Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20021 © 2002, Mindfirst, Inc. – www.mindfirst.com

Joseph L. Rotman School of ManagementJanuary 25, 2002

THE QUEST FOR CAPITAL

ANGEL INVESTING

Henry VehovecPresident, Coach and Chief Creative Officer

Mindfirst, Inc.

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20022 © 2002, Mindfirst, Inc. – www.mindfirst.com

What is An Angel Investor?

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20023 © 2002, Mindfirst, Inc. – www.mindfirst.com

What is An Angel Investor?

Angel Investors address the start-up financing capital gap.

Love Money Venture Capital

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20024 © 2002, Mindfirst, Inc. – www.mindfirst.com

Capital Availability Gap: $1 – 5 million

• Angels rarely like to invest > $ 1 million

• VC’s rarely like to invest < $5 million

• High costs of:

• due diligence• deal flow• economies of scale

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20025 © 2002, Mindfirst, Inc. – www.mindfirst.com

New Company Formation – Source of Funds

• Friends and Family• Banks• Strategic Investors• Angels• Venture Capitalists• IPO (not recently)• Special Programs

• American start-ups in 2000• 50 IPOs (VC funded)• 400 VC start-up investments• 50,000 angel investments• 700,000 new companies

• Source: PWC & Tech Coast Angels

• Angel Funding = 2x – 5x VC Funding, various estimates

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20026 © 2002, Mindfirst, Inc. – www.mindfirst.com

Who are these Angel Investors?

• High net worth individuals

• “Been there, done that” with related experience

• Range of involvement• lead investor, Chairman of the Board• Investor/advisor• Passive investor

• Several Angel Investments

• “Mad Money”

• $25k to $250k per investment per angel

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20027 © 2002, Mindfirst, Inc. – www.mindfirst.com

Angel Investor Summit - Angel Defined

• net worth > $ 2 million

• Successfully built or managed a business

• Invested personal capital in a pre-VC business

• director or advisor to a business other than own

• Looking to make additional angel investments

• two (2) references from existing roster

• www.angelinvestorsummit.org

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20028 © 2002, Mindfirst, Inc. – www.mindfirst.com

Motivation

• Venture Capitalists• make money• professional managers• other people’s money• ROI

• Angel Investors• stay involved into “codgerhood” *• affection for entrepreneurs• give back • mentorship, add value• ROI

* Bill Payne, Tech Coast Angels

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 20029 © 2002, Mindfirst, Inc. – www.mindfirst.com

Typical Angel Deals

• $250k to $2 million per deal• $25k to $250k per investor• lone wolf vs. group• active vs. passive• industry expert vs. generalist

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200210 © 2002, Mindfirst, Inc. – www.mindfirst.com

Where Are these Angels?

• > 1/1000 Canadians is an angel• Angels are everywhere• Angels are people• Industry Associations• Community Groups• Business Groups

Angel Investor CHIN UP Golf InvitationalMay 15, 2002

www.angelgolf.org

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200211 © 2002, Mindfirst, Inc. – www.mindfirst.com

How to Approach an Angel?

• Do Your Homework• Understand the Angel and his drivers• Proper introduction• Only one chance for a first impression• Seek out the Angel with the right fit

• Business Plan and all the VC check lists

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200212 © 2002, Mindfirst, Inc. – www.mindfirst.com

Angel Drivers Include

• Proximity to home• A deal they understand• Personal trust• They know the business domain• Can bring strategic advantage• Compelled to give back• They are builders

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200213 © 2002, Mindfirst, Inc. – www.mindfirst.com

Angel Trends

• average age 49 and getting younger• mostly male, <5% female, but rising• > 100 American Angel Organizations• recalibrating deal size and investment parameters• investment in groups• investing in clusters• Government awareness and emerging support in Canada

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200214 © 2002, Mindfirst, Inc. – www.mindfirst.com

Types of Angels

• Archangel• Domain angels• Love angels• Process angels• Working angels• Silver Spoon angels• Others

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200215 © 2002, Mindfirst, Inc. – www.mindfirst.com

Market Research on Angels

• $ by industry type / cluster• $ by deal size• average time to exit for each deal by industry & size• average return for angels• importance of angels to economy

• multiplier effect• feed VC’s

• Allan Riding, Carleton U., leading Canadian researcher

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200216 © 2002, Mindfirst, Inc. – www.mindfirst.com

The Financing Spectrum

A healthy economy requires vigorous activity across the financing spectrum in order to be successful.

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200217 © 2002, Mindfirst, Inc. – www.mindfirst.com

Current Challenges for Angels

• Finance existing projects, subsequent rounds needed• Licking wounds, stem losses, assess damage• Good valuations and buying opportunity for those with cash• Understanding the changed financial environment• Understanding future growth areas, emerging clusters Government wants to encourage, but how?

• Angels difficult to understand - they are diverse, unique, unaccustomed to organizing as a group

• Educating and influencing leadership• Angel and cluster growth must be organic

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200218 © 2002, Mindfirst, Inc. – www.mindfirst.com

Angel Investing – The Case for Clusters

• Compelling research & analysis – Roger Martin

• Angel Investor Summit Cluster Breakouts• Toronto Summit, October 30, 2001

• Alternative Energy, New Energy• Life Sciences• New Media• Software• Telecommunications• Traditional Industries

• Determinants of cluster success varied by cluster type

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200219 © 2002, Mindfirst, Inc. – www.mindfirst.com

Ontario Government Actions

• 2001, sent study teams to USA • MEDT has industry vertical analysts looking at angel roles• $100k from Prosperity Demonstration Fund• research shows ultimately growth must be organic

• MEDT Press release - January 15, 2002Ontario Competitiveness Consultation Report Released•http://www.2.ontario-canada.com/English/about/news_releases.htm

• Bob Runciman• Ted Chudleigh• Lara Coombs• Mark Nelson

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200220 © 2002, Mindfirst, Inc. – www.mindfirst.com

Federal Government Actions

• Industry Canada, e-Business Roundtable• http://www.ebusinessroundtable.ca/• Jay Illingworth, bridging the VC gap• David Pecaut, Angel Investor Summit Speaker

• tax policy changes• John Eckert, CVCA

• capital gains rollover• encouragement for international investor

• SME & Angel Investor Studies• Andrew Parker, Policy Advisor

• An Entrepreneur's Guide to Informal Investment• http://strategis.ic.gc.ca/SSG/cw06200e.html

•Canada Community Investment Plan (CCIP)•http://strategis.ic.gc.ca/SSG/cw01100e.html

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200221 © 2002, Mindfirst, Inc. – www.mindfirst.com

Simplistic Solution

• reduce Government overhead, lower taxes• allow Angels to be more profitable, sooner• Angels to reinvest• easier said than done

Competition is Global• eg. American Government double matches Angel funds

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200222 © 2002, Mindfirst, Inc. – www.mindfirst.com

The Challenge

• To be globally competitive angels• To be the first choice of global angels, instead of Ireland, Finland, Israel, Singapore, Boston or San Jose

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200223 © 2002, Mindfirst, Inc. – www.mindfirst.com

The Challenge

• The challenge is not to emulate best practices of American angel groups and their current methods or those of the last 10 years• Leap Frog is needed, we need to truly innovate beyond current global best practices• The leaders do not stand still. Leadership is a moving target. We need to anticipate where the world is going to be and we need to shoot for that.

• Innovation vs. Replication, Roger Martin

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200224 © 2002, Mindfirst, Inc. – www.mindfirst.com

Mindfirst Initiative

• Angel Investor Summit Network & Think Tank• Regional Workshops and Summits

• Ottawa, April, 2002 TBA• OCRI, Keira Torkko, www.ocri.ca

• Montréal, Calgary, Vancouver, TBA• www.angelinvestorsummit.org

• Members Only, confidential profiles• Growing base of research, practices and learning material• global perspective, avoid the local peak• expand through connected local angel groups• angel investor group directory

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200225 © 2002, Mindfirst, Inc. – www.mindfirst.com

Angel Investors Summary

• Angels are a critical part of the financing spectrum• Angels are important to the economy• Angels are everywhere• Role of Angels is evolving• Increasing awareness and support• Importance to cultivate and encourage increased Angel activity• Importance of creating an Angel culture• Importance of creating generations of Angels in key cluster areas

Presented at Joseph L. Rotman School of Management – The Quest for Capital, January 25, 200226 © 2002, Mindfirst, Inc. – www.mindfirst.com

Contact Info

• www.mindfirst.com• www.angelinvestorsummit.org• www.angelgolf.org