
yield a return; the average holding time
is 3.5 years. By the time your portfolio
companies reach maturity, the effects of
this crisis are likely to be long past.
Additionally, many VC funds are still operating
like normal. Right now, there are many funds
in varying stages of completion – and many
that are already full. The managing partners
of these funds aren’t just going to sit on their
hands while this all plays out. Their funds are
effectively already raised.
And with deal terms on track to improve
as the market adjusts, startups will have
to justify every penny that goes into their
valuations… which most likely means they’ll
have to raise cash at a lower valuation. Just
like with real estate, stocks, and groceries,
the best time to buy is when the price is low.
Winners Never Quit
It’s a bit of a cliché, but it’s true: hard times
make us tougher. Think back to the Great
Recession of 2008 and 2009. Startups like
Uber and Airbnb – and plenty more – were
founded during this time and ended up with
valuations well over $1 billion. Some remain
in the tens of billions, even today.
Incredible stories like those are exactly why
I believe this could be one of the biggest
turning points in angel investing history. A
startup that has what it takes to persevere
through a global crisis might just have what
it takes to join the “unicorn club,” too.
But only those investors with a proven strategy
are likely to pick the right deals… and doing
your due diligence is more important than
ever in times like these. Without a data-driven,
analytical approach, the odds of rushing
into subpar deals is so much higher. In
conditions like these, it’s sink or swim.
My advice? Be careful, stay safe, protect
yourself… but don’t let your life come to
a screeching halt. You might miss out on
something amazing. +
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THE PRIVATE EQUITY LANDSCAPE
Credit Karma, the fintech portal
used by over 100 million members for
credit scores and taxes, is reportedly
negotiating a $7.1 billion acquisition by
Intuit (NASDAQ: INTU) - the company
behind TurboTax and QuickBooks.
Asana, founded by Facebook co-founder
Dustin Moskovitz, recently filed for a direct
listing IPO. Its last priced round valued the
firm at $1.5 billion in 2018. Asana makes
task-management and productivity software
for businesses.
Visa (NYSE: V) announced a “definitive
agreement” to buy Plaid, a fintech startup
with clients like Venmo and Robinhood,
for $5.3 billion. The acquisition marks a
significant exit for early investors like Spark
Capital, and could allow Visa to partner with
future fintech startups to drive innovation.
One Medical debuted on the Nasdaq
exchange on January 31, 2020, at a valuation
of $1.71 billion. The San Francisco-based
company is a concierge medical practice that
aims to provide primary care to patients at a
lower cost than traditional doctors’ offices.
Salesforce (NYSE: CRM), the world’s
leading CRM software provider, agreed to
purchase cloud software firm Vlocity for
$1.3 billion in an all-cash deal announced
in February. The acquisition will improve
Salesforce’s ability to build industry-
specific products.
Harry’s Inc., purveyor of direct-to-
consumer shaving products, had its planned
acquisition by Edgewell Personal Care Company
thwarted this February by the Federal Trade
Commission. The FTC cited concerns that
the $1.37 billion move would grant Edgewell
an unfair monopoly in its target market.
Procore, which makes cloud-based
project management software for the
construction industry, filed for a direct
listing IPO. Its last priced round valued the
company at $4.7 billion. According to the
global consulting firm McKinsey & Company,
investors have poured more than $27 billion
into the construction sector since 2008.
OfferUp, an online marketplace where
people can trade and sell their belongings,
announced on March 25 that they’re raising
$120 million in a round led by OLX Group
– which also happens to be the majority
investor in OfferUp’s competitor, letgo.
OfferUp’s previous investors include
Andreesen Horowitz and Warburg Pincus.
To date, OfferUp has raised $380 million.
Facebook (Nasdaq: FB) acquired
Scape Technologies, a London-based
computer vision startup trying to produce
location-tracking software that’s better
than existing GPS. The deal was reportedly
worth around $40 million – an interesting
sign that Facebook may be targeting
earlier-stage companies for their AR/VR
research laboratory.
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DIGGING DEEPERAre SAFEs Really Safe?
If you’ve invested in an equity crowdfunding
campaign, there’s a good chance you
purchased a Simple Agreement for Future
Equity, or SAFE. The SEC recently proposed
a ban on SAFEs in equity crowdfunding,
leaving investors to wonder about the future
of their investments.
We encourage you not to worry - because
the SEC’s proposal still leaves the door open
for crowdfunded SAFEs in the future.
Here’s why.
A SAFE is essentially a contract that ensures
your investment dollars will convert into
shares of equity… eventually. They were
developed by Y Combinator, a prominent
startup incubator in Mountain View, California.
This conversion will occur only if a “trigger
event” occurs; most often, these events include
new rounds of funding and acquisitions.
The SEC believes these securities can be too
difficult for investors to understand and value.
They’re also concerned that unhappy investors
will damage the crowdfunding industry.
To be clear, the only bad SAFEs out there
are ones that say investors are never
converted to equity or ones that allow
founders to buy out their investors for little
to no return regardless of how well the
company has done. Most SAFEs are investor
friendly – certainly all those approved by
crowdfunding portals are – and those with
valuation caps and discounts built in can be
quite easy to understand.
Despite the SEC’s proposal, crowdfunding
portals may simply continue using investor-
friendly SAFEs.
They fall under these definitions because they
have the built-in possibility of converting to
true equity shares. In other words, the SEC’s
proposal may have left a loophole open for
issuers to keep using SAFEs.
At the end of the day, just keep in mind
that the Research Team and I spend hours
and hours digging through deal terms
for each and every startup we consider.
Not only can I say with confidence that
every deal on the Network is set up with
investor-friendly terms… but I can assure
you that we’ve never come across a bad
or dangerous SAFE. So keep doing your
diligence; make sure you know what
you’re getting into; but don’t let fear keep
you from a great opportunity. +
This is because good SAFEs fall under the definitions of both equity and convertible securities, both of which will still be allowed.
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The robots aren’t taking our jobs just yet…
but they’re definitely changing the way we
work. Startups are increasingly using robotics
to solve so many real-world problems from
manufacturing to food preparation to surgery
– and venture capitalists are getting on board.
In the first quarter of 2020, VCs invested more
than $770 million in robotics companies
alone. As a result, the cost of robots has
been steadily declining, opening the door
for further innovation. In the past, only major
corporations could afford to buy robots for
their manufacturing facilities (think Tesla
building cars). Now that smaller companies
can afford to purchase a robotic arm, they
can take it back to HQ and figure out how
to make it smarter and more collaborative.
Which brings me to my next point: robots
are getting smarter. Software developers
are finding novel ways to use robots by
equipping them with all sorts of sensors and
cameras. These additions allow the robots to
collect data from their environments – which
they can use to adapt in real time. In the
wake of the COVID-19 pandemic, startups
are even teaching robots to thermally scan
people for signs of a fever. The integration of
sensors and cameras allows robots to assist
with increasingly complex tasks.
On top of that, the introduction of artificial
intelligence and machine learning allows
the robots to learn through trial and error.
This is a crucial step towards human-robot
collaboration. Developers are working around
the clock to make robots respond in real time
to their human counterparts, opening up new
applications for robotic technology.
It’ll be truly exciting to watch this space
develop – but we can’t forget the tried and
true uses that are particularly relevant during
these uncertain times. As I write this, robots
are delivering food and medicine, spraying
disinfectant in public spaces, patrolling
schools and businesses, and keeping the
technological world functioning while
we’re all stuck at home.
Personally, I’m grateful for our computerized
coworkers, and I can’t wait to see what they
do next. They’re poised to change business
as we know it, and their earliest investors
will reap the rewards. Keep an eye out for
your chance to back the next revolutionary
robotics company as an angel investor. The
team and I will do the same. +
THE FUTURE IS AUTOMATED– AND IT’S STARTING NOW
Total Capital Raised by Robotics Companies
Tota
l Fu
nd
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8K
4K
2K
10K
6K
Q2 ‘19 Q4 ‘19 Q1 ‘20Q1 ‘19 Q3 ‘19
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ASK NEIL
Q: Is now a good time to invest in stocks with all that’s happening in this country?
The short answer is “yes.” But what’s happening in the world right now is going to fundamentally
change the business landscape. You need to be thoughtful about your investments and
only buy stock in those companies that are going to emerge from the pandemic stronger
than they were before. Do your research, and don’t put all your eggs in one basket.
Q: What kinds of things should I look for when completing due diligence?
There are a lot of considerations to make before making an investment in a company. Think
about my suggestion to back the jockey not the horse. Does the company have a team
you want to invest in? Think about whether the founders have relevant experience. If not,
do you suspect they’re just trying to cash in on a trend? Perform a SWOT analysis on the
company to see if they are truly differentiated from the competition. Does the company
have any intellectual property? Lastly, look at the company’s financials. If the company has
an unreasonable amount of debt on their balance sheet, that could be a red flag.
PRO TIPStrength, Weakness, Opportunity, and Threat (SWOT) Analysis
When evaluating a company, it’s important to find out whether or not that company
has a competitive advantage over its peers. This may sound like a daunting task. Luckily,
there are a number of tools you can use to tackle this type of analysis, one of which is
called a SWOT Analysis. Here are the main components of a SWOT Analysis:
Strengths: What does the company do well or better than its competitors? What unique
advantages does the company have (a star team, proprietary tech, cash on hand, etc.)?
Weaknesses: What does the company lack? Where is the company falling short of
competitors? What limitations does the company face?
Opportunities: Where could the company capitalize? Where could it operate with less
competition? What’s happening next in the market that could help the company succeed?
Threats: Are there weak points or openings where competitors could emerge? Is there
any upcoming legislation that could impact the company’s chances of succeeding? Is
the market getting smaller?
This is a simple framework, but it allows you to assess a startup’s competitive position
before you invest... and if you’ve already invested, it can help you see things from other
perspectives and develop innovative strategies for success.
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DEAL SNAPSHOTS
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For more information on these deals and instructions for those who would like to invest,
check out your active deal pages on AngelsAndEntrepreneurs.com.
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EVERYDAE is an app that provides adaptive digital learning using 10-minute micro-lessons
to improve students’ educational performance, starting with the SAT. Their plan is to expand
across the students’ entire educational journey, providing a digital learning app for all
subjects at an affordable price.
CEO Christine Outram was named one of the Top 36 Most Creative Women by Business Insider.
Minimum investment: $500
HELLOWOOFY.COM is a social media marketing platform driven by AI and data science
for marketers of all levels of experience. The Company’s mission is to empower small- to
medium-sized business owners to succeed at social media marketing while saving more
than 10 hours a week.
HelloWoofy had more than $30,000 in sales in the last quarter of 2019.
Minimum investment: $100
PURE GREEN FRANCHISE is a retail juice bar franchise that started in New York and has
spread as far as Florida and Chicago. Its stores offer selections of healthy cold-pressed juices,
smoothies, and acai bowls made to order.
Pure Green’s five retail locations pulled in roughly $3 million in revenue in 2019 alone.
Minimum investment: $100