1. Angel Investing 201 Stages of investing Why a Portfolio?
Doing Due Diligence to build the portfolio

2. Not all companies use all these stages.
Stages of Investing
Amounts raised
$ $x0, $x00, $xx,000, $xx0,000,000
Exits
Bootstrap
Friends and Family
Angels
Venture
Capital
IPO
Crowd Funding
Strategic
Investors
M&A
Kickstarter
Private
Equity
Grants
Time
Not all companies use all these stages.

3. What (ideally) happens when investing?
Assume you make equal sized investments in 10 companies
Then, maybe five companies will provide a return, and one of those will give you a big win. $ $

4. How Big a Portfolio?
Minimum of 10
20 is better

5. Decide how much to invest in total
What percent of your assets do
you want to put into this asset class, and over what period of time?
Reserve funds for follow-on rounds.

6. Improve Return Probability – Do Due Diligence X
Analysis

7. The Due Diligence Payoff

8. Approaches to Due Diligence
Go solo
Prepare to spend a week
Be part of a team
Our angels working together
Build upon diligence reports of others
Maybe this is a syndication deal and another team has put in many hours
Harder
Easier

9. Performing due diligence. What to understand, and how to do it.

10. The most important consideration!
Due Diligence Goals
Gain confidence in the management team.
The most important consideration!
Gain confidence that the company will have significant social impact
Gain confidence that the company will become profitable and provide a return to investors

11. Due Diligence Process
Process can be short cycled if a quality due diligence report is available from another investor
Identify deal lead & diligence team
Tram writes Deal Memo
Angels decide whether to Invest
Company application pitch deck &
Supplemental info form
Deal Memo is not an investment recommendation. Rather, it is a set of observations. Angels make individual investment decisions.
Download documents at
Team in conversation with company

12. Team Validation –Job #1 What to understand How
CEO’s emotional maturity
Transparent, open, trustworthy, humble, coachable, always learning
Good team collaboration and communication skills
CEO’s startup experience
Prior mistakes are good
CEO’s domain knowledge of the company’s market
Appropriate titles?
How does the C-level team work together?
10 additional phone calls
3 to direct references supplied by CEO
4 to secondary references shared by direct references
3 to former co-workers, board members, investors
LinkedIn is your friend
Recruit other angels to help
Have entire C-level team in the deep-dive meeting/call

13. Social Impact Validation
What to understand
How
Efficacy
Look for demonstrated evidence of the effectiveness of their solution in addressing a significant societal challenge
Theory of change
Scale
Look for the number of people impacted and the significance of the impact on each person
Company interview
If in doubt:
Talk to industry expert
Speak to one beneficiary

14. Social Impact Tips
Efficacy example: consider a new STEM education tool
Is there evidence that the tool results in better educational outcomes compared to existing tools?
And, can the company demonstrate they can successfully sell it? Without customers there can be no efficacy.
Disingenuous spin test:
Does the social-impact story that they tell us match the social-impact story on their home page?

15. Market Validation What to understand How
Can they demonstrate that they solve a problem for a payer who strongly feels that pain, and who has a budget to pay for a solution?
Are there enough of those payers to generate enough revenue (big market)?
Is there thorough validation of the market opportunity?
Early revenue from payers is strong validation
Phone calls with three to five payers
Understand their pain point and budget
Understand the sales channels they routinely use

16. Go-to-market validation
What to understand
How
How do they connect with potential customers?
What is the cost of acquiring one incremental customer?
What type of marketing and sales organization and partners do they need? And are they in place?
Is the sales process scalable?
Is the current process just talking to the CEO’s friends?
Interview company
If there is a significant sales partner, make a call
One-on-one call with VP of Sales/CMO

17. Product/Technology Validation
What to understand
How
How ready is the product for full release?
Modern and viable architecture that matches market need?
Is the technology scalable?
Are developers tightly coupled to market validation?
If hardware, is the supply chain in place?
Company interview
Recruit an angel with domain knowledge, to help, or find an outside expert

18. Competitive Advantage Validation
What to understand
How
How significant is their competitive advantage?
What keeps them successful five or ten years from now?
Critical mass of customers?
Sales channel lock?
Supply chain lock?
IP?
Company interview
Web search
Recruit an angel with domain knowledge, to help, or find an outside expert
Patent review

19. Financial Validation What to understand How
Reasonable bottom-up details driving the financial model?
Credible, customer-driven revenue plan?
Yes: “number of customers willing to pay how much to solve a problem”
No: “we will get 10% of big market”
Detailed review of their financial model
Recruit an angel with domain knowledge, to help, or find an outside expert

20. Investor Return Validation
What to understand
How
With this investment, can the company achieve a business result that significantly increases valuation
Is the pre-money valuation or cap reasonable?
What percent ownership will we achieve?
What future rounds of investments are anticipated?
Acquisition examples?
Attractive for syndication?
Company interview
Recruit an experienced angel to help

21. A Good Resource

22. Consider taking the Angel Investing 202 class

23. Angel 201 Feedback What was most helpful?
What was less interesting? What would you like to learn more about?