A Snapshot Of Status and Trends Among

Formal American Angel GroupsOctober 8, 2007

Dr. Ian Patrick Sobieski

Managing Director, Band of Angels

Vice Chairman, Angel Capital Association

 

Band of Angels• Formed 1994, pioneer angel group, 130 Members today• High Tech Background Only, ex-CEOs or founders of : Symantec,

Logitech, National Semiconductor, Intel, Sun, Apple, etc. – 60+ Media articles focused on Band; 3 Harvard Business School cases

• Meet monthly at Los Altos Country Club, Silicon Valley• Track Record

– Invested $160M in 220 Startups; • 9 IPOs, all listed on Nasdaq

– Digital Think 40:1– Keynote Systems 20:1

• 40 Positive M&A Exits– Sandpiper Networks 30:1

• 53% IRR since inception!– Average Deal Size: ~$500k– 4,000 jobs created– Ranked by PWC in top 10 of top 100 VCs in USA for 20022007

• Pioneered Side Fund Model: $50M side fund with institutional investors including 2 major University endowments, TVM, and Siemens.

 

130 pairs of eyes

Reviewed by Pre-Screening Committee(~35 members)

Reviewed by Screening Committee

(~6 members)

Dinner Meeting(~40 members)

Follow up LuncheonAnd ad hoc diligence

(>5 members)

Individual InvestmentDecision but

Coalition Negotiation;Board Assignment

Fund InvestmentDecision

~50 deals/month

10 deals/month

3 deals/month

~1 deal/month

Angel Groups Perform Sourcing and Screening in a New Way

 

Growth in North American Angel Organizations

0

50

100

150

200

250

300

1999 2000 2001 2002 2003 2004 2005 2006Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-06 data)

 

Summary of ACA Membership – August, 2007Full Members 124Provisional Members 11Investors in Operating Groups 6,000

States & Provinces 43Affiliate Organizations 17International Partners 2

 

0

5

10

15

20

25

30

35

40

2 to 10 11 to 25 26 to 50 51 to 75 76 to 100 101+

Investors Per Group

Source: ACA Conf survey and membership applications - 116 groups reporting (2006-2007)

Average = 44 Median = 38

Percent of Groups

 

Some of the Largest American Angel GroupsOrganization Accredited

InvestorsTechCoast Angels (Southern California) 280North Dallas Investment Group (Dallas) 250Alberta Deal Generator (Calgary/Edmonton) 194Investors’ Circle (national) 185Ohio TechAngels (Columbus) 150Band of Angels (Silicon Valley) 130ZINO Society (Seattle) 125Pasadena Angels (Pasadena) 114Alliance of Angels (Seattle) 100North Coast Angel Fund (Cleveland) 99

Affiliates

Full Members

Provisional Members

Members and Affiliates – August, 2007

 

Average MedianNumber of investments 7.4 5Total monies invested $1.78 mil $1.06 milDollars invested per round $241,528Dollars invested per angel $31,457Number of new companies 4

Source: 2007 ACA Angel Group Confidence Survey

2006 Group Investment Data

• 72% co-invested with venture capital firms• 29% had distributions to investors• Investment up 23% from 2005

 

Average Size Investment Per Round

Percent of Groups

Source: 2007 ACA Angel Group Confidence Survey

0 5 10 15 20 25 30 35 40 45

> $750,000

$500,000 to $750,000

$250,000 to $500,000

$150,000 to $250,000

< $150,0000

 

Investment Preference

0 10 20 30 40 50 60 70 80

Telecommunications

Software

Semiconductors

Retail/ Distribution

Other

Networking & Equipment

Medical Devices & Equipment

Media & Entertainment

IT Services

Industrial/ Energy

Healthcare Services

Financial Services

Electronics/ Instrumentation

Consumer Products/ Services

Computers & Peripherals

Business Products/ Services

Biotechnology

Source: ACA Conf Survey and Membership applications - 86 groups reporting (2006-2007)

Percent of Groups

 

Revenue Sources for Group Operation

0

10

20

30

40

50

60

70

80

Ec Dev Events Ents In-Kind AngelDues

Sponsors Other

Source: ACA Conf survey and membership applications – 105 groups reporting (2006-2007)

Percent of Groups

Ec dev – Group receives money from state or local governmentIn-Kind – Group receives support from “parent” entityOther – Half supported by management fees for funds

 

Annual Member Fees Average = $1,135 Median = $1,000

Source: ACA Conf survey and membership applications – 116 groups reporting (2007)

0

5

10

15

20

25

30

35

$0 $100-499 $500-999 $1000-1999 $2000-2999 $3000+

 

2007 Prediction:

How Many New Companies Will You Invest In?

Source: 2007 ACA Angel Group Confidence Survey

0

10

20

30

40

50

60

None 1 to 2 3 to 5 6 to 9 10 or more

Percent of Groups

Companies

 

New Trend: Raise a Side Fund

0 10 20 30 40 50

Grow # of investors

Raise sidecar

Raise new fund

Change structure

Industry prefs

No change

Source: 2007 ACA Angel Group Confidence Survey

Percent of Groups

 

Why? Sustainibility…• External Threats

– Competition from Small VCs, individual angels, and other angel groups• Internal Threats

– Members become inactive, members quit– Leader becomes tired– Incentives are misaligned– No Liquidity to Members

• Answer to all these is to provide better services– Web site, reputation, deal screening– Better terms through pooled negotiation– Collective due diligence– Member Education– Professional manager help– Networking & social events– Formalize relationship with VCs– Institutional Support (memory, data)

• This is a lot of work! How to pay for it?

 

Potential Sources of Cash

• Percentage of transactions• Charge Companies to submit and/or present• Membership Dues• Sponsorship• Management Fees on Fund

 

Potential Sources of Cash Continued…

• Percentage of transactions (3->5%)–Pros: $5M investment = $250,000–Cons: probably illegal

• Charge Companies to submit and/or present– Filing fees ($50$250), Presentation Fees ($100$3000)– Pro: 36 deals/year = $108,000/year– Cons: Selection Bias

• Membership Dues TAM: $150,000• Sponsorship TAM: $150,000• Total TAM of all these approaches: $658,000

 

Potential Sources of Cash Continued…• Management Fee on $20M Fund: $500,000

–Provides 10 year sustainable cash flow–Use of fees can provide useful services to members–Carried interest extra source of value–Aligns Manager and Member interests–Band of Angels great case study

•Manager led Side Fund

–Manger raises funds from others invests alongside angels, and subsidizes group

•Manager led Pooled Fund Network–Members contribute to fund and deploy capital by majority vote

 

May 2007Source: Membership Applications, 2006-2007

Angel Networks

Networks w/Sidecar Funds

Angel Funds

ACA Membership: Networks and Funds

99

12

17

 

Personal Predictions• A “standard” business model will develop for angel groups• Some mix of fee, fund, and sponsor• Rise of a class of managers• Some kind of economic sharing across entire group• Hybrid angel groups that have many properties of angel

groups as we know them but the stability, longevity, and upside economics of VC Funds

• When a model has been developed and is common and “standard”; when there is third party data to report IRR performance of groups; Angel Investing will be an Industry

• But then the last question: Will this still be fun? Do angels want to let this happen?

 

Potential Angels in the United States

4,200,000

3 study Estimates of

InformalInvestors

Investors in angel groups

Center for Venture Research -

Active Angels (est.)

U.S. Millionaires

1,000,000

225,000

10,000

 

Angel Capital Association• Annual Summit – professional development

– May 7-9, 2008 in San Diego, CA• Regional Meetings (co-investment, networking)• 2007 Angel Group Confidence Report (semi-annual)• SEC accreditation proposal feedback• Weekly PR, speaking engagements• Discounts on Power of Angel Investing programs• Branding, membership directory, recruit recommendations• Members’ Only Web site• www.angelcapitalassociation.org

 

Need More Information?

Ian Patrick Sobieski, Ph.D.Managing Director, Band of AngelsVice Chairman, Angel Capital Association535 Middlefield Rd., Suite 190Menlo Park, CA 94025650.321.2221

ian@bandangels.comwww.bandangels.com