Angel Funding Increases in 2007

The Center for Venture Research just announced that angel investments in 2007 increased slightly in 2007 to $26 billion. The number of deals funded by angels increased by 12 percent over 2006 resulting in an average investment of approximately $455 thousand.

Though the mix changed slightly, software, healthcare and biotech were again the big winners collecting about 58 percent of all angel investments.

Here are two things which caught my eye:

• Angel investors are getting increasingly picky about their investments. The yield (acceptance) rate is down from 23% in 2005 to 14% in 2007. The yield rate is the percentage of investment opportunities brought to the attention of angel investors resulting in an actual investment.
• Like most investors, angels are hoping for a big payout at exit. Mergers and acquisitions represented 65% of angel exits. IPOs represented 4% of angel exits. Bankruptcies accounted for 27% of angel exits. Yikes! Could explain why angels are getting pickier about their investments!

Good luck in finding an angel. Check out the Angel Capital Association.

And once you do find your angel, consider using secured debt financing where possible to leverage your investment and minimize the dilution that would result from additional equity raises.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : angel investor , venture capital , Center for Venture Research , Angel Capital Association

Double Bottom Line Financing

Double bottom line financing refers to a lender or investor which focuses on both a financial return and a social return when it makes an investment decision.

In the February edition of Inc. Magazine, Nitasha Tiku discusses the latest trends in "Do-Gooder Finance" by highlighting a select group of investors and lenders that want to meet companies that pursue social goals.

In the article, Tiku mentions three lenders - New Resource Bank, RSF Social Finance and ShoreBank Pacific - and four equity investors - Underdog Ventures, Root Capital, Good Capital and TBL Capital - as examples of double bottom line funding sources.

In the past, I have written about other double bottom line investors such as Golden Seeds, 12 Angels Investment Group and Pacific Community Ventures.

Apparently, it's an idea whose time has come!

Hopefully, the companies that approach these investors and lenders will understand that the profit motive has not been abandoned altogether. It's just that double bottom line capital is prepared to be more patient, consider unusual business models and look at the impact on a community.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Double Bottom Line , Inc Magazine

Venture Funding for High Tech

For high tech companies seeking investments from venture capital providers, this week's edition of the Los Angeles Business Journal (subscription may be required) might be a good place to start.

In "Making it Click", the Los Angeles Business Journal provided brief bio's of 22 venture capitalists, deep pocketed angel investors, seasoned entreprenuers, and a group of lawyers and other enablers who play crucial roles in connecting new high tech ideas with money. Not surprisingly, my name is not on the list.

My guess is that these 22 resources don't limit their reach to only Los Angeles based entrepreneurs. So if you've got a good story, don't let geography hold you back.

Need to research any of the venture capitalists, go back and read this posting.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : venture capital , angel investors , entrepreneurs , Los Angeles Business Journal

Angel Investors - Not Just Tech Anymore

Angel investor groups are expanding their investment outlook beyond tech and Internet start-ups according to The Wall Street Journal.

To diversify their portfolios and accommodate their investors varied backgrounds, angel groups are branching out into food and beverage makers, consumer product firms and retail stores.

Some of the angel investor groups are even focused on a specific mission. Golden Seeds makes angel capital investments only in companies where a woman holds a central role. 12 Angels Investment Group invests only in firms that help prevent or treat addictions, such as alcoholism.

One thing that has not changed - if you're seeking an investment from an angel investor group, you must still have a viable business model with an exit strategy so that the angel investors can cash out and earn their expected return.

For more information on angel groups including a directory, the article references the Angel Capital Association.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : angel investor , Golden Seeds , venture capital , Angel Capital Association

Visit to Tech Coast Angels

One of my fellow judges at the 2007 Kravis Business Plan Competition is a member of the Tech Coast Angels, a Southern California based angel investor club with approximately 300 members in its four networks located in Los Angeles, Orange County, San Diego and Santa Barbara.

I accepted his invitation to attend a deal screening today for the Los Angeles network and hear pitches from four companies seeking angel financing through the Tech Coast Angels network. Each of the four companies was given about 20 minutes to sell their idea to approximately 30 angel investors followed up by about 10 minutes of Q&A.

The four companies were at different stages of their development - some were in the seed stage, others were already generating revenues. Or as they say in the venture capital world, they've already got proof that the dog is eating the dog food.

The follow up questions were all good, solid questions reflecting the varied backgrounds and experiences of the investors. The answers from the entrepreneurs were not always so solid - which is what one would expect. No amount of coaching can prepare the typical entrepreneur for some of the questions posed. But that's what the angels look for - they note everything from how well the entrepreneur thinks on his/her feet to the tone of voice that is used in the response.

The most interesting part of the morning for me was the open exchange at the end of the session after all the presenters had been excused. One gains tremendous insight into how angel investment opportunities are critiqued in a "club" environment and their philosophies about building their investment portfolio with companies ranging from good solid "hits" to potential "home runs". The interplay between the different investors is also interesting - like in any situation, two different people hear the answer to a question in different ways. Which angel investors volunteer to serve on the due diligence team for an investment opportunity and the chemistry amongst them no doubt will impact the final conclusions reached in the due diligence process.

By the way, in the April 30th Wall Street Journal, the Tech Coast Angels were featured in an article by Jaclyne Badal entitled "Early Options". The article discusses the Tech Coast Angels' recently launched "seed track" funding program. I'm not sure this new program is found on the website for Tech Coast Angels, but there is plenty of information on their deal screening process and investment criteria (it's not just technology companies that interest them). Most budding entrepreneurs will also find great value in the online Guidelines for Entrepreneur's Presentation - a useful tool for whatever forum from which you might be seeking investment capital.

Like most angel groups, the Tech Coast Angels focuses its investment dollars in its own backyard. If you're looking for money for your venture outside of Southern California, you might investigate the angel clubs in your own neighborhood. A good place to start looking is the listing of groups by location on the website of the Angel Capital Education Foundation.

And my pitch to the angels - once your portfolio company starts to generate revenues, consider using secured debt financing where possible to leverage your investment and minimize the dilution that would result from additional equity raises.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Related Tags: angel investor, Tech Coast Angels, Angel Capital Education Foundation, seed capital, entrepreneur

WSJ on Venture Funding Twist

Venture capital backed start-up and early stage businesses are increasingly taking on debt according to a February 14th article in The Wall Street Journal. Venture lenders are providing loans of $100 thousand to $10 million and more to provide leverage to companies in a wide variety of industry sectors. As always, though, high tech seems to be the hot ticket. As a result, the venture lending market seems to be at its highest levels since the late 1990s tech boom.

Though the article didn't make a distinction, here's a quick explanation of the differences between a venture loan and a venture lease.

Venture loans typically provide operating capital for general corporate uses that can be used to fund product development, product or geographic expansion or acquisition of complementary technologies. The cost of such capital is normally interest, with principal, paid over a fixed period of time (usually 24 to 48 months, depending on the company’s risk profile) and a small pledge of stock warrants. The goal - a 30% or higher return on its loan. The venture lender will typically require a blanket lien on all of the assets of the borrower.

In a typical venture leasing transaction, the lessor will lease equipment to early stage companies for two to three years. The lessor receives a monthly payment which usually provides the lessor with a 12-15% rate of return. To achieve a return closer to its goal of 30% and higher, the lessor may also receive warrants to buy shares of the company when the company goes public or is otherwise sold. In lieu of warrants, some lessors may enhance its yield by selling the equipment to the lessee at a fair market value at lease expiration. The venture lessor will typically receive an ownership interest in specific assets, but not a blanket lien.

I'm working on a large venture leasing opportunity right now - as in other secured lending transactions, each funding source has its own unique set of criterion. Some like only high tech or bio-tech, others like all industries. Some will only fund deals below $2 million. Others won't look unless the deal exceeds $5 million. Some funding sources will only lend while some will only structure leases. Some will only fund to very early stage companies in product development while others look for companies who have already validated the concept and are about to go to market.

A key consideration for many funding sources is whether or not the borrowing company is already funded by a well recognized venture capital firm with which they are comfortable. The lender or lessor wants to know that someone else they trust has already validated the investment and has deep pockets to bail out the company in the event everything doesn't go to plan.

It's a jungle out there. If you need help finding the right lender or right lessor for your venture, read "Matchmaking for Business Loans" and give me a call!

Related Tags: venture, leasing, funding, lending, Wall Street Journal, venture capital

Four Rules for Raising Capital

With Christine Comaford-Lynch’s article Rules for Raising Capital, Business Week initiates a new, ongoing series of columns on financing and growing a small business.

I’ll give you the readers digest version and you can check out the full column on-line. What I like most about the article is that these rules apply to any business of almost any size from any industry. The rules can also be applied to raising debt or equity. See if you agree.

Rule #1 – Take more money than you think you’ll need, but only if you can get it cheap.

Rule #2 – Raise money before you need it because you’ll always need it sooner than you think.

Rule #3 - Only take money from someone you like and respect.

Rule #4 – Don’t be greedy!

By the way, take a look at Christine Comaford-Lynch’s biography – not bad for having neither a high school diploma nor college degree!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Related Tags: capital, business loan, BusinessWeek, Christine Comaford-Lynch