Risk Management Conference Overview of Seed-Stage Investing
This overview covers key topics discussed at a Risk Management Conference on seed-stage investing, including insights on angel investing, entrepreneurial activity, and the role of Central Texas Angel Network (CTAN) in this space. The presentation also delves into decision-making scenarios on investment opportunities and highlights success stories in the startup ecosystem.
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Presentation Transcript
RISK MANAGEMENT CONFERENCE---AN OVERVIEW OF SEED-STAGE INVESTING Prepared by Rick Timmins April, 2017
Todays 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
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
4 My Journey 23 Years and 12 Years!!!!
5 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)
SHOULD WE INVEST OR SHOULD WE PASS?
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
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
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
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
Austin is the #1 city in the United States for entrepreneur activity-----but don t take my word for it .
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
14 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
Austins 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
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
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.
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:
Who Are Angel Investors--1? 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--2 Suckers!!!!!
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
What Matters to Angels-National Study Team Size of Opportunity Products & Services Sales & Distrubution Valuation Quality of Plan
EntrepreneursWhat Angels Look For Coachable and Listens Entrepreneurial Experience Leadership Ability Industry Expertise Transparency/Integrity Drive / Persistence Fundraising Ability
Angel and VC Stats 2014 Angel Investors Venture Capital $27 B $32 B 75,000 deals (38,000 seed) >315,000 individual angels ~4,500 deals <500 active firms Source: National Venture Capital Association/PWC Money Tree; Center for Venture Research
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
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.
CTAN Is Active In Austins Start-up Community CTAN members have volunteered over 15,000hours 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!!!
29 CTAN Most Active Angel Network In US In 2015 AND 2016!!!
30 Investments (000s) by Year $ (000s) # Investments $16,000 45 $15,000 Total Invested: $82.6M New: $42.2M Follow-on: $40.4M Total Investments: 142 $14,000 40 $13,000 $12,000 35 $11,000 $10,000 30 Note: 72% investments in last 5 years $9,000 $8,000 25 $7,000 $6,000 20 $5,000 $4,000 15 $3,000 $2,000 10 $1,000 $0 5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 New Investments Add-on Investments Total # Investments
31 CTAN Investment Dollars by Special Interest Groups (SIG's) 2006-2016 ($000's) Consumer Products Group/Other $19,484 24% Life Sciences $26,002 31% 23% Business To Business (B2B) $18,596 12% Hardware $9,878 10% Business To Consumer (B2C) $8,263
32 CTAN Portfolio Companies by Special Interest Groups (SIG's) 2006-2016 Life Sciences - 25 Consumer Products Group/Other - 35 18% 24% Hardware - 11 8% 23% 27% Business To Consumer (B2C) - 33 Business to Business (B2B) - 38
33 Employment Figures of Portfolio Companies Through 2015 in Q4 2016 (Excludes 2016 Investments) 1,200 69 Companies representing 1,433 Total Jobs and 29 of 69 Companies had or currently have a CTAN BOD member (42%) 1,004 1,000 800 569 600 435 429 400 252 177 200 0 Fulltime Part-time/ Contractors _________________________ Austin - 746 Fulltime Part-time/ Contractors _________________________ Outside Austin - 687 Fulltime Part-time/ Contractors _________________________ Totals 1,433
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
35 A Balance of
36 Current Investment Approaches Large Cap Stocks Mid Cap Stocks Small Cap Stock Intl. Stocks ETF s ______________________ Bonds 20% Bonds 25% Equities 50% Equities 60% Alternative Assets 20% Alternative Assets 25% Source: Morgan Stanley Source: Deutsch Wealth Management Domestic Bonds Intl Bonds Municipal Bonds Corporate Bonds Maturities ETF s Equities (?) Bonds (?) Alternative Assets (?) Sources: Many, many others
37 Yale Endowment Fund - $25B in Assets - 2015 Other 21% Bonds 5% LBO's 16% Alternative Assets 74% Equities / Cash 21% Venture Capital 16% Real Estate 14% Natural Resources 7%
38 Distribution of Returns by Angel Investors National Study 60% 3 years Overall Multiple 2.6x 50% 40% 3.3 years Percent of Total Exits 30% 20% 4.6 years 10% 6 years 4.9 years 0% < 1x 1x - 5x 5x - 10x Exit Multiples 10x - 30x > 30x Source: Rob Wiltbank, PhD
39 National Angel Returns vs. CTAN National Study of Angel Returns: 2.6x Return of Capital CTAN Returns (so far): 6.3x Return of Capital
40 CTAN - Total Amount Invested vs. Current Value (Realized & Unrealized) - 2016 $280M $238M 142 Total Companies Invested $240M Cash Returned to Shareholders Net Asset Value 83 Active Companies $200M $160M $120M $82.6M $80M 23 exits 36 out of business $184M $54M $40M $66.9M $15.7M $0M Total Amount Invested Current Value
41 CTAN Portfolio Valuation Trends 2012-2016 $300M 2.88x Invested Value $200M $238M 2.17x 1.83x $148.5M $100M 1.62x $100.9M 1.88x $65.8M $82.6M $58M $68.4M $55.1M $30.8M $40.5M $0M 2012 2013 2014 2015 2016
42 CTAN IRR - Exits and Out of Business Companies 2006-2016 Internal Rate of Return Number of Companies 70 100% 59 Number of Companies Internal Rate of Return 60 80% 50 54% 60% 36 40 30 35% 40% 23 20 20% 10 0% - 0% Exit Companies Out of Business Companies Combined Companies
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
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
46 Bank Returns Versus Angel Investing Returns Typical Angel Investing Returns Typical Bank Returns
47 Bank Risk Versus Angel Investing Risk Typical Angel Investing Risk Typical Bank Risk
48 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
49 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
50 Consider Putting Your Toes In The Water
