Angel Financing How to Find and Invest in Private Equity

by Benjamin, Gerald A.; Margulis, Joel B.

• ISBN13: 9780471350859
• ISBN10: 0471350850
• Edition: 1st
• Format: Hardcover
• Copyright: 1999-11-02
• Publisher: Wiley

Summary

Your guardian angel has arrived Capital is the single most important factor to getting your venture off the ground, but finding it can be a challenge, particularly if you're running out of funding options. Suppose your venture is too small for institutional players. What do you do once you've exhausted your personal financial resources? Where do you go after banks, the leasing companies, the venture capital firms, have turned you down? What you need is an "angel"--a private investor with high net worth. Angel Financing--the only book of its kind--provides you with a road map to this valuable, little known, source of capital financing

Author Biography

Gerald A. Benjamin (Sausalito, CA) is a Senior Managing Partner of International Capital Resources (ICR), an investment banking, corporate finance, and capital sourcing firm. He is also publisher of the California Investment Review.

Joel Margulis (Mill Valley, CA) is a freelance writer who has published books and articles on a range of business and finance topics.

Table of Contents

Preface	ix
Acknowledgments	xix
Introduction	xxi
PART 1 THE CHALLENGE AND THE SOLUTION	1	(56)
The Challenge	3	(10)
Introduction	3	(1)
The Challenge	3	(2)
The Direct, Private Investor	5	(2)
Structure of the Private Investor Market	7	(3)
Investor Activity in Early-Stage Deals	10	(1)
Angels, a Golden Capital Source	10	(1)
Investors Worth Accessing	11	(2)
The Private Placement Investment	13	(18)
The Private Placement Investment	13	(2)
Selecting the Right Capital Source	15	(1)
Is Your Deal Financeable?	15	(6)
Are You Financeable?	21	(3)
Is Your Risk Financeable?	24	(1)
The Benefits and Disadvantages of Equity	25	(3)
Making Your Search for Investors More Efficient	28	(1)
The Problems with Conventional Wisdom	29	(2)
A Strategy That Works	31	(26)
An ``Inefficient'' Market Defined	31	(1)
A Strategy That Works	32	(23)
Dreamers and Dream-Makers	55	(2)
PART 2 THE ANGEL INVESTOR	57	(82)
Alternative Sources of Capital	59	(22)
The Impact of Political and Economic Trends on the Accessibility of Capital	61	(8)
Alternative Sources of Capital and How They Affect Early-Stage Investment	69	(1)
Business Angels as the Best Sources of Capital, Especially for Early-Stage Investment	69	(1)
The Appropriateness of Your Venture for a Direct, Private Investment	69	(6)
Professional Venture Capital as a Funding Resource for Early-Stage Companies	75	(2)
Comparison of Angel Investors with Professional Venture Capitalists	77	(2)
Professional Venture Capital: Help or Hindrance to Your Funding Success?	79	(2)
What Do Private Investors Look for in a Deal?	81	(20)
The High-Net-Worth Investor Market	81	(2)
The Informal, High-Risk, Investor Profile	83	(2)
Advantages of Direct Venture Investing	85	(1)
The Private Investor's Criteria	86	(4)
Common Reasons Why Angels Reject an Investment	90	(1)
Variations in Preferred Level of Involvement after Investment	91	(1)
How Angel Investors Can Help---Beyond Capital	92	(1)
Private Investor Motivation	93	(3)
The Allocation Decision	96	(2)
Principles of Direct Venture Investing	98	(3)
Types of Private Investors	101	(32)
Introduction	101	(2)
The Value-Added Investor	103	(6)
The Deep-Pocket Investor	109	(11)
The Consortium of Individual Investors	120	(3)
The Partner Investor	123	(2)
The Family of Investors	125	(1)
The Barter Investor	126	(3)
The Socially Responsible Private Investor	129	(2)
The Unaccredited Private Investor	131	(2)
The Newest Breed of Angel: The Manager-Investor	133	(6)
The Manager-Investor	133	(6)
PART 3 RESOURCES: FINDING ANGEL INVESTORS	139	(36)
Alternative Funding Resources in Accessing Angel Capital	141	(22)
History of the Development of Alternative Funding Resources	141	(3)
Overview of Alternative Funding Resources	144	(8)
Performance of the Top 20 Formal Investor Networks	152	(1)
Directory of Alternative Funding Sources	153	(10)
Building Your Own Database of Angel Investors	163	(7)
Introduction	163	(1)
Hurdles	164	(3)
Data Entry	167	(1)
Backup	168	(1)
Cost	168	(2)
The Role of the Placement Agent in Raising Capital: A Marketing Partner for Your Deal	170	(5)
Introduction	170	(1)
The Placement Agent: A Marketing Partner	170	(5)
PART 4 THE INVESTOR PERSPECTIVE	175	(71)
The Venture Process	177	(12)
Introduction	177	(1)
Driving Forces Creating Direct Investment Opportunities	177	(1)
History of Early-Stage Investing	178	(1)
Overview of the Omnibus Budget Reconciliation Act of 1993 and Its Implications for Private Investing in High-Risk Deals	179	(1)
Disadvantages of High-Risk Investing	179	(1)
Risk Characteristics	180	(2)
Hedging Strategies---How Angels Manage Risk in Direct Investing	182	(1)
The Syndication Bias	183	(1)
How Investors Generate Deal Flow	184	(1)
Financial and Nonfinancial Return on Investment: Angels' Expectations	185	(1)
Elements in Structuring the Private Placement	186	(1)
Approaches Angels Use to Monitor Investments	187	(1)
Harvesting Returns: Realistic Exit Strategies	188	(1)
The Valuation Process in Private Transactions	189	(13)
Introduction	189	(1)
Sweat Equity	190	(1)
The ``Living Dead''	190	(2)
Risk	192	(2)
Negotiating Valuation	194	(1)
Valuation and Stage of Development	195	(2)
Truisms in the Valuation Process	197	(2)
Caveats---For Entrepreneur and Investor Alike	199	(3)
Due Diligence	202	(17)
Introduction	202	(3)
Due Diligence Questionnaire	205	(14)
On-Line Options: Entrepreneurs, Investors, and Web Sites	219	(10)
On-Line Links	220	(5)
Promises and Pitfalls	225	(4)
Answers to Common Business Angel Investor Questions	229	(17)
Conclusion	244	(2)
Appendix A Legal Primer on Securities Law Issues for Nonlawyers	246	(21)
1. Overview	249	(6)
2. Private Offerings---The First Step	255	(2)
3. Public Offerings	257	(3)
4. Disclosure Documents	260	(1)
5. Integration Rules: Timing	260	(1)
6. Restricted Securities and Trading	261	(2)
7. The Internet	263	(1)
8. Federal/State	264	(1)
9. The '40 Act	265	(1)
10. The Usual	266	(1)
11. Sales---``Agents'' (California)	266	(1)
Appendix B Preparing an Investor-Oriented Business Plan	267	(33)
Introduction to the Business Plan	267	(1)
What Does Your Business Plan Need to Contain?	267	(1)
Creating a Business Plan	268	(32)
I. Executive Summary	268	(1)
II. Mission or Charter	268	(1)
III. Description of the Business	269	(1)
IV. Ownership Structure and Equity	270	(1)
V. Description of Product/Service	271	(1)
VI. The Market	272	(3)
VII. Description of Industry and Trends	275	(1)
VIII. Marketing Strategy	276	(2)
IX. Marketing Plan	278	(2)
X. Sales Plan	280	(2)
XI. Operations, Research and Development Strategies, and Plans	282	(2)
XII. Management, Organization, Personnel, and Information Systems	284	(3)
XIII. Objectives and Milestones	287	(2)
XIV. Financial Projections	289	(3)
XV. Supporting Documents	292	(8)
Suggested Reading List	300	(3)
Index	303