MAN 320F Lecture 8 Outline of Last Lecture I Pepsi Challenge Outline of Current Lecture I Annual Sources of Start Up Funding II Potential Angel Investors in the US III What Kind of Investments do they like IV Investment Preference V What stage do they invest in VI Where do Angel investors invest VII How Characterize Pre Money Valuations VIII Perfect Investment Opportunity IX 3 Laws Current Lecture I Annual Sources of Start Up Funding Venture Capital 3 billion State Funds 5 billion Angel Investors 20 billion Angels 90 of outside equity for start ups Friends and Family 60 billion On an annual basis where money from start ups come from Not from venture capital Biggest chunk come from 3 F s friends family and fools subject Money there are many different ways to raise money out thereif you are passionate about something you can raise money but you have to develop a STRATEGY on how you do that II Potential Angel Investors in the US These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute US Millionaires 4 200 000 Estimates of Informal investors 1 000 000 groups of investors come together to invest their money for start ups 10 000 groups of Angel investors that have come together in the US Angel investors like to invest in something they know about If they like biotech they will invest in that industry III What Kind of Investments do they like They make relatively small investments 250 000 500 000 a group of angel investors will invest in the first round of financing that s the most they will invest biggest percentage of investors put this amount in these investors will come together and say lets each put up a certain amount to add up to a total Depending on what industry you are in a couple thousand wont be enough maybe IV Investment Preference types of companies they will invest in its pretty much across the board in everything biotech business product services financial computers health care IT etc all across the realm but one area they seem to not do a lot in RETAIL AND DISTRIBUTION smallest percentage you will see V What stage do they invest in Seed Startup and Early stage Its just an idea not even a product yet Expansion and Later Stage is not where they like to invest Bc the amt of money it takes for a company to expand and grow is beyond the reach of what most in investors are willing to do So once a company is gotten off the ground product is now in market have revenue then other types of investors will come in where risk is lower but amt of cash is higher VI Where do Angel investors invest Like to invest in their own backyard Don t like to fly places to go look after their investments Like them to be local If you will get money from wealthy people they will come from Austin most likely Likelihood of elsewhere diminishes VII How Characterize Pre Money Valuations VIII 57 feel that they have made too much to get into the deal they feel its rather expensive to be investing in that particular company yet they are still willing to make investment slightly over valued an angel investor is willing to pay more to get into a deal because of 1 very well known fact theres really only 2 scenarios that matter 1 if company fails will it matter if you over pay for it or not not to an investor if it fails you lose money you re out its unimportant 2 if company is highly successful if you over pay in early years of Google would you be upset No bc its worth so much now so what if you overpaid now even though you overpaid stock is worth millions more than you originally paid for it Perfect Investment Opportunity IX Generally speaking a An experienced proven management team b A great idea concept that is proprietary investors like thissomething that no one else has its just yours and yours alone c Something that cannot be duplicated youre the only one that can make do it d A product or service that 6 billion humans will buy not want to but NEED to buy e A great rate of return on investment higher the better f Intellectual property that is protected by patents and trademarks granting you protection or legal protection g Zero risk X 3 Laws it will always cost more than you thought it would it will always take longer than you anticipated things change continuously there are too many variables how do 80 of investments that an investor makes not work out