The Insider Secrets of Angel Investing

Tonight I attended a workshop named "Angel Investing 101" which I’ve renamed to "The Secrets of Angel Investing." It was held at the brand new, not even open yet 92nd Street Y (Hudson). The workshop was run by David Rose, CEO of Angelsoft and Chairman of The New York Angels. I wanted to film the sessions for ya’all but was politely asked not to. I am going to try to sit down for a video interview with David in the coming weeks.

Let me start by noting that this easily could have been a paid event. I’d venture it was worth about $199-299 for the hour and was one of the best educational sessions I’ve attended in a long time.

Here are some of the takeaways:

• 600,000 companies started each year that are looking for financing
• 350,000 get funding from the founders
• 200,000 get funding from friends and family
• 1,200 get funding from a VC 50,000 get funding from an angel(s)

Angels mostly invest in early stage companies. The typical Angel investor is 57, has a masters, 15 years as an entrepreneur and 2.7 ventures funded. Angels must be "accredited investors" which is a designation by the SEC and means that the person has $1 million in assets and makes at least $200k/year in income. The typical Angel investor has 9 years investing, has closed 10 investments with 2 exits and an average of 10% in Angel investments.

David stressed over and over that if you can bootstrap, you should.

An Angel Group is a way to combine deal flow, pool capital, share expenses, bring a variety of experience, make better investments and create an enjoyable social environment.

Some stats on the U.S. Angel Group market for 2007

• Average investments per group: 7.3
• New investments per group per year: 4.5
• Total amount invested: $1.9 million
• Amount invested per round: $265k
• Amount invested per Angel per deal: $33k

What are Angels looking for?

• Great entrepreneurs
• Scalable business model
• Low investment required
• "Unfair advantage" – basically what’s special about this company that will help it stand apart
• External validation
• Reasonable valuation

Angel Economics

Rather than explain this – just look at the chart below. Basically what it comes down to is for the Angel to actually walk away with the return they are looking for, one out of ten deals must return 30 times the investment. The math might be a bit overwhelming but just review the numbers. Out of 10 deals:

• 5 will go out of business
• 2 will return what the Angel put in
• 2 will return 3x
• 1 must return 30x

Angel Groups – What’s the process look like?

Part I – the application

1. Have a business plan
2. Research Angel Groups – know which ones are suitable for you
3. Apply Online – David stressed the importance of a video pitch

Part II – the review and deal

1. Meet the screening panel
2. Make the cut
3. Work with a coach – NY Angels provides one free and it’s mandatory
4. Present to entire group
5. If selected, attend a due diligence meeting
6. Negotiate the term sheet

David left us with information and an overview of Angelsoft. I’ve decided to make that a separate post over the weekend. Thanks to David, nextNY and all of the great sponsors for the event tonight.

Howard Greenstein has a review from the event as well.