Your ASK & Raising Money from your Angel Investor
How much Capital? Intros? What’s the end goal for the meeting?
Stage / Size/ Round:
Investment Terms: Ex: Pre-Money Valuation Expectations / Range
Current Investors in Round: Founders, Friends, Angels
Monthly Burn Rate? / How long will new $ last (runway)?
Prior Investment Rounds: Size? Investors?
How can an angel value a your company if it has no revenue or customers?
From what I’ve heard, angel rounds are sometimes notes that convert into preferred shares when a VC comes along with a “professional” valuation. This can work because the angel gets to convert into preferred at typically a higher valuation at a time not too far into the future. Yet, most angels want to do a high level valuation calculation so that they can get a estimation of expected return.
The Dave Berkus method is useful and easy to use. There are also other ways to determine pre-money valuation of pre-revenue companies like the Scorecard Method and the Venture Capital Method.
Dave Berkus for 36 years ran two companies, then in 1993, he heard the angels call. After 86 investments with a total of 144 rounds, 39 exits and 17 profitable. His IRR is 97 %. Ninety per cent of profits come from four exits.
He says entrepreneurs should have passion and be able to follow advice. He prefers software and entrepreneurs that are coachable, and not create risk for investors.
Core philosophy – deals that create opportunity with relationships. Be flexible, and coachable .
Dave Berkus poses the question to angel investors? ‘”Luck or brains that make a good angel investor?” Increase your brain power.
Is it the jockey or the horse? The management – the jockey, or the horse – the company.
What do Angels look for typically?
Usually don’s invest in lifestyle.
Some companies get left behind cause they can’t grow fast enough.
Angels & VC markets:
Angels invest earlier stage, less money and in more companies, whereas
VC’s invest more money in less companies.
Angel investors want control and early exits.
VC’s often want to change management, angels more able to coach the entrepreneur.
Angels are satisfied with a 10 X return on investment. Angels typically invest in early stage, approximately $250,000.
Successful angel strategies ( for the Angel Investor)
Plan two rounds to control profitability
Learn to syndicate angel groups
Look for investments for exits goal of 3 to 5 years ( usually 7 years )
Ideal portfolio 5- 10 % in angel investments (1 out of every 10 is when you make money)
Spread them out (on board to add value) or passive investment
Take your time investing – restrict 2 to 3 first year
Value the investment – how much is the company worth? Depends upon ….
How big can the company get?
Way too many ways to evaluate a company.
The Berkus method – evaluate companies before revenue.
Four risk values:
- Where has the management and company been? Prototype take away some of the risk
- Confidence in the Management team to break even?
- Jockey – Marketing risk cut through all the news to get through to the marketplace?
Make a small evaluation predicting the beginning of the maximize of your investment.
Can this business be sold at 10 X?
Can it achieve break even? If not, dilution? Can your entrepreneurs or founders leave when the company when it exits and be happy?
Too much dilution?
Evaluate deals for success & annual returns
Dave Berkus shares his successful Angel investing story and how he bet on the jockey – greendot invented the debit card. The largest card processor in the world = when he made the idea – he had a friend that would put together mastercard and Berkus invested.
Ten years later, 110 X (3.5 % of all shares traded).
Entrepreneur is now a billionaire.
“If the jockey is good back the jockey.”
INVESTOR. Dave Berkus. “Rock star” “Right on the money”
The numbers below are maximums that can be “earned” to form a valuation, allowing for a pre-revenue valuation of up to $2 million (or a post rollout value of up to $2.5 million). Usually, start-up valuations are kept low to allow for the risk taken by the investor and for the investment to achieve a 10 x increase in value over its life.
THE BERKUS METHOD TO VALUATE YOUR STARTUP
If Exists: Add to Company Value up to: Sound Idea (basic value) $1/2 million Prototype (reducing technology risk) $1/2 million Quality Management Team (reducing execution risk) $1/2 million Strategic relationships(reducing market risk) $1/2 million Product Rollout or Sales(reducing production risk) $1/2 million