...Financing Excerpts from Angel Investor Study Venture Support Systems Project: Angel Investors MIT Entrepreneurship Center Release 1.1 February 2000 The Venture Support Systems (VSS) Project is managed by a team at MIT and HBS. It was funded by a generous donation from Ronald A. Kurtz (MIT 1954) and David Kurtz (HBS 1992). Other reports from the VSS Project include cases, teaching notes and monographs. This report was prepared by Lucinda Linde (Marlin Capital) and Alok Prasad (Pittiglio, Rabin, Todd & McGrath) under the direction of Kenneth P. Morse and Matthew Utterback of the MIT Sloan School and Howard Stevenson and Michael Roberts, of the Harvard Business School. �2000 MIT Entrepreneurship Center Executive Summary Angel investors are an important and growing source of financing for the start-up and initial growth phases of technology ventures. This study focused on high net worth angel investors with entrepreneurial backgrounds. Many of these angels invest in first time entrepreneurs before the entrepreneurs secure venture capital financing. Besides earning a strong return on their investment, these experienced angels are motivated to “give back” to the community which helped make them successful. Very little published data is available on angel investing and little research has been done on the experienced angel investor. It may be valuable for first time entrepreneurs, venture capitalists, regulators and other members of the venture community to understand...
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...NAME: SIMENI ENEYI GABRIEL DEPT: ECONOMICS TOPIC: DIFFERENCE BETWEEN VENTURE CAPITALISTS AND ANGEL INVESTORS EMAIL: gabrielsimeni@gmail.com DIFFERENCE BETWEEN VENTURE CAPITALISTS AND ANGEL INVESTORS Both are affluent individuals who provide capital for a business start-up, usually in exchange for convertible debt or ownership equity. However, they differ from Friends and Family who will typically invest very early when all one has is an idea. The prevailing challenge is people would rather invest in the company rather than the individual. In this regard, it is okay to say that Angel Investors look for same things as Venture Capitalists, but their differences play a hard role in shaping the financial strategies and the future of the business. Venture Capitalists are one way to raise serious amount of capital but as you may imagine there are pitfalls. The final vote on ‘the right of sale’ will also most probably be a mandatory right for them. Since Venture Capitalists main motivation is “Return on Investment as Soon as Possible” they always have an almost manic desire to take over every entrepreneur as quickly as possible and they care less where that return comes from as long as they are able to receive a massive bonus for the risk and skill that they have invested. More appealing to an entrepreneur starting-up is to seek out a business angel investor that is interested in the line of work you are involved in, as they will either take an equity...
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...Angel and Venture Capitalists Mildene Faulkner Angel vs Venture Angel investors and venture capitalists operate in the same market, but they both provide a different type of service. The two depend on each other to make business work. These types of investors would be looking to make money fast by investing in someone else’s idea. Entrepreneurs need the financial backings to start up their business and constant set of investor to keep it going thru the start phrase. With Angel investors and venture capitalists, startup businesses had a sure change on thriving in a tough economy. The person who comes up with the idea to start a business would usually need a sales pitch. They would tend pitch the idea to a group of business people who had money. Angel investors would be in charge of the funding the initial startup of the business. Angel investor usually invests their own to startup a new business. Angel investments are high risk and usually are subject to dilution from future investment. Angel investors also require a very high return on their investment. Angel investors are usually often retired entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return. In order to really keep the business going, angel investors seek venture capitalists to provide more financial backing. Venture capitalists are a group of business that provides funds to early stage, high potential, high risk growing startup companies. The venture...
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...similar challenge in the infant stage of their new venture: raising capital. While successful companies in their adolescent years can display steady cash flows and solid customer bases to potential investors, companies in their initial stages often cannot. This poses the challenge of obtaining capital sources from entities that may or may not have many reasons to believe in a new company’s ability to perform. However, despite the extensive challenges, there are multiple potential sources of capital that entrepreneurs can strive to obtain. Whether relying on smaller players like friends and family or crowd funding, or reaching out to larger, institutional investors such as angel investor networks or venture capital firms, business owners do have options when it comes to finding the capital they need to get their business off the ground. However, some routes make more sense than others depending on the specific company’s situation and objectives. Typically, a new business begins with something very simple: an idea. Sometime the individual spends years developing and tweaking the idea, and other times it simply comes to them in an instant. However it comes, once it does the entrepreneur needs to begin turning that idea into a more tangible concept. This almost always requires capital, whether for manufacturing a product, developing software, or hiring outside consultants to help develop the idea. There are many ways to acquire this capital. According to TechAloo, 63% of start-up phase...
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...An accepted fact among investors is that the higher the returns on an investment, the higher the risks are. Safe investments carry low risk, but the returns are also lower. Different levels of risk apply to common and preferred stock, as well as to corporate bonds. Corporate bonds generally have the lowest level of risk of the three investment types, but also offer lower returns, in spite of regular dividend payments. Common stocks have the highest risk of the investments and the highest potential returns. Common Stocks When you purchase stock in a company during a public offering, you become a shareholder in the company. Some companies pay dividends to shareholders based on the number of shares held, and this is one form of return on investment. Another is the profit realized by trading on the stock exchange, provided you sell the shares at a higher price than you paid for them. The risks of owning common stock include the possible loss of any projected profit, as well as the money paid for the shares, if the share price drops below the original price. Preferred Stocks This type of stock is rated by the agencies in the same way as corporate bonds are, which is based on the company’s performance, and gives buyers a degree of reassurance. The stock is purchased either online or through a broker, and offers a variety of different share options compared with common stocks, which are relatively straightforward. Most preferred stocks pay shareholders a fixed dividend based on profits...
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...criteria of the investor or bank. There are different types of financing that will enable an entrepreneur to raise capital for their new business: 1)Personal funding Using personal finances is one of the first sources that an entrepreneur may consider using when they decide to raise capital for their new business. Money can be obtained from personal checking and savings accounts, credit cards, and retirement accounts. In addition, equity can be collected from the sale of real estate properties, vehicles, recreational equipment, and even rare collectables. The advantage of this type of financing is that you do not have to borrow from the bank, but if you are a beginner Entrepreneur you will hardly have enough of own funds to open a big business. 2) Equity financing. This is a type of financing is essentially an exchange of money for a piece of ownership in a new business. This type of financing can usually be provided by venture capitalists and angel investors. An advantage of using equity financing as a way to raise capital is that the new business owner can pay back the loaned amount throughout a fixed duration of time. In addition, the new business owner can focus on making their product profitable rather than worrying about paying back the investors immediately. One possible disadvantage of utilizing equity financing to raise capital is that the new business owner may lose partial or complete autonomy over their new business. 3) Angel investors and venture capitalists ...
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...PRIMER ON VENTURE CAPITAL IN MAINE . Charles J. Spies III Chief Executive Officer Timothy P. Agnew Principal Author The Finance Authority of Maine and Masthead Venture Partners would like to acknowledge and thank Governor John E. Baldacci, former Governor Angus S. King, Jr. and the Maine Legislature, who have consistently supported the efforts of Maine entrepreneurs, and the programs and services of the Finance Authority of Maine. Through their determination and support, Maine has developed perhaps the best array of programs and services for financing fledgling technology-based businesses of any state in the nation Copyright 2003 Finance Authority of Maine. All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means without the prior written permission of the Finance Authority of Maine. Finance Authority of Maine, 5 Community Drive, P.O. Box 949, Augusta, ME 04332-0949 Tel: (207) 623-3263 or (800) 228-3734 TYY: (207) 626-2717 E-mail:info@famemaine.com Web Site: www.famemaine.com April 2003 2 TABLE OF CONTENTS PAGE CHAPTER 1: CHAPTER 2: CHAPTER 3: CHAPTER 4: CHAPTER 5: CHAPTER 6: CHAPTER 7: APPENDIX A: APPENDIX B: INTRODUCTION .................................................................................. 1 WHAT VENTURE CAPITAL IS (AND IS NOT)...................................... 3 HOW VENTURE CAPITAL INVESTORS WORK ................................... 6 HOW TO APPROACH VENTURE INVESTORS .......
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...Entrepreneurial Finance MN50577 Case Study: Angels in British Columbia Presented to Dr. Christos Kolympiris By Kreangkai Suktavorn ID: 159180705 Words : 998 Semester 2/2015-2016 Angels in British Columbia The primary objective of this report is to provide a recommendation for change in existing British Columbia tax programs. The principle of these proposals is to increase qualifying angel and venture capitalist investment to encourage economic growth and development, as well as preventing market failure in BC. In this report, an analysis of the VC programs will be demonstrated, and it will select “Simplify” option as a recommendation for change. BC's economy heavily bases on the creation of new small business and expansion of existing ventures. These SMEs represented 98% of all business in the province. To enhance and diversify BC’s economy, the Investment Capital Branch administrated Equity tax credit program. There were four major equity tax programs, which are (1) Employee Venture Capital Corporations (EVCCs), (2) Retail Venture Capital Corporations (Retail VCCs), (3) Angel VCCs, (4) EBC program (see Table 1). Table 1: Overview of BC Tax Credit Programs We conclude that Venture Capital programs are fundamentally beneficial to both federal and provincial governments. This conclusion bases on two reasons: (1) firms in VC programs generate more taxes than they utilize equity tax credit, and (2) firms continually create new jobs. However...
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...Angel investments bear extremely high risk and are usually subject to dilution from future investment rounds. As such, they require a very high return on investment.[9] Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least 10 or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. Current 'best practices' suggest that angels might do better setting their sights even higher, looking for companies that will have at least the potential to provide a 20x-30x return over a five- to seven-year holding period.[10] After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, however, the actual effective internal rate of return for a typical successful portfolio of angel investments is, in reality, typically as 'low' as 20-30%.[11] While the investor's need for high rates of return on any given investment can thus make angel financing an expensive source of funds, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures, which may be too small or young to qualify for traditional loans. Profile of investor community The term "angel" originally comes from Broadway where it was used to describe wealthy individuals who provided money for theatrical...
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...at different stages of a company and its life cycles. Discuss the main differences between an angel investor and a venture capital (VC) investor. Angel investors are individuals of high-net value who seek to help entrepreneurs accomplish their goals. They represent a good option when family and friends are not available and when other methods of racing capital are not desirable or feasible. Angle investors are high-net-worth people, may have a social agenda, and require an ROI of 20-35%. I also liked the breakdown of Angels Investors on pg. 194, of our text. Table 8-3 Typical Profile of Angels Investors Average number of members in an angel group---------------------------------------10-25 Average group investment per year-------------------------------------------------------$2million to $55million Average group investment in a start-up---------------------------------------------------$350,000 Percentage of companies funded, out of all that presented----------------------------33% Estimated total invested per year by angels---------------------------------------------$54 billion Venture Capital (VC) – “This is a broad subcategory of private equity, typically in less mature companies, for the launch, early development, or expansion of a business. Venture capital is often subdivided by the stage of development of the company, ranging from early-stage capital used for the launch of start-up n companies to...
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...Walnut Venture Associates: Case Questions (HAND-IN) (1)Angel investors are affluent individuals who provide capital(money) for a business start-up. Angel investors usually receive convertible debt or ownership equity in return for their investment. Angel investors are different from venture capitalists since angels typically invest their own funds meanwhile venture capitalists manage pooled money of others in a professionally-managed fund. There are 2 forces exacerbating the trend towards the prominence of angel investing which include the fact that a generation of entreprenuers had “cashed out” and were looking to utilize their wealth and expertise by investing in start-ups, and that venture capitalists usually deployed capital in larger amounts that $1 million or below. An entrepreneur would seek financing from an Angel because Angels not only have the money to help finance the company, but they also have knowledge and experience that is very helpful to start-ups. The experience and track record of Angels (who usually have started their own company, served as a CEO, etc) is an asset that can’t be matched by a venture capitalist. Part of the reason of this again is because the Angel investor is investing his or her own money, something that will truly incentivize the Angel do to everything in his or her power to make the company succeed. 1) What is your first impression about the RBS opportunity based on the business plan? My first impression about the RBS opportunity...
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...Contents 1 Venture Capital 4 2 Mechanics of raising equity capital 5 2.1 Equity financing for private companies – Sources for funding 5 2.1.1 Angel Investors 5 2.1.2 Venture Capital Firms 6 2.1.3 Institutional Investors 6 2.1.4 Corporate Investors 6 2.2 Outside Investors 6 2.3 Exiting an Investment in a Private Company 7 3 The process of start-up funding 8 3.1 Idea and co-founder stage 8 3.2 Family and friends stage 8 3.3 Seed or angel round 8 3.4 Venture Capital Round 8 4 The Initial Public Offering 10 4.1 Advantages and Disadvantages of Going Public 10 5 Key Elements for successful Entrepreneurship 11 6 The importance of Silicon Valley in the U.S. venture capital system 13 6.1 Venture Capital Investment in the U.S. 13 6.1.1 Venture Capital Investment since 2006 13 6.1.2 Investment by industry 13 6.1.3 Investment by regions 15 6.2 Evolution of Silicon Valley 15 6.3 Silicon Valley – an advanced high tech entrepreneurial habitat 16 6.4 The Power of Clustering 16 6.5 Features of an advanced high tech entrepreneurial habitat 16 6.6 The high-tech habitat: Value-added support 17 6.7 Impact of Stanford University on Silicon Valley 18 7 Entrepreneurship and Funding - Differences between Europe and U.S. 19 7.1 Venture Capital Investment in Austria and Europe 19 7.2 Development of Private Equity in Austria 20 7.3 Development of Private Equity in Europe 20 7.4 Venture Capital Investors in Europe...
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...Difference between angel investor and venture capitalists Financing Options for Entrepreneurial Ventures: 1. Internal Funding a. Founder, Family and Friends (3Fs) b. Bootstrapping : internally generated retained earnings, credit cards, home mortgages, and customer advances c. Business Alliance: forming “cooperative agreements” with another firm to generate revenues and reduce costs 2. External Funding a. Angels: are successful business people who invest their own money. There are over 250 angels groups * Involved in the early stage of entrepreneurial ventures * Invest in technologies or in business in the areas that are known to them * Capital requirement of $50,000 to $250,000 * Sales potential of between $2 million and $20 million within 5 to 10 years * Invest alone or in angel organizations b. Venture Capitalists: are financial intermediaries, they take investors’ capital (not their own) and invest it directly into portfolio companies They utilized to fund the internal growth of companies and their primary goal is to maximize its financial return by exiting investments through sale or IPO. * Funding later stages firms * New emerging and middle-market private companies that will go public or merge within 4 to 7 years * Have $5 million to $200 million in sales with a billion-dollar potential, growing 25% per year, with gross margin 40% to 50% or more ...
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...efforts to raise outside capital. What would you have done differently? 4. Which offer, if any, should Gordon Biersch accept? Why? How should they proceed? 5. Assume for discussion purposes that Lorenzo Fertitta's proposal is the preferred option. What are the key issues for Gordon and Biersch to negotiate? What positions should they take on each one? Table Of Content: Case Summary Critical Issues Critical Analytic Tools Recommendation Answers to Case Questions Bibliography Case Summary The masterminds behind Gordon Biersch were two individuals, Dan Gordon; a qualified brewing engineer from the esteemed University of Munich, Germany, and Dean Biersch; who had a passion for food service and a vast experience in the food and beverage sector. Their unique idea of a microbrewery and fine dining restaurant stemmed from a law amendment of California in 1983 which allowed brewing and serving of beer in the same locale. They envisioned the concept of providing high quality fine dining with outstanding service in an attractive ambiance featuring exceptional German-style lagers in on-site breweries. Their target market was the fairly sophisticated, yet not so young natives of Palo Alto as well as the Stanford University faculty, staff and graduate student body. Their unique idea came to realization in July 1988 after rigorously detailed planning pertaining to atmosphere, food selection and German-style brewery. The capital was raised by the contribution...
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...deficiencies affecting its development, but has some opportunities to develop to make up for the weaknesses. And the school shop in performance of the advantages and disadvantages, should pay attention to the issue of risk. Based on analysis, and the strength of the school shop, the report recommends: the relationship with the school shop and 4ps, and focus on the need of consumers. Following these recommendations, the school shop can be respected in school as well as more spare for development. To illustrate the store opened should be paid attention to in the school, the combination of 4Ps and market mix analysis. Such as how to choose the investment business, how to organize a good team, how to generate good ideas, if avoid venture. 3 Introduction The school store just build still belongs to small business, to expand the development space of it, need to think outside seek economic support. If the school shop which wants to expand...
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