“Angel investing is a critical part of the high impact startup world, particularly outside of the big venture capital centers. A good portion of Wisconsin startup success stories achieved liftoff with critical assistance from angel investors and their capital.
But what about the angel investors themselves? How does angel investing work for them?
Well, you don’t have to look very hard to find blogs, books and speakers extolling the virtues of angel investing for the angels. And a lot of them make a pretty good case that the angel investing community makes a nice profit for its efforts. A good case, but also a misleading case.”
“I am often asked what some of the big obstacles are in terms of building a self-sustaining high impact entrepreneurship and investing sector in the Badger State. Two of the popular candidate answers, not that popularity means a lot, are a lack of capital and a lack of talent.”
A short excerpt can be found below: “The years 2014 and 2015 were good to high impact entrepreneurs. VC investments soared, and pricing and other financing terms were as friendly as they have been since the dot-com bubble burst.
It’s the age of the Unicorn. And conventional wisdom, supported by some recent data (declines in venture funding, particularly startup and early stage capital, and the “de-horning” of several Unicorns) suggests that it is coming to an end. What will that mean for high impact startups in 2016?”
“In the first blog in this series, I argued that internal rate of return (“IRR”) is too sensitive to market timing distortions to be a good metric for the investment acumen of seed/early stage angel and venture capital investors. In Part II, I suggested that a metric that compared cash-on-cash (“CoC”) returns was better, but still subject to significant distortions associated with the timing, intensity and duration of market cycles. Today, I’ll explore another way to approach the problem; an approach that addresses the timing problem as encountered in both the IRR and the CoC metrics.”
Ask angels in the seed/early stage high impact investing market about returns, and they’ll usually answer in terms of internal rates of return (“IRR”). Which is unfortunate, since IRR is really not a very good way to measure returns and, more to the point, is a pretty poor way to measure the prowess of seed/early stage investors.”
Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, is a regular contributor of OnRamp Labs, the Milwaukee Journal Sentinel‘s blog covering start-ups and other Wisconsin technology news.
Here is a short excerpt: Investing in seed and early stage high impact businesses can be fun, and now and again even financially rewarding. One of the tricks of the trade is appreciating how due diligence – the pre-investment process of determining whether a particular deal is what it says it is, and whether what it says it is has any value – for seed and early stage investing is different from due diligence when the potential investment is in a more established business, public or private. Herewith a couple of the key differences. Next time, a look at the “big four” due diligence enquiries for seed and early stage high impact business investors.
Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, the newest blog addition to the Milwaukee Journal Sentinel covering start-ups and other Wisconsin technology news.
Most high impact entrepreneurs need capital to build their businesses. The amount of capital, and the timing of the infusion(s), is mostly a function of the kind of business/business model and the time it takes to get home – that is to an exit transaction. So, for example, an entrepreneur who happens to be a programming wizard with a simple, niche mobile app might need say $10,000 to develop, validate and sell his app/business for several million dollars in say 12 months (the assumptions here being that the app is in fact something that the market wants, and the execution by the entrepreneur is outstanding). At the other end of the spectrum, a scientist with an idea for a new drug for treating cancer will likely require several hundred million dollars or more and ten years to see that that idea turn into an FDA approved drug. Further complicating matters, the exit strategy, more particularly whether the goal is a relatively modest exit sooner rather than later, or a more substantial exit of a more mature company, has a big impact on how an entrepreneur thinks about rounds of financing.