ABCs of-angel-investing

“ABC’s of Angel Investing”

The following presentation offers the ABC’s of angel
investing, a dictionary of early stage investing terms
and phrases.

This presentation is a starting point for describing
some of the basic terms that form the common
language between entrepreneurs and early stage
investors.

©2011 Tech Coast Angels

A is for Angel

An “angel” investor is typically a
wealthy private investor who
invests their own money in private
companies called “start-ups”.
(“A” is also for: Advisors, Alignment, Anti dilution…)


B is for Bootstrap

To “Bootstrap” or “bootstrapping”:
company owners or founders self
financing operations, no outside
capital has been raised.
(“B” is also for: Bankrupt, Board of directors, Bubble, Business plan…)


C is for Cap Table

A “cap table” or “capitalization
table” is usually in spreadsheet
form and lists all stock holders and
ownership in a private company.
(“C” is also for: Co-investing, Conversion rights, Convertible debt, Cram down…)


D is for Dilution

“Dilution” is the decrease in the
proportional size of one’s stock
ownership in a company usually
resulting from additional follow on
financing rounds of investment.
(“D” is also for: Demand rights, Diligence or Due diligence…)


E is for Equity

“Equity”, usually in the form of
stock, represents the percentage
ownership of a stake holder’s share
of a company .
(“E” is also for: Early stage firm, Early-exit, Entrepreneur, Exit…)


F is for Founder

A “Founder” or “Founders” are the
principals that have created a
private company.
(“F” is also for: Financing, Founder-Friends-and-Family (FFF) investment round…)


G is for Growth
“Growth” or “High Growth”: a
company that delivers a successful
product to a quickly expanding
market segment(s) with
corresponding high revenue growth.
(“G” is for nothing else!)


H is for Harvesting

“Harvesting” is the collection of
capital gains from a prior
investment usually by company
exit to acquisition, merger or IPO.
(“H” is also for: Headache(!), High growth, Holding period…)


I is for IP

“IP” or “Intellectual Property” are a
company’s intellectual assets which
could include patents, trademarks
etc.
(“I” is also for: IPO (Initial Public Offering), IRR (Internal Rate of Return)…)


J is for Jerk

“Jerk”: angel investors and
entrepreneurs – don’t be one!
(“J” is also for: Jobs - successful start-ups create many…)


K is for Killer product

A “Killer” product will decimate
competition, spurn high growth
and yield a highly successful
company.


L is for Liquidity

“Liquidity” is a measure of access
to capital: early stage company
investments are typically “illiquid”
until “harvesting”.
(“L” is also for: Lead investor, Lifestyle business, Liquidation, Living dead…)


M is for Mentor

A “Mentor” is a person with
domain experience that would be
able to help guide a start-up
management team.
(“M” is also for: Management, Minority shareholder, Murphy’s law…)


N is for NDA
A “NDA” or “Non-Disclosure Agreement”:
an agreement to keep private information
discussed between parties. Angels and
Venture Capitalists generally don’t sign
NDAs with perspective companies.
(“N” is also for: Net present value, Non-compete clause…)


O is for Offering

“Offering”: usually a stock offering
which describes the financial
transaction allowing investors to
purchase company stock.
(“O” is also for: Options, Over subscribed…)


P is for Preferred

“Preferred” or “Preferred Stock” is
a stock instrument that has special
rights attached to it, a class above
“common stock”.
(“P” is also for: Piggyback rights, Pre-Money, Post-Money…)


Q is for Q&A

“Q&A” or “Question and Answer”:
always take advantage of your Q&A
time to obtain detailed information
from perspective companies.
(“Q” is also for: Quality deal…)


R is for ROI
“ROI” or “Return On Investment”:
usually represented as the annual
return on investment based on
investment value and capital returned
calculated over time period held.
(“R” is also for: Ratchet, Reserve, Rounds (Seed, Series A, Series B, etc.)…)


S is for Start-up

“Start-up”: early stage company
that may be looking for seed or
early stage investment.
(“S” is also for: Seed, Serial entrepreneur, Sweat equity…)


T is for Team

The start-up company “team” is the most
important component of the start-up for
potential investors to consider: arguably more
important than the product idea or market it
will serve.
(“T” is also for: Term sheet)


U is for Unknowns
"There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know
there are some things we do not know. But there are also
unknown unknowns - the ones we don't know we don't know."
--Former United States Secretary of Defense Donald Rumsfeld

Angel investing is full of “Unknown
Unknowns”.


V is for Valuation

The “Valuation” is one’s opinion of the total
value of a private company. The valuation is
typically expressed as “pre-money” and “post-
money”, the value of the company both before
and after a particular round of investment.
(“V” is also for: Venture capital, Venture capitalist…)


W is for Warrant

A financial agreement to typically
purchase a fixed number of shares
of stock, at a fixed price, any time
during a fixed time period.
(“W” is also for: Working capital…)


X is for X-ray

Investors, in hindsight, may sometimes
wonder whether they should get an X-ray
to have their head examined as to why
they made a particular investment. Of
course, hindsight is always 20/20.


Y is for Yahoo!
“Yahoo!” is the sound angel investors
make on successful exits from earlier
investments.
“Yahoo!” isn’t heard as often as one
would like…
(“Y” is also for: Yeti (probably seen more frequently than a 100x return)…)


Z is for Zilch

“Zilch” (nothing, nada): slang for what
investors receive from a failed investment.
At least “Zilch” returns are deductible as a
capital loss and are also valuable lessons for
both angel investors and entrepreneurs.
(“Z” is also for: Zombie company…)


Who are the Tech Coast Angels?

Tech Coast Angels, www.techcoastangels.com, the largest angel investor
network in the United States, provides funding and guidance to more
early‐stage, high‐growth companies in Southern California than any other
investment group. Since its inception in 1997, TCA members have focused on
building valuable companies, personally invested more than $100M, and
helped portfolio companies attract more than $1B in additional capital, mostly
from venture capital firms.

TCA members give companies more than just capital; they also provide
counsel, mentoring and access to an extensive network of potential investors,
customers, strategic partners and management talent.

TCA has more than 300 members, including its venture capital affiliates, in five
networks in Los Angeles, Orange County, San Diego, Westlake/Santa Barbara
and the Inland Empire.


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