FUNDING AN INNOVATION ECONOMY John Huston: Chairman Emeritus, Angel Capital Association & Ohio TechAngel Funds

4 Ingredients of an Innovation Economy  G:  I:  C:  E:

4 Ingredients of an Innovation Economy  G: Government  I: Ideas  C:Capital  E:Entrepreneurs

4 Ingredients of an Innovation Economy  G: KY is Savvy & Supportive  I: Big network to find ideas  C:74 KY Angel Network members + other angels + funds  E:Entrepreneurs (impressive)

How do entrepreneurs raise angel capital? Kentucky’s entrepreneurs wisely use The Business Model Canvas (per the Kentucky Innovation Network website: business/) business/ SO: Let’s consider the “soft” issues of getting angels to invest in your venture

Angels “Solve for STOP” 1)“Honey, will you please make more angel investments!” 2)Definition of Work: When you’d rather be doing something else 3)Just making more dollars is not enough

We have “enough stuff” 1)We sincerely want to make a difference in our community, not just more dollars 2)We’re offended if you think we’re greedy geezers just seeking to make more money from entrepreneurs’ grueling work 3)It’s a hoot to help build a great company! 4)Compare angel investing to fly fishing……….catch & release fly fishing! BUT……...

Angels do want to make $$$......but we also 1)Know that companies younger than five years create all of America’s net new job growth 2)Believe that fostering our local entrepreneurial spirit is one extremely important contribution we can make 3)Want to create “Magnetic Jobs” for our family members

Speaking of jobs…..…… One Columbus angel group has invested $28 MM in 50 start-ups over the last 12 years Others have added an additional $480 MM Our 34 remaining portfolio companies today employ average salary = $85,000 U.S. average salary = $54,500 Ohio’s average salary = $47,900

We would like to see our money again 1)Most of us set aside an amount we will invest in this unique asset class of start-up ventures 2)We need to recycle our investment money in order to continue investing in start-ups 3)We presume the venture will have to be sold (no IPO) 4)Can take many years before we’re playing with “House Money”

First, don’t offend us by 1)Requiring us to sign a Non-Disclosure Agreement at the outset 2)Not respecting our time 3)Espousing the huge returns we will reap

Second, MMFI 1)How can my experiential capital help you in addition to my financial capital? 2)Ask questions I can answer 3)Take notes “Make Me Feel Important”

Third, ITF You say……..“Imagine how mankind will benefit when we’ve successfully commercialized this idea!” I am thinking: 1)Do I want to spend lots of time with this entrepreneur over the next several years? 2)Do I have anything to contribute other than my cash? 3)Would this be more fun than work? “Imagine the Future”

What especially impresses me 1)Previous productive failures 2)Focus on building a great investment, not just a great company 3)Funding Literacy

Funding Literacy 1)How much capital will it take to build a great company? 2)Consider the 4 flavors of cash: Grants, equity, debt……..and finally revenues 3)To maximize shareholders’ returns, impressive entrepreneurs take full advantage of all applicable governmental programs (I have counted at least 14 KY programs that young companies might access!) 4)Be the best at helping your investors enjoy the 40 – 50% Kentucky Angel Investment Tax Credit!!!

What precludes future discussions 1)Simply outside my Angel Investment Envelope (e.g. I avoid consumer products) 2)No Exit Goal Congruence: Evasive about eventual sale of the company, or suggests an IPO 3)I just don’t think the entrepreneur deserves to make millions

Frequent reasons for not backing an entrepreneur 1)My bandwidth: Too busy with a sick puppy/other activities 2)A more exciting “Next Cool Thing” just appeared 3)I never heard the 3 most impressive words….”I don’t know”

My most frequent losses………I  Fell in love with the science & technology  Was excited by how much mankind would benefit when the product/service comes to market  Short-funded the first angel round and investors got fatigued

IN SUM: I’m easy…….just….  Describe how I can help you and your venture be successful  Be coachable  Explain your plan for eventually selling the company and returning my money with a multiple

Questions & Comments? Rebuttals? John O. Huston: (614)