What are V.C. Angels?
We=92ve all heard the term "Venture Capital Angels", but what does it rea=
lly
mean? In short, V.C. Angels provide "first round" financing for risky
investments -- risky because they are a young/start-up company or because
their financial track record is unstable. This venture capital financing =
is
typically used to prepare the company for "second round" financing in the
primarily in the form of an initial public offering (IPO). For example, a
company may need "first round" financing to develop a new product line (i=
e.
a new drug which would require significant research & development funding=
)
or make a strategic acquisition to achieve certain levels of growth and
stability.
How do you choose the right V.C. Angel for you?
It is important to choose the right V.C. Angel because they will sit on y=
our
Board of Directors, often for the duration of their investment and will
assist in getting "second round" financing. When choosing a V.C. Angel, i=
t
is imperative to consider their qualifications in the following areas:
SEC and other research - Research the company to understand it=92s backgr=
ound,
it=92s mission statement, it=92s investment criteria and the people runni=
ng the
company. Also conduct SEC research to ensure there aren=92t any SEC sanct=
ions
associated with the company or it=92s leaders or other problems, even wit=
h the
companies they have financed.
Track Record - Verify that they have a portfolio of successful investment=
s
and understand the reasons for their failures. Do they have a successful
track record for preparing companies for "second round" financing within =
the
agreed time frame?
Size and Focus - Are they capable of handling the size of your financing
needs? Are they experts in your industry?
Value-added Management - Since the V.C. Angel will become a Board Member,=
it
is important that the VC Angel helps complete gaps in your management tea=
m.
Relationships with Investment Bankers - Do they have a network of investm=
ent
bankers that could be used as a source of "second round" financing?
How do you solicit V.C. Angels?
The resources available to find V.C. Angels are abundant. There are sever=
al
directories of venture capital firms that provide basic data on the
investment preferences of the firms throughout the U.S. and the Venture
Capital Resource Library is an online directory of Venture Capital Firms.
http://www.vfinance.com/index.htm Other resources including industry
associations and venture capital seminars. However, the best resource is
your Securities Accountant, attorney or banker. Soliciting V.C. Angels do=
es
not begin and end with determining the names of the firms and perhaps
calling them.
The preparation process to solicit a VC Angel is involved. The first step=
is
assembling an Advisory Board that includes a Securities Accountant and an
Attorney. Two important functions of the Board are to recommend V.C. Ange=
ls
to contact and work with the company=92s management team to create a Busi=
ness
Plan to present to the V.C. Angel.
Among other things, the Business Plan will define the reason for the
financing, how the capital will be spent and the timetable for going publ=
ic.
It should cover the following areas:
Executive Summary - including a description of the business, opportunity =
&
strategy, target market and projections and competitive advantages
The Industry, the Company and It=92s Products or Services - including ent=
ry
and growth strategies
Market Research and Analysis - including customers, market size and trend=
s,
competition, estimated market share and sales
The Economics of the Business - including gross and operating margins and
break-even analysis prepared by your Securities Accountant
Marketing Plan - including overall strategy, pricing, advertising and
promotion and distribution
Design and Development Plans - including product/service improvement and =
new
products/services
Manufacturing and Operations Plans - including geographic location,
facilities and capacity improvements
Management Team - including organization overview, biographies and
compensation plans for key executives
The Financial Plan - including tax returns, profit and loss forecasts, pr=
o
forma cash flow analysis and balance sheets, break-even chart and tax
returns prepared by your Securities Accountant (5 year projections)
Proposed Company Offering - including desired financing, securities
offering, capitalization, a timetable to go public
You now have the fundamental tools and knowledge to solicit the right VC
Angel for you. It can not be emphasized enough to take your time choosing=
a
V.C. Angel because the relationship will last several years.
Marc I. Abrams is partner-in-charge of the Securities Industry Practice
Group at Singer Lewak Greenbaum & Goldstein LLP http://www.slgg.com,
Certified Public Accountants & Management Consultants. His expertise incl=
ude
audits of publicly held companies, initial public offerings and other
registrations, private offerings, corporate reorganizations and
acquisitions. He can be reached at (310) 477-3924.