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This session was presented by Mark Graffagnini, Managing Member of Graffagnini & Associates. Find out more at http://graffagninilaw.com.
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Louisiana Venture & Angel Capital: What the Numbers Say about Capital Raising
Mark Graffagnini NOEW 2014 New Orleans, LA 70130 [email protected] @GraffagniniLaw Graffagninilaw.com
Background & Overview
Corporate and Securities law practice. Founded G+A in 2010 after practicing in Silicon Valley.
• G+A represents companies raising capital and investment funds and high net worth individuals investing in companies.
Louisiana Venture and Angel Capital Report is an attempt to quantify key metrics related to capital raising in Louisiana.
• It is the most comprehensive study to date of capital raising in Louisiana. • It is now considered by many to be the “bedrock” gauge for venture and
angel investment, policy effectiveness and gaps between investors and companies seeking capital
• Louisiana has lacked a source of data on capital investment and availability.
Download now at graffagninilaw.com
Overview of Metrics Covered
Deal Size: How much $
were companies
trying to raise?
Closings: How much $ was reported
raised?
Hubs: Geographic
distribution of financings
Deal Terms: Types of
companies, trends, etc.
Deal Flow: How many companies
were seeking capital
Public Policy Effectiveness
LA Venture and Angel Capital Market Health
Why is this so important?
1. Louisiana needs a framework to gauge progress. • “What gets measured gets managed”—Peter Drucker
2. Other reports tend to underreport total deals. • Outside investors and companies are evaluating LA market for early stage capital. • Now is the crucial time for the LA early stage eco-system
3. Crucial to development of efficient capital raising market. • Companies and investors cannot effectively match investment opportunities to capital without it • Companies and investors are seeking out earlier stage deals • Correct past advice that is not consistent with today’s economic realities
4. Key to measuring policy effectiveness • Early stage companies need start up capital, not just tax credits
5. Determine whether grassroots/market efforts are responding • NO/LA Angel Network • Louisiana Seed Capital Program • StepOne • Legislative Changes
Data Sources
Louisiana Venture & Angel Capital Market
Documents used in Deals
Form D Filings with
SEC
Angel Investor
Tax Credit info
Angel Investor Tax Credit Data Number of Angel Investment “Deals”
26
40
44
13
20 22
0
5
10
15
20
25
30
35
40
45
50
2011 2012 2013
Angel Investor Tax Credit: Reservations and Awards
Total Angel Credit Reservations Total Awarded Reservations
Angel Investor Tax Credit Data How much money companies sought versus what they got?
$24,874,650
$50,530,300
$23,935,499
$10,611,000 $11,069,693 $8,679,063
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
2011 2012 2013
Angel Investor Tax Credit: Total Offering and Closings Reported
Total Offerings Reported to LED Total Closings Reported to LED
Angel Investor Tax Credit Data How much capital were companies seeking (average & median)
$956,717
$1,263,258
$543,989
$690,000
$1,000,000
$400,000
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
2011 2012 2013
Angel Investor Tax Credit: Average and Median Offering Size
Average Size of Offering Reported to LED Median Size of Offering Reported to LED
Angel Investor Tax Credit Data How much money did companies raise per deal per year (average, median)?
$816,231
$553,485
$394,503
$500,000
$204,834 $203,750
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
2011 2012 2013
Angel Investor Tax Credit: Average and Median Closing Size
Average Size of Closing Reported to LED Median Size of Closings Reported to LED
Angel Investment Tax Credit Transactions Geographic Distribution 1: Angel Investments by Parish
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
2011 2012 2013
Louisiana Angel Tax Credit: Size of Angel Investments by Parish
Orleans East Baton Rouge Caddo Rapides West Baton Rouge Lafayette Jefferson Ouachita St. Tammany Tangipahoa
Angel Investor Tax Credit Data Geographic Distribution 2: Total Amounts 2011-2013
$- $- $- $- $100,000 $150,000 $792,500
$3,863,000
$7,576,000
$17,878,256
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
Tangipahoa St. Tammany
Ouachita Jefferson Lafayette West Baton Rouge
Rapides Caddo East Baton Rouge
Orleans
Total Louisiana Parish Angel Investments
Angel Investor Tax Credit Data Geographic Distribution 3: Total amounts by Year (2010-2013)
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
Lafayette West Baton Rouge Rapides Caddo East Baton Rouge Orleans 2013 $- $- $207,500 $1,858,000 $1,875,000 $4,738,563 2012 $100,000 $- $- $2,005,000 $225,000 $8,739,693 2011 $- $150,000 $585,000 $- $5,476,000 $4,400,000
Louisiana Parish $ of Angel Credit Investments
Angel Investor Tax Credit Data Potential Lessons
50% of Companies applying for angel tax credits do not qualify/receive tax credits • 60-day closing window to submit proof of investment • Rush at beginning of year, which tapers off • Fundraising strategy may be questionable or VC investors don’t qualify
There may be some financing gap between what companies are seeking and what is available • Failure to properly structure financing activity • “Rolling Rounds” versus hard closing at one time • Education is important!!!
Average and median tax credit per investor declined in 2013, as did Deal Size • Indicates higher # of net worth individuals, fewer institutional investor • Perhaps credit is now better being used for intended companies. **Not necessarily negative indicator • May mean more investment opportunities are competing
Institutional Investors may be needed in later stages • Large rounds and sizes in 2011 and 2012 led by a few major institutional investors • Legislature considering amending tax credit for investment into funds • Louisiana Seed Capital Program • NO/LA Angel Network, Inc. • StepOne
Despite some limitations, Outlook and Capital Raising Appear to be Healthy!!
Venture Capital Data Data sources: SEC Form D Filings
Overlap between Companies that apply for AITC and that make SEC filings
• First task is to corroborate and compare the data • Line between “angel investment” and “venture capital investment” cannot be drawn brightly
Form D is a filing that gives a company a safe harbor under the securities laws that eliminates the requirement that a company file a “registration statement” (like an IPO filing)
• It is rare not to make such a filing in a deal of any substantial size or that has professional or semi-pro investors
• Rarer still for any company that plans to grow rapidly and take multiple rounds of investment • Exception to the Rule: “mom and pop” businesses or completely local business
Companies likely raised more than what is reported in the “closing” reports. This is because they file within 15 days of the first “offer or sale”.
• “Indefinite Amount” raise issue • Rolling rounds investments beyond 15 days
SEC Data Number of Deals, Statewide
0
5
10
15
20
25
30
2011 2012 2013
Num
ber o
f Dea
ls
Total Number of Deals Reported to SEC versus NVCA
G+A Report
NVCA
SEC Data Number of Companies Raising Money: Some companies did more than one “tranche”
17 18
26
14
16
26
0
5
10
15
20
25
30
2011 2012 2013
SEC Total Applications & Companies by Year
Total Applications
Unique Companies
SEC Data Total Offering vs. Closing Sizes, Statewide, By Year
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
2011 2012 2013
Total SEC Offerings & Closings by Year
Total Offerings
Total Closings
SEC Data Total Closing Investments by Parish by Year
Orleans St.
Tammany
East Baton Rouge
Ouachita
Lafayette
Jefferson Caddo Lincoln Concor
dia St.
James Rapide
s Tangipa
hoa Livingst
on St.
Landry
2011 $16,66 $6,308 $1,500 $950,0 $972,0 $175,0 $250,0 2012 $11,04 $5,705 $500,0 $1,000 $1,515 $1,130 2013 $6,981 $15,74 $370,0 $6,500 $3,500 $1,310 $1,019 $247,5 $- $-
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Total SEC Reported Closings, by Parish by Year
SEC Data State of Incorporation/Jurisdiction NOTE: These companies were still principally doing business here. This does not mean that they were “out of state” companies in the common sense of that phrase.
29 27
1 1 1 1 1
0
5
10
15
20
25
30
35
DELAWARE LOUISIANA ALABAMA CALIFORNIA COLORADO FLORIDA SOUTH CAROLINA
State of Incorporation (2011-2013)
SEC Data Entity Type—How much did each type of entity actually close at time of Form D Filing?
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2011 2012 2013
SEC Closings by Entity Type
Corporations
Limited Liability Company
Analysis Potential Observations from Data
LA companies are reporting raising considerably more money than is reported in other sources
• 2013 saw quite a few large size deals • Upward trend over 3 year period • As outside investors evaluate capital and new groups form, it will be important to broadcast our actual
accomplishments
Data on “true” deal size (and totals) is elusive with either metric
• Info is limited to publicly reported info • Companies not required to report final closings to SEC or LED
Trends may suggest renewed focus on attracting capital to state and/or incentivizing capital in-state
• Institutional investors need to emerge in LA or we need to attract investors out of state as companies mature
Financing Strategy and Structure Should be Carefully Considered
• DE Corporations are more commonly financed and raise more money than LLCs • “Rolling round,” “take it or leave PPM” strategies versus “term sheet” rounds with experienced investors
Policies should be evaluated against metrics
Questions/Comments & More Information
Contact: • [email protected] • @GraffagniniLaw • Graffagninilaw.com
Download copy of report to find additional information on the following: • Industry financing breakdown • Valuation terms • Average angel investor investments made • Full outlook
Support the NO/LA Entrepreneurial Network • Volunteer • Invest! • Spread the word
