I gave this talk at an MIT Enterprise Forum meeting.

1. Angel Investing
Some of the Important Rules Have
Changed
Mike Panesis
President, Central Coast Network
Tech Coast Angels
November 16, 2011

2. About angel investing

3. Angel investing is not new

4. What is an angel investor?
 Anyone who makes a private investment in a
company, typically a start-up
 Typically, but not necessarily, accredited:
 $1 million in investable assets (not including value of primary
residence) OR
 $200K in income ($300K joint)
 Often are entrepreneurs themselves

5. How many potential accredited angel
investors are there?
Only ~7,000 members of
angel groups (2009)
Source: http://money.cnn.com/2011/05/05/pf/millionaire_rise/index.htm,
Angel Capital Association, Cap Gemini/Merrill Lynch World Wealth Report 2001

6. Change in angel investing has a lot to
do with advancing technology
10 years ago Now
 Buy your own servers, in  Rent virtual servers by the hour
advance  Software distributed online
 Software distributed in boxes  Broadband internet access
 Dial-up internet access common
 Need $1M+ to start a business  Can start a business for <$100K
 Capital intensive  Low cost prototypes & offshore
manufacturing Effect on angel investing
mfg
 Founder, friends & family investment is expected FIRST
 Greater importance placed on market validation
 Lower entry point for angel investment
 Led to the rise of angel groups as specialized social
networks

7. About TCA
5 TCA Networks
 Largest angel investing group
 Invests in Southern California
companies (mostly)
 Group negotiation, individual
investment
 12-20 deals per year
 Invests in more than tech
 Hardware/Software
 Life Science
 Digital Media
 Consumer Products/Services
 CleanTech/Industrial
 Financial Services

8. TCA Investing Process
• Networking Events
• Quick Pitch Competitions
• Industry Group Meetings
Find • Mentoring
• Funding Application
• Pre-Screen (Vertical & Virtual)
• Screen (Local x5)
Filter • Dinner Meeting (Local x5)
• Due Diligence
• Write Check
Fund
• Board Participation
• Personal Networking
Follow • Plan for Next Round

9. Why (and why not) pursue angel
capital?
Good Bad and/or Ugly
 More fundraising options  Process takes time
 Common term sheet  Requires more patience
 More tolerant of pitch  Usually rational, but not
flaws always
 Decision-making  More sensitive to
priorities: valuation
1. Heart
2. Head
3. Wallet
 Brings more than money
to the deal

10. Tips for success with angel groups

11. A good pitch covers all of these…
 The problem you solve
 Market size
 Company & products
 Business model (how you make money & grow)
 Team
 Competition (and why you win)
 Barriers to entry
 Financial projections: sales, gross margins & EBITDA, 5 years
 Raise amount & use of funds
 Valuation
 Exits

12. If you only have one chance to
pitch, bring your best stuff…
 15 minutes long, followed by 15 minutes of Q&A.
 Greatest contributor to the investment decision.
 As much a sales pitch as an investment pitch.
 Needs to be rehearsed, memorized and internalized.
 One presenter is best.
 Put a lot of thought into your valuation.

13. When you pitch to an angel
group, you’re really looking for one
person.
Awesome!
Awesome!
That person loves the
Pitc
h pitch, clearly sees the value
proposition, is willing to
invest, and will be your
advocate inside the angel
group. We call this person the
Deal Lead.

14. It’s always about friends & family
Why? What matters most?
 Friends & family invest  Reputation
because they know and  Trust
trust you.  Who you know
 Angels rely on their  What you know
“friends & family” to
decide if they should trust  Passion
you. Then they invest.
 Once they trust
you, angels open up their
networks.

15. If you first meet a Tech Coast Angel at
your screening, then you waited too
long.
 Entrepreneurs & Small Businesses need a network to
thrive.
 You don’t have to succeed first to start giving back.
 Local networking groups
 805startups: http://www.meetup.com/805-Startups
 SBStartups: http://www.meetup.com/startupsb
 TCA-sponsored events
 Quick Pitch (San Diego) & Fast Pitch (LA & OC)
 Meetup Group (OC): http://www.meetup.com/techcoastangels
 Mentoring opportunities
 Small Business Development Center (SBDC): http://edcsbdc.org
 UCSB Technology Management Program (TMP), New Venture
Competition (NVC): http://www.tmp.ucsb.edu

16. What’s next

17. TCA initiatives
 Syndication
 Cooperation among angel groups
 Shared due diligence speeds investment decisions
 Angel Capital for Entrepreneurs (ACE) Fund
 Invests where TCA members invest
 Don’t have to be a TCA member to invest
 Seed Track
 For early stage companies with a missing piece
 10 minute pitch
 Investors commit up to $100K on the spot
 30 day close

18. The changing business and investing
landscape for angels
Business Investing
 Sustainable business  AngelList
 Entrepreneurship as an early  ~1,800 accredited angels
career choice  400 investments in 18
 Incubators, accelerators et. al. months
 Rediscovering the  Still need local groups
manufacturing sector  CrowdFunding
 Mass applied research (e.g.  Expands the investor pool
hackerspaces)  Spreads risk
 Self-governance is key
 Need more angels!

19. How the Feds can help
Remove Barriers Add Value
Effect on  Fund cutting edge research
Big Company Small
 Subsidize infrastructure
Legislation Misbehavior Business
 H.R. 2930: Entrepreneur
Creative
Sarbanes Difficult to Access to Capital Act
paper
Oxley IPO (Crowdfunding)
shredding
Limits  Greatly increases pool of
Dodd potential angel investors
Too big to fail accredited
Frank
investors  Passed the House, 407-17
Favors first
Patent Patents as a to file over
Reform profit center first to
invent

20. Questions?