Held on December 15, 2011

By Raghuveer Cumar

Undergrad at IIT Stuart

Right as I entered the premises of this event, I was greeted by a familiar face. In the course of the event, I noticed a few familiar faces. After all, we live in a small world right? We were given a warm welcome to an assortment of food items, snacks and beverages that fed the hungry stomachs and not just the minds at the event! The place was packed, packed with a lot of new faces.

My enthusiasm to be a part of this event was driven by me wanting to learn the later steps of starting a business – the “financing your business” part. I have taken Entrepreneurial Classes, been a part of teams working on entrepreneurial ideas and also have given a few pitches but never had a chance to sit in an event that was dedicated to only one topic which happened to be the financing of a business, especially Angel Investing. Then when the event began, the very first part was a keynote speech that dealt with the legalities involved with angel Investing – all the terminologies and the subject matter almost threw me off as this was, firstly, overwhelming and secondly, something so unfamiliar to me. But I made it a point to gather whatever I could and take some notes. Once taking the notes began, it would only end when the event officially ended. After the first session, the event then moved on to directly delving in the topics related to Angel Investing, and then the event progressively got better and began to shoot practical insights that had the potential to take us to the forefront of the learning curve.

The best part of the event for me was the last part – the Angel Investor Panel. In this event, all the 5 panelists who happened to be Angel Investors themselves offered valuable information to the audience. Among the panelists was an Irish Angel who just seemed to grab the attention of the room whenever he spoke. His tonality and how he grabbed my full attention was also something I could learn from – not just what he had to say. And whenever he spoke, it seemed like golden nuggets because he had given a lot of practical information. And then, the very last part of the event was an extension of the Panel session – the Q&A session, where a good number of people asked questions covering a range of topics and fields from life sciences to software to even fashion.

To sum it all up, I had a really good time at the event and it was extremely informative. But for this event, I don’t think I could have easily gained all of this information under one roof. Accordingly, some of the key takeaways for me from this event are:

1. Bootstrap, raise funds yourself and show market validity before going to Angel Investors.
2. Look for money whenever you can and not when you need to!
3. Angels can help connect you to other angels in their network and you may end up finding the right fit.
4. The Midwest has less competition compared to the Bay Area. By the same token, there is also less money in this pool.

 EFactor Event – Angel Investing Summary (Held on December 15, 2011)

By Cunwang Chen

Part 1: Introductory description: terminologies and definitions

1st keynote speech (given by Gregory D. Grove)

The Angel Funding Landscape

Angel investors are individuals or small groups of rich people who invest their own money for startup companies. Unlike venture capitalists, which focus on funding more mature businesses, angel investors tend to concentrate on early stage funding. It is worth to point out that evidence shows that angel-funded startup companies are less likely to fail than companies that rely on other forms of initial financing.

When making their investments, there are some terms that the investors may ask for.

Typical structures for the investment terms are:

Type A. Bridge Bonuses: Warrants, Stocks, Discounts, etc.

Convertible Debt: In this case, the investment is in the form of a promissory note that converts into equity on the terms of a “qualified financing” (where qualified financing typically is defined by having a minimum amount – say $1m of total investment.) The note will either convert at a discount to the price of the qualified financing (usually in the 20% – 40% range), will have warrant coverage (usually in the 20% to 40% range), or both.

Part 2: Classifications of angel investors:

Topic discussed during the panel discussion

Entrepreneur angels (institutional angels): the most active in terms of number of investments and amount invested, the most experienced angels and also the wealthiest. Their preference is to invest at start-up and enjoyment is a major motivation. Their key investment criterion is the personality of the entrepreneur. Entrepreneur angels are also the most open to investing outside of their own field of experience. They are unlikely to play a role in the day-to-day management of their investee companies.

Income seeking angels: significantly less wealthy investors, less active and less motivated by fun and enjoyment considerations, tend to invest in industries in which they are familiar and looking for a formal management role in the ventures in which they finance.

Wealth maximizing angels (Ad-hoc angels): predominantly self-made investors but includes some with inherited wealth, interested primarily in the financial return, more likely to invest in industries in which they have personal experience and more likely to take a full-time position in their investee businesses.

Part 3: Angel investors and external financing options for early stage companies

2nd Keynote speech, given by Michael C. Gruber

Banks are notoriously stringent when it comes to small business loans.

The majority of early stage companies fund their initial capital needs personally, but the capability to do so is limited, and without external funding, a business will be starved of the nutrient required to allow it to grow to its full potential. The amount of funding needs typically increase with each stage of the business, and the sources of capital will change according to the stage.

A. Typical mode:

(Source of picture: www.cornerstoneangels.com)

 

Besides, grants and government sponsored funding are also important sources of fund providers. However, usually these grants are non-dilutive.

B. Key checkpoints to impress the angel investors (topic also covered during the panel discussion)

Angels are typically high net-worth individuals who invest their own funds. To optimize the chances of impressing the angels, follow the following checkpoints:

1. Build a prototype product that you can demonstrate: A frustrating conundrum for many entrepreneurs is that they need money from investors to design and build a prototype product, yet most angel investors expect to see at least a prototype before they invest.

2. Find the initial customer who is willing to pay real money for your product or service: All the conviction and market research in the world are no substitute for real customers paying real money. This is called “validating the business model.”

3. Network to the maximum with investors and investor connections:

No explanation to this final point.