Information Page

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Angel Investing 101 John May Darden
Progressive Incubator July 11, 2005
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John May

• Co-founder, New Vantage Group, Vienna, VA
• Co-Manager, The Dinner Clubs (3), Active Angel
  Investors, and affiliated angel venture groups
  (2)
• Advisor, Calvert Ventures, Solstice Capital,
  Womens Growth Capital Fund Conservation
  Internationals Verde Ventures
• Batten Fellow and Director, Northern Virginia
  Initiative, Darden Graduate School of Business
  Administration, University of Virginia
• Co-Author, Every Business Needs an Angel (Crown
  Business 2001)
• Co-Editor, State of the Art An Executive
  Briefing on Cutting-Edge Practices in American
  Angel Investing (Darden Business Publishing
  2003)
• Participant in international forums and lectures
  Paris, Tokyo, Bangkok, Malta, Copenhagen,
  Mexico City, Helsinki, Santiago

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The World of Angel Investing

• Part mentoring
• Part venture capital
• Part psychic reward
• Part adventure

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But first, VCs Seeding or Fertilizing?

• Early-stage VC is broke
• Indigestion in the food chain
• Looking back instead of looking forward

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The Field

• Small private businesses in the US
• Emerging growth opportunities for investors
• High-tech start-ups
• Job and innovative generation
• Mentor capital

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The Pain A Chronic Problem

• Becoming a successful big company takes a lot of
  hard work
• Tapped out after FFF and own money
• Capital gap is 250,000-2.0M range
• Pre-bankable companies need support of all kinds

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Is Institutional Venture Capital the Answer?

• Uniquely American, only 50-year old experience
• Managed for OPM now 260B-plus cottage industry
• Dominated by pension funds and 150M- pools and
  funds
• Heavily high-tech and No. California and
  Massachusetts (55 of deals)
• Doesnt play at the seed-stage easily, very
  selective - less than 5 of venture capital into
  seed

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Venture Capital Disbursements to Portfolio
Companies
of Companies
Annual
Year
2,696
17.2B
1997
3,155
22.0B
1998
3,956
59.4B
1999
5,458
103.5B
2000
3,767
40.0 B
2001
2,600
21.2 B
2002
2,750
18.9 B
2003
2,876
20.9B
2004
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And Its Gotten Worse
Amount of Venture Capital Invested by Stage in
the US (in millions)
Sources National Venture Capital Association
Yearbook 2003 Money Tree 2004 US Report
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But Healthcare is Increasing

• First quarter 05 biotech and medical devices 2nd
  and 3rd largest VC investments
• 04 biotech totaled 3.8 billion
• 04 medical devices totaled 1.8 billion
• Total is over 5.6 billion in 578 companies
  (largest in four years)

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How Individuals Have Played Throughout History

• Wealthy families
• Broadway angels
• Professor Bill Wetzel and high-tech angels
• 90s boom and growth of wealth and VCs

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HNW Individuals and the Alternative Asset Class

• Why should any investor participate in alternate
  assets?
• Real estate, timber, oil, gas, private equity are
  core alternative assets
• Allocation of 5-10 is appropriate as control
  more investible wealth
• Use alternate assets to increase total return
  offsets high risk inherent in inefficient markets
• VC as part of mix may be appropriate

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A National Status Report 1994-2004

• Number of millionaires grew to over four million
• Angels number around 250,000 GEM says over one
  million informal investors in U.S. alone
• Structured angel groups grew from 10/15 in 94 to
  175 in 2004
• Center for Venture Research at UNH reports 48,000
  transactions by angels in 2004

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Seed and Early-Stage Investing by Type of
Investor (2004)
100 B (GEM Report)
Investment
18.7 B (Sohl)
20.9B (NVCA)
384 M
of Transactions
48,000
2,876
193
1, 000,000
Type of Investors
Institutional VC
Real VC Seed Invest
Angels
Individuals
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Potential Angels in the U.S.
U.S. Millionaires
GEM Report Informal Investors
Professor Jeff Sohls Active Angels (est.)
4,200,000
Members of ACA
1,000,000
225,000
5,000
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GEM Report

• The GEM Report found more than 50 invest
• in relatives businesses
• Investors Relationship to Investee
• Close Family 41.8
• Other Relative 10.5
• Work Colleague 6.1
• Friend/Neighbor 28.5
• Stranger 9.4
• Other 3.6

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So What Is An Angel, Really?

• Our definition is
• Accredited individual
• 20,000 or more per deal
• Has lost money in venture in past!
• Patient capital - mentor

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Angels vs. VCs

• Warm money
• Customized term sheets
• Blend of psychic and financial reward
• Due diligence still important
• Pitching up the person as well as the pocketbook

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Many Variations of Non-VC Group Investing

• Ad hoc, one-time partnerships
• Angel networks
• Pledge funds
• Angel Limited Partnerships
• Member-led and manager-led LLCs
• Other (be creative)

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Angel Groups in Our Region

• Private Investors Network Women's Angel Network
• Capital Investors Group Maryland Angel Council
• The Dinner Club CEO Club
• eMedia Club Active Angel Investors
• Washington Dinner Club Ad-hoc groups everywhere
• Capital Access Network

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Angel Capital Association Members by Region
Full Member
Provisional Member
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Are All Angels Alike?

• Over-47 year old white male, 125K/year, cashed-
  out entrepreneur is historic prototype
• Marriage partner
• Networker
• Executive recruiter
• Therapist
• Strategic Partner
• General utility player
• Fundraiser

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The Future Issues and Innovations

• HNW individuals will want more involvement in
  their wealth management
• Entrepreneurs will continue to become investors
  will become mentors
• Structured angel groups will provide risk
  minimization
• US will continue to be high tech,
  entrepreneurship leader

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Web-Based Resources

• Angel Capital Association (for North America)
• (www.angelcapitalassociation.org)
• National Association of Seed and Venture Funds
• (www.nasvf.org)
• European Angel Network (Europe)
• (www.eban.org)
• National Venture Capital Association
• (www.nvca.org)
• Community Development Venture Capital Association
• (www.cdvca.org)
• Kauffman Foundation
• (www.emkf.org)

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Books/Studies

• Benjamin, Gerald A. and Margulis, Joel B., Angel
  Investing - How to Find and Invest in Private
  Equity, New York John Wiley Sons, 2000.
• Benjamin, Gerald A. and Margulis, Joel B., The
  Angel Investor's Handbook How to Profit from
  Early-Stage Investing, New York Bloomberg, 2001.
• Gompers, Paul and Lerner, Josh, The Venture
  Capital Cycle, Cambridge, MA, MIT Press, 1999.
• Hill, Brian E. and Power, Dee, Attracting Capital
  From Angels How Their Money and Their Experience
  Can Help You Build a Successful Company, New
  York, John Wiley Sons, 2002.
• Keeley, Robert H., Cooper, Jeffrey M. and
  Bloomer, Gary D., Business Angels A Guide to
  Private Investing, available from the Kauffman
  Foundation, Kansas City, 1998.

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Books/Studies (contd.)

• May, John and O'Halloran, Elizabeth F., State of
  the Art An Executive Briefing on Cutting-Edge
  Practices in American Angel Investing,
  Charlottesville, VA Darden Business Publishing,
  University of Virginia, 2003.
• Osnabrugge, Mark Van and Robinson, Robert J.,
  Angel Investing Matching Start-up Funds with
  Start-up Companies - The Guide for Entrepreneurs,
  Individual Investors, and Venture Capitalists,
  San Francisco Jossey-Bass, 2000.
• Simmons, Cal and May, John, Every Business Needs
  an Angel Getting the Money You Need to Make Your
  Company Grow, Washington DC Crown Business,
  2001.
• Williams, Kelly, Working with Angel Investors for
  Community Development, New York Community
  Development Venture Capital Alliance, 2003.

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• Be half full, be patient, collaborate, and
  remember,
• Every Business Needs an Angel