Prepared by Rick Timmins April, 2017 RISK
Description: Prepared by Rick Timmins April, 2017 RISK Management Conference---AN OVERVIEW OF SEED-STAGE INVESTING Todays Agenda My Journey from the Corporate World to Angel Investing Should We Invest or Should We Pass Austin A Place for
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slide1. Prepared by Rick Timmins
April, 2017 RISK Management Conference---AN OVERVIEW OF SEED-STAGE INVESTING<br>
slide2. Today’s Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide3. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide4. My Journey— 23 Years and 12 Years!!!! 4<br>
slide5. My Journey---Where I Got the “Bug” Started with Cisco (1995); it was very acquisitive
Over 200 companies acquired
while I was there (28 in 1 year!)
Was on the due diligence team
Interviewed many entrepreneurs
Provided valuation estimates
This work over four years made
me appreciate entrepreneurs
Got involved when I moved back to
Austin in 2007 (VC partner & angel) 5<br>
slide6. Should We invest or should We pass?<br>
slide8. Should I Invest In The Company Or Not-1 Company A—a company which licenses technology from Rice University on compression sensing with strong IP to significantly reduce the cost of infrared cameras
Company B---snack foods based on kale chips sold in retail stores and online
Company A is out of business after 1.5 years and Company B has a valuation >$30M and is only 5 years old with revenues approaching $20M<br>
slide9. Should I Invest In The Company Or Not-2 Company A---creates an easy way for a companies to engage, manage and monetize their brand anytime for users worldwide on any type of device
Company B---A SaaS based platform to monitor and provide access for locks of remote facilities on any device, including mobile, in many locations such as cell towers or oil wells
Company A now has a valuation of $220M after 7 years and Company B is out of business after 2 years<br>
slide10. Should I Invest In The Company Or Not-3 Company A---a free service/platform that helps Moms organize events and fundraising activities such as Girl Scouts and kids clubs, Church and sporting events
Company B---a platform that develops simple, reliable and cost-effective patient population management and mobile health solutions in order to better manage chronic diseases as well as basic health and wellness
Company A has been in business for 7 years and has an estimated valuation of $30M with millions of users and Company B has been in business over 7 years, has had a significant down round and is about to go out of business<br>
slide11. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide12. Austin… is the #1 city in the United States for entrepreneur activity-----but don’t take my word for it….<br>
slide13. Austin Ranks High On Many Lists #1 U.S. city for startup activity--Kauffamn Foundation 9/16 and 9/15
#1 U.S. city for adding tech jobs over the last 10 years—Forbes 4/15
#1 city for creative job growth--Fast Company 6/15
#1 Tech city in global ranking--Savills 2/15
#1 hottest start-up city in the U.S.--RJMetrics 4/14<br>
slide14. Austin Ranks High On Many Lists #1 City for startups in the US-Startup Genome Project 10/15
#1 fastest growing large city economy since the Great Recession—WalletHub 8/15
#3 city for tech acquisitions-CB Insights 4/14
#3 fastest growing metro in the nation-U.S. Census 3/15
#1 place to start a business-CNBC 10/16
#2 city for entrepreneurs starting a business—Livability Magazine 11/16 14<br>
slide15. Austin’s Entrepreneur Community 18 funding sources (PE, angel groups, VC’s, etc.)
11 key support organizations
10 incubator/accelerators
15 co-working spaces
18 media groups focused on start-ups
200 communities/bloggers
University of Texas and Texas State University
SXSWInteractive and Start-Up Week
Over 2,000 start-up companies in town and….
Over 30,000 employees working in start-ups<br>
slide16. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide17. WHO ARE THESE FOLKS<br>
slide18. Two Requirements To Be An Angel Investor The first requirement: is financial and it is called being an accredited investor which means $200,000 in annual income ($300,000 if married) or $1 million in net worth, excluding primary residence. This is done through self-certification.<br>
slide19. Two Requirements To Be An Angel Investor The first requirement: is financial and it is called an accredited investor which means $200,000 in annual income ($300,000 if married) or $1 million in net worth, excluding primary residence
The second requirement:<br>
slide20. “Accredited Investors”
Diverse Backgrounds
Busy—many other activities
Professional Investors
Family Offices
“Hobbyist” Investors
Working to create financial returns
Investors, Mentors & Coaches Who Are Angel Investors--1?<br>
slide21. Suckers!!!!! Who Are Angel Investors--2<br>
slide22. Why I Admire Entrepreneurs--2 Reasons A) The are extremely dedicated and hard working
B)
92% Fail
Source: Berkley and Stanford study of 3,200 start-ups led by Steve Blank<br>
slide23. What Matters to Angels-National Study<br>
slide24. Entrepreneurs—What Angels Look For Coachable and Listens
Entrepreneurial Experience
Leadership Ability
Industry Expertise
Transparency/Integrity
Drive / Persistence
Fundraising Ability<br>
slide25. Source: National Venture Capital Association/PWC Money Tree; Center for Venture Research Angel and VC Stats 2014<br>
slide26. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide27. CTAN Background and Statistics Founded 2006
~300-350 applicants each year
>$83M invested, >140 companies
~160 Angels (PE/Family Offices)
2014 through 2016
>$42M+ invested
> 52 new and 67 existing cos.<br>
slide28. CTAN Is Active In Austin’s Start-up Community CTAN members have volunteered over 15,000 hours to the entrepreneurial community in the last 2.5 years. These are primarily mentor sessions and 1:1 meetings with entrepreneurs and others simply advising individuals
CTAN members serve on over 50 start-up company Boards
CTAN members participate in over 40 panels per year
CTAN is extremely active with the 3 largest accelerators:
--5 mentors at SKU
--10 mentors at Techstars
--12 mentors at Capital Factory
CTAN members are active and volunteer their time!!!<br>
slide29. CTAN—Most Active Angel Network In US In 2015 AND 2016!!! 29<br>
slide30. 30 Total Invested: $82.6M
New: $42.2M
Follow-on: $40.4M
Total Investments: 142 Note: 72% investments in last 5 years<br>
slide31. 31 Business To Consumer (B2C) $8,263 Hardware
$9,878 Consumer Products
Group/Other
$19,484<br>
slide32. 32 Business To Consumer
(B2C) - 33 Hardware - 11 Consumer Products
Group/Other - 35<br>
slide33. 33 Fulltime Part-time/
Contractors
_________________________
Austin - 746 Fulltime Part-time/
Contractors
_________________________
Outside Austin - 687 Fulltime Part-time/
Contractors
_________________________
Totals – 1,433 69 Companies representing
1,433 Total Jobs and 29 of 69
Companies had or currently
have a CTAN BOD member (42%)<br>
slide34. Making Money At This This is important!!!
If done correctly it will yield
internal rate of returns > 22%
Takes 3-6 years of investing
Takes 5-10 years to yield these returns<br>
slide35. A Balance of… 35<br>
slide36. 36 Large Cap Stocks
Mid Cap Stocks
Small Cap Stock
Intl. Stocks
ETF’s
______________________
Domestic Bonds
Intl Bonds
Municipal Bonds
Corporate Bonds
Maturities
ETF’s Equities
50% Alternative
Assets
25% Equities
(?) Alternative
Assets
(?) Source:
Morgan Stanley Source:
Deutsch Wealth Management Sources:
Many, many others Current Investment Approaches<br>
slide37. 37<br>
slide38. 38 Source: Rob Wiltbank, PhD Overall Multiple 2.6x<br>
slide39. National Angel Returns vs. CTAN National Study of Angel Returns:
2.6x Return of Capital
CTAN Returns (so far):
6.3x Return of Capital 39<br>
slide40. 40 $82.6M $238M 83 Active
Companies 23 exits
36 out of
business 142 Total Companies Invested<br>
slide41. 41 1.88x 1.62x 1.83x 2.88x 2.17x<br>
slide42. 42<br>
slide43. What CTAN Allows A Person To Do Expand deal flow in terms of quantity and quality
Share due diligence and leverage the knowledge and power of the members of CTAN
Pick a few investments each year (within your budget) and with the notion of dry powder in mind for follow-on rounds
Decide where you want to allocate your time to coach and mentor others along with pre and post investment activities
Watch for the best performing companies and potentially join in a follow-on round(s) of investing
Learn from others’ mistakes and organized training
Have fun and meet others<br>
slide44. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide45. Funding Timeline<br>
slide46. Bank Returns Versus Angel Investing Returns 46 Typical Bank Returns Typical Angel Investing Returns<br>
slide47. Bank Risk Versus Angel Investing Risk 47 Typical Angel Investing Risk Typical Bank Risk<br>
slide48. Can Banks Works In This Space??? In my opinion banks should give more consideration to participating in later-stage financing needs of these companies
These is generally needed to manage working capital requirements
Companies are in high growth mode and likely still not EBITDA positive
Generally cannot provide personal guarantees
PE Groups and others are in this space now 48<br>
slide49. Some Examples Where Banks Can Help Example 1—Company is providing aerodynamic equipment in the trucking industry and just landed a major OEM agreement and is growing sales from $4M to $12M
Example 2---Company provides high-end baby strollers and just landed a major retailer and is growing sales from $1M to over $12M
Example 3---Company provides a hardware/software solution to monitor electrical consumption in homes ( i.e. a/c), going into a retailer and sales going from $2M to $8M
Example 4---Company provides a SaaS solution to monitor vending machines in real-time and is growing sales from about $3M to over $12M 49<br>
slide50. Consider Putting Your Toes In The Water 50<br>
slide51. Thank You!!!!<br>
slide52. Questions 52<br>
slide53. Back-Up (Do not show) 53<br>
slide54. 54 Source: Rob Wiltbank, PhD / Rick Timmins Exit Multiples 3 years 5.1 months 3.3 years 3.1 years 4.6 years 3.8 years 4.9 years 6 years 10 years<br>
April, 2017 RISK Management Conference---AN OVERVIEW OF SEED-STAGE INVESTING<br>
slide2. Today’s Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide3. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide4. My Journey— 23 Years and 12 Years!!!! 4<br>
slide5. My Journey---Where I Got the “Bug” Started with Cisco (1995); it was very acquisitive
Over 200 companies acquired
while I was there (28 in 1 year!)
Was on the due diligence team
Interviewed many entrepreneurs
Provided valuation estimates
This work over four years made
me appreciate entrepreneurs
Got involved when I moved back to
Austin in 2007 (VC partner & angel) 5<br>
slide6. Should We invest or should We pass?<br>
slide8. Should I Invest In The Company Or Not-1 Company A—a company which licenses technology from Rice University on compression sensing with strong IP to significantly reduce the cost of infrared cameras
Company B---snack foods based on kale chips sold in retail stores and online
Company A is out of business after 1.5 years and Company B has a valuation >$30M and is only 5 years old with revenues approaching $20M<br>
slide9. Should I Invest In The Company Or Not-2 Company A---creates an easy way for a companies to engage, manage and monetize their brand anytime for users worldwide on any type of device
Company B---A SaaS based platform to monitor and provide access for locks of remote facilities on any device, including mobile, in many locations such as cell towers or oil wells
Company A now has a valuation of $220M after 7 years and Company B is out of business after 2 years<br>
slide10. Should I Invest In The Company Or Not-3 Company A---a free service/platform that helps Moms organize events and fundraising activities such as Girl Scouts and kids clubs, Church and sporting events
Company B---a platform that develops simple, reliable and cost-effective patient population management and mobile health solutions in order to better manage chronic diseases as well as basic health and wellness
Company A has been in business for 7 years and has an estimated valuation of $30M with millions of users and Company B has been in business over 7 years, has had a significant down round and is about to go out of business<br>
slide11. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide12. Austin… is the #1 city in the United States for entrepreneur activity-----but don’t take my word for it….<br>
slide13. Austin Ranks High On Many Lists #1 U.S. city for startup activity--Kauffamn Foundation 9/16 and 9/15
#1 U.S. city for adding tech jobs over the last 10 years—Forbes 4/15
#1 city for creative job growth--Fast Company 6/15
#1 Tech city in global ranking--Savills 2/15
#1 hottest start-up city in the U.S.--RJMetrics 4/14<br>
slide14. Austin Ranks High On Many Lists #1 City for startups in the US-Startup Genome Project 10/15
#1 fastest growing large city economy since the Great Recession—WalletHub 8/15
#3 city for tech acquisitions-CB Insights 4/14
#3 fastest growing metro in the nation-U.S. Census 3/15
#1 place to start a business-CNBC 10/16
#2 city for entrepreneurs starting a business—Livability Magazine 11/16 14<br>
slide15. Austin’s Entrepreneur Community 18 funding sources (PE, angel groups, VC’s, etc.)
11 key support organizations
10 incubator/accelerators
15 co-working spaces
18 media groups focused on start-ups
200 communities/bloggers
University of Texas and Texas State University
SXSWInteractive and Start-Up Week
Over 2,000 start-up companies in town and….
Over 30,000 employees working in start-ups<br>
slide16. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide17. WHO ARE THESE FOLKS<br>
slide18. Two Requirements To Be An Angel Investor The first requirement: is financial and it is called being an accredited investor which means $200,000 in annual income ($300,000 if married) or $1 million in net worth, excluding primary residence. This is done through self-certification.<br>
slide19. Two Requirements To Be An Angel Investor The first requirement: is financial and it is called an accredited investor which means $200,000 in annual income ($300,000 if married) or $1 million in net worth, excluding primary residence
The second requirement:<br>
slide20. “Accredited Investors”
Diverse Backgrounds
Busy—many other activities
Professional Investors
Family Offices
“Hobbyist” Investors
Working to create financial returns
Investors, Mentors & Coaches Who Are Angel Investors--1?<br>
slide21. Suckers!!!!! Who Are Angel Investors--2<br>
slide22. Why I Admire Entrepreneurs--2 Reasons A) The are extremely dedicated and hard working
B)
92% Fail
Source: Berkley and Stanford study of 3,200 start-ups led by Steve Blank<br>
slide23. What Matters to Angels-National Study<br>
slide24. Entrepreneurs—What Angels Look For Coachable and Listens
Entrepreneurial Experience
Leadership Ability
Industry Expertise
Transparency/Integrity
Drive / Persistence
Fundraising Ability<br>
slide25. Source: National Venture Capital Association/PWC Money Tree; Center for Venture Research Angel and VC Stats 2014<br>
slide26. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide27. CTAN Background and Statistics Founded 2006
~300-350 applicants each year
>$83M invested, >140 companies
~160 Angels (PE/Family Offices)
2014 through 2016
>$42M+ invested
> 52 new and 67 existing cos.<br>
slide28. CTAN Is Active In Austin’s Start-up Community CTAN members have volunteered over 15,000 hours to the entrepreneurial community in the last 2.5 years. These are primarily mentor sessions and 1:1 meetings with entrepreneurs and others simply advising individuals
CTAN members serve on over 50 start-up company Boards
CTAN members participate in over 40 panels per year
CTAN is extremely active with the 3 largest accelerators:
--5 mentors at SKU
--10 mentors at Techstars
--12 mentors at Capital Factory
CTAN members are active and volunteer their time!!!<br>
slide29. CTAN—Most Active Angel Network In US In 2015 AND 2016!!! 29<br>
slide30. 30 Total Invested: $82.6M
New: $42.2M
Follow-on: $40.4M
Total Investments: 142 Note: 72% investments in last 5 years<br>
slide31. 31 Business To Consumer (B2C) $8,263 Hardware
$9,878 Consumer Products
Group/Other
$19,484<br>
slide32. 32 Business To Consumer
(B2C) - 33 Hardware - 11 Consumer Products
Group/Other - 35<br>
slide33. 33 Fulltime Part-time/
Contractors
_________________________
Austin - 746 Fulltime Part-time/
Contractors
_________________________
Outside Austin - 687 Fulltime Part-time/
Contractors
_________________________
Totals – 1,433 69 Companies representing
1,433 Total Jobs and 29 of 69
Companies had or currently
have a CTAN BOD member (42%)<br>
slide34. Making Money At This This is important!!!
If done correctly it will yield
internal rate of returns > 22%
Takes 3-6 years of investing
Takes 5-10 years to yield these returns<br>
slide35. A Balance of… 35<br>
slide36. 36 Large Cap Stocks
Mid Cap Stocks
Small Cap Stock
Intl. Stocks
ETF’s
______________________
Domestic Bonds
Intl Bonds
Municipal Bonds
Corporate Bonds
Maturities
ETF’s Equities
50% Alternative
Assets
25% Equities
(?) Alternative
Assets
(?) Source:
Morgan Stanley Source:
Deutsch Wealth Management Sources:
Many, many others Current Investment Approaches<br>
slide37. 37<br>
slide38. 38 Source: Rob Wiltbank, PhD Overall Multiple 2.6x<br>
slide39. National Angel Returns vs. CTAN National Study of Angel Returns:
2.6x Return of Capital
CTAN Returns (so far):
6.3x Return of Capital 39<br>
slide40. 40 $82.6M $238M 83 Active
Companies 23 exits
36 out of
business 142 Total Companies Invested<br>
slide41. 41 1.88x 1.62x 1.83x 2.88x 2.17x<br>
slide42. 42<br>
slide43. What CTAN Allows A Person To Do Expand deal flow in terms of quantity and quality
Share due diligence and leverage the knowledge and power of the members of CTAN
Pick a few investments each year (within your budget) and with the notion of dry powder in mind for follow-on rounds
Decide where you want to allocate your time to coach and mentor others along with pre and post investment activities
Watch for the best performing companies and potentially join in a follow-on round(s) of investing
Learn from others’ mistakes and organized training
Have fun and meet others<br>
slide44. Agenda My Journey from the “Corporate” World to Angel Investing
Should We Invest or Should We Pass
Austin –A Place for Entrepreneurial Activity
Background on Seed-Stage Investing
The Central Texas Angel Network (CTAN) and Making Money in this Space
How Banks Might Get Involved<br>
slide45. Funding Timeline<br>
slide46. Bank Returns Versus Angel Investing Returns 46 Typical Bank Returns Typical Angel Investing Returns<br>
slide47. Bank Risk Versus Angel Investing Risk 47 Typical Angel Investing Risk Typical Bank Risk<br>
slide48. Can Banks Works In This Space??? In my opinion banks should give more consideration to participating in later-stage financing needs of these companies
These is generally needed to manage working capital requirements
Companies are in high growth mode and likely still not EBITDA positive
Generally cannot provide personal guarantees
PE Groups and others are in this space now 48<br>
slide49. Some Examples Where Banks Can Help Example 1—Company is providing aerodynamic equipment in the trucking industry and just landed a major OEM agreement and is growing sales from $4M to $12M
Example 2---Company provides high-end baby strollers and just landed a major retailer and is growing sales from $1M to over $12M
Example 3---Company provides a hardware/software solution to monitor electrical consumption in homes ( i.e. a/c), going into a retailer and sales going from $2M to $8M
Example 4---Company provides a SaaS solution to monitor vending machines in real-time and is growing sales from about $3M to over $12M 49<br>
slide50. Consider Putting Your Toes In The Water 50<br>
slide51. Thank You!!!!<br>
slide52. Questions 52<br>
slide53. Back-Up (Do not show) 53<br>
slide54. 54 Source: Rob Wiltbank, PhD / Rick Timmins Exit Multiples 3 years 5.1 months 3.3 years 3.1 years 4.6 years 3.8 years 4.9 years 6 years 10 years<br>