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Angel Investing

Angel Investing . Glen Caplan | July 10, 2008. “Starting companies are like having babies - fun to conceive but hell to deliver.” - Anonymous. Sources of Capital. Dilutive Self Funding (Bootstrapping) Angel Investors Venture Capitalists Corporate Investment (Strategic Investment)

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Angel Investing

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  1. Angel Investing Glen Caplan | July 10, 2008

  2. “Starting companies are like having babies - fun to conceive but hell to deliver.” - Anonymous hutchlaw.com

  3. Sources of Capital • Dilutive • Self Funding (Bootstrapping) • Angel Investors • Venture Capitalists • Corporate Investment (Strategic Investment) • Non-Dilutive • Grants, SBIR’s NIH, STTR’s, loans, etc. hutchlaw.com

  4. What do VC and Angel Investors Want? • Venture Capitalists • 10X return on initial investment in 3-5 years • Angel Groups • 5X-10X in 3-5 years… Some similarities to VC’s in investment return expectations • Individual Angel Investors • Make money… less requirement on multiples…positive returns are great!!! hutchlaw.com

  5. Who are Angel Investors? • Individuals • Other Successful Entrepreneurs • Organized Groups • One signature for all dealings • Better preparation for institutional rounds hutchlaw.com

  6. Characteristics of Angel Investors • High Net Worth Individuals • High Risk Appetite • Early Stage Preference • Individuals - $25,000 - $50,000 • Organized Groups - $100,000 - $500,000 • Endangered species? hutchlaw.com

  7. PROS Terms offered by Company Speed Less sophisticated on terms and value Simpler investor relations CONS Follow-on investment Less “Value Added” Less sophisticated on terms and value Issues for VC’s Pros/Cons of Angel Investors hutchlaw.com

  8. The Life Cycle of a Venture Deal They like the idea The Negotiated Deal 100 Due Diligence Ecstasy Term Sheet Rejections Interest Shown Fun Scale 0 Business Plan Reformulate Plan Last Minute Demands/ Expectation Mismatch Agony All Reject -100 9 to 12 months hutchlaw.com

  9. Types of Fundraising • Common Stock • Rarely Used • Preferred Stock • Provides special rights, preferences and privileges to investors • Convertible Promissory Note • Converts at a discount at financing hutchlaw.com

  10. 4 Principles of Term Sheets • Valuation • Pre-Money Valuation • Option Pool • Exit Strategy • Liquidation Preference • Registration Rights • Down-Side Protection • Anti-Dilution Protection • Control • Protective Provisions hutchlaw.com

  11. Risk Factors Term Sheet Use of Proceeds Business Plan and Financial Projections Financial Statements Capitalization Chart QBV Disclosure Certificate of Incorporation Bylaws Subscription Agreement Stockholders Agreement Disclosure Notebook hutchlaw.com

  12. Rule 504 Raise up to $1 million Unlimited number of investors No required level of investor sophistication or wealth No formal disclosure documents – but antifraud provisions apply One year time period and then a 6 month quiet period No general solicitation or advertising Typically used for friends and family Rule 506 Unlimited dollar amount Accredited investors only No general solicitation or advertising No formal disclosure documents – but antifraud provisions apply FORM D Filed with SEC within 15 days of first sale Securities Law Issues hutchlaw.com

  13. Accredited Investors • Individual net worth or net worth with spouse of at least $1 million • Individual income in excess of $200,000 in each of the 2 most recent years or joint income with spouse in excess of $300,000 in each of those years and reasonable expectation of reaching the same income level in the year in which the purchase is made • Director or Executive Officer of the Company • Corporation or partnership with assets in excess of $5 million hutchlaw.com

  14. North Carolina Qualified Business Tax Credit • Available to passive investors with North Carolina income • A credit not a deduction on your income tax return • 25% of the amount of invested • Available in the year after the year in which the investment was made • A $7 million aggregate limitation per year • Must register with the North Carolina Secretary of State’s office • Must have $5 million or less in income • Must have reviewed or audited financial statements submitted to the Secretary of State each year • Certain disqualified industries – professional services, construction, retail, real estate, entertainment, recreation • Must be engaged primarily in manufacturing, processing, warehousing, wholesaling, research and development, service-related industry hutchlaw.com

  15. Wilmington Investor Network Wilmington, NC Piedmont Entrepreneurs Network Greensboro, NC Inception Micro Angel Fund Winston-Salem, NC WED3.org Charlotte, NC Charleston Angel Partners Charleston, SC Avansis Ventures Reston, VA New Vantage Group Vienna, VA Emergent Growth Fund II Gainesville, FL Startup Florida Sarasota, FL New World Angels Boca Raton, FL Springboard Capital Jacksonville, FL Savannah Angel Partners Savannah, GA Angel Investment Groups hutchlaw.com

  16. Atlanta Technology Angels Atlanta, GA Seraph Group Atlanta, GA Nashville Capital Network Nashville, TN Angel Capital Association www.angelcapitalassociation.org Angel Investment Groups (Continued) hutchlaw.com

  17. … and then what? “Only one thing is certain about a new venture: It’s going to turn out very different from its business plan.” - William Congolton, Venture Capitalist hutchlaw.com

  18. Hutchison Law Group 5410 Trinity Road Suite 400 Raleigh, NC 27607 Tel: 919.829.9600 Fax: 919.829.9696 hutchlaw.com Driven by Our Clients’ Success SM hutchlaw.com A

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