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JOEL B. MARGULIS is a member of the English Department at San Francisco State University and has authored and coauthored a number of books on a variety of subjects. He received his BA in history and MA in English from the University of Missouri-Columbia.
Margulis is a freelance writer who has published books and articles on a range of business and finance topics.
Acknowledgments | p. xv |
Preface | p. xvii |
Introduction | p. 1 |
An Overview of the Angel Capital Market | p. 9 |
Defining Angel Capital and Pre-IPO Investments | p. 9 |
Trends Increasing Private Equity Investment | p. 10 |
How Angel Capital Has Provided an Infrastructure for Today's Economy | p. 13 |
Inefficiencies in the Market for Early-Stage Company Equity | p. 14 |
Government Attempts to Facilitate Pre-IPO Investments | p. 16 |
The Roles of Traditional Venture Capital and Angel Investors in the Early-Stage Capital Market | p. 19 |
The Pre-IPO Investment Opportunity Defined | p. 24 |
How Angel Investors Add Value Beyond Capital | p. 25 |
Introduction to the Pre-IPO Investment Process | p. 27 |
Key Factors in Successful Angel Investing | p. 29 |
Why Angel Investing Is Attractive | p. 29 |
Specifics on Private Equity Classes | p. 31 |
Demographics of Angel Investors | p. 32 |
Required Skills for Successful Angel Investing | p. 34 |
Developing Angel Investment Criteria | p. 38 |
Structuring an Angel Investment Plan | p. 41 |
Harmonizing Financial and Psychological Returns | p. 43 |
Commonsense Guidelines for Successful Asset Allocation Decisions | p. 49 |
Guiding Principles for Prospective Angel Investors | p. 52 |
Understanding and Managing Risk | p. 55 |
Disadvantages of Angel Investing | p. 57 |
Assessing Risk in a Potential Investment | p. 58 |
Differentiating between Indirect and Direct Venture Investment | p. 60 |
Assessing Your Own Risk Tolerance Level | p. 63 |
Managing Risk with Proven Hedging Strategies | p. 65 |
Types of Angel Investment Strategies | p. 69 |
Defining Angel Investment Strategy | p. 69 |
How Demographics Affect the Choice of Active or Passive Angel Investment Strategies | p. 70 |
Variations in Angel Investment Strategies | p. 73 |
Active Angel Investment Strategies | p. 78 |
Passive, Indirect Angel Investment Strategies | p. 88 |
Deal-Flow Development: Surfacing Angel Investment Opportunities | p. 95 |
How Angels Historically Have Located Deals | p. 95 |
Satisfaction with Traditional Deal-Flow Development Techniques | p. 96 |
Developing Your Angel Investment Goals and Objectives | p. 97 |
Shifting from Informal to More Formal Deal-Flow Development | p. 100 |
The Essential Elements in a Formal Deal-Flow Development Strategy | p. 102 |
Targeting, Positioning, and Defining Investment Size | p. 104 |
Organizing Investor Identity Materials and Deal-Flow Tracking Systems | p. 108 |
Criteria for Selecting the Most Appropriate Communication Channels to Attract Deal Flow | p. 110 |
Advertising | p. 112 |
Public Relations | p. 121 |
Referral-Based Networking | p. 126 |
Caveats: Deal-Flow Development Approaches to Avoid | p. 128 |
Managing the Due Diligence Process | p. 131 |
Why Due Diligence Is So Important in Today's Angel Market | p. 131 |
Beware of Dead Ends on the Road to Riches: Case Studies from the Dark Side of Early-Stage Investing | p. 135 |
Greed and the Entrepreneur's Loss of Ethics | p. 138 |
Government Regulation and Legislation | p. 141 |
Screening Opportunities with the Investor-Oriented Executive Summary | p. 143 |
Why You Should Require a Business Plan | p. 146 |
Investigating the Entrepreneur and Management Team | p. 149 |
Separating Fact from Fiction in Venture Documentation | p. 152 |
Knowing When to Say "No" | p. 160 |
Who Pays Due Diligence Expenses? | p. 162 |
The Preinvestment Audit | p. 165 |
The Analytical Research Approach to the Preinvestment Audit | p. 165 |
The Preinvestment Audit Questionnaire | p. 167 |
Analysis of Financial Projections | p. 178 |
Can Management Reach the Forecast Objectives? | p. 179 |
Interrelationships of Financial Projections | p. 180 |
What Are the Company's Expected Financial Needs? | p. 182 |
How Much Funding Is Sought? | p. 182 |
Evaluating the Company's Stated Capital Needs | p. 183 |
Analyzing the Forecast Balance Sheet | p. 184 |
Description of the Balance Sheet | p. 184 |
Liabilities | p. 186 |
Shareholders' Equity and Net Worth | p. 187 |
The Income Statement or Statement of Operations | p. 188 |
The Income Statement | p. 189 |
Cash Flow Forecast | p. 190 |
The Forecasted Cash Flow Statement | p. 191 |
Use of Proceeds | p. 192 |
Financial Assumptions | p. 193 |
Company Investors, Directors, Advisers, and Resources: Lists for Reference Checks | p. 194 |
Miscellaneous Documents Required for Analysis | p. 194 |
Negotiating and Structuring the Deal | p. 197 |
Definition of Negotiation | p. 197 |
Market Inefficiencies Make Negotiation a Must | p. 198 |
Negotiating the Transaction | p. 199 |
Negotiation Mistakes Made by Angel Investors | p. 199 |
Simple Guidelines for Professional Angel Investment Negotiations | p. 201 |
The Private Placement | p. 202 |
Choice of Securities for Angel Investors | p. 204 |
The Role of Legal Documentation in Private Equity Transactions | p. 206 |
Misuse of Business Plans as Investment Documentation | p. 207 |
Overview of Legal Documents Used in Venture Investment Transactions | p. 208 |
Using a Term Sheet to Structure the Angel Investment | p. 211 |
Model Term Sheet Checklist | p. 217 |
Valuation of the Early-Stage Company | p. 219 |
Pricing as Good Judgment, Not Formulae | p. 219 |
Factors in Valuing Potential Investments | p. 222 |
Macroeconomic Forces in Valuation | p. 223 |
Subjective Determinants of Valuation | p. 224 |
Fundamentals of Valuing Start-Up Ventures | p. 229 |
Sweat Equity: The Investor's Perspective | p. 236 |
Overseeing and Advising Postinvestment | p. 239 |
Definition of Monitoring the Investment | p. 239 |
Passive Monitoring and Evaluation Techniques | p. 243 |
Active Monitoring and Evaluation Techniques | p. 246 |
Harvesting Returns: Exit Routes to Liquidity | p. 249 |
Planning for the Angel Investor's Financial Reward | p. 249 |
A Contrarian Perspective on Liquidity in Public versus Private Markets | p. 250 |
The Importance of Identifying Exit Strategy before Investing | p. 253 |
Reasonable Expectations for Investment Return and Hold Time | p. 254 |
Evaluating Your Returns | p. 255 |
Realistic Exit Routes | p. 256 |
The Living Dead: Coping with the Marginally Performing Investment | p. 262 |
Restricted versus Free-Trading Stock | p. 263 |
Transforming Investment Losses into Tax Gains | p. 265 |
Conclusion | p. 268 |
Internet Directory | p. 271 |
Angel Investing Conference/Forum Directory | p. 277 |
A Model Term Sheet | p. 289 |
Valuation Case Study | p. 301 |
Hypothetical Valuation Example | p. 311 |
Frequently Asked Questions | p. 317 |
Suggested Reading List | p. 323 |
Supplementary Reading | p. 325 |
Glossary | p. 333 |
Index | p. 341 |
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