Over the years I have compiled a list of angel investors and I figured that I would share that list with you. Before you pick up the phone or send an email I would spend a few minutes reading up on how and why angels invest in early stage companies. Dana Mattioli from the Wall Street Journal put a list of books you might want to read:

“Angel Financing for Entrepreneurs: Early-Stage Funding for Long-Term Success” by Susan L. Preston

“A Good Hard Kick in the Ass: Basic Training for Entrepreneurs” by Rob Adams

“The Venture Capital Cycle” by Paul Gompers and Josh Lerner

“Attracting Capital from Angels: How Their Money — and Their Experience — Can Help You Build a Successful Company” by Brian E. Hill and Dee Power

“State of the Art: An Executive Briefing on Cutting-Edge Practices in American Angel Investing” edited by John May and Elizabeth F. O’Halloran

“Every Business Needs an Angel: Getting the Money You Need to Make Your Business Grow” by John May and Cal Simmons

“Term Sheets & Valuations — A Line by Line Look at the Intricacies of Venture Capital Term Sheets & Valuations” by Alex Wilmerding

“The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything” by Guy Kawasaki

EVenturing.org

Angel Capital Association

For the past 30 days or so I have been working on putting together a $5MM round for ShopSavvy (our mobile app company) at a $19MM pre-money valuation. We have spent almost a million dollars building ShopSavvy into one of the leading shopping platforms for mobile phones. Today the app has more than 6.5 million users who are actively saving money by comparing online and local prices of the items they buy. Three months ago our biggest competitor with just 2 million users sold their assets to Ebay for $5/user. Using this as a comparable we should be worth at least $32.5MM. I would argue (and I have previously) that if you include our team and our backend systems (Pricenark) we are worth even more. Several potential acquirers have approached us about selling, but we have decided that ShopSavvy could be a billion dollar company in as little as three years. As a search/advertising business we think that each barcode scan our users conduct could be worth between $.05 and $.20 each (each Google search is worth between $.05 and .06 each) making ShopSavvy an important player in the mobile shopping game. Add platform opportunities like our payment wallet, couponing, rebates, deals and warranties and ShopSavvy could become the dominate player. If we wanted to sell ShopSavvy today I have no doubt we could get $50MM or more for the company, but we have convinced ourselves that it makes too much sense not to go for the grand slam. For a mere $5MM and 24 months we will know if we are going to be that billion dollar company – pretty cheap in the scheme of things. Again to reiterate: for a venture investor the problem isn’t mitigating the downside risk, but ensuring the upside opportunity. On the other hand, angel investors love to protect the downside. If ShopSavvy continues to grow at rates even half as fast as our current growth trends it will be worth significantly more than invested capital. This is just the sort of bet angel investors love – lots of upside and very little downside. Turns out it is a lot easier for us to raise capital from angels and super-angels than venture capital firms.

So what does this mean to you? If you have a great way to mitigate downside risk spend more of your time talking to angels and super-angels. If your downside risk story is horrible, keep talking to venture capital firms and the issue won’t even come up.

According to Audrey Watters Rodenstein described the Hacker Angel strategy: “We do focus on people that are hackers and are really pushing the product forward rather than just pure concepts or people looking for co-founders to execute. The ideal scenario for us is getting in very early because we can provide a lot more support and advice. We’re comfortable with a little more high risk.”

From the Hacker Angels website:

We are hackers who are also angel investors.

• Mobestream Media
• CollegeJobConnect
• The Brand Protection Agency
• Concepta Systems
• Image Vision Labs

One day later Lauren Warthan from Porter Novelli let me know that the Capital Factory (Austin area incubator for startups) had just announced their 2010 summer class of startups including:

• Hurricane Party
• Simpz
• Smackages (Dallas, TX)
• RecycleMatch
• Corkshare

The five Tech Wildcatters startups will receive between $20-25K in seed funding while the Capital Factory startups will receive $20K. I would argue the money is simply a token of good faith and not really the point of either program. To be successful each incubator will rely on the involvement and expertise of their mentors.

When Bryan Menell and his team set up the Capital Factory they were completely focused on finding the right sort of mentors – successful entrepreneurs who have had success, experience and have the time necessary to commit to be present in the early lives of the startups in each of their classes. Check out the rockstar list of mentors at the Capital Factory (lots of relevant startup experience for each of the companies selected). Check out this video from Capital Factory:

If Tech Wildcatters has a weakness it is in the sort of mentors they have selected. Contrast this list of mentors with the list the Capital Factory or TechStars put together. Each is VERY successful, but very few of them (with a few notable exceptions) have relevant bootstrap startup experience that will be needed over the next few weeks. What should be more concerning to the members of the inaugural class is that their mentors are generally very busy folks. Here is the breakdown of mentors:

Interestingly the one thing each of these mentors has in common is that they have ‘paid to play’ (i.e. they invested in the Tech Wildcatters fund). This could work really well for the incubator since each mentor will want to get their money’s worth or it could work out poorly since each mentor will feel like they have already contributed. I suspect some mentors will be active – i.e. showing up daily – and other will be inactive – i.e. showing up weekly.

In any event it is very exciting that startups have a number of local options to help them get off the ground. While I am a little worried about the mentorship model Gabriella has put together, I am very stoked that she has stepped up to the plate and done something. So many of us (me included) have talked about doing something like this, but it took her tenacity and hard work to actually do it. Thanks Gabriella!

Over the years I have compiled a list of angel investors and I figured that I would share that list with you. Before you pick up the phone or send an email I would spend a few minutes reading up on how and why angels invest in early stage companies. Dana Mattioli from the Wall Street Journal put a list of books you might want to read:

“Angel Financing for Entrepreneurs: Early-Stage Funding for Long-Term Success” by Susan L. Preston

“A Good Hard Kick in the Ass: Basic Training for Entrepreneurs” by Rob Adams

“The Venture Capital Cycle” by Paul Gompers and Josh Lerner

“Attracting Capital from Angels: How Their Money — and Their Experience — Can Help You Build a Successful Company” by Brian E. Hill and Dee Power

“State of the Art: An Executive Briefing on Cutting-Edge Practices in American Angel Investing” edited by John May and Elizabeth F. O’Halloran

“Every Business Needs an Angel: Getting the Money You Need to Make Your Business Grow” by John May and Cal Simmons

“Term Sheets & Valuations — A Line by Line Look at the Intricacies of Venture Capital Term Sheets & Valuations” by Alex Wilmerding

“The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything” by Guy Kawasaki

EVenturing.org

Angel Capital Association

Sen. Chris Dodd released his Financial Reform bill last week.  To say that the behemoth bill has scary things in it for angel investors – and the entrepreneurs you in invest in – is an understatement.  Essentially it recommends increasing the thresholds for accredited investors and also puts in a complicated and long process that would probably result in state regulation of Reg D offerings, likely leading to greater difficulty in syndicating deals across state lines.  The relevant sections are Sec 412 and 413 (pages 380-381) and Sec 926 (pages 816-819).

Bottom-line, these sections could reduce the number of accredited investors by two-thirds (based on data from Rob Wiltbank’s returns study of angel in angel groups) and create all kinds of complications for entrepreneurs (120 day waiting periods for review of filings, different state regulations that make it difficult to syndicate, and even calling into question whether angel investors are “covered securities.” ) Yikes!

ACA leadership has talked with staff from Sen. Dodd’s office and we believe it was not his intention to create this kind of damage for investors, small businesses, and jobs. Instead, they want to protect investors from more Madoff funds, hedge funds, and the like. With that understanding, we are meeting with staff of both Sen. Dodd and Ranking Member Sen. Richard Shelby with recommended language to alleviate these issues.  I should note that the Senate Banking Committee started marking up the bill this afternoon.

In the meantime, we want to make sure that as many Senators as possible are aware of these issues.  We’re working on some of that via the media, working with the Kauffman Foundation, etc.  We also need your help in contacting your Senators, and offer the attached toolkit:

Please write your Senators about your concerns about the bill, particularly if your Senator is on the Banking Committee.  Attached are several tools to assist you.

• Copy of ACA’s open letter to Sen. Dodd dated today.

• A word based document you can use to write your own letter.

• The summary of the feedback from several members on syndicating deals across state lines.

• List of the Members of the Senate Banking Committee – see http://banking.senate.gov/public/index.cfm?FuseAction=CommitteeInformation.Membership (Hint on letter to Senators – it turns out that FAXING is the best way to reach them. Really.)

• We also have a whole bunch of other resources on the ACA Web site – go to www.angelcapitalassociation.org/resources/public-policy/federal-policy-issues/highlights/.

I will be sending a note to ACA’s full membership shortly, so you’ll get another email from me.  In addition, I will be contacting a few of you individually to get additional help in contacting Senators on the Committee.

Thanks to Joe Bartlett – an attorney with Sullivan & Worcester who has put in considerable pro-bono time for us -  but also Liddy Karter (who is meeting with Sen. Dodd tomorrow), Dick Reeves (who is connecting us with Sen. Shelby), and Bob Franklin.

Best,

Marianne Hudson
Executive Director
Angel Capital Association
913-894-4700 x1
mhudson@angelcapitalassociation.org