Preface

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The number one concern of start-up entrepreneurs and growing small business owners and managers is how to finance their venture. When the personal financial resources of the entrepreneur are exhausted, when the tradition of going to family and friends for "cradle equity" has been thoroughly "worked," and when incurring personal debt from a bank for a loan is no longer a viable option, then raising private capital can be one of the toughest challenges for many entrepreneurs. Whether you have an as-yet-un-proven, visionary start-up or already own a small, established company hungry for expansion capital, access to capital on the right terms is critical to your success.

Available for financing are an array of alternative capital resources, but the problems center on which are most appropriate for you and where do you find them. While economic conditions during the previous four years have had an impact on capital availability and increased competition among entrepreneurs for that capital, alternative, nontraditional capital resources are out there.

For some companies—those possessing the right mix of attributes— money will be available; yet for many, understanding where to look, how to present, and how much money is needed comprise just a few of the questions for which business owners are ill-prepared to answer. How do you uncover the dozens of alternative ways to finance your company and prepare for raising capital?

How to identify qualified, hard-to-find private investors who prize their privacy is a case in point. Also, how do you motivate them to read your business plan, to meet with you, and how do you interest them in your venture and your deal? Sometimes asking the less obvious questions is most useful (e.g., when should you not seek angel capital?). Are your current money sources structured most advantageously for you? Have you overpaid? Has your company grown and have you recognized the changing needs of your business? Are you prepared for your company's capital requirements in the next phase of growth?

Capital is the single most important ingredient in getting a venture off the ground. But finding it can be a challenge—particularly if you are 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 the banks, the leasing companies, the venture capital firms have turned you down? Which financing sources are worth exploring and which are not (e.g., conventional lenders, institutional venture capitalists, or business angels?).

The fledgling entrepreneur has long turned to a wealthy uncle or well-heeled friends to provide that cradle equity for the early growth of a promising business. However, it's always been hard for companies to know where to turn to find unrelated investors, and similarly difficult for willing risk takers to find new ventures in which to invest. As a primary source of capital for early-stage and growing companies, the angel capital segment of the investor market is a vital source for today's entrepreneur. But much like the capital they provide, these private equity and debt investors remain true to their name—private. Yet, what we are seeing is the majority of venture capitalists evolving out of early-stage and investing in later-stage, larger deals, thus creating a huge vacuum that business angels have moved in to fill.

Private investors, or business angels, are a primary source of financing for many early-stage deals. However, most small business people have limited knowledge about the angel equity market, business angels, the private equity investment process, and how deals get done. Also, few formal mechanisms exist for bringing angel investors and entrepreneurs together. The strict regulations imposed on offerings, together with the incomplete understanding by entrepreneurs of the complexities of the equity financing process, create the need for the groundbreaking research on what works in Angel Capital.

Also, what type of information do investors expect, and how do you effectively present that information? What are private, not institutional, investors looking for? What documentation is needed, and how do you craft your presentation to investors? International Capital Resources' proprietary research in building the largest database of business angel investors in the United States provides valuable insights into the motivations, preferences, and expectations of the selective private equity investor.

Angel Capital is about the manner in which successful entrepreneurs must go about the business of raising capital, the efficient manner of knowing where they are, where they are going, what they are doing, and how they are doing it.

This book describes a model of the funding process uniquely suited to the private placement transaction. A model of this process is the only way to consciously manage the increasingly demanding, exhausting process of efficiently and effectively raising money.

Angel Capital is about the careful planning entrepreneurs must do in order to ensure the success of the capitalization and financial transaction process. This book offers the expertise of the people who have created the largest network of private investors in the country and by the firm that is recognized as the leading expert on accessing and cultivating relationships with angel investors.

In addition, the book is about the secretive, highly specialized segment of the investor market that is a major source of funding for entrepreneurial ventures. It provides intelligence on a segment of high-net-worth investors specially interested in financing earlier-stage, developmental-stage, and expansion-stage ventures.

Angel Capital covers a lot of ground. Part 1, "The Challenge and the Solutions," focuses on how entrepreneurs are creatively addressing the challenge of practicing capitalism in the face of a significant capital gap. We suggest how they should structure their search for capital as they confront an "inefficient" market, and provide a proven strategy for taking control of the capital-raising program.

Part 2, "Understanding the Angel Investor," explores angel investors— who they are and where they can be found. In addition, we present an overview of alternative sources of capital. A comparison is made between angel investors and the institutional investor community, correcting the misconception that the institutional community is the primary source of funding for early-stage deals. Then, from scores of presentations and interviews, we turn to what private investors look for in a deal—their criteria and their expectations. We explain who the private investors are and how they relate to others in the capital market.

In addition, we present the results from a major new study of 60 angel investors designed and conducted by the authors for this text. This study will further clarify, in the investors' own words, what they seek in early-stage private equity transactions. This information will help entrepreneurs work more effectively with investors in selling illiquid "story" securities. Investors also share their wisdom in candid insights regarding the venture process and, in particular, about valuation and due diligence. These are critical topics for entrepreneurs as they try to understand the more cynical view of investors following the "dot-bomb" fiasco, as well as the public equity stock market meltdown, resulting in losses in their portfolios.

We also reproduce here our pioneering typology on the primary angel investor "types," acknowledged by many researchers and educators to be the major contribution to the angel investor literature. And we show how entrepreneurs can use this information to better position themselves with investor prospects in presenting and selling their deals.

Part 3, "Resources for Entrepreneurs Raising Capital," deals with a set of tools entrepreneurs will find invaluable in the search for investors. We provide a comprehensive historical introduction to alternative funding resources, particularly those related to angel investors, notorious for prizing their privacy. These resources and tools—past and present—will help entrepreneurs deal with the formidable tasks they face. We share our own resources and that of others on new directions emerging as sources of investors and capital. Next, we have assembled one of the most current and comprehensive directories of alternative capital resources in the United States. Using our unique classification system, you, the entrepreneur, will be able to locate the full range of directories, software, incubators, finance conferences, investor meetings, venture forums, venture capital clubs, offline and online networks, and financial intermediaries. As you proceed thorough the financing process—from planning and developing documentation through presentation, investor introductions, and professional counsel—you may need to keep track of all the investors and others who can help you, a daunting task in itself, especially because the funding venture never ends. It just changes form from one type of financing to another. For this reason, we discuss setting up your own investor database.

Part 4, "Understanding the Angel Investment Process," describes the new capital-raising reality facing entrepreneurs now and for the foreseeable future. Investors have altered their investment approach, responding to losses they incurred, placing new emphasis on risk assessment, hedging, and co-investment strategies. Also, we will help entrepreneurs to appreciate the investors' "return to basics," as well as their renewed vigor in attending to the aspects of the early-stage venture investment process—a marked change from their lackadaisical approach that characterized the late 1990s. In this part of the book, we pay special attention to sensitizing you to your preparation for more intense interaction on comprehensive due diligence, aggressive valuation negotiations, stricter investor-oriented deal terms, and discussions about potential exit strategies because of reduced initial public offering market activity.

Finally, in the Appendices, we have assembled some stand-alone tools. The entrepreneur will find a comprehensive How-To Workbook on drafting and presenting an investor-oriented business plan, assembled by one of Silicon Valley's most respected business planning consultants. Also included is a legal primer on securities laws issues for nonlawyers pertaining to private placements, and a comprehensive glossary relevant to entrepreneurial finance and venture capital investment banking. Last, the authors have gathered from their own libraries a comprehensive suggested reading list for those who wish to expand their understanding of the angel capital topic.

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Business Brains

Business Brains

To Build Your Business It Is Crucial That You Have The Correct Info And Tools And Learn How To Build A Correct Business Plan! This is one area you must pay attention to… There are many areas of a business plan that you may not know about but need to know about. For instance... you may have no idea about an executive summary.

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