Angels
The role of Angelic investment in the industry is very important. The sum of all angel investments ($ 22 billion in 2007) is traditionally comparable to the sum of all venture investments ($ 24 billion in 2007). In fact, this is a little sly. Angels invest not only in technological projects, but also in real estate, industry, and small business.
The term "Angel" appeared on Broadway. Then the Angels called people funding theater productions. It was at the beginning of the 20th century. Later, the term took root in the investment business, long before the appearance of Silicon Valley.
There is a belief in Silicon Valley, about the fact that two young entrepreneurs who went to ride on a rented yacht in San Francisco Bay were discussing the possibility of creating a new business, the calculations for which were made on the cover of a magazine taken with them. When they moored to the shore, they met on the pier of two men, who moored a huge yacht. After a short acquaintance and discussion of the project, the entrepreneurs turned out to be with a check for a small amount, which was enough to start the company. And after 10 years, they moored their huge yacht at the same place, worth $ 50 million, and accidentally met two young entrepreneurs who were discussing their first project ...
Since then, every young entrepreneur has been discussing his project with a partner on a yacht and looking at the horizon, looking for a big yacht there.
The last sentence is a joke, but given my experience in Silicon Valley, I can say that there are a lot of key parameters in the legend itself.
1. Young entrepreneurs. The established entrepreneurs, in most cases, already have enough money so as not to attract angel investments.
2. Successful entrepreneurs very often invest small amounts in new startups.
3. In Silicon Valley, it's really very easy to meet someone who can make an angel investment.
4. Entrepreneurs and investors, and in general everything in Silicon Valley really spend a lot of time on active hobbies like yachts, airplanes, golf, tennis. And there you can really meet anyone.
')
I want to immediately discuss some things. The institution of angel investing is very well developed all over the world. In the United States, according to various estimates, from 100 to 400 thousand angels operate, which invest from 10 thousand to several million US dollars in each project. In Europe, there are between 80 and 200 thousand such investors. The British economy, especially after economic reforms, Margaret Thatcher rests on angelic investment. That is why I want to stipulate at once that all the statistics that are found in the literature operate precisely with the whole mass of angels who invest not only in the area of ​​the technological business. Moreover, if we assume that investors are the same consumers of innovative products (by product we mean a startup in which they invest), then angels that invert into high technology fall into the category of Innovators, whose total volume is no more than 5%. The overwhelming majority of studies and reports that investigate angelic investments give the temperature “average over the chamber” and only general conclusions can be made from them.
Everything that we consider in this part of the book takes into account my experience and comments of many entrepreneurs, venture capitalists and the angels themselves, whom I had to face.
We take the definition of an angel like this:
Expanded small business investment in new or expanding businesses.
Who are the angels? based on the above definition, we see that they are wealthy people. I would venture to suggest the following classification of angels that operate in the United States, mainly in Silicon Valley. This classification is different from the generally accepted. And I offer it by the fact that they mean different approaches to the angels:
1. Successful entrepreneurs who successfully built and sold their company
2. Former investment bankers and people whose activities were related to investments
3. Top managers of large corporations
4. Unqualified investors who are retired with sufficient savings, doctors, lawyers or consultants.
What makes Angels different from Venture Funds?
The first and most important difference - Angels invest their money. Unlike funds that other investors have entrusted their money to, angels invest money that they themselves have earned in their lifetime. Hence the second difference - the Funds make rational decisions, and the Angels are emotional. What do emotional decisions mean? This means that "I like this business and I like this person and I will invest in it." This does not mean that the Angel does not conduct an audit of such a transaction, but, as he parted, he has limited opportunities to make a quality Due Diligence and most often the angel uses intuition.
What drives the angels? We are aware that if in the USA alone there are over 100 thousand angels, and given the diversity of people participating in this movement, we will single out only the main motives that drive the angels:
1. Earn.
2. Return debts to society.
3. Be fit.
4. Adrenaline.
5. Fashion.
In one form or another, these motives work not only in the USA and Europe, but also in Ukraine and Russia.
Understanding these motives allows you to build a line of conduct in negotiations with the angel. Remember that to Angel, as well as to any investor should go on the recommendation.
Each angel has his own investment strategy, even if he has not formalized it and has not voiced it, it is often easy to understand or learn. We will describe the parameters of the strategy later, but for now let's consider the main types of strategies. There are two basic types of angelic strategies, active and passive.
Let us consider in detail active angel strategies (their advantages and disadvantages, we will not consider one advantage in detail, it is true for all strategies - this is what the startup gets money at early stages, and most often this fact allows you to put up with some drawbacks). Active angel strategies involve the active participation of an angel in the company's activities. The extent of this activity is governed by the agreements between Angel and the entrepreneur, which are better documented in an investment agreement.
1. Lead Investor - usually this strategy is implemented by experienced angels, who have experience behind several transactions and business experience behind their backs. Such angels are actively trying to take part in the life of the company.
2. The manager is usually a former employee of a large corporation who, together with the investment, is looking for a place to find employment.
3. The right of the first night.
The following are the passive angel investment strategies:
1. Co-investment.
2. Barter. Such Angels do not provide capital, but provide services or products.
3. Angelic funds.
4. Charity.
Understanding such a strategy can increase the chances of success and reduce the time spent knocking on the wrong door.
Factors that the strategy includes:
1. Industry.
2. Network
3. The size of the transaction.
4. Portfolio.
5. Criteria.
6. Geography.
7. Participation.
8. Exit.
9. Form of investment.
10. The degree of readiness of the company.
If angels take an active position, then they can bring in the company significantly more than money (usually this concerns angels in technological projects, the grandmother from Miami is unlikely to be able to greatly help a startup). In the case when the entrepreneur has found the right (“his”) angel, he can help (remember that no one will do his job for the entrepreneur) in the following questions:
- search and structuring of the first deals,
- staff recommendations
- a look at the activity of a startup from the side
- search for an investor for the next round
Such angels most often meet in the technology business and this is a lucky lottery ticket for the Entrepreneur.
Usually, Angel realizes his rights and obligations through his place on the board of directors of a startup, but close human and business relationships with Angels can bring companies much more than formal ones.
The biggest mistake an entrepreneur can make is to forget about an angel. At a minimum, he should receive a monthly, or even better, a weekly report on the activities of a startup. A monthly report is best served on a formal or informal board of directors. In the Due Diligence process, the investor of the following rounds will first of all try to structure the deal with previous investors and a good attitude and satisfaction of the angel can greatly help.
In the USA and Europe, angels most often receive 10-20% of shares in a technology company. But once again let us recall that how many transactions - so many options. I know of cases when angels invested even for 5% of the company's shares, but prescribed in the investment agreement that their share could not change regardless of the subsequent rounds. This may complicate negotiations with investors in the following rounds. Also, angels can give money as a debt to the founder or the company itself, such a debt can be convertible.
In Ukraine, angel investment is developed only in the field of small business and the first steps are being taken to form this industry. Appeared the first association of investors. The angels still have very little understanding of what the technology business is and the particular investment in this area, but there is already an interest in this kind of investment.
In Russia, angelic investment in technology projects has existed since the late 1990s. The national peculiarity can be indicated by the desire of the angel to dominate and control the business. So, very often there is a deal structure in which an angel gets 50% + 1 or more in a company. Such a structure of the transaction has the right to life only if the entrepreneur does not plan to raise the next rounds of investment. Venture funds always keep an eye on the entrepreneur's motivation and if his share does not provide him with sufficient income at the output, then the fund will most likely not invest in such a company.
The only situation that allows an angel's share is substantially larger than the minority one - this is when the angelic round will be the only one. This is usually permissible when a small local project is built and the angel money should be enough to build it.
The structure of the Angelic community in Ukraine and Russia differs from the structure in other countries. A very active role in such communities is played by government officials, large holdings and financial-industrial groups. Another feature of local markets is the unavailability of angels. If in the USA and Europe angels lead a lifestyle that is not very different from the lifestyle of average citizens and access to them can be obtained without any special problems, then we have a social circle of wealthy people very limited and associated with communication with secretaries, assistants and guards. Thus, the network through which you can get access to such groups of individuals is very limited, which makes it possible to earn a variety of intermediaries and brokers.
An important factor in the widespread use of angel investment in the US and Europe is the stock market. Most households do not keep their savings on deposits, but invest them in stocks listed on the stock market. Due to the cyclical nature of the economy, the stock market sometimes experiences recessions, during which some of these savings are lost. Thus, the average citizen has a culture of investing on the one hand and is ready for risks on the other. This allows us to consider the Angelic investment, as another way to invest savings, and not as an alternative to deposits. In Ukraine and Russia, citizens are still overwhelmingly trying to invest money in precious metals, deposits, foreign currency and real estate (including abroad). That is why alternative ways of investing are considered with great caution.
The term "Angel" appeared on Broadway. Then the Angels called people funding theater productions. It was at the beginning of the 20th century. Later, the term took root in the investment business, long before the appearance of Silicon Valley.
There is a belief in Silicon Valley, about the fact that two young entrepreneurs who went to ride on a rented yacht in San Francisco Bay were discussing the possibility of creating a new business, the calculations for which were made on the cover of a magazine taken with them. When they moored to the shore, they met on the pier of two men, who moored a huge yacht. After a short acquaintance and discussion of the project, the entrepreneurs turned out to be with a check for a small amount, which was enough to start the company. And after 10 years, they moored their huge yacht at the same place, worth $ 50 million, and accidentally met two young entrepreneurs who were discussing their first project ...
Since then, every young entrepreneur has been discussing his project with a partner on a yacht and looking at the horizon, looking for a big yacht there.
The last sentence is a joke, but given my experience in Silicon Valley, I can say that there are a lot of key parameters in the legend itself.
1. Young entrepreneurs. The established entrepreneurs, in most cases, already have enough money so as not to attract angel investments.
2. Successful entrepreneurs very often invest small amounts in new startups.
3. In Silicon Valley, it's really very easy to meet someone who can make an angel investment.
4. Entrepreneurs and investors, and in general everything in Silicon Valley really spend a lot of time on active hobbies like yachts, airplanes, golf, tennis. And there you can really meet anyone.
')
I want to immediately discuss some things. The institution of angel investing is very well developed all over the world. In the United States, according to various estimates, from 100 to 400 thousand angels operate, which invest from 10 thousand to several million US dollars in each project. In Europe, there are between 80 and 200 thousand such investors. The British economy, especially after economic reforms, Margaret Thatcher rests on angelic investment. That is why I want to stipulate at once that all the statistics that are found in the literature operate precisely with the whole mass of angels who invest not only in the area of ​​the technological business. Moreover, if we assume that investors are the same consumers of innovative products (by product we mean a startup in which they invest), then angels that invert into high technology fall into the category of Innovators, whose total volume is no more than 5%. The overwhelming majority of studies and reports that investigate angelic investments give the temperature “average over the chamber” and only general conclusions can be made from them.
Everything that we consider in this part of the book takes into account my experience and comments of many entrepreneurs, venture capitalists and the angels themselves, whom I had to face.
We take the definition of an angel like this:
Expanded small business investment in new or expanding businesses.
Who are the angels? based on the above definition, we see that they are wealthy people. I would venture to suggest the following classification of angels that operate in the United States, mainly in Silicon Valley. This classification is different from the generally accepted. And I offer it by the fact that they mean different approaches to the angels:
1. Successful entrepreneurs who successfully built and sold their company
2. Former investment bankers and people whose activities were related to investments
3. Top managers of large corporations
4. Unqualified investors who are retired with sufficient savings, doctors, lawyers or consultants.
What makes Angels different from Venture Funds?
The first and most important difference - Angels invest their money. Unlike funds that other investors have entrusted their money to, angels invest money that they themselves have earned in their lifetime. Hence the second difference - the Funds make rational decisions, and the Angels are emotional. What do emotional decisions mean? This means that "I like this business and I like this person and I will invest in it." This does not mean that the Angel does not conduct an audit of such a transaction, but, as he parted, he has limited opportunities to make a quality Due Diligence and most often the angel uses intuition.
What drives the angels? We are aware that if in the USA alone there are over 100 thousand angels, and given the diversity of people participating in this movement, we will single out only the main motives that drive the angels:
1. Earn.
2. Return debts to society.
3. Be fit.
4. Adrenaline.
5. Fashion.
In one form or another, these motives work not only in the USA and Europe, but also in Ukraine and Russia.
Understanding these motives allows you to build a line of conduct in negotiations with the angel. Remember that to Angel, as well as to any investor should go on the recommendation.
Each angel has his own investment strategy, even if he has not formalized it and has not voiced it, it is often easy to understand or learn. We will describe the parameters of the strategy later, but for now let's consider the main types of strategies. There are two basic types of angelic strategies, active and passive.
Let us consider in detail active angel strategies (their advantages and disadvantages, we will not consider one advantage in detail, it is true for all strategies - this is what the startup gets money at early stages, and most often this fact allows you to put up with some drawbacks). Active angel strategies involve the active participation of an angel in the company's activities. The extent of this activity is governed by the agreements between Angel and the entrepreneur, which are better documented in an investment agreement.
1. Lead Investor - usually this strategy is implemented by experienced angels, who have experience behind several transactions and business experience behind their backs. Such angels are actively trying to take part in the life of the company.
2. The manager is usually a former employee of a large corporation who, together with the investment, is looking for a place to find employment.
3. The right of the first night.
The following are the passive angel investment strategies:
1. Co-investment.
2. Barter. Such Angels do not provide capital, but provide services or products.
3. Angelic funds.
4. Charity.
Understanding such a strategy can increase the chances of success and reduce the time spent knocking on the wrong door.
Factors that the strategy includes:
1. Industry.
2. Network
3. The size of the transaction.
4. Portfolio.
5. Criteria.
6. Geography.
7. Participation.
8. Exit.
9. Form of investment.
10. The degree of readiness of the company.
If angels take an active position, then they can bring in the company significantly more than money (usually this concerns angels in technological projects, the grandmother from Miami is unlikely to be able to greatly help a startup). In the case when the entrepreneur has found the right (“his”) angel, he can help (remember that no one will do his job for the entrepreneur) in the following questions:
- search and structuring of the first deals,
- staff recommendations
- a look at the activity of a startup from the side
- search for an investor for the next round
Such angels most often meet in the technology business and this is a lucky lottery ticket for the Entrepreneur.
Usually, Angel realizes his rights and obligations through his place on the board of directors of a startup, but close human and business relationships with Angels can bring companies much more than formal ones.
The biggest mistake an entrepreneur can make is to forget about an angel. At a minimum, he should receive a monthly, or even better, a weekly report on the activities of a startup. A monthly report is best served on a formal or informal board of directors. In the Due Diligence process, the investor of the following rounds will first of all try to structure the deal with previous investors and a good attitude and satisfaction of the angel can greatly help.
In the USA and Europe, angels most often receive 10-20% of shares in a technology company. But once again let us recall that how many transactions - so many options. I know of cases when angels invested even for 5% of the company's shares, but prescribed in the investment agreement that their share could not change regardless of the subsequent rounds. This may complicate negotiations with investors in the following rounds. Also, angels can give money as a debt to the founder or the company itself, such a debt can be convertible.
In Ukraine, angel investment is developed only in the field of small business and the first steps are being taken to form this industry. Appeared the first association of investors. The angels still have very little understanding of what the technology business is and the particular investment in this area, but there is already an interest in this kind of investment.
In Russia, angelic investment in technology projects has existed since the late 1990s. The national peculiarity can be indicated by the desire of the angel to dominate and control the business. So, very often there is a deal structure in which an angel gets 50% + 1 or more in a company. Such a structure of the transaction has the right to life only if the entrepreneur does not plan to raise the next rounds of investment. Venture funds always keep an eye on the entrepreneur's motivation and if his share does not provide him with sufficient income at the output, then the fund will most likely not invest in such a company.
The only situation that allows an angel's share is substantially larger than the minority one - this is when the angelic round will be the only one. This is usually permissible when a small local project is built and the angel money should be enough to build it.
The structure of the Angelic community in Ukraine and Russia differs from the structure in other countries. A very active role in such communities is played by government officials, large holdings and financial-industrial groups. Another feature of local markets is the unavailability of angels. If in the USA and Europe angels lead a lifestyle that is not very different from the lifestyle of average citizens and access to them can be obtained without any special problems, then we have a social circle of wealthy people very limited and associated with communication with secretaries, assistants and guards. Thus, the network through which you can get access to such groups of individuals is very limited, which makes it possible to earn a variety of intermediaries and brokers.
An important factor in the widespread use of angel investment in the US and Europe is the stock market. Most households do not keep their savings on deposits, but invest them in stocks listed on the stock market. Due to the cyclical nature of the economy, the stock market sometimes experiences recessions, during which some of these savings are lost. Thus, the average citizen has a culture of investing on the one hand and is ready for risks on the other. This allows us to consider the Angelic investment, as another way to invest savings, and not as an alternative to deposits. In Ukraine and Russia, citizens are still overwhelmingly trying to invest money in precious metals, deposits, foreign currency and real estate (including abroad). That is why alternative ways of investing are considered with great caution.
Source: https://habr.com/ru/post/53239/
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