Wednesday, February 24, 2016

The American Idol type calendar for entreprenuers in SAC

We have passed the application deadline for Seattle Angel Conference and we have a number of companies that have applied.

How will things flow between now and the final event?

Last night, we had the first of the Investor Meetings. We will continue meeting every tuesday until the final date. Here is an overview of what the meetings will look like:

DateMeeting Agenda
2/23/2016SAC Introduction
3/1/2016Select 24 Quarter finalists companies to pitch
3/8/20163min pitches, 3 min Q&A (12 companies)
3/15/20163min pitches, 3 min Q&A (12 companies)
3/22/2016Select 12 Semi Finalists companies to pitch 10 minutes
3/29/201610 min pitches, 10 min Q&A (6 companies)
4/5/201610 min pitches, 10 min Q&A (6 companies)
4/12/2016Select 6 finalist companies
4/19/2016Due Diligence Week 1
4/26/2016Due Diligence Week 2
5/3/2016Due Diligence Week 3
5/10/2016Due Diligence Week 4
5/11/2016Social & Rehearsal for Conference
5/12/2016Seattle Angel Conference IX

If a company is selected for the Quarterfinals, they should be prepared to do a 3 minute pitch and a 3 minute Q/A

If a company is selected for the Semi-Finals, they should be prepared to do a 10 minute pitch and a 10 minute Q/A

Companies that are selected into the Finals should expect a call from the Due Diligence Lead on or near April 12th, arranging meetings. You should expect to spend a couple of hours each week from then until the event connecting with the due diligence team members.

Your goal as a company is to connect with the Angel Investors and to build relationships and get to know who might be a champion for you. 

On the final event, all of your co-founders are invited. Expect to get a access code to get tickets for your cofounder teammates. 

All of the companies, regardless if they progress into the QuarterFinals are able to arrange a feedback session with one of the Angel investors and get a review of all the commentary from the reviewers. 

Our goal is to help you move forward with your startup. Let us know how we can best help you do that. 

Sunday, February 14, 2016

Startup: Your goal is NOT to win the Seattle Angel Conference

At the Seattle Angel Conference we hope to bring together 40 companies and 40 new investors to a 12 week process of engagement. On May 18th the 6 finalists will present and the investment group will vote on a winner. That winner will be selected to receive around $200K in an Angel Investment. 

The overly logical entrepreneur can be lead to the following calculation: If I am one out of 40 companies, then my chances of winning are 1/40 or around 2%. Why should I engage, when I have a 2% chance of winning. 

However, Your goal as a startup should not be to win the Seattle Angel Conference. 

There are several benefits to the conference for your startup, regardless of how far you are able to get in the rounds. 

First, there is nothing like a deadline to force you to work on some of the pesky details about your startup. Updating your gust profile, fixing your current financial projections, and reviewing your company narrative all are things that take a backseat to the urgent startup tasks of engaging with customers and writing code. By having a deadline , you focus on making a step forward with your materials you need for raising funds. 

Secondly, every company that applies is able to get feedback. Close to a dozen Angel Investors will read the profile and provide feedback on what they read. The further your startup gets in the process, the more detailed the feedback will get. This is a good place to start polishing your Angel pitch and materials before you go to other Angel Groups. 

Thirdly, Angel Investing is a relationship based endeavor. There is an opportunity for every startup and their team to meet with dozens of Angel Investors, who are very interested in talking to you about your startup. Take the time before and after each of the workshops and pitching meetings to make connections with the investors in the room. 

Forth, Angel Investors really prefer to invest in companies where they can see several data points about the company. Mark Schuster wrote a good blog on this entitled "Invest in Lines not Dots"

The multiple touch points made possible by the process, will give you a chance to demonstrate engagement, listening, learning and progress. This will help the Investors know more about how things work for you. 

Finally, when all the stars align and all the social process works well, the due diligence teams tend to fall in love with the company that they have been evaluating. They know more about that company than any of the others. When this works well, there may be a motion to create a second investment LLC and a new Fund will be raised on the spot. This is how while the Seattle Angel Conference has done eight rounds so far, it has invested in over 15 companies. 

So understand what the goal of each meeting is and prioritize the opportunity to build connections and demonstrate progress. 

Tuesday, February 9, 2016

Five kinds of Angel groups: From Networks to Active Angel Funds

Angel Investors gather together into groups as a way to create some specific benefits. By gathering together they are able to reduce the amount of work to create meaningful deal flow. They are able to reduce the overhead costs of managing a diversified portfolio. And perhaps more importantly, they are able to reduce the amount of time and effort involved in making investments. 

The structure of the Angel group can change the process and cadence of a set of Angel Investments. There are several different forms of Angel Investment groups: 

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. Sometimes the checks are collected first and sometimes the funds has a commitment and then when funds are needed the group will place a capital call with the members. The key distinguishing feature between the types of funds below are Who makes the decision to invest and When they make the decision to invest. 

Passive Fund - The most common form of a fund, the passive fund has some mechanism for triggering an investment following some rule. In sidecar funds, If a specific number of Angels in an Angel Network decide to invest together on a company and a specific amount of money is investment by them, then the Sidecar fund will automatically match the investment in some way. The triggers can have many different forms. In all cases, the 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. 

In Seattle, there are passive sidecar funds at Alliance of Angels, Element 8 and Keiretsu

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. The passive investors are limited partners providing funding, but not being part of the decision making process. This structure is essentially the same as a Micro Venture Capital Fund.  

In Seattle, Founders Coop  is structured as a MicoVC firm, with key people in the General Partner (GP) role with Angel investors as the Limited Partners (LP). In most Venture Capital funds, the majority of Limited Partners would be institutional funds instead of individual Angel Investors. 

Active Fund - In contrast, an Active Angel fund has a significant portion of the member investors actively involved in the screening, deal flow, due diligence and investment decision. Both a  financial contribution and a significant amount of time is required by the members of an Active Angel Group. 

The Seattle Angel Fund and the Oregon Angel Fund are examples of Active Angel Groups. Member participation is fundamental to the Angel Angel Group process. 

Event Fund - Most Angel groups meet on a monthly or quarterly basis, regularly looking at deal flow and doing evaluation of the companies that are available. The decision to invest is dependent on the deals that are seen and the results of the due diligence. In an Event Fund, the investment is taken up front before the companies are known. The date of when the investment will be decided is also defined up front before the companies are known. 

Based on the Angel Oregon event by OEN , the Seattle Angel Conference is one of 6 Angel conferences which have a structured many week process of evaluating a cohort of companies. This process has been described as the "American Idol" format for Angel Investing.  These events gather 40-50 applying companies who are evaluated by a group of 20-50 angel Investors, where all of the companies are reviewed, filtered through a series of Quarter Final, Semi Final and Finalist phases. In the end, there is an event, where all of the investors and all the finalist companies present and at the event the investor group selects which companies will get an investment. The whole group of investors votes together on which company they want to invest in. 

This is in contrast to "Pitch Events", where the decision of who gets an investment is either made individually, or by someone other than the investors. It is also contrasted for Pitch events which have no due diligence and evaluation of the company fundamentals. 

Summary -  The style of each of these groups impacts the experience of the investors and the companies in the process. Depending on the amount of engagement, the stage of investment and the types of investments you are interested in, you should select the type of group that matches your needs.