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Working backwards
(How to make friends and influence people)
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Angels have specific
targets & preferences
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20-40% ownership (because)
- A you and team must own the company
- B they just want to ride with you, not own you
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200-800k investment (presume 500 here)
- depends heavily on the group, region, members
- with today's syndications can be much larger
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target 30x (to get 3x on average) in 5 years (because)
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early exit strategy is popular today
targets 5-10x in 2-3 years (because)
- A Big companies seem to buy earlier in the startups growth cycle
- B Reduction in time = reduction of risk
- C Hungry Angels do not "eat" before "exit"
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What you should have to offer (example only)
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20% share post-money
- they add 500k and post money valuation is 2.5mm
- angels have 20% share
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pre money valuation of 2mm (how)
- Issued IP
- Filed IP
- Sales=proof of market
- Web registrations=proof of concept (must prove it can be monetized)
- Founders' cash invested
- F&F cash invested
- assets
- purchase orders
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angels' target returns (examples)
- 3 years exit - amount invested (.5) / share post money (.2) * target multiple in 3 years (7.5x)
.5 / .2 x 7.5 = 19mm
- 6 years exit - amount invested (.5) / share post money (.2) * target multiple in 6 years (30x)
.5 / .2 x 30 = 75mm
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future value in 3 years -19mm (justified by)
- e.g. in your industry buy outs price at 3x revenues
and you plan 6+mm rev. in yr 3
- note: sales required increase accordingly
if a 2x rev valuation is the norm
- you better have examples to show this rule
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future value in 6 years - 75mm (justified by)
- e.g. industry buy outs price at 3x rev
and you project 25mm rev in yr 6
- note: sales required increase accordingly
if a 2x rev valuation is the norm
- you better have examples to show this rule
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You have an attractive deal if you can
- CONVINCINGLY project sales grow from current to that needed for future valuation
- demonstrate scalability
- Convince that the team is great, experienced, worked together before
- Show advisors and board with great contacts and working hard to help us
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If the math does not work
- need more time and sales to prove the market
- need more F&F funding
- need more talent in the team
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reconsider the business model
- Do you understand it?
- Do your customers validate it?
- Is anyone making money by this?
- business may not be fit for angels now or ever, look for other strategies
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The above numbers are very rough estimates (because)
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Investors come in all kinds and size
- Angel groups have specific focus
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Valuations depend on
- Industry
- Business cycle
- Region
- M&A activity
- IPO market