WSJ: Angel Investors are Getting Harder to Sell
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.
Need an Angel Investor? Consider AngelList
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…)
How Much Information Must I Provide to an Investor?
This post is based on a question that I answered on Quora. Q. Which tax documents is a startup obligated to disclose to its investors? Our angel investor is asking to see the full tax return (Form 1120S plus all Forms 1099). What are his rights versus the corporation?
A. I’ll give a multi-part answer.:
WSJ: Web Start-Ups Get Upper Hand Over Investors
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.
WSJ: Super-Angels Fill Funding Gap
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.
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.
Equity-Based Crowd Funding: Pro and Con
Congress is considering legislation by which the Securities and Exchange Commission would lift limits on private equity investments, letting companies sell equity interests to investors online (“crowd funding”). Today the Wall Street Journal published a debate on this topic (Should Equity-Based Crowd Funding Be Legal?).
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…)
Vator Splash Oakland – May 6-7 – Special Discounts Available
Vator Splash Oakland – a two-day startup competition and educational event – will take place May 6-7, 2014 at Jack London Square.
Readers of this blog are entitled to a 35% discount on all tickets except Scrappy Observer and Afterparty, which already are greatly reduced. Use discount code Schulz5. (more…)
I Think the Recession is Over
There are two reasons why I now think the recession is over. First, within the past two weeks several clients have seen a dramatic increase in investor / acquisition interest:
- A client that has been offering secure-communication software for six years found fundraising very difficult one year ago. Now it is being chased by four VCs (and may spurn them all for a super-angel investor).
- A client that developed a superior e-commerce solution two years ago received a mid-seven-figure acquisition offer from a well-known software company – and immediately rejected the offer, having talked to an investor who said he would give the client a substantially higher valuation.
- A year-old life sciences company that hasn’t even completed development of its intellectual property – but which has a great underlying technology – is about to receive a low-seven-figures VC investment after putting little time and energy into fundraising.
