Tag Archives for Angel investor

Booming or Busting?

A view of downtown San Jose, the self-proclaim...Image via Wikipedia

Very strange reading the papers in the UK and hearing news from the USA about budget cuts and contrasting it with the talk by Paul Graham at the Y Combinator Startup School 2010.

Graham’s talk is all about lots of clever money seeing the quick returns on startups in Silicon Valley and wanting some of the action.  The angels are forming Super Angel groups and the VCs are prepared to invest smaller amounts for first rounds of £300k.  The valuations are going up and up so it is a good time to raise funds providing, as always, you make great progress and can justify a higher valuation at the next round.  Lack of progress can lead to a lower valuation and a dreaded downround or no round.

Ignore the gloom about budgets and get out and start a great company.  But whatever funds you are offered, use a great business plan resource and keep exceeding the targets.  Graham pointed out the recent effect of small startups funded by angels being bought up early giving returns of 10x to angels in one year.  As returns have to be related to time, these 10x returns in one year are way ahead of the returns angels received in even Google where they had to wait five years.

Are you Booming or Busting?

But take great care as ever!

PS Do listen to Ron Conway et al talking at Startup School.

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Let the good times roll again! Convertible debt for angels

Fred WilsonImage via Wikipedia

Fred Wilson write a great blog and not much needs to be added to it except that he is one person who got in early and will make a ton of money out of spotting the social network space.  Amazing to have the simple vision to use the tools and then be able to relate to entrepreneurs.  All so simple but he does hide away..  Ooops no he does not as one of his companies, Zemanta, has just popped his photo up!

In his post on convertible debt for angels in the first round, he puts the other case that he prefers agreeing a price and investing.  But he understates the great increase in value he brings to the new company when he says “I can negotiate a fair price with an entrepreneur in five minutes and have done that for a seed/angel round many times.”  We can all agree a price but most entrepreneurs do not bite off our hands!

Fred Wilson operates in a very different environment than Cambridge Enterprise, the arm of the University of Cambridge which “exists to help University of Cambridge inventors, innovators and entrepreneurs make their ideas and concepts more commercially successful for the benefit of society, UK economy, the inventors and the University“.   Their recent News and Events Bulletin states that “Sixteen Cambridge Enterprise portfolio companies are included in Business Weekly’s “Killer 50” list of the most disruptive technology companies in the East of England”.  Amazing companies that will change our lives in the years to come.

But in the mission statement of Cambridge Enterprise there is no mention of angel investors.  Are angels the best investors to start disruptive technology companies?  Do they have deep enough pockets?

Perhaps angels in Cambridge need to entice the entrepreneurs in Cambridge to follow the path of Fred Wilson as demonstrated so well by Rahul Vohra and Rapportive.  A very different business plan resource approach is required.  Perhaps Cambridge Enterprise should establish a new division to support the likes of Rahul Vohra – after all the experience, skills and opportunities given to Rahul Vohra served him well until he upped and offed to Silicon Valley.

The only worry to me as a low-grade angel is that the convertible debt stacks the cards too much in the favour of the entrepreneur and the second round investors.  The first round investors need a great big uplift to justify the huge risk we take.  We might not fund a company to revenue but we fund social network companies to their first major step of customer engagement with hundreds of thousands of users.

Will all this help The Entrepreneurs Graphic Novel when it is is published as an app?

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Should I invest in A and/or B and/or C?

Dinner with Italian angels delegation-1Image by BAIA via Flickr Not able to identify the companies as they are all fund-raising at present, all on their second or third round.  It is not easy being a founder of an Active Equity Company nor being an angel investor as I hope that this post demonstrates.

We brave angels plunged into company A to prove a new idea.  Let us be clear, this idea may or may not work so we were taking an almighty risk.  The demo works but the idea can only be funded by people from the East and by governments seeking to attract new technologies.  The initial offer gives the angels a cap of 4 times our investment and then the founders and the new investors get the rest.  After much bad-tempered negotiations by e-mail, the good chair does no “do” phone calls, an offer was made to let us stay in with no limit to the upside.  Would you have taken up the offer to invest more funds?

Company B had a great start and raised millions but then the two experienced founders fell out and one left after considerable legal costs funded by the shareholders.  From the original business plan, company B should be minting money and everyone should be looking to pick up bargains in the property market.  With no warning, I return from the wedding celebrations (ps five days is too long) to receive documents saying that the company is running out of cash and is seeking to raise so much cash with a minimum of X.  My share will be such and such – but is that to meet the minimum or the maximum.  In the small print, it mentions that this round is at a discount of 50% to the previous round; lucky I did not invest in that round!  Perhaps we need a new chair to bring some fresh ideas to the table but will the old chair cancel his options and walk away?  If not, perhaps I should walk away again.

Last but not least is the very differnt company C. You can phone the office late on Saturday afternoon, recieve a warm welcome, gratitude for some suggestions and real appreciation that you are involved – so different from A and B who fight any ideas.  This time the pre-money valuation has increased four times and the issue is informally underwritten by people anxious to join the part.  One interesting matter is that because the initial round was at a generous valuation, the founders still own a good percentage of the business and so are eligible but unable to subscribe for their part of the new issue.  But existing shareholders have first call on the issue and so can increase their holding in the company.  So it is not just a question of keeping up but of jumping up the equity holding.  And the person on charge finds time to charm minnow investors.  Imagine what he will do to customers of the product and of the company.

But then that is probably why companies A and B are struggling.

Now all I need to do is to work out the Equity Fingerprints, the business plan resource, of each company to make an informed decision.

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It is good to be wrong, sometimes

Thoroughbred racing at Churchill Downs.Image via WikipediaLysanda raises a second round of funding and Simon Harris, MBA from LBS and the commercial brains, looks like he has launched a second company. I was offered the chance to be an early angel investor but turned the chance down. However with two funding rounds already, I wonder what the Equity Fingerprint, the business plan resource, looks like.

Hats off to Simon who says: “My aim of course is not just to make other people rich but to share in and contribute to their success. My philosophy is therefore to play a significant part in the business, not just to provide funding, and stick with it until it is up and running. It’s horribly risky of course because it means you don’t have the time to do much else, and if it doesn’t work you are older, wiser but poorer. But it seems to me more likely to succeed than angel investing at arm’s length. It’s like betting at Newmarket to win on one race, rather than each way on all the races. But you need to breed the horse, train it and ride it too!

This seems to be working with Quotient and Lysanda, but I need one or two more to be sure of a minimum outcome. Talking of which, I have found some promising technology in the Engineering Lab which I am casting my eye over.”

Third time lucky we hope but I guess this time the valuations will be high in the early stages – will I be invited to the party?

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DuoFertility for conception

intracytoplasmic sperm injection, the most common method of fertilisation using posthumously extracted sperm.Image via WikipediaCambridge Temperature Concepts has launched the website for it’s first product DuoFertility. So if you are one of the 1 in 7 couples who are struggling to start a family, sign up for the trials, whilst you are considering IVF. DuoFertility uses a tiny recorder stuck onto your arm to measure your temperature – see the site for more details. All you have to do is place a hand held reader over the device, watch the dial and get in the mood. It is a serious problem to many people and let us hope that 1 + 1 + DuoFertility = 3. Let us hope that it gets the angel investors in the mood too!

Disclosure: I am an angel investor in Cambridge Temperature Concepts

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