Private Equity - Angels, VCs, and Funds...Oh my!

As many of you know, in addition to founding Entrepreneurs of Knoxville and Entrepreneurial Collective, I serve as the President of ACG Knoxville Chapter. As Chapter President, my responsibilities include educating the Knoxville area about Early Stage Investing. I also recruit new Angels to the membership and look for Entrepreneurs to pitch to the Angels for capital.

So, here's a crash course in equity investing to help you know what you don't know.

  1. Angels are accredited investors - They are wealthy individuals with a Net Worth in excess of $1M (excluding their personal residence) or they make more than $250K per year.
  2. Angels are savvy. They have diversified their assets. They have Companies, Real-Estate, Brokerage accounts, Whole Life Policies, etc. So, the funds they are investing are designated for these HIGHER RISK/HIGHER REWARD opportunities.
  3. Angels need to invest in BIG IDEAS. We can't invest in Singles, Doubles, or even Triples...we need entrepreneurs who are swinging for the fences. Moonshots. This is just a statistical fact. We need a large enough exit to offset the others that don't make it. 
  4. Angels are looking for a 20x - 50x return on their investments. Again...this is due to the statistics of startup failures. So, a company must be planning to exit in the next 5-7 years for $250M+. Also, since our position will be diluted over multiple investments, we need these larger exits so everyone makes a return.
  5. Exits are Acquisitions or Initial Public Offerings. We can't invest in companies that don't plan to exit. We can't invest in family businesses. We can't invest in companies where the founder wants to keep the company.
  6. Angels do help. Entrepreneurs should be looking for more than money. Money is plentiful. Please choose an Investor with resources in addition to money. The Angel should help make you successful. They should provide guidance, open doors, make introductions, help with additional rounds of funding and more!
  7. Entrepreneurs should be prepared to give up 10-20% of their company for the investment.
  8. Entrepreneurs should explain EXACTLY how the funds will be used. You should know the PAYEE, AMOUNT, and DATE of every check you plan to write. Investors don't want their investment dollars sitting in a checking/savings account. They want it spent to accomplish the goals you defined.
  9. Angels invest between $100K-$1M in exchange for 10-20% of your company. Most Angels do not take a board seat or leadership role in your company.

Well, I'm out of time...I'll write a follow up article on VCs and Funds in the near future. 

If you feel you're ready to raise funds, please take a look at Angel Capital Group. The application process is fairly painless and doesn't take too much time. For initial pitch companies I really only need the first 10 overview questions answered. Click this link to apply:

I would strongly recommend you complete at least one of our EC TrailGuide sessions prior to seeking funding. One TrailGuide session consists of "iTrailReadiness", "iDentityGrid", "iBMP", "iTrajectory". These four workshops are offered to EOK members at a discount and will put you light years ahead of the competition!

Just RSVP on the EVENTS tab if you're planning to attend!

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