Wednesday, October 24, 2007

Open4Business—What Angels Look for In Deals

CTAN held a panel recently at the Open4Business Conference to talk about what angels look for in a deal. We opened with a recent survey from the Angel Capital Association showing the number of deals is up by 50%, and the average number of members in an angel group has grown from 41 to 52 in first six months of this year. Finally, syndication of deals between angel groups is up dramatically as well. Last year, I attended the ACA conference in New York. There were 150 of attendees. This year, the same conference had over 300 attendees. Across the board, membership was up and deal flow was up.

Joining me on the panel were Bril Flint and Monty Myers of Eureka Software which has been in Austin for 25 years. Each gave their view of what makes for a good angel deal. Bril looks for a competitive advantage or a unique angle that can be protected. Monty talked about helping companies who had made the sale but needed to help to deliver the product.

We talked about the different types of angel investors. There’s the Marriage Partner – the one who will be there through thick and thin. There’s the Networker – the one who knows everyone and can help connect people into jobs or partnerships. Then there’s the Therapist who focuses on coaching the CEO. The key question he asks is, “so what keeps you up at night?”

Questions ranged from how to value a company to how many women are in the group. We gave some rough rules for the valuation question – if you have a cash flow you can calculate based on that. If you have an asset-based business you can use that as well. I like the 4-point rule. You get $1M for a complete and seasoned management team, $1M for a complete product that’s shipping, $1M for a raft of happy customers, and $1M for a filed patents providing sufficient protection to the business. It’s rough but makes for productive conversations.

It was clear that the number of women involved in angel investing is quite low and there should be more.

Best regards,
Hall T.

No comments: