Work with Angels
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They often ask questions, but how to work with angels? This question was asked yesterday by one of the active writers on Habré and I decided to answer here.
To begin with, let's define who are the Angels? Angels, these are individual investors who invest their personal money in projects, usually the amount of investments does not exceed 5% of Angel’s annual income or no more than 0.5% of his fortune. Thus, the loss of money as a result of the failure of the project does not greatly affect its financial situation. Since Angels work in a particular risk zone (according to various sources, 90% of angel investments suffer fiasco), they expect 10x or more returns on their investments. Thus, one failure for the Angel is not terrible, and luck brings income, commensurate with the annual (or add from 5% to the state).
Angels work not only in the field of venture business. The English economy, for example, simply stands on angel investments.
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What is the difference between angels and institutional investors (AI)? There are several options.
1. Angels invest their money, AI controls strangers.
2. Angels investments abroad usually have a top bar of 500k dollars, we have 200k. AI try to invest amounts from 1m dollars.
3. Angels make an emotional deal (“I liked this man and this project and I will give him money”), AI can invest in companies that meet certain requirements.
What conditions do the Angels work on? In Russia, the established practice when an angel receives from 50% + 1 to 90% + 1. Toward the end of the article, we will look at how this may affect the company in the future.
A bit of history. When the venture business began to take its first steps, a dilemma arose on how to determine the share of an angel in a project. If you work, as venture capitalists work, through valuation, then a startup, when it exists in the form of an idea, costs nothing. Consequently, any investment can claim the lion’s share of the company. Therefore, there were 25% + 1, 30%, 50% options, “as agreed.” Over the years, a good scheme has emerged that has become traditional for angel investing. This scheme - convertible debt (convertible loan).
The scheme with convertible debt is as follows: Angel gives a STARTUP debt, which he can convert into company shares upon entering the AI ​​on the current premoney valuation with a premium.
For inexperienced readers I will give an example:
Angel invests 100k in a startup. Agreed on his premium of 25% (standard for the United States, in Russia and Ukraine can reach 100-200%). After 9 months, a venture capital fund of 500k will invest in a startup with premoney valuation 1000k. So, the Angel receives shares for the amount of 100k + 25% = 125k and its share before the investment is 125k / (1000k + 125k) = 0.11 = 11%
Immediately after the investment, its share will be compressed to 125k / (1000k + 125k + 500k) = 0.08 = 8%
Very often, the AI ​​offers the angels to buy out their share and bargaining and negotiations are possible here.
What are good Angels
1. Angels give money when serious investors are not even ready to talk to the company.
2. If an angel is engaged in investing on a regular basis, then he can have good contacts with the AI ​​and can lead the investor to Round A
3. Often, Angels invest in companies from an industry that they are well-versed in, which means they can very often be helped by advice or vision.
4. There have been cases when angels took a serious position in a startup and were successful in this.
5. Venture capitalists take foreign investment very seriously. If a person has invested, then he believes in this company. Presence of previous investment rounds greatly increases the chances of the company to get the next round.
What is bad scheme 50% + 1?
If we turn to the principles of the business venture, we will see that the entrepreneur is the driving force. Investors just help him with money. The right investors always make sure that the entrepreneur does not fall motivation. If an entrepreneur cannot make decisions and earns a little while selling a company, his efficiency will be low. Analysis of the ownership structure of AI is a very important point. Analyzed who owns what part of the company and most importantly WHY? Never a serious investor will invest in a company in which Angel, not taking an active part in the company, owns a controlling stake. And that means, or it is necessary to reduce the share of Angel or abandon the deal. This is where the difficult negotiations begin. During which the company may die. So, getting 50% + 1, the angel begins to play against himself and against the company he invested in.
Behind the brackets we left the work of angelic foundations, networks and associations.
Ps. If you do not plan to involve the next rounds, then you can negotiate with the Angels without regard. 100k is usually enough to raise the Internet project in Russia-Ukraine.
Pps. For voicing these thoughts, I had unpleasant conversations with local Angels, who find it difficult to push the scheme 50% + 1
PPPS. You can read a few more articles on the topic about my blog dennydov.livejournal.com
They often ask questions, but how to work with angels? This question was asked yesterday by one of the active writers on Habré and I decided to answer here.
To begin with, let's define who are the Angels? Angels, these are individual investors who invest their personal money in projects, usually the amount of investments does not exceed 5% of Angel’s annual income or no more than 0.5% of his fortune. Thus, the loss of money as a result of the failure of the project does not greatly affect its financial situation. Since Angels work in a particular risk zone (according to various sources, 90% of angel investments suffer fiasco), they expect 10x or more returns on their investments. Thus, one failure for the Angel is not terrible, and luck brings income, commensurate with the annual (or add from 5% to the state).
Angels work not only in the field of venture business. The English economy, for example, simply stands on angel investments.
')
What is the difference between angels and institutional investors (AI)? There are several options.
1. Angels invest their money, AI controls strangers.
2. Angels investments abroad usually have a top bar of 500k dollars, we have 200k. AI try to invest amounts from 1m dollars.
3. Angels make an emotional deal (“I liked this man and this project and I will give him money”), AI can invest in companies that meet certain requirements.
What conditions do the Angels work on? In Russia, the established practice when an angel receives from 50% + 1 to 90% + 1. Toward the end of the article, we will look at how this may affect the company in the future.
A bit of history. When the venture business began to take its first steps, a dilemma arose on how to determine the share of an angel in a project. If you work, as venture capitalists work, through valuation, then a startup, when it exists in the form of an idea, costs nothing. Consequently, any investment can claim the lion’s share of the company. Therefore, there were 25% + 1, 30%, 50% options, “as agreed.” Over the years, a good scheme has emerged that has become traditional for angel investing. This scheme - convertible debt (convertible loan).
The scheme with convertible debt is as follows: Angel gives a STARTUP debt, which he can convert into company shares upon entering the AI ​​on the current premoney valuation with a premium.
For inexperienced readers I will give an example:
Angel invests 100k in a startup. Agreed on his premium of 25% (standard for the United States, in Russia and Ukraine can reach 100-200%). After 9 months, a venture capital fund of 500k will invest in a startup with premoney valuation 1000k. So, the Angel receives shares for the amount of 100k + 25% = 125k and its share before the investment is 125k / (1000k + 125k) = 0.11 = 11%
Immediately after the investment, its share will be compressed to 125k / (1000k + 125k + 500k) = 0.08 = 8%
Very often, the AI ​​offers the angels to buy out their share and bargaining and negotiations are possible here.
What are good Angels
1. Angels give money when serious investors are not even ready to talk to the company.
2. If an angel is engaged in investing on a regular basis, then he can have good contacts with the AI ​​and can lead the investor to Round A
3. Often, Angels invest in companies from an industry that they are well-versed in, which means they can very often be helped by advice or vision.
4. There have been cases when angels took a serious position in a startup and were successful in this.
5. Venture capitalists take foreign investment very seriously. If a person has invested, then he believes in this company. Presence of previous investment rounds greatly increases the chances of the company to get the next round.
What is bad scheme 50% + 1?
If we turn to the principles of the business venture, we will see that the entrepreneur is the driving force. Investors just help him with money. The right investors always make sure that the entrepreneur does not fall motivation. If an entrepreneur cannot make decisions and earns a little while selling a company, his efficiency will be low. Analysis of the ownership structure of AI is a very important point. Analyzed who owns what part of the company and most importantly WHY? Never a serious investor will invest in a company in which Angel, not taking an active part in the company, owns a controlling stake. And that means, or it is necessary to reduce the share of Angel or abandon the deal. This is where the difficult negotiations begin. During which the company may die. So, getting 50% + 1, the angel begins to play against himself and against the company he invested in.
Behind the brackets we left the work of angelic foundations, networks and associations.
Ps. If you do not plan to involve the next rounds, then you can negotiate with the Angels without regard. 100k is usually enough to raise the Internet project in Russia-Ukraine.
Pps. For voicing these thoughts, I had unpleasant conversations with local Angels, who find it difficult to push the scheme 50% + 1
PPPS. You can read a few more articles on the topic about my blog dennydov.livejournal.com
Source: https://habr.com/ru/post/26075/
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