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By: Pat Gouhin, Chief Executive Officer

As part of the staff leadership transition, Marianne Hudson and I recently joined forces in Washington, DC with Chris McCannell and Greg Mesack of GrayRobinson, ACA’s government affairs consultants.  Chris and Greg orchestrated a series of visits with legislators on both sides of the aisle, senior agency executives and other key partners in pursuit of ACA’s 2019 Public Policy Plan.  Meeting objectives included introductions to key allies, as well as re-emphasizing plan priorities which included: 

  • Continued support of legislation to codify current standards on the accredited investor and providing new ways for financially sophisticated people to meet the definition
  • Education of elected officials on the negative impact of potential legislation on Advanced Form D on the startup ecosystem
  • Supporting our coalition partners on tax policy including Net Operating Losses, expansion of capital gains in Qualified Small Business Stock (Section 1202) and R&D credits for startups
  • Continued focus on HALOS Act, clarifying that demo days are not considered general solicitation

Meetings were held with House and Senate staffers representing the House Finance Services Committee, House Committee on Small Business and the Senate Committee on Banking, Housing, and Urban Affairs. Residing in North Carolina, I was able to meet and make a connection with the offices of Rep. Patrick T. McHenry (R-NC) the ranking member of the House Financial Services Committee and Senator Thom Tillis (R-NC) a member of the Senate Banking Committee.

Additionally, the team made visits to the Department of Commerce’s Economic Development Administration (EDA) to talk about the Regional Innovation Strategies (RIS) Program that is fostering innovation and accelerating technology commercialization to promote productivity and economic growth. EDA does this through their i6 Challenge and Seed Fund Support (SFS) Grant Competition programs. We also learned of their intent to launch a Technical Assistance Program next year that could provide grants at a national level.

After meeting with EDA, the team headed to the National Institutes of Health (NIH) to conduct an informal debriefing following their strong participation in this spring’s ACA Summit in Chicago. While much good work has been accomplished to adequately represent the angel investor community, we also used the opportunity to reaffirm our commitment to our coalition with other associations on tax issues, where we were able to sit down and meet with representatives from the National Venture Capital Association (NVCA) and the Biotechnology Innovation Organization (BIO)

After a productive first trip, I look forward to many more discussions that will benefit angel investors and the startup ecosystem in the years to come!


Pat Gouhin, Marianne Hudson and Chris McCannell

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By: Ham Lord, Chairman of Launchpad Venture Group and Co-Founder of Seraf-investor.com and Christopher Mirabile, ACA Chair Emeritus, Managing Director at Launchpad Venture Group and Co-Founder of Seraf-investor.com

Note: This article is the eleventh in an ongoing series for angels new to investing. To learn more about building an angel portfolio, download this free eBook today - Angel 101: A Primer for Angel Investors or purchase our books at Amazon.com.

In the first two parts of this series on angel exits, we examined four different types of successful exits and four different types of failed exits. With our final article in the series we will address a few miscellaneous topics that are important for angel investors to understand as they build a diversified portfolio. And, for another take on angel exits, please read our article on an introduction to angels and exits.


Image by Tony Alter

Q: It has been said that you find out about your mistakes pretty quickly.  What situations result in an exit occurring within the first 1 to 3 years?

As we discussed in the first post from this series, in our portfolio, these companies were usually characterized as early seed deals where a great idea didn’t pan out. The company raised a small amount of capital, but the technology didn’t work, or customers weren’t interested in buying for any one of a whole host of reasons. As seed investors, you decide to stop funding the company and the company can’t find any other investors. Although losing all your money in a seed deal doesn’t feel great, typically you put a small amount of money into the company at this stage. So your overall loss in time and money tends to be low. Remember, the only thing worse than a mistake, is an expensive mistake.

In some cases you don’t lose all your capital. If the founding team is solid, it’s not unusual for a larger company to acquire the failed company for their talented team and pay a modest amount to the early investors. Also, be aware of the tax benefits from IRS tax code section 1244 that might allow you to write off your loss versus your earned income instead of at the lower rate of capital gains.

Q: In your personal portfolio and the Launchpad portfolio, describe some of the successful exits? How long did they take?  When is it OK to be patient?

I was an early investor in a company called SmartPak. SmartPak built the number one brand in the Equine market over a decade long time period. The company achieved strong, steady growth and was very capital efficient along the way. Management understood the importance of building a strong brand, and they did an incredible job of running a lean, efficient business. From initial investment to exit was about 12 years, but the return multiple was over 11x.

Launchpad’s successes span everything from a quick 1 year exit, to the typical 4 to 7 year exits, and finally 10+ year exits. As you would expect, the quick exits are predominantly 1.5x to 3x level of returns. The 4 to 7 year exits are clustered in a 3x to 8x level of return.

For the 10+ year type of exit, I believe it’s okay to be patient as long as the company hasn’t raised a lot of capital. For companies that are capital efficient, there isn’t a significant overhang from the preference stack (i.e. preferred stock liquidation preferences and dividends). As the clock ticks, dividends can really add up, especially when a company raises $10M or more over time. A large preference stack will cut severely into returns for early investors. At Launchpad, we have one long term investment that raised around $1M in angel money at a low valuation. Based on their current financial metrics, the company should be able to exit with greater than a 10x multiple for the investors.
 

Q: There are lots of stories in the press about the big wins such as Facebook and Google. How common are those exits?  Are those kinds of exits limited to consumer internet, or do they happen in other industries?

Returns like 1500x for early eBay investors are an incredibly rare thing, but still fuel the dreams and provide the justifications for many investments, particularly in consumer web and consumer mobile.  But these gold rush type returns are super rare and really only associated with massive disruptions like quickly going from no broadband to ubiquitous broadband or slow expensive wireless to fast cheap wireless.

Success in consumer markets easily overshadows success in other industries. However, there are other areas where angel investors should consider. For example, enterprise software companies such as Salesforce.com and Workday have market caps well in excess of $10B. In healthcare, there are a number of successful companies such as Athenahealth, Gilead and Celgene. In some cases, the companies are capital efficient (e.g. Athenahealth), but in others (e.g. Gilead) they are not. So early investors in the life sciences need to be aware of the enormous capital required to turn out a successful company.
 

Q: If you built a portfolio of 10 companies, what should you expect?

Assuming you are an angel investor who puts time and effort into building your 10 company portfolio by performing due diligence and adding human capital to support your investments, you should have the following expectations.

A rough estimate for your portfolio will include 5 failed companies, 4 base hits and 1 home run. Let’s break this down a bit further and understand what this will mean for your returns. With the 5 failures, you can expect little if any capital returned. You will have some tax benefits on the losses, but they will add up to around 20-30% of your original investment

Base hits describe exits anywhere from 1x to 10x of your original investment. As we discussed in a previous question, quick exits will result in a 1.5x to 3x return of capital and the other exits should cluster in the 3x to 8x range.

Your portfolio’s 1 home run should be somewhere greater than a 10x return. Assuming you allocated the same amount of capital to all 10 companies, this company will return all the capital that you invested in the original 10 companies. Think of this exit as ‘returning your fund’.  But, how you do overall is now driven by how your base hits do. A couple of 5x returns and a couple of 3x returns will help you generate overall fund returns of at least 2.5x your original capital.

Want to learn more about building an angel portfolio and developing the key skills needed to make great investments? Download Angel 101: A Primer for Angel Investors and Angel Exits: Perspectives and Techniques for Maximizing Investment Returns​, or purchase our books at Amazon.com.

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By: Jen Levy and Deb Doyle, Managing Directors of Golden Seeds

Reposted with permission from Golden Seeds blog.

How one woman’s journey into motherhood, coupled with her passion for transformational beauty products and medical devices, led to an innovative health solution for the enormous, but underserved female intimate care market.

Joylux is a FemTech company that creates innovative consumer and medical devices and products that transform women’s pelvic floor health, empowering women to live their best lives. Joylux seeks to improve vaginal health for postpartum, perimenopausal and menopausal women through its portfolio of non-invasive, at-home solutions using innovative red light, thermal energy and sonic vibration under the vSculpt and vFit brands. Joylux recently won the prestigious Luis Villalobos Award, given each year by the Angel Capital Association to the company considered the “most innovative company.”

Golden Seeds’ Jen Levy and Deb Doyle discussed with Colette how she used personal inspiration and professional experience to found a leading FemTech company.

Colette Courtion, CEO and Co-Founder of Joylux. Photo courtesy of Joylux.

JL and DD: Tell us about the origins of your company.

CC: I started Joylux from my own personal experience. When I first found out I was pregnant, I had girlfriends who shared their pregnancy experiences with me. Of course, there were some things I expected to hear — weight gain, nausea, those sorts of things — but I wasn’t expecting them to share with me that after I gave birth, I’d wet my pants when I sneezed or if I jumped up and down. No one had shared this before. I had no idea. Why was nobody talking about this? I did some research and realized that this was stress incontinence and it affects a large number of women, at least one in three women, though we suspect it’s underreported and it actually affects more like 50 percent of all women.

I also learned that there are very few options for women. Surgery may be an appropriate path for very severe cases. But, for the most part, if you didn’t have surgery, you just had to live with it or change your lifestyle to avoid these embarrassing moments.

My background is in medical aesthetics — tightening, toning and restoring facial tissue — and I had this “a-ha” moment, when I thought, “Why can’t we take this same technology and apply it to pelvic health?” That’s what led to the creation of Joylux. I was looking for a safe and non-invasive way to help women tighten and tone their pelvic floor.

JL and DD: What market need are you solving, and how is your approach different from how others have addressed this need?

CC: When I first conceived the idea of Joylux, it was specifically designed to help women suffering from stress urinary incontinence. But now that we’re in the market, the feedback we’re really hearing is that menopausal and perimenopausal women are buying our product because they’re experiencing relief in the three major issues of pelvic health — stress incontinence, vaginal dryness and pain with intercourse. In fact, we did two surveys — the first was 2,300 women and the second was more than 5,000 women — and in both cases, well over 50 percent of women say they suffer from at least one of the three issues.

When you look at the amount of money that is being spent to mask these three problems, it’s astonishing. Incontinence pads make up a $7B market in the U.S. alone. It’s believed that the sale of adult diapers will actually surpass sales of baby diapers because of our aging population. So incontinence alone is a is a massive market. Then, take a look at the market for vaginal dryness: Women spend $8 billion on hormone-replacement creams and another few billion dollars on over-the-counter lubricants.

We are the only non-invasive, multi-symptom device on the market. The limited options that are on the consumer market don’t address the tissue damage. We’re the first home-use device in the world using our patented energy-based technology. Our solution uses red light, gentle heat and sonic vibration to target all three symptoms by depositing energy into the tissue to increase collagen production and impact vascularization.

JL and DD: What challenges have you encountered along the way? How have you overcome them?

The first challenge was funding. This is a sensitive topic and talking pelvic health with investors is not easy. We live in a male-dominated funding world, so many of our potential investors are men and simply don’t understand this problem. This became a real challenge when it came to raising funds for the company, but we overcame this challenge by seeking out funding from female investors, like Golden Seeds. If the women aren’t specifically familiar with what I’m talking about, chances are they have girlfriends who are. Women want to support other women, so it’s always been a great audience for us to talk about our company.

We’ve also had marketing challenges. For our target demographic, one of the best vehicles to approach them is Facebook, but Facebook doesn’t allow ads for any products that have to do with women’s intimate health to be marketed on their platform. They allow for men’s intimate health products, such as condoms or erectile dysfunction products, under the umbrella of “family planning.” But they don’t categorize women’s intimate health products under family planning. Instead, they classify it under sexual content. This has forced us to be very clever and creative in how we talk about our product. There are so many women who are desperate that they are seeking out solutions.

JL and DD: What’s coming up next for your company? Any big milestones on the horizon?

CC: I’m happy to report that Joylux recently won the prestigious Luis Villalobos Award, given each year by the Angel Capital Association to the company considered the “most innovative company.” The Angel Capital Association is made up of more than 14,000 accredited investors, including Golden Seeds. We’re really excited about that because it validates all the hard work that our team is doing.

We’re also growing. We launched last year in the U.S., and today we are sold in more than 200 doctors’ offices in the U.S., which is great because physicians are the most knowledgeable and trusted resources on what works to help pelvic health. We’re also being sold direct-to-consumer online, and we just launched a partnership with Gwyneth Paltrow’s online marketplace, Goop. Goop has been very vocal about women’s sexual health and we’re thrilled that a figurehead as well-known and respected as Gwyneth has embraced our solution. We have other online retailers and very prestigious e-tailers who have also invited us to sell on their channels.

We’re launching consumable products this year — oils, creams and cleansers — that are geared toward vaginal health, and we have additional innovations we’re adding to our current device, such as bluetooth connectivity, which allow us to provide customization with the individual on what treatment is appropriate for them. We’re working through a 510(k) clearance with the FDA. It’s a very exciting time.

JL and DD: What advice do you have for early-stage founders about raising money, growing a team, fostering company culture or other issues you’ve had to address?

CC: First and foremost, even if you have the greatest idea, you must have a team in place to help execute it. You simply can’t do it by yourself. You have to surround yourself with people who are passionate about your company and your solution. There are many highs and lows in entrepreneurship, but there are definitely lows. You need to make sure the team you surround yourself with is prepared to take on those tough times with you.

Always have more money in the bank than you think you need. I’ve found myself in the position several times where I thought, “If we only had a little more money to take this or that to the next level.”

Networking is also an area where I wish I had spent more time. We’re setting out to make a real difference in women’s lives, and in order to truly do that, you need introductions to people in the industry to connect you to different channels or to help make introductions to companies to partner with. Networking is critical to a young company in the early days.

JL and DD: Tell us about your experience with Golden Seeds. How has the Golden Seeds network been helpful to you?

In addition to funding, Golden Seeds, as a network of angel investors, has been incredibly supportive. They understand the challenges we face and support us through them. They’ve been so helpful as we grow and scale and have made invaluable introductions to physicians, which is critical to the success of our company.

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By: Marianne Hudson, ACA Executive Director Emeritus

Two new board members were elected at the ACA Annual Members’ Meeting at the 2019 ACA Summit in Chicago.  Three current board members were re-elected for a second term and a new Chair and Vice Chair were elected.  The Board of Directors is currently made up of 15 members and four Chairs Emeritus. 

The Board of Directors focuses on supporting the success of angel investors through industry voice, professional development and public policy advocacy while maintaining the mission and values of the Angel Capital Association.  Selection criteria for board nominations includes, constituent group representation, geographic representation balance, committee service needs and willingness to serve.

The incoming board members bring a wealth of expertise and thought leadership in ACA’s key areas of focus, in addition to proven track records of results and emphasis around ACA’s vision and mission.  The board makeup remains diverse in terms of gender and geographic diversity, with different regions across North America being represented.  Our incoming board members pledge to uphold the vision and goals of ACA while bringing their individual unique voice and ideas to the organization.  Incoming Directors include:

John Harbison from Palos Verdes, CA is the Chairman Emeritus of Tech Coast Angels and has also served as a director on boards of many early stage companies including Connected Signals and GrandPad.

Pat LaPointe joins from Bozeman, MT is the Managing Director of Frontier Angels and the Director of Early Stage Montana.  Pat is also a member of the Alliance of Angels, Desert Angels, E8 Angels, Gopher Angels, Rockies Venture Club and Tech Coast Angels.

ACA’s current Vice Chair and Chairman of Queen City Angels, Tony Shipley, will be stepping in to the role of Board Chair beginning July 1, 2019.  Kevin Learned, of Boise Angel Alliance, will begin his second term and his new role as Vice Chair.  

Elaine Bolle and Angela Jackson will also begin their second term on July 1, 2019.  ACA thanks our members leaving the board for their hard work during their terms, Trish Costello of Portfolia, Matt Dunbar of VentureSouth, Steve Flaim of Tech Coast Angels and Parker MacDonell of Ohio TechAngel Funds.  We especially want to give thanks and gratitude to Linda Smith of Sierra Angels for her service as ACA’s Board Chair.  The contributions of these individuals have enhanced the angel investor community and the Angel Capital Association.

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By: Emily Angold, ACA Marketing Manager

There are big things happening at the Angel Capital Association!  ACA is pleased to share that Patrick Gouhin began his new position as ACA’s new CEO on Monday, May 20.  Pat will step in to the leadership role previously held by ACA’s Founder and Executive Director Emeritus, Marianne Hudson, who is retiring after a transition period. 

“I was part of the search committee and know we found the right person who will help ACA grow and develop the way it needs to drive success for our members,” says Marianne, “I am excited that ACA can leverage Pat’s tremendous capabilities in the association management arena to take ACA to the next level.”

Pat’s professional career includes three decades of association management experience with positions such as Chief Executive Officer, Executive Director, Chief Operating Officer and Director of Operations.  During his tenure, Pat significantly increased revenue, delivered new services and successfully grew membership of multiple associations. 

"In addition to his proven track record of growing member-based organizations, Pat brings to the job strong public speaking skills, public policy expertise and the experience of managing nearly 60 employees worldwide.  The ACA Board and I look forward to working with Pat as we continue to enhance ACA's value to you, our members,” says ACA Board Chairman, Linda Smith.

Incoming ACA Board Chairman, Tony Shipley, agrees, “ACA's Board is very excited to have Pat join our team,” he says.  “His background and experience uniquely qualify him to help drive the future of our organization.  We look forward to working with Pat to expand ACA’s resources and further develop our strategic initiatives aimed at improving our member outcomes and the entrepreneurial ecosystem.”

Pat is delighted to join the ACA team and work with the angel community.   He is committed to the standard of excellence ACA upholds and is eager to bring his leadership experience and style to generate positive change and drive results to benefit ACA members in their quest for knowledge, connections and tools to make smarter investment decisions.

"I am excited about building on the strong legacy of ACA and furthering member activity that gives hope, provides opportunities, and facilitates the introduction of innovative new products and services,” says Pat. “ACA members, and their strong partnership with entrepreneurs, serve as a critical link in driving economic prosperity and ACA will continue to be a leader in bringing the community together and advancing mankind through angel investing."

The Angel Capital Association has many accomplishments in its brief, but rich history.  Pat’s exceptional leadership skills and experience will take ACA to the next stage of its lifecycle by executing new initiatives that will benefit our members and continue ACA’s mission to “fuel the success of the accredited angel investor community through advocacy, education and connection building.”

Pat will be located in the Research Triangle Park area and ACA will remain headquartered in Kansas City, with employees located throughout North America, similar to ACA’s membership.  Please join the ACA staff and Board of Directors in welcoming Pat to the Angel Capital Association!

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By: Kevin Learned and Denise Dunlap, Boise Angel Alliance

Terms like “warrants, waterfalls and preferences” can be confusing and intimidating when attempting to understand a capitalization table (aka cap table); it is no wonder we are often asked for a simple way to understand them! This article will give a brief overview of why cap tables are important and introduce a simple model to use early in the due diligence process.

As fund administrators and instructors for the Angel Capital Association (ACA)’s educational programs,  Loon Creek founders Kevin and Denise sometimes develop tools to help investors understand the concepts presented in the courses they teach. Many years ago Kevin developed a simple spreadsheet to model basic cap tables for use by our local angels as part of their regular due diligence process. He introduced this model during his presentation at a recent national webinar for the ACA discussing the basics of cap tables. You can download a copy of that cap table model as well as access the webinar archive from our Resources page.  

For those who would like a brief primer, a capitalization table is a document that lists all of the owners of equity and potential equity, the shares they own and the percentage ownership those shares represent.  Typically, the cap table is organized by type of security and/or by investment round.

We believe it is important for angel investors to understand cap tables.  It is part of our regular diligence process to first construct our own summary cap table before we decide to invest.  

Here’s what a rudimentary cap table can help you answer:

  • Founders’ ownership. What percentage of the company do the founders own now and will be likely to own at exit?  As investors, we want to be sure the founders have adequate incentive to continue to work very hard right through the exit.
  • Stock options. How many shares are set aside for the stock option pool, and is the pool set up before or after we make our investment (pre or post money)?  We know the company will not be able to pay market salaries in its early years and that a stock option pool will be needed to attract quality staff.  If the pool is set up before we invest, then the dilution associated with the stock option pool goes against the previous investors; if the pool is set up after our investment, then we are diluted as well at the time we make our investment.
  • Valuation. What is the impact of the agreed upon pre-money valuation?  This allows us to see what percentage of the company we will own now as well as projecting that through to exit to see if a) an exit at the required valuation is achievable, b) the likely exit will be sufficiently rewarding.
  • Subsequent rounds. What is the impact of subsequent investment rounds in terms of dilution, share price, and required exit valuation?
  • Exits. At various exit amounts what will our return likely be?

We have also found this simple model to be a helpful tool when working with entrepreneurs who are new to the process – often cap tables are confusing to them as well! In our experience, many entrepreneurs rely on a third party such as an attorney to maintain the schedule for them and only understand it at a high level.

Admittedly cap tables can become very complicated when they take into account convertible notes, warrants, preferences, waterfalls and other terms and instruments that may impact our return.  But we argue that if the simple cap table doesn’t show you that it is possible for this investment to make stellar returns, then you need go no further with negotiations or due diligence.

The ACA has a wonderful advanced course on cap tables that teaches the audience to deal with the myriad of possible return-reducing conditions.  Information on this and other ACA courses is available from their website.  Click on “Education” on the top ribbon.  Meanwhile, we hope our simple cap table model will be helpful to you.

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By: Ham Lord, Chairman of Launchpad Venture Group and Co-Founder of Seraf-investor.com and Christopher Mirabile, ACA Chair Emeritus, Managing Director at Launchpad Venture Group and Co-Founder of Seraf-investor.com

Note: This article is the ninth in an ongoing series for angels new to investing. To learn more about building an angel portfolio, download this free eBook today Angel 101: A Primer for Angel Investors or purchase our books at Amazon.com.

After a year or two down the path of building a diversified portfolio of angel investments, many individual angels are faced with some uncertainty about their path forward. The questions on many experienced angels’ minds are “Will I make a good enough return on my angel investments to justify the risk? Should I continue to invest?”  

Having spent the past 15 years as an active angel investor in Boston, managing a large angel group, and keeping up-to-date with angel activities around the US, Ham has a great perch from which to develop a perspective on what it takes to go from investment to exit. 

 

Image by Chris Griffith

Q: At Launchpad, we worked on a research project to understand the different kinds of exits we had in our portfolio. Give us a summary on the research methodology and findings?

At the time of our research project in the Fall of 2012, we had 17 exits in our angel group (it’s now about 24 exits). About half the exits were positive exits and the other half each returned less than we originally invested. The sample size we examined was large enough to gather some interesting insights. We looked at each company and recorded the following data:

  • Time from initial investment to exit
  • Total number of rounds of investment
  • Types of investors (e.g. Angels, VCs, Corporate Investors, Friends & Family)
  • And finally, the amount of capital returned to investors

The chart below provides a visual explanation of what exits look like in the context of startup companies. We think this chart gives a great overview of what angel investors can and should expect within their angel investment portfolio.

So let’s walk through this chart in more detail. The arrows that point down represent the different ways companies fail and return less than the capital originally invested. These companies may return some capital, but for you the angel investor, you will see little return.

Fail Fast on Seed Only: If you are doing a good job finding companies, performing due diligence, and sizing the initial rounds to get to key milestones, there should be a limited number of companies in your portfolio that fail quickly. In our portfolio, these companies were usually characterized as early seed deals where a great idea didn’t pan out. The company raised a small amount of capital, but the technology didn’t work, or customers weren’t interested in buying for any one of a whole host of reasons. As seed investors, you decide to stop funding the company and the company can’t find any other investors. Although losing all your money in a seed deal doesn’t feel great, typically you put a small amount of money into the company at this stage. So your overall loss in time and money tends to be low. Remember, the only thing worse than a mistake, is an expensive mistake. A typical Fast Fail scenario has less than $1M invested in the company, and it took less than 18 months to fail.

Fail After Multiple Angel Rounds: This is probably the most common scenario for failed angel deals. You find a great team with an awesome product. The company makes some early progress, but not enough to raise a large follow-on round of financing. So you and your angel colleagues pony up a bridge round to help the company achieve the milestones that the big investors need to see. One bridge round turns into two or three bridge rounds, with the plausibility of each successive round buttressed by the human tendency to not want to admit you were wrong until you are absolutely forced to. So you chip into the pot to see the next card. Before you know it, you’ve invested 2x or 3x what you put into the first round, and it’s four years after you made your initial investment. And, the company continues to underachieve. At this point, the old investors are ready to bail, and new investors aren’t interested. So, if you are lucky, you unload the company at a fire sale price to some other company. In the end, you lost much, if not all, of your investment and you spent 4 years going through this exercise. A typical scenario in this situation has $1M to $3M invested in the company over a 3 to 5 year time frame.

Fail After Angel and VC Rounds: Some of the most promising startups end up in this bucket. The story goes something like this… you invest in the seed round, the company gets some early traction and shows good signs of product/market fit. Times are buoyant, competition for good deals is hot so VCs start to take interest and the company closes a Series A round of financing at a nice step up in valuation. On paper, your seed investment is now worth 3x what you invested. Things are looking good! Unfortunately, the initial success doesn’t pan out and growth stalls at the company. But, no one is willing to call it quits, so the VCs force a pivot or maybe some change to management and the company raises additional rounds of financing. Your initial stake in the company keeps getting diluted unless you pony up with additional funds at increasing valuations. In the end, the company gets sold or shut down and your return is zero. A typical scenario in this situation has $10M to $20M invested in the company over a 7 to 10 year time frame.

Zombie - Cash Flow Positive, but Slow Growth - No Liquidity: We’ve all invested in companies like this. The business grows slowly but surely. Revenues climb into the millions and the company can easily stay around cash flow break-even because it is only making modest investments in growth. However, the growth rate for the business is in the low single digits, the company cannot attract a big slug of capital to force growth, and the company remains below the radar of any potential buyer. This situation is relatively common with angel backed companies and less so with VC backed companies. The main reason for this is that VCs have to distribute the assets of their fund to their investors around the 10 to 13 year mark. Having to distribute stock in a private company is not ideal. So many VCs will force the sale of a zombie-like company. Angels are less motivated to force the sale of a company, so they end up holding their investment for much longer than they ever expected. Many zombies are just life style companies in disguise. The founding team has no motivation to sell because there are no interesting offers, they are drawing a nice salary and aren’t working as hard as they did in the early startup days. If you are an investor in a company that fits this description, get together with the other investors and work with the CEO to come up with an exit plan.

So we reviewed the not so good exits, but what about the positive exits? This is the fun and lucrative part of angel investing. What do those exits look like? To read Part 2 of this article where we review everything from an early exit to an IPO, please visit The Seraf Compass.


Want to learn more about building an angel portfolio and developing the key skills needed to make great investments? Download Angel 101: A Primer for Angel Investors and Angel Exits: Perspectives and Techniques for Maximizing Investment Returns​, or purchase our books at Amazon.com.

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By Lucy Howell, ACA Director of Partnerships 

The seventh annual Innovation Showcase took place last week at the 2019 ACA Summit in Chicago.  This special series of events provides selected companies the opportunity to present their pitch to the entire ACA Summit audience over the course of the Summit.  The Innovation Showcase is by invitation only and presenting companies are nominated by organizations - ACA member angel groups, venture funds, accelerators, and universities government agencies or trade commissions - that underwrite the Innovation Showcase.  The “showcase” represents an incredible opportunity for these underwriters to showcase their best portfolio companies to the angel investors and startup ecosystem leaders at the Summit.

Twenty-nine sponsored entrepreneurs delivered their 90 second speed pitch to the audience over the three-day Summit.  Sponsored entrepreneurs also hosted exhibit tables throughout the Summit to hold private meetings and share their story with attendees. 

The Innovation Showcase had three categories winners included:

  • Best Pitch –selected by attendee vote on the Summit app
  • Best Potential for Investment –selected by attendee vote on the Summit app
  • Venture Bucks votes –selected by attendees voting with paper “Venture Bucks” at the company exhibits during a special reception

BabyPage, from Albuquerque, NM, won Best Pitch.  BabyPage offers traditional scrapbooking for the modern era with easy to use technology that automatically generates content for you based on your information.  BabyPage was represented by Yasine Armstrong and underwritten by Keiretsu Forum-Northwest and Keiretsu Capital.  Other finalists for Best Pitch include Curb from Austin, TX and ARED from Kigali, Rwanda.

Best Potential for Investment was awarded to Curb, represented by Erik Norwood and underwritten by Keiretsu Capital.  Based out of Austin, TX, Curb provides home information on energy trends, pinpoints power hogs and gives the user control over their home and electric bill.  Other finalists for Best Potential for Investment are CorInnova from Houston, TX and ARED from Kigali, Rwanda.

CorInnova of Houston was the 2019 Venture Bucks winner.  Represented by William Altman and underwritten by TMC Venture Fund, CorInnova is developing a minimally invasive, soft robotic cardiac device for heart failure treatment.  This new technology also works to reverse the progression of heart failure or prevent its development in post-heart attack patients.  Other finalists for Most Venture Bucks include IRIBA from Kigali, Rwanda and pl’over from Portland, OR.

William Altman, CEO of CorInnova and 2019 Venture Bucks winner, said, “This has been a fantastic experience and exceeded my expectations to come here.  After being in this community for several days, I understand what is important in a more concrete way and a much more gut feel way.  Now I really understand what angel groups are looking for and what investors want to see from us, so I think I can respond better to their questions and concerns as I communicate what we have to offer.”

Underwriters for participating companies included: National Institutes of Health, VentureWell, Portland Seed Fund, Red Idea, Keiretsu Forum-Mid-Atlantic, Keiretsu Forum-Northwest, Keiretsu Capital, TMC Venture Fund, and Feed the Future Rwanda Nguriza and Nshore Project.

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By Sarah Dickey, ACA Membership Director

The Angel Capital Association had the very distinct honor of awarding Marianne Hudson the Hans Severiens Award at the 2019 ACA Summit in Chicago.  This annual national award recognizes one individual’s work in advancing the field of angel investing.  The criteria for this prominent award include depth of the individual’s impact on advancement of angel investing, leadership in bringing awareness of the field and contribution to the knowledge base of angel investing.  Marianne clearly demonstrates these qualities through her work in founding the association and growing it as ACA’s Executive Director.  ACA has become an important institution for angel investors and the startup ecosystem, providing education, data, smart practices and public policy advocacy for angel investors in every American state and five Canadian provinces.

Catherine Mott, Founder of BlueTree Allied Angels and Chair of the Hans Severiens Selection Committee, says, “Over 15 years Marianne Hudson transformed a nascent and disparate industry to a very professional asset class with best practices, industry standards for investment processes and terms, and an active public policy presence. Not only did she advance angel capital in the US, she helped other countries around the world by sharing our experiences and encouraging their efforts to advance angel investing and job creation.”

The award is named after Hans Severiens, whose love of startups and mentoring led him to form one of the first angel groups in the United States, the Band of Angels, which continues to be one of the most active angel groups in the world.  Hans understood the value of angel groups and investing, and highly prioritized sharing his experience to help others.

On winning the Hans Severiens Award, Marianne states, “I’m really honored to be included on the list of people who’ve won this award.  So many are my mentors and they all have had a huge impact on our field.  I knew Mr. Severiens and the kind of pioneer, gentleman and innovator he was.”

This year’s award ceremony was especially poignant, as Marianne will soon be retiring as Executive Director of ACA.    

Her interest in angel investing began during her time as the Director of Entrepreneurship at the Kauffman Foundation where growing interest in angel investing led to a formal initiative.  This official initiative was originally a program of the Kauffman Foundation and then spun in to its own independent non-profit in 2007.  Since ACA became a formal organization, the efforts of Hudson and ACA members have helped thousands of women become angel investors, increasing the percentage of female angels from 5% to 23% in 15 years and working to make legislative changes to benefit angel investors. 

Economic impact and job creation are Marianne’s driving passions of angel investing.  She notes, “Almost every angel I meet seems to care about this – it is great to be part of the startup support ecosystem and create great new companies, especially in our own communities.”

When asked about her proudest moments working on behalf of angel investors, Marianne highlights her work on the getting language in the Dodd-Frank Wall Street Reform act about accredited investor definition changed so that most angels could continue startup investing.  This was one of the major legislative milestones during her time because it ensured that most angels could continue investing in startups when the legislation initially would have cut the number of people who qualify as accredited investors by 60%.  This would not have been great for the investors, but could have been a total disaster for the innovative startups that need capital. 

Marianne led the ACA team that negotiated a compromise, culminating in the “Angel Amendment” to Dodd-Frank in 2010 that led to today’s definition of an accredited investor.  Last year, the group led the charge to increase the number of angels who could invest in an angel fund from 99 to 249.  This team also ensured that gains on Qualified Small Business Stock are 100% exempt from taxes and ensured that startups can benefit from R&D tax credits by taking the credits against their payroll taxes.  Marianne is also proud of the fact that three quarters of the investments by ACA members are syndicated.  ACA made the difference in syndication by helping members build relationships, trust and the rights processes to invest together.

Marianne’s work as an angel investor and as the Executive Director and founder of ACA has paved the road for the future success of angel investors. She is a member of the Mid-America Angels and Women’s Capital Connection.  She serves on the board of the National Angel Capital Organization, ACA’s colleague association in Canada, and the Center for American Entrepreneurship.  Previously, Marianne was a director of entrepreneurship at the Kauffman Foundation, Vice President of the Mid-America Manufacturing Technology Center, and an associate in technology economic development organizations in Ohio and Kansas. She holds a B.A. in Economics and Political Science from the University of Kansas and an M.A. in Public Policy from Rutgers University.

“Angel investors are innovating almost everything about our field – how deals are structured, vehicles for making investments, who becomes active as investors, the kinds of companies we invest in and so much more.  It will be important for ACA to continue leading the field and ensuring its membership reflects these growing innovations and also be as diverse and inclusive as possible, by gender, race, age range, geography and investment model,” Marianne explains.

This honor is well deserved.  Congratulations to Marianne for her outstanding work on behalf of angel investors and the startup ecosystem.  We wish her continued success in her retirement from ACA and in her future endeavors. 

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By Sarah Dickey, ACA Membership Director

Congratulations to Joylux, a Seattle based women’s health technology company, which was awarded the Luis Villalobos Award today at the 2019 ACA Summit in Chicago.  The Luis Villalobos Award recognizes outstanding ingenuity, creativity and innovation among startups backed by ACA members.

Joylux was selected by a committee of leading ACA member angels from a large number of portfolio companies recently funded and nominated by ACA members.  Joylux and two other finalists represent the most disruptive and exciting opportunities for early-stage investors.

Joylux is creating solutions for common pelvic floor issues experienced by 50% of adult women due to hormonal changes and weak muscle/tissue tone caused by childbirth and menopause.  This technology is the first affordable, home use, energy-based device for indications including pain, discomfort and embarrassment (muscle weakening, stress incontinence and loss of vaginal tone, sensation and lubrication). The company’s products can improve tone, tighten and restore vaginal tissue and muscles for improved bladder control, reduce vaginal dryness and help create better intimate health.

Since Joylux was founded late in 2014 by Colette Courtion, the company has created multiple products and achieved $1.3 million sales for 2018.  Colette built upon her 15+ years in medical aesthetics to create energy-based technologies to create revolutionary intimate health products.  They have also been granted eleven patents including three utility patents, along with receiving the CE Medical Mark and HealthCanada approval and been designated a low risk wellness device by the FDA.  Multiple scientific studies have been completed and half a dozen scientific articles focusing on Joylux’s work have been published or will be in the near future. 

Nominating angel, Peter Weiss of the Alliance of Angels, states, “Addressing problems frequently resulting from pregnancy and menopause, American women spend upwards of $1,500 a year on incontinence pads; as much as $80 per month for prescription estrogen creams and other vaginal dryness products; or about $4000 on multi-visit in-office medical treatments.  CEO and founder Colette Courtion drew on the knowledge and experience she gained building a chain of aesthetic spas to create an affordable way to address these problems with a first of its kind home use device.  The Joylux technology combines specific light frequencies with heat and sonic vibration.  Thousands of women are using Joylux’s devices and report excellent results.”

This rapidly growing company has raised $11.2 M in seed and series A rounds, along with convertible notes.  Demonstrating the power of angel investors, the following groups invested in Joylux: Alliance of Angels, Alliance of Angels Seed Fund II, Golden Seeds Houston Angel Network, Puget Sound Venture Club, Belle Capital, Belle Capital Opportunity Fund, Keiretsu Forum Northwest, Keiretsu Forum India, Keiretsu Capital Fund, South Coast Angel Network, Portfolia, Sofia Angel Fund, Seavest Capital Ventures, Copperlion Capital, Palodura Ventures and Wade Capital Corporation.

ACA commends Joylux on their outstanding work and representation of a disruptive and innovative startup.  Congratulations also to the other two finalists for the award, Aquacycl and GrandPad.

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