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© 2009-2017 Dana H. Shultz, Attorney at Law

WSJ: Angel Investors are Getting Harder to Sell

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In an article published today (Chasing the New Angel Investors), the Wall Street Journal discusses why entrepreneurs must work ever-harder to persuade angel investors to invest.

According to the article, although seed and startup angel investment has increased, there are several reasons why that money is more difficult to attract:

  • Since the recession, many angels have become more demanding, looking for proof of marketplace acceptance rather than a hunch that it exists.
  • Angel groups, which syndicate deals among their members, have a more-formal review process that may involve discussions by dozens of potential investors.
  • With less venture capital available, angels are more concerned about whether a company can grow to profitability or a successful exit.

The article’s advice for entrepreneurs: Have something to show, know your business thoroughly, and polish your pitch.

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.

WSJ: Web Start-Ups Get Upper Hand Over Investors

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In an article published today (“Web Start-Ups Get Upper Hand Over Investors”), the Wall Street Journal reported (emphasis added) that “As venture capitalists scramble to get a piece of Silicon Valley’s new Web boom, entrepreneurs … are finding they have the upper hand.

Here are some of the points the article makes about the latest Web boom:

  • As VCs search for the next Facebook or Twitter, some entrepreneurs are positioned to have a greater say about how much they raise and deal terms.
  • Bidding among VCs is driving up the price of many deals.
  • Angel investors are driving up the prices of the tiniest early-stage companies.
  • Some entrepreneurs are taking advantage of the situation by seeking the best advisors rather than the greatest amount of money.

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.

Need an Angel Investor? Consider AngelList

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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: (more…)

WSJ: Startups can Pitch to Angels for Free

In an article published today (Start-Ups Get Free Chance to Pitch to Angel Investors), the Wall Street Journal discusses ways that startups can 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.

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.

Angels and Convertible Notes: Whether, When and Why

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.

WSJ: Startups Will Keep Struggling in 2010

In an article published yesterday (Start-Ups Will Keep Struggling in 2010), the Wall Street Journal reported that startup funding will remain tough to find in 2010.

The major problems:

  • Most entrepreneurs use personal savings or contributions from friends and family, but personal wealth – often tied to the value of homes or stock portfolios – has not bounced back from the economic downturn.
  • For both conventional bank loans and those insured by the Small Business Administration, entrepreneurs most show (a) that they have invested a significant amount of their own money and (b) solid cash-flow projections.
  • During the first half of 2009, the total value of angel investments fell 30% compared to 2008; 2010 is expected to continue at the 2009 level.
  • While venture capitalists are continuing to invest, they typically have been protecting later-stage companies already in their portfolios rather than funding startups.

The minor bits of good news:

  • While angels are investing less per deal, the total number of deals increased during the first half of 2009 over 2008.
  • Stimulus-related measures may increase SBA loans from 1% of all small-business lending to between 5% and 10%.

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Related posts:

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

What You Need to Know about Angel Investment Groups

Burton Lee, Director and Engineering Lecturer at Stanford University, recently posted informative slides from a presentation by Laurie Lumenti Garty of SVB Capital and Marianne Hudson of the Angel Capital Association.

The subject: Angel investment groups in the U.S.

Here is some of the most important information presented in the slides:

  • There are more than 300 angel investment groups in the U.S.
  • They tend to invest in companies that are in product development or are already shipping product.
  • Major investment sectors include IT, health care, and business financial services.
  • The vast majority of the investments are $500,000 or less.
  • Groups tend to co-invest with, or look for follow-on investments from, other angel groups, individual angels, and early-stage venture capitalists.

If you are seeking angel funding, you should look at the entire slide deck.

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Related post: Realistic Financing Options for Startup Companies

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Realistic Financing Options for Startup Companies

Sure, you dream of venture capital to turn your great idea into entrepreneurial success. But guess what: The vast majority of startups will never come close receiving venture funding.

There are alternatives, however. Here are approaches that my clients typically consider: (more…)