AngelList Logo
There are plenty of companies seeking seed-stage financing, and plenty of seed-stage investors. How can they find one another effectively? AngelList is one answer.
Started in February 2010, AngelList is a straightforward application of social-media principles:
- Individual seed investors who join provide information such as location (primarily Silicon Valley), fund type (primarily angel or venture capital), companies they have invested in, investment criteria, and amount they want to invest.
- Entrepreneurs are prompted to provide various pieces of information that comprise a “pitch” and to state whether they want introductions to all angels or to specified angels.
- AngelList’s founders (Nivi and Naval from Venture Hacks) review each pitch. Each pitch that is accepted is forwarded to the angels requested by the entrepreneur.
In the half-year that AngelList has existed, more than 30 introductions have resulted in investments.
Check out all posts about angel investors.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Many startup companies are betwixt and between when it comes to funding: They need too much for angel investor groups, but too little for venture capitalists. According to the Wall Street Journal (‘Super Angels’ Alight), there is a new breed of investor that fills the gap, the “super angel”.
What makes these angels “super” is their ability to attract other investors. Whether collaborating with one another informally or through recently-formed funds, they can invest $1 million or so and be satisfied with an exit a few months to a few years later.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
In an article published today (Start-Ups Get Free Chance to Pitch to Angel Investors), the Wall Street Journal discusses ways that startups cal pitch to angel investors without having to pay a fee.
Thrust of the article: Some angel investment groups require that entrepreneurs who need funding pay for the right to present their businesses for consideration. Organizations fighting the “pay-to-pitch” approach include Open Angel Forum and AngelList.
Related posts:
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
The evening of Wednesday, June 16, I will moderate “Your Capital-raising Roadmap: Angel and VC Perspectives”, part of the Silicon Valley Association of Startup Entrepreneurs’ East Bay Series at the beautiful Crow Canyon Country Club (buffet dinner included).
Description of this event:
You dream of venture capital to turn your great idea into a huge entrepreneurial success. But even if venture capital is appropriate, other types of funding – such as bootstrapping, personal loans, friends and family, or angel investment – usually come first.
Our panel of VCs and angel investors will explain which types of funding are appropriate at each stage and and how those types of funding can be combined, over time, to maximize returns for both entrepreneurs and investors.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Don Dodge, a Developer Advocate at Google, wrote an informative post about the pros and cons of convertible notes for angel investments (What you should know about Angel Investors and Convertible Notes).
A convertible note is a debt instrument that can be converted into equity. The pros of convertible notes are well-known:
- The hassle of valuing an early-stage company is avoided – the angel can convert to equity when the Series A venture financing takes place.
- The terms of the note are straightforward – the principal amount and accrued interest can be converted into shares at a discount from (or with warrants applicable to) the Series A share price.
- As a result, legal fees for a convertible note tend to be far lower than those for a Series A financing.
The con is that the angel might not receive an adequate return if the Series A is delayed or never takes place (for example, if the company is acquired). Dodge suggests that these scenarios can be addressed by building into the note a specified valuation that will apply (or will establish a minimum) if one of these events occurs.
The bottom line: Angels, like other investors, should think about how to protect their investments if events to not proceed as initially anticipated.
Related post: Realistic Financing Options for Startup Companies
Photo credit: Marina Garcia vis stock.xchng
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
I recently answered an Avvo question about capital contributions and loans to an LLC. The question and answer are reproduced, in somewhat edited form, below.
Q: I am the sole member of an LLC. What is the best way to make capital contributions? Can I do this in the form of a loan?
A: It is important to distinguish your capital contribution (in exchange for which you receive your membership interest) from loans (which are to be repaid).
The LLC Operating Agreement should have an exhibit that states the amount of your capital contribution. You should make a deposit of that amount into the LLC’s bank account. If your LLC has membership certificates, you (as a member) are entitled to have one made out in your name, showing your membership interest (100%, or all of the Units), and signed by you as the Manager (which role should be specified in the Operating Agreement).
Each loan should be documented by a loan agreement and promissory note. To avoid “imputed interest” problems, the interest rate in each case should be at least as great as the relevant Applicable Federal Rate.
It is important that the LLC be sufficiently capitalized, that separate LLC bank account and accounting books be maintained, and that the loans be documented appropriately to avoid “alter ego” problems – please see Beware Your Alter Ego (discusses corporations, but applies similarly to LLCs).
Check out all posts about LLCs.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Two evenings ago, I had the pleasure of being MC for SVASE‘s East Bay Series program, Raising Money from VCs: The Insider’s Perspective. The discussion examined how venture capitalists use the due diligence process and other tools to decide which companies they will fund.
At the end, I asked the VCs on the panel to do some simple arithmetic: Of the companies for which you begin due diligence, which portion ultimately are funded?
The answer for all four VCs: Less than 1%!
Steps for entrepreneurs seeking venture funding:
- Research VC firms to determine which ones (a) invest in your industry, (b) invest in businesses at your stage, and (c) invest the amount that you need.
- Find someone in your network who can introduce you to a partner in each firm that you identified in Step 1. (Unsolicited inquiries from strangers almost certainly will be ignored.)
- At the beginning of the initial meeting, focus on why there is a pressing problem for a defined set of prospective customers, and how your company is uniquely positioned to solve that problem.
- If you are fortunate enough that the VC firm wants to begin due diligence, realize that the odds of your being funded still are less than 1%.
Related post: Investor Due Diligence Should Go Both Ways
Photo credit: Carlos Paes via stock.xchng
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
If your small technology company provides products or processes that might interest the U.S. government, you should know about the Small Business Innovation Research (SBIR) program.
The objective of SBIR is to provide qualified small businesses with opportunities to propose innovative ideas that meet the specific research and development needs of the federal government.
Eleven federal departments participate. These include, for example, the Departments of Defense (including the various armed forces), Education and Transportation.
While there is some variation among departments, SBIR generally is a three-phase process:
- Phase I – Technology feasibility is determined and contracts are valued up to $100,000, lasting from six to nine months.
- Phase II (awarded to successful Phase I contract winners) – The necessary R&D is accomplished to produce a well-defined product/process. These awards typically span 2 years to accomplish the primary research effort and are valued up to $750,000.
- Phase III – Commercialization of a Phase II project result using private sector or federal agency (non-SBIR) funding.
Here are a few tips based on my experience helping clients with SBIR projects:
- While the government retains broad rights to use the technology, the small business concern retains rights to sell the technology commercially.
- Successful small businesses often work with large companies as subcontractors to add heft to the project team and increase the likelihood that a proposal will be accepted.
- The fact that a small business has worked with a large company in Phase I does not necessarily mean that the same large company must be used in subsequent phases.
- Because the small business is the prime contractor, it has substantial leverage in negotiating terms with the large company that it might not have in other circumstances. So, for example, if the large company makes demands about co-ownership of or other rights to Phase III intellectual property during Phase I, the small business can respond, “There is no guarantee that the project will get to Phase III or that we will even be working together, so let’s just focus on Phase I right now.” The implicit threat: If you are too difficult, we will work with someone else.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Claremont Creek Ventures, the preeminent venture capital firm in the East Bay and sponsor of SVASE’s East Bay Series, was profiled today in a Bloomberg / San Francisco Chronicle article (Venture capital firm sets up near UC Berkeley).
The article points out that Claremont Creek is unusual among VCs in that it is a seed and early-stage investor.
By sponsoring the East Bay Series, Claremont Creek helps entrepreneurs in the East Bay and elsewhere in the San Francisco Bay Area gain insights that will make their businesses more successful.
The next East Bay Series event, Raising Money from VCs: The Insider’s Perspective, will take place the evening of Wednesday, May 19.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
In an article published today (Entrepreneurs Find Success With Specialty Lenders), the Wall Street Journal reported that some entrepreneurs who otherwise cannot obtain loans have been able to borrow from banks that specialize in niche industries.
As an example, the article cites Silicon Valley Bank, which caters to high-growth technology and life sciences firms.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer with in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies. Located in the San Francisco Bay Area (Northern California), Dana develops close working relationships with clients based on a positive attitude and rock-solid dependability so he can deliver High-touch Legal Services® - thus the name of this blog.