Tag Archives: Venture Capital

Angel Resiliency during COVID-19

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Angel investing in the US has been remarkably resilient during COVID-19 as angels have adjusted to remote operations and actively sought new opportunities, as well as loyally supported their portfolio investments.

Angel investing showed the greatest growth in the number of deals done in the Fourth Quarter of 2020, according to On Grid Ventures analysis of Pitchbook/NCVA quarterly data.

Angel investing deals done grew 9% in the Fourth Quarter, while Seed and Early Stage, activity contracted -35% and -26%, respectively, and Late Stage increased 6%.

What’s going on?  I suspect Angels think like entrepreneurs, and see opportunity in times of extreme change.  Since they are basically accountable just to themselves (and, as some angels are quick to point out, their spouses!), they are freer to take risks as they seek opportunities. 

VC’s may have similar instincts, but are more heavily influenced by fund investment considerations and LPs.  Fundraising for some has been severely limited, and available funds were diverted to support troubled portfolio companies.  LP’s also tend to be far more conservative, and many lobbied their VC funds to cut back investing, and not make planned capital calls.

This is nothing new. It repeats the pattern from the Global Financial Crisis in 2009 when Angel investing grew 45%, while Early Stage and Later Stage VC contracted -35% and -21%, respectively.

  • Angel Resiliency During the 2009 Great Recession

When Should I Apply for Angel Funding?

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So you decided to apply to an angel network for funding.  When is the best time to apply?

Before you run out of money, of course.  But most startups these days have some flexibility given the low cost of lean design as well as funding from self, friends and family.

If you have a truly exceptional startup, or a truly exceptional track record, don’t wait, apply asap.  What is a truly exceptional startup?  As Justice Potter Stewart said in 1964, “I know it when I see it.”

If you are in the other 99.8% of startups, you should be more strategic about timing.

Some angel groups like to be the first outside funding source.  These favor earlier companies with lower valuations, and regularly lead rounds of $500k and up.  For them, the sooner you apply, the better.  Consider them as soon as you need funds beyond friends and family, and have a hint of demonstrable traction.  New York Angels is one of these groups.

For most all angel networks, better to try to wait until you have basic business traction, which I see as:
  1. A working product,
  2. Some revenue and market validation,
  3. Your co-founders are in place (e.g., “I’m looking for a co-founder with [insert skill]” is a red flag.)
It is also better to wait will you have some basic financing traction.  This means:
  1. You have a credible lead investor,
  2. You have at least $100-200k and 20% of your round committed,
  3. You have deal terms largely agreed by the lead and committed investors.

Yes, this is an chicken and egg problem. How do you get there without funding?  Wing it?  Sorry about the pun.  Here’s where being a scrappy entrepreneur is a plus.

Most companies that raise angel network funding successfully do so after they have some business and financing traction.  There are many more entrepreneurs seeking funding than there are early stage angels and VCs.  Supply and demand means that investors can wait, at least in most cases. Harvard Business School Alumni Angels is one large angel network that prefers companies with at least some basic business and financing traction, and most angel networks fall in this group.

Waiting and self-funding for more months than you’d like isn’t fun.  But it may save you time and money, and lead to more fun over the long haul.

Some additional suggestions as your move ahead:
  1. Focus first on angel groups and micro-VCs who could lead your round.
  2. If you do pitch before having a lead investor committed, be prepared for other investors to wait until you find a lead.
  3. Put forward your ask for funding amount and terms, and indicate that you are negotiable once you identify a lead.  [If you say that terms are “TBD and up to the lead” you risk coming across as clueless].
  4. Don’t be so greedy that spend too much time with a funding ask that is above the market, and you run out of money and never raise a dime.
  5. Never insist on a SAFE note with a serious angel.  They know that is so unfavorable to angels that it can easily be a worthless investment in at otherwise successful company.

Good luck!

 

The Facts on Deal Valuation and Structure

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Attention Entrepreneurs:  Investors at different stages have varied interests so you are likely to get different counsel from Big VCs, Big Accelerators, and other Big Shots.

I’ll keep this post brief and fact-based.  Early stage financing has supply and demand, and deal terms and valuation are determined by market factors.  When you determine valuation and deal structure for your company, consider the current data on Angel financing.

66% of Angel financings are done at a pre-money valuation of $4.5 million and under.60% of angel financing is done with Preferred Stock.

The source of this data is the Angel Capital Association’s new Angel Funders Report, dated August 2018 and released October 2018.  Drawn from 432 investment rounds in 2017 across 393 companies totaling $102 million invested.  Companies were located in 36 US States, Canada, and Israel.

So when you set your terms, the closer you can price your deal based on its merits relative to other angel deals getting funded, the faster your funding round will go, and the quicker you can get back to your business fundamentals.

The Venture Capital One Pager

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From VC John Backus, here is the Venture Capital One Pager!  A great primer on how the various rounds of financing work together — at least according to the standard playbook.

Big Caveats:  There are other playbooks!  Like the “take no outside capital” playbook, and the “one round and done” playbook.

rosetta_table_original

More info here.

Silicon Alley’s Top 10 VC Deals

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Guess who’s fueling Silicon Alley’s rise?  While angels and early stage funds provide the early sparks, the big bucks are coming from the west coast.  For example, Fab’s $160 million Series D is the largest VC investment round in a NYC-based company since 2009. But Menlo Ventures and Andressen Hororwitz from the Other Coast lead the list of VC’s in the round.  Below, from CB Insights, are Silicon Alley’s top 10 VC investment rounds in NY-headquartered companies since 2009.  And note – Fab and GILT are listed twice.

Silicon Alley Top 10

For the original post, click here.

Venture Capital Forum 2013

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Join us for an evening of discussion about venture capital and a wine reception. I’ll be moderating a panel of leading venture capitalists for a discussion of what to expect in the next 12 months: developments in the field; the state of start-ups; what’s likely (and not likely) to be funded in the year ahead.

Any questions or topics you’d like covered?  Let’s us know @JKNews, or email.

Gotham Media Digital Cocktails
Venture Capital Forum 2013
Wednesday, January 30, 2013 from 6:00 PM to 8:00 PM
New York, NY 

Panelists:

  • Steven Brotman Managing Partner, Silicon Alley Venture Partners @StevenBrotman
  • Habib Kairouz Managing Partner, Rho Ventures @HabibKairouz
  • Charlie O’Donnell Partner, Brooklyn Bridge Ventures @ceonyc
  • David Pakman Partner, Venrock @pakman
  • Jerry Spiegel Partner, Frankfurt Kurnit Klein & Selz PC 

Moderator:  Jason E. Klein Founder and CEO, OnGrid Ventures @JKNews

To register, click here:  http://gothammedia.eventbrite.com/

A Venture Capital Recession in 2012

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The National Venture Capital Association data from Money Tree is out, and the VC industry is in a recession:

  • For the full year 2012:
    • VC funds invested declined 10%, to $26.5 billion
    • The number of VC deals done declined 6%, to 3,698.
  • Double-digit decreases in investment dollars across most industries, specifically the traditionally capital-intensive Clean Technology and Life Sciences sectors, offset the increases seen in the Software sector in 2012.
  • Stage of investment shifted from Seed to Early Stage as venture capitalists overall began engaging with companies later in their life cycle than in previous years. Investments into Seed Stage companies decreased 31 percent in terms of dollars and 38 percent in deals with $725 million going into 274 companies in 2012, the lowest annual seed dollars since 2003.
  • Internet-specific companies experienced a 5 percent decline in both dollars and deals for the fullyear 2012 with $6.7 billion going into 976 rounds compared to 2011 when $7.1 billion went into 1,033 deals. However, the year still marked the second highest level of Internet investment since 2001. These companies accounted for 25 percent of all venture capital dollars in 2012, up from 24 percent in 2011.
  • Investments in the NY Metro area held at 11% of the total number of deals, with 397 companies funded, but the dollars deployed declined 18% to $2.3 billion

More details here.

Angel Valuations Inch Up

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How much to Angels typically invest and at what company valuation?  Angel valuations are inching up per the Halo Report for Q2 2012:

  • Company valuations for early stage financing rounds with Angels are $2.7 million in Q2 2012, up from $2.5 million in Q1 (median, pre-money valuations).
  • Typical angel investment rounds total $550,000 for Angel-only rounds and $1.5 million with VC’s involved (these are median values; the mean values are higher at  $1 million and $4 million.
  • And VC’s have Angels co-invest in 72.5% of their deals.
  • And half of Angel  deals are in tech-related fields  (Internet, Software, Mobile, Telecom).

You can download a 16-page pdf of highlights here.

VC as Psychologist

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Here’s a Washington Post interview with my former Bain colleague (vintage 1980’s!) John Backus, a managing partner at New Atlantic Ventures in VA.

What do VCs actually do for their money?  Backus says:

“We are basically professional guides to the entrepreneur to help them navigate rapidly evolving industries and solve difficult problems,” Backus said. “We’re like their corporate psychologist.”

Read more here.

The Decade of the Angel Investor

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Investor Paul Singh covers the common wisdom about angel investing.  Very sensible.  A good plan.  Hard to argue.  Let’s call it the base case…

  • “The takeaway for angels is you shouldn’t get into this asset class unless you’re willing to do 20 deals,” Singh said. “Do not get excited about any one company.”
  • “What I’m doing is going to the blackjack table, playing the minimum hand while I count the cards,” Singh said. “When I see a pattern I double down heavy.”
  • “Bad bets fail fast,” Singh said. “Smaller check sizes force companies to figure stuff out quickly.”

More here.