Last night I gave this Talk in Seattle to both entrpreneurs and future Angels to learn more about the topic of Angel Investing

1. January 14, 2020
Elaine Werffeli
Presented as a SAC Training Program
Angel Investing 101:
An Introduction to
Angel Investing

2. Definitions
Accredited Investor
● An individual who makes more than $200k
($300K with spouse) for at least 2 years with
ongoing expectations of the same.
● An individual (or married couple) whose (joint)
net worth exceeds $1M, excluding the value of
a primary residence.
● A trust with more than $5M assets
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3. Definitions
Angel Investor
Individual accredited investor that uses their own
money to invest in startups, usually in exchange
for convertible debt or ownership equity.
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4. Definitions
Good Angel Investor
An angel investor who takes the time to learn how
to invest in startups successfully.
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5. Definitions
Startup vs. Small Business
● Start up - a company which takes outside capital
in order to achieve a liquidity event of nX return
within 10-12 years.
● Small business - run ongoing without a plan for
large growth or a liquidity event.
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6. Definitions
Venture Capital Fund
An investment fund created to invest in specific
types of privately held companies, usually
specialized by industry or stage of company.
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7. Series B+
$25K - $1.5M $2M - $5M $10M+
Series A
Customer/Problem Fit
Source: iBusinessAngel.com
Problem/Solution Fit Product/Market Fit Product/Channel Fit Expansion
@Elaingelinvest
$100M$10K$1K

8. VCs and Angels
• VC funds have large amounts of money to deploy. They
need appropriately sized deals, often in the $10M to $100M
range. Angel fundraising is most likely to be in the range of
$500K to $1.5M.
• VC returns are almost all due to a few huge exits. They
look for “unicorn” potential (over $1B). Angels are more often
invested in the sweet spot of acquisitions, around $50M.
• VC funds invest in fewer, later stage companies, while
Angels invest in more, earlier stage companies.
• VCs invest other people’s money while Angels invest their
own money.
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9. Why do Angels Invest?
• Angel investments can be part of a diversified
portfolio.
– Angel investments are largely uncorrelated with other asset
classes, reducing overall portfolio risk
• There is money to be made.
• To learn about the startup process by investing with
other Angels.
• Apply their expertise and advise companies they
invest in.
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10. Distribution of Returns by Investment
$20M
$40M
$60M
$80M
Hold:
3.0Y
Avg. Holding Period: 3.5 years
Overall Multiple: 2.6X
Hold:
3.3Y
Hold:
4.6Y
4.9Y
6.0Y
Percentoftotalraise
<1X 1X to 5X 5X to 10X 10X to 30X >30 X
Exit Multiples
Blue: % of exits in that category
Green: $’s returned in that category

11. Building a portfolio
• Own a minimum number of good quality companies to
spread out the risk because of the high failure rate.
(~20 if possible)
• Invest only a portion of your net worth dependent on
your risk tolerance. Typical guidelines:
– 5% of your assets excluding primary residence
– 10% of free cash flow
– If you had $2M in assets and invested 5% overall ($100K)
and divided that into 20 investments, that would be $5K each
• Since a typical minimum investment is $25K, think
carefully about how to achieve the desired
diversification.
• Develop you own Goals/Thesis/Guidelines
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12. Invest in what you know
Source: Return to Angel Investors In Groups 2007, Robert Wiltbank & Warren Boeker
@Elaingelinvest
Analysis indicates that
expertise had a material
impact on angel
investors’ earned
returns. Investment
multiples were twice as
high for investments in
ventures connected to
investors’ industry
expertise.

13. 13

14. 14
Definitions
Due Diligence
An investigation or audit of a potential investment or
product to confirm facts and assumptions, such as
reviewing all financial records and anything else deemed
material. The purpose is to assess whether an
investment is advisable. Due diligence can also refer
to the investigation an entrepreneur does of the investor.

15. Amount of Due Diligence Matters
Source: Return to Angel Investors In Groups 2007, Robert Wiltbank & Warren Boeker
@Elaingelinvest
Spending time on
due diligence is
significantly
related to better
outcomes.

16. 3
Why startups fail

18. 3
How startups end up …

19. What makes a great company
• Problem/Solution
• Market Opportunity
• Team
• Evidence of Traction
• Execution and/or business model
development
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20. What makes a great investment?
• A great company
• Deal terms
• An exit / redemption
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21. Angel Participation Matters
Source: Return to Angel Investors In Groups 2007, Robert Wiltbank & Warren Boeker
@Elaingelinvest
After an angel makes an
investment, his or her
participation in the
venture—through
mentoring, coaching,
financial monitoring, and
making connections—is
significantly related to
that venture’s outcomes.

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24. 24

25. Two Main Type of Angel Groups
Network Funds
Pitch then Fund
Individual Choice
Fund first

26. There are also different types of
funds
Active Passive Event
Significant portion of
the member investors
actively involved in
the screening, deal
flow, due diligence
and investment
decision.
Investor are passive in
the selection of which
relies on others to do
the fundamental due
diligence and
investment
selection.
Both the investment
is taken up front and
the date of when the
investment will be
decided are defined up
front before the
companies are
known

27. Forms of Angel Investment Groups
Form Description
Angel Network Angel groups which bring together investors for pitches and company reviews , but
which then let each investor decide if they want to be part of each deal separately. This
is a Pitch then Invest format. More than 90% of the US Angel Groups are in the form
of a network.
Funds While all Angel Groups are seeing presentations and pitches of some kind, Funds take
a commitment for investment ahead of time. The key distinguishing feature between
the types of funds are Who makes the decision to invest and When they make the
decision to invest.
Active Fund An Active Angel fund has a significant portion of the member investors actively
involved in the screening, deal flow, due diligence and investment decision.
Passive Fund In Passive funds, investor are passive in the selection of which companies to invest in.
Essentially, the passive fund relies on some other group or agency to do the
fundamental due diligence and investment selection.
Managed Fund When you have specific partners who you want making the investment analysis and
investment decision, a managed fund provides for General Partners who manage the
decision process.
Event Fund In this case both the investment is taken up front and the date of when the investment
will be decided are defined up front before the companies are known.
@Elaingelinvest

28. Angel Groups in Seattle
@Elaingelinvest
Group Industry Stage Type Formed
SWAN Tech: B2B software, IoT and
scalable hardware, market-
accelerating technologies
Early Fund 2015
Seattle Angel
Conference (SAC)
Designed to cultivate New
Angel Investors – Sector
agnostic
Early & Seed Event Fund 2012
GrubStakes Industry Agnostic Early, Seed &
Series A
Network + Ad-hoc
Syndicates
2016
Puget Sound
Venture Club
2/3rds tech/ 1/3rd non-tech Seed Network 1985
Element 8 Cleantech Focus –Nation
wide
Seed & Series A Network + Passive
Fund
2006
Alliance of Angels
(AOA)
Mostly Tech focused Seed & Series A
– post revenue
Network + Passive
Fund
1997
SAF/SeaChange Sector agnostic Seed & Series A Active Fund 2015
Keiretsu Forum on
the NW
Tech, Consumer & Real
Estate
Seed & Series A
– Post revenue
Passive Fund 2005

29. Angel Groups in Seattle
@Elaingelinvest

30. Angel Groups in Seattle
@Elaingelinvest

31. 2018

32. Full Seattle Life Cycle

33. • 5 years ago I knew nothing about Angel Investing
other than I was curious to learn more
• First thing I did was confirm that I met the
accredited investor criteria:
• Includes anyone who earned income that exceeded $200,000 (or
$300,000 together with a spouse) in each of the prior two years,
and reasonably expects the same for the current year, OR
• has a net worth over $1 million, either alone or together with a
spouse (excluding the value of the person’s primary residence).
• Similar Meeting:
• 5 year ago I was in your seat coming to one of these informative
meetings
• I was enticed to join and have participated in SAC VII and every
round after that and will be in SAC XVI too
Elaine’s Story

34. Why I joined SAC –
• Leveraged Learning –
• In the Ecosystem here in Seattle, SAC uses applied learning
• It is a 12 weeks of hands-on, roll up your sleeves training
• I was in a comfortable environment to ask questions and soak in all
the new information
• Smart Investing - Frankly – even though I was starting out I
wanted to invest smartly – because after all it is an investment and not
a charity. So what is cool about SAC is that there are 20+ other very
smart investors participating with you, others who have done this
many times before so when you get down to the end, finalists in which
the money will be invested in, you do that with the collective
knowledge of this very smart team

35. Why I stay in SAC –
• Deal Flow – one of the keys to a successful Angel
• Stream of new ideas keeps me current–
• 60 new ideas every round..keeps me energized and on the cutting edge
• Community of smart, like minded individuals
• Similar goals
• Able to give valuable advice and make a difference
• I learned that because of the business knowledge that I gained at
Microsoft and what I learned in SAC, I was able to give relevant advice
back to entrpreneurs to improve their pitch. I now sit on various Pitch
panels to share feedback with entrepreneurs real time on their pitch.
You too can help invigorate the startup community here is Seattle with
your insight.
• It’s FUN!

36. Angel investment summary
• Good Angels can make money with notable returns
• Portfolio Investing is key to success –
– Remember most investment are likely to fail.
– Only a small % of investments are responsible for most of the
portfolio returns.
– Successful investments have “high” multiples.
• More due diligence can decrease the number of
companies that fail in a portfolio. Next week’s meetup is
on Due Diligence Basics.
• The Pacific Northwest is an excellent place to invest.
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37. Resources
• Angel Investing by David Rose (book)
• “10 Do’s and Don’ts for Raising Capital from Angel Investors”
(Angel Capital Association webinar, Jim Connor and Catherine
Mott)
• “Top 10 Things You Need to Know Before Your First
Investment” (Angel Capital Association webinar, Troy Knauss)
• “What Makes an Investable Company?” (Angel Capital
Association webinar, Susan Preston)
• Get In Get Out: 100 Rules for Successful Start-Up Deals by
Troy Knauss, Greg Pool, and Michael Cain (book)
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38. http://seattleangelconference.com
@nwangelconf
Kurt Bilafer, @gmail.com
Next round starts March 2020
Questions?
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