Alaska Angel Conference 2020 October 23, 2020 What is due - - PowerPoint PPT Presentation
Alaska Angel Conference 2020 October 23, 2020 What is due diligence? Will Fowler, S ignal Rock How does AAC work? Alaska Crowdfunding Act makes equity investing accessible to Alaskans Investors commit $5,500 to an LLC.
Alaska Angel Conference 2020
October 23, 2020 What is due diligence? – Will Fowler, S ignal Rock
How does AAC work?
to Alaskans
applicants.
akangelconference.com @AlaskaAngel
Alaska Angel Conference 2019
$100,000 shortly after the event
entrepreneurs
akangelconference.com @AlaskaAngel
AAC 2020 S chedule
akangelconference.com @AlaskaAngel
Oct 9th – Feb 4th Wed 5:30- 7:00pm In Person & Online Oct 9th – Feb 4th Wed 5:30- 7:00pm In Person & Online April 23rd Invest $100K+
WORKSHOPS SELECTION FINAL EVENT
Due e Diligen ence f e for Angel el Inves estors
W ill Fowler – Signal Rock Capital
Will F ll Fowle ler
Signal al Rock C Cap apital al Founder Idaho S
Will’s B Background a nd and nd Experienc nce
GRUBSTAKE S V VE NT NTURE S
30+ Holdings 5 Member Managed Funds Administered: Screening, Fund, Syndicate, SPVs SLO Angel Conference SD Angel Conference 2 Accelerator/Incubators
Due e Diligen ence f e for Angel el Invest stors
The Startup up World
How S Startups View ew T Them emsel elves es
How W We e View ew T Them em
Wh What it’s ’s R Really Like
How I Inves estors View ew T Them emsel elves es
How I Inves estors are V e View ewed ed b by Other ers
Wh What it’s ’s R Really Like
The e Most Likel ely O Outcome Is F FAILURE
How d do w we M e Make e Money ey?
Exit or Bust
A ”Cash Out” event, where the company is sold privately or publicly
Ang ngel I Inv nvesting ng D Data
70%: Fail or return less than 1X 85%: Of returns come from less than 10% 21%: Average IRR 2.5X: Average Multiple
Dea eal/ Ter erms Vocab
Fundr ndraising ng R Round nd
W hen a company wants to raise equity financing – they determine a “ROUND.” Series Seed, Series A, Series B, Series C, etc..
Fundr ndraising ng V Vehi hicle
W hen a company wants to raise equity financing – they choose a VEHICLE for that “ROUND.” Stock, Convertible Note, SAFE, KISS, Etc…
Shares of a company
A loan that converts to equity based on predetermined triggers.
Simple Agreement For Future Equity: Much like a convertible note – but lighter.
Why the e Veh ehicle e Matter ers
Taxes s for I Invest stors
Tax Exclusion 1202: Any qualified “small business stock” that is held for at least 5 years is EXCLUDED from Capital Gains Tax.
Delay the start of the clock for 1202
Priced d Rounds nds c can n be Bet etter er for Inves estors (fol
you
market de demand) nd)
Invested amount/Post Money Valuation = Ownership %
Val aluat ation E Exam ample
Your Raise: $1M Your PRE money valuation: $3M Your POST money valuation: $4M Total % Sold = $1M/$4M (25% 25%) Lead d INVESTED $100K $100K Total o
p = $100K $100K/$4M $4M (2. 2.5% 5%)
The amount to which your ownership is reduced by subsequent rounds/vehicles/valuations
Expec ect to be e diluted ed 50%
Dilut ution E Exampl ple
Company Raises: $1M Company PRE money valuation: $3M Company POST money valuation: $4M Total % Sold = $1M/$4M (25% 25%) You Invested $100K Total ownership = $100K/$4M (2.5%)
Company is Acquired for $30M You’ve been DILUTED 50% (1.25%) Return = = $375, $375,000 000
The Process ss of Invest sting
Standa ndard P d Process
Deal Flow Screening Due Diligence Closing
Deal F l Flo low
Incoming Deals to Consider for Investment
Screen eening
The “Sniff” Test on whether the opportunity is a good fit.
Du Due Di Diligence
In depth look at the company Validate the assumptions of the company Determine major risk factors
Cl Closing
Negotiate/Agree on terms Sign Paperwork Send Money Receive Certificate
Du Due Di Diligence
The e purpose e of D Due e Diligen ence
To identify risks To understand the team To validate the startup assumptions/assertions
What do Y You Need eed to Bel eliev eve e is T True a e at the he E End? nd?
1.
Solid Leadership
2.
Opportunity for a Sizable Return
3.
Team’s Ability to Execute
4.
Fair Terms
What at the Star artups ar are as asking of Y You?
1.
For You to Believe in Them
2.
To Accept the Risk with $$$ and Time
3.
To be Patient
4.
To Focus on the End-Game
Do they ey have e a lea ead invest stor?
Do t the hey ha have a an n attorney?
4 4 thi hing ngs to kno now about Du Due Di Diligence
Ste tep 1: F : Focus on w what t is importa tant
1.
Team = Team and Ability to Execute
2.
Upside = Market/Business Model
3.
Impact = Traction/Progress/Use of Funds
Even when they are being assholes
Step 3: Unde nderstand t nd the heir b baby is ugly and nd will di
Be ni nice about it.
No business plan survives first contact with customers They will change course many times before exit They will make huge mistakes They will need to raise more money
Step 4: 4: U Unde nderstand t nd the he T Terms
Entity Vehicle Valuation Anti-Dilution Preferred Stock
Be Responsive Be Patient Be Thorough Be Nice
Now
for
Actual Proces ess of Due e Diligen ence
The P e Proces ess of D Due D e Diligen ence
Market, Customers, Leadership, Business Model, Terms, ect)
Startup
slide)
risks based on document review
research, customer calls, financial/operational review)
and go/no go decision (or request additional information)
findings
Organizational Process Discovery/Research Process
The B Big L Lis ist
Failure e is the e most likel ely
inves estmen ent
Rais isin ing more money is is the e other er likel ely outcome
Tha hank nk You
will@signalrockcapital.com
Thank you for j oining us!
Join us October 30 at 5:30 PM for “ Pitch Deconstruction” Thank you Will Fowler, S ignal Rock
akangelconference.com @AlaskaAngel