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WEMBA 38 CLASS ANGEL FUND Overview & Next Steps – May 16, 2014.

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Presentation on theme: "WEMBA 38 CLASS ANGEL FUND Overview & Next Steps – May 16, 2014."— Presentation transcript:

1 WEMBA 38 CLASS ANGEL FUND Overview & Next Steps – May 16, 2014

2 The Mission of the WEMBA38 Angels is to reconnect WEMBA 38 classmates and support early stage WEMBA and non-WEMBA businesses. We will achieve this mission by: Building a strong membership base Engaging our members in all investment decisions Selectively supporting the most attractive investments 2 The Mission of the WEMBA38 Angels is not to invest only in liquid assets: Investments will be long term Investments may not be liquid even upon maturity (exit consideration given in additional equity or other securities) Please do not invest more than you are comfortable with losing Consult your financial advisor before investing a substantial amount in the fund

3 Legal Structure: Investment Club After seeking legal guidance, we’ve determined that the best structure for the fund is an investment club. An investment club is a group of people who pool their money to make investments. Investment clubs are generally organized as partnerships or limited liability companies and buy or sell investments based on a majority vote of its members. Key information about Investment Clubs: Generally do not have to register with the SEC as long as every member actively participates in decision making. Are limited to 100 members. Are not open to the public. Key information about Limited Liability Companies: Limits the liability of the members to the amount of their investments. Passes through income taxes to the members – the entity itself does not pay taxes. Are most frequently set up in Delaware, which has the most flexible rules around reporting. 3

4 Tax Implications of Investment Club LLC The WEMBA38 Angel Fund will be set up as a limited liability company that has major tax advantages to its members, including: No taxation on the LLC itself – all income will be passed directly through to members based upon their percentage of ownership interest. Avoiding the “double taxation” issue of paying corporate tax and also personal income taxes on income. Reporting all profits and losses by filing Form 1065 with the IRS, which is simple to complete, therefore reducing our tax bills. This will impact your personal tax filing in the following ways: You will need to receive Form K-1’s from the fund before filing your taxes annually. Form K-1’s require reporting from the companies the fund has invested in and are not required to be produced until April 15 th. This means you will likely have to file an extension each year until your taxes can be completed using the Form K-1 information. Consult your tax advisor for additional information and impact assessment 4

5 Proposed Governance of WEMBA38 Angel Fund The overall mission of the fund is to keep us connected while investing in projects in which we collectively believe. With this in mind, we propose the following governance structure: Membership: The fund is open to WEMBA38 East alums only, unless the members agree to allow other investors on a case by case basis. For example, at least one Wharton professor has expressed interest in participating. Members need to actively participate in decision making under investment club rules. This includes voting, attending calls, volunteering, etc. Each member receives one governance vote, regardless of the size of their investment. Economic interest, however, will be pro-rata based upon the amount invested. 5 year annual commitment term to coincide with our 5 year class reunion Minimum annual commitment of $1,000, although the group suggests a target of $5,000 annually. Maximum investment is $10,000 annually. Commitments will be in $1,000 increments. Annual commitment to be funded in advance of voting on any deals for the year. Accredited and non-accredited investors are welcome. The LLC itself will be non-accredited. Voting: Investment decisions require 60% approval by all members (unresponsive members assumed to vote “no”). Other decisions require a majority of respondents, 30% of members required for a quorum Voting will occur online and proxy voting is allowed. 5

6 Proposed Governance of WEMBA38 Angel Fund (continued) Deals: The fund prefers to invest in WEMBA start-ups but any deals will be evaluated. Each deal will have a self-nominated deal champion member who supports the deal. The deal champion will draft a short internal memo of pros / cons to be used for member decision making. Third party management fees are acceptable on a per deal basis, assuming that they are fully disclosed in the deal memo. The group will not pay an annual subscription to have access to deals at this time, but this may change over time. Ride Along Investors / Co-Investors: Co-investing on an equal ( pari passu ) basis will be allowed for members who prefer to increase their investment in specific deals. The fund will manage administrative tasks for co-investors with expenses to be split on a pro-rata basis. Co-investing is encouraged – this will enable us to position the fund as a “gateway” investor that provides access to other sophisticated investors and much more capital, thus making us more attractive to potential targets. Withdrawals / Deal Exits: Voluntary withdrawals mid-cycle will not be cashed-out. Withdrawing members will retain their existing interest until the deal exits. Withdrawing members will not have access to deals going forward but will be allowed to vote on deals they are invested in at the time of withdrawal. In the case of death or divorce, your beneficiary will retain your economic interest but forgoes your voting interest. At deal maturity, investors may opt to either reinvest their proceeds or liquidate, but are encouraged to reinvest. 6

7 Proposed Governance of WEMBA38 Angel Fund (continued) Fund Committee: Committee will be composed of 7 members, elected annually. Committee members may be elected to multiple terms. Committee roles will be administrative and pro-bono only. Committee members will not be reimbursed for their time and expertise. Committee members will be responsible for allocating the following roles once elected to the committee: Chairperson (1) – schedules and chairs meetings, tracks minutes Accountants (2) – prepares deal accounting and annual tax filings, including Form 1065 and issuing K-1’s to members. We strongly encourage CPA’s to apply! Deal Organizer (1) – communicates with individual deal champions, sets deal elections. Deal Closers (2) – manage term sheet negotiation and coordinate with third parties including attorneys, co-investors and start-ups. Portfolio Coordinator (1) – represents the fund’s interest in invested companies and coordinates individual deal champions. Fund Communications: Website: Members only section: password: Deals will be posted to a secure area for member review Voting will take place in secure area 7

8 Proposed Deal Flow Sources 8 WEMBA Founders  Description: Companies founded by WEMBA alumni  Pros: Closely aligns with our founding philosophy  Cons: Pre-revenue; may require more than just capital; limited deal flow  Illustrative Examples: SharBlu, Stringr 3 rd PartiesFriends & Family  Description: Companies working with or supported by accelerators, VCs, other professional angel investors, merchant banks, brokers  Pros: Likely to have more revenues, visibility and momentum  Cons: Potential costs (fees); smaller position relative to other investors; minimum check size may be too big for WEMBA Angel fund  Illustrative Examples: ChartIQ, Vidrio Financial  Description: Companies founded or capitalized by friends & family of WEMBA alumni  Pros: Leverages WEMBA network; may include more developed companies  Cons: May complicate personal relationships; adverse selection issues; too much emotional investment  Illustrative Examples: Travefy, SuiteQ Preferred Deal Source for WEMBA Angel Fund

9 Current Pipeline Ideas – Just a Few of Many 9  Founder: Amit Sood (WEMBA 38)  Idea: File-sharing service  Industry: Software/SaaS  Revenues: Pre-Revenue  Investment Needed: TBD  Founder: Victoria Fekete  Idea: Visualization software  Industry: Software/SaaS  Revenues: Pre-Revenue  Investment Needed: TBD, part of incubator  Founders: Brian McNeill & Lindsay Stewart (WEMBA 38 West)  Idea: Crowd sourced video content platform  Industry: Digital media/production  Revenues: Pre-Revenue  Investment Needed: TBD, raised $375K to date  Founder: Dan Schleifer  Idea: Financial data visualization  Industry: Software/SaaS  Revenues: $800K LTM 2014, $1.75M projected FY2014  Investment Needed: TBD, part of incubator  Founder: Mazen Jabban  Idea: Bloomberg for fund of fund data  Industry: Software/SaaS  Revenues: $3M  Investment Needed: $500K  Founder: David Chait  Idea: Group travel booking  Industry: SaaS  Revenues: <$200K  Investment Needed: TBD, raised $250K to date

10 Next Steps: May 17 th (Graduation!): Founding group members will be available before and after the ceremony to answer any questions or discuss feedback on the propose structure and term sheet. May 24 the 9 pm EST : Founding group members will host a WebEx to answer additional questions and review feedback. Please have your comments to the group by then. WEMBA 38 Investment Club Formation Webinar 1. Please join my meeting. 2. Use your microphone and speakers (VoIP) - a headset is recommended. Or, call in using your telephone. United States: +1 (636) 277-0136 Access Code: 719-912-749 Audio PIN: Shown after joining the meeting Meeting ID:719-912-749 May 25 th : Interested members submit indications of interest (IOI) from WEMBA38 Angels website. This includes: name, state where you reside and file taxes and how much you would like to commit annually. May 26 th : Attorneys draft sub-docs for the creation of the LLC. May 30 th : Sub-docs will be emailed for review and completion by interested investors. June 30 th : The LLC will officially form and the first round of participation will close. Your initial funding commitment will be due by this date. July – August: Looking for and at new deals in the market! November: Potential 1 st investment close 10

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